Definition:

Federal Home Loan Advances Increase (Decrease) refers to the change in the amount of funds that a financial institution borrows from a Federal Home Loan Bank (FHLB) over a specific period. These advances are typically used by banks and other financial institutions to support mortgage lending and manage liquidity.

Examples:

1. A bank increases its FHLB advances by $10 million to support a surge in mortgage applications.
2. A credit union decreases its FHLB advances by $5 million as it experiences a decline in loan demand.

Formula:

Federal Home Loan Advances Increase (Decrease) = Ending Advances - Beginning Advances

How to use the metric:

This metric is used by financial analysts to assess a financial institution's liquidity management and funding strategies. An increase in advances may indicate a need for additional liquidity or expansion in lending activities, while a decrease might suggest improved liquidity or reduced lending demand.

Limitations:

1. It does not provide insight into the reasons behind the change in advances.
2. It may not reflect the overall financial health of the institution.
3. It does not account for other sources of funding or liquidity.

Applies to:

This metric is most relevant to the banking and financial services industry, particularly institutions involved in mortgage lending and those that are members of the Federal Home Loan Bank system.

Doesn't apply to:

Industries outside of banking and financial services, such as manufacturing or retail, as they do not typically engage in borrowing from Federal Home Loan Banks.

Summary:

Federal Home Loan Advances Increase (Decrease) measures the change in borrowing from FHLBs by financial institutions, providing insights into their liquidity management and lending activities. While useful for understanding funding strategies, it has limitations and is primarily applicable to the banking sector.