A little-known network of government-sponsored bank co-operatives founded during the Great Depression is playing a critical role keeping the private sector US mortgage industry open for business – and some mortgage lenders out of financial trouble – in spite of the brutal slump in the housing sector. Financial Times

The Federal Home Loan Banks are pumping hundreds of billions of dollars into the mortgage industry in the form of loans against mortgage collateral at a time when purely private sources of finance are offered only at punitive terms for many lenders.

In doing so they have cushioned the impact of the credit squeeze and ensured that mortgage lending in the US has not come to a sudden stop.

The scale of the cash infusion by the FHLBs vastly exceeds the few billion dollars of cash lent to banks by the Federal Reserve through its direct lending facility.

Indeed some officials privately admit that the FHLBs have, in effect, replaced the US central bank as the lender of last resort for the financial system in the credit crisis.