Federal Home Loan Banks: Efforts to Promote Workforce, Supplier, and Broker-Dealer Diversity

The FHLBank System consists of 11 regionally based banks that are cooperatively owned by member institutions (such as community banks and credit unions) and of the Office of Finance. The banks, which are regulated by FHFA, provide liquidity for their member institutions to use in support of housing finance and community lending.

GAO was asked to review FHLBanks' implementation of diversity and inclusion matters in workforce and business activities (including the use of suppliers and broker-dealers). This report examines (1) trends in gender, race, and ethnicity in FHLBank workforces, and challenges faced and practices used to maintain and increase a diverse workforce; (2) use of minority- and women-owned suppliers and broker-dealers in 2018, and challenges faced and practices used to increase and maintain their use; and (3) FHFA oversight of FHLBank diversity and inclusion efforts.

GAO analyzed FHLBank and Equal Employment Opportunity Commission data on the banks' workforce, suppliers, and broker-dealers. GAO also reviewed FHFA and FHLBank policies and regulations and previous GAO work on these issues. GAO interviewed FHFA and FHLBank staff and a nongeneralizable sample of external stakeholders knowledgeable about supplier and broker-dealer diversity.

From 2011 to 2017, the share of women in senior management in Federal Home Loan Banks (FHLBank) increased from about 21 percent (35 individuals) to 28 percent (47 individuals). The share of minority senior management remained the same at about 14 percent (23 individuals). The overall share of women employees slightly decreased and minority employees slightly increased during this period, but gender and minority representation varied by individual bank. FHLBanks identified challenges to maintaining and increasing workforce diversity, such as limited hiring opportunities due to low turnover. FHLBanks have been taking steps to promote workforce diversity, such as outreach to organizations that represent women or minorities and incorporation of diversity and inclusion in incentive compensation goals or performance competencies.

In 2018, use of minority- and women-owned suppliers (for goods and services) and broker-dealers varied among individual FHLBanks. Overall, minority- and women-owned suppliers accounted for 8 percent and 13 percent of procurement expenditures, respectively. Minority- and women-owned broker-dealers accounted for about 3 percent and less than 1 percent of the debt issuance amount, respectively. FHLBanks and the Office of Finance (which issues debts on behalf of the banks) have been taking steps to increase diversity in these business activities, such as conducting outreach to diverse entities. However, external stakeholders said such suppliers and broker-dealers may continue to face some barriers—for example, capital requirements that limit participation by diverse broker-dealers, which generally have fewer resources.

In 2017, the Federal Housing Finance Agency (FHFA) started reviewing the diversity and inclusion efforts of FHLBanks in its annual bank examinations. In the 2017 and 2018 examinations, FHFA found the banks generally took steps to promote diversity and inclusion but also identified areas for improvement, such as improving goals for workforce and supplier diversity. In 2018, FHFA issued a manual and templates for reporting of quarterly and annual diversity data to help ensure consistent reporting of the data. FHFA also began using the quarterly data for ongoing monitoring of the banks' diversity and inclusion efforts.

The Housing and Economic Recovery Act of 2008 (HERA) elevated the  importance of diversity in the Federal Home Loan Bank (FHLBank)  System, which provides liquidity for its member institutions to use in  support of housing finance and community lending. For instance, HERA  required that each of the 11 regionally based FHLBanks create an Office  of Minority and Women Inclusion (OMWI) or designate an office to  perform duties and establish policies related to the bank’s diversity and  inclusion efforts. HERA and its implementing regulation require  FHLBanks to promote diversity and ensure the inclusion of minorities and  women in employment and minority- and women-owned businesses in  their business and activities. HERA also created the Federal Housing  Finance Agency (FHFA) and designated it as the regulator of the  FHLBanks. FHFA issued a rule in 2010 to implement HERA  requirements. The rule requires FHLBanks to report on the diversity of  their workforce and their use of diverse suppliers and broker-dealers,  which can include businesses owned by minorities, women, individuals  with disabilities, and disabled veterans.

Research has found that a diverse workforce can help managers  understand and address the needs of a demographically diverse  customer base. Also, diversity can be beneficial in solving complex  problems and lead to better performance.

You asked us to review the FHLBanks’ diversity and inclusion efforts,  including in their workforce and use of minority- and women-owned  suppliers and broker-dealers in business activities. This is the second  report we are issuing on this topic. In this report, we examine (1) trends  in the diversity composition (gender, race and ethnicity) for the workforce  of FHLBanks in 2011–2017, and any challenges the banks face and  practices they use in maintaining and increasing a diverse workforce; (2)  the diversity composition for suppliers and broker-dealers FHLBanks  used in 2018, and any challenges the banks face and practices they use  in maintaining and increasing use of diverse suppliers (for goods and  services) and broker-dealers; and (3) FHFA oversight of FHLBanks’  diversity and inclusion efforts. This report uses a broader definition of  diversity (not only gender, race, and ethnicity) for describing the  challenges FHLBanks face and practices they use in maintaining and  increasing diversity. For example, the challenges and practices can be  relevant not only to minorities and women, but also to other individuals  such as those with a disability.

To address all three objectives, we reviewed relevant law and regulations  related to FHLBank diversity and inclusion efforts, including FHFA  reporting requirements related to banks’ diversity and inclusion efforts.

To identify trends in FHLBanks’ workforce diversity, we analyzed data on  the gender, race, and ethnicity of FHLBank employees from the 2011– 2017 Employer Information Reports (EEO-1) of the Equal Employment  Opportunity Commission (EEOC). We focused on gender, race, and  ethnicity because EEO-1 reports only include data by gender and  race/ethnicity. The FHLBanks submit annual EEO-1 reports to EEOC on  their workforces. In addition, they use the gender and race/ethnicity  classifications in the EEO-1 report for the workforce diversity data they  submit to FHFA. For our report, we modified the EEO-1 categories and  used Hispanic, nonminority (white), African-American, Asian, and Other.  We included only non-Hispanic employees under nonminority (white),  African-American, Asian, and Other. We included Asian American, Native  Hawaiian or Pacific Islander under the Asian category, and we included  Native American or Alaskan Native, and Two or More Races under Other.

We compared the diversity composition of the banks’ workforce to that of  the financial services industry in 2017, based on EEOC data. More  specifically, we used EEO-1 data on companies in the finance and  insurance industry categorized under code 52 of the North American  Industry Classification System. We included workforces from all sites of  companies with multiple locations and federal contractors. Consequently,  our estimates for the financial services industry may not match the  analysis found on EEOC’s website, which excludes sites of companies  with multiple locations with less than 50 employees. We assessed the  reliability of the EEO-1 data through electronic testing, documentation  review, and interviews with knowledgeable agency staff, and determined  them to be sufficiently reliable for examining the gender and race/ethnicity  composition of the FHLBank workforce and comparing it with that in the  financial services industry.

We also compared the individual FHLBanks’ workforce data with  demographic and education data from a Census Bureau survey.  Specifically, we calculated the estimated percentages of women and  minorities (18–64 years old) with at least a bachelor’s degree in the  metropolitan statistical areas around each FHLBank’s headquarters.  Because the survey included a statistical sample of the population, we  presented each of our estimated percentages with a corresponding 95  percent confidence interval. We also analyzed the Census Bureau’s 2017  vintage population estimation data to provide an overview of the  demographics of the populations in the states and U.S. territories  serviced by the individual FHLBanks. The estimates were derived from  the demographic balance equation, which involves adding births and  migrants to the Census baseline and subtracting deaths from the Census  baseline. The estimates do not contain confidence intervals because the  estimates are not from sampling. To assess the reliability of the Census  Bureau data, we reviewed documentation on how the Census estimates  were produced and compared our data set estimates with published  Census estimates. We found the Census Bureau data were sufficiently  reliable for describing the diversity composition of the population in these  geographic areas.

To identify the diversity composition for suppliers and broker-dealers  FHLBanks used in 2018, we analyzed the 2018 data submitted by the  banks to FHFA, including data on transactions and expenditures with  diverse suppliers for goods and services and broker-dealers for  investment activities. We also analyzed the 2018 data submitted by the  Office of Finance to FHFA on the banks’ use of diverse broker-dealers for  debt issuance activities. We found that the data prior to 2018 were not  comparable across years or banks. However, in 2018, FHFA provided  instructions and templates to help ensure more consistent reporting. For  consistency with our workforce data analysis, we focused on the banks’  use of minority- and women-owned suppliers and broker-dealers. In  addition, FHLBanks report to FHFA on their use of suppliers and broker- dealers owned by individuals with disabilities, such as disabled  veterans. To provide additional information on the Office of Finance’s  use of diverse broker-dealers in debt issuance, we also analyzed data on  the number of diverse broker-dealers approved by the Office of Finance  from 2014 through May 2019. These data include minority- and women- owned, and other diverse broker-dealers such as those owned by  disabled veterans.

To assess the reliability of the diversity data on suppliers and broker- dealers that the FHLBanks and the Office of Finance reported to FHFA,  we obtained and reviewed information from FHFA to understand the data  system the agency uses to collect the data, how the agency uses the  data, and any known data limitations. We determined these data to be  sufficiently reliable for describing the diversity composition of the banks’  procurement and capital markets transactions and their suppliers and  broker-dealers.

To identify challenges FHLBanks face and their practices for maintaining  and increasing diverse workforces and using diverse suppliers and  broker-dealers, we reviewed the banks’ 2017–2018 annual OMWI reports  and banks’ policies related to their diversity efforts. We also interviewed  the OMWI directors, a nongeneralizable sample of board directors, other  staff of all 11 banks, and staff of the Office of Finance and FHFA. We  selected four FHLBanks (Atlanta, New York, San Francisco, and Topeka)  to conduct a more in-depth review. We selected these banks to achieve  variation in diversity composition, workforce size, asset size, and  geographic locations.

We previously identified nine key practices for managing workforce  diversity. In November 2017, we reported that industry representatives  confirmed the practices were still relevant.

We also previously identified four key practices for increasing  opportunities for minority- and women-owned asset managers, which we  found can be applied to diverse suppliers and broker-dealers. We  interviewed external stakeholders knowledgeable about working with  diverse suppliers and broker-dealers to verify the relevance of these  practices to diverse suppliers and broker-dealers and understand  potential challenges these populations face. The stakeholders we  interviewed generally confirmed the practices were relevant to our current  review. We selected the stakeholders based on their knowledge of  diversity and referrals from those we interviewed. We also interviewed  four diverse broker-dealers approved by the Office of Finance.

To assess FHFA oversight of FHLBanks’ diversity and inclusion efforts,  we reviewed FHFA’s examination manual (including the module on  diversity and inclusion); documentation related to 2017 and 2018  examinations of the banks’ diversity and inclusion efforts; and FHFA’s  data reporting manual and templates for reporting quarterly and annual  diversity data. We also interviewed FHFA staff and the OMWI directors of  11 banks to obtain additional information on FHFA’s oversight activities,  including the annual examinations.

We conducted this performance audit from April 2018 to August 2019 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

The FHLBank System comprises 11 federally chartered banks. The  FHLBanks represent 11 districts and are headquartered in Atlanta,  Boston, Chicago, Cincinnati, Dallas, Des Moines, Indianapolis, New York  City, Pittsburgh, San Francisco, and Topeka (see fig. 1). Each FHLBank  is cooperatively owned by its members––such as commercial and  community banks, thrifts, credit unions, and insurance companies. As  previously noted, the FHLBank System also includes the Office of  Finance, which is the fiscal agent for the 11 banks.

As of December 31, 2018, the total amount of assets each FHLBank held  varied widely, as did the number of member institutions in each district  (see table 1).

FHLBanks primarily obtain funding to provide loans to their member  institutions by issuing debt. The Office of Finance (also regulated by  FHFA) issues the debt on behalf of the FHLBanks. FHLBanks’ debt  products include discount notes (short-term debts) and bonds (short- to  long-term debts). The debt transactions can vary in size and be  conducted by one or more broker-dealers. Additionally, FHLBanks  individually invest in permissible securities, including mortgage-backed  securities, which generate additional income for the banks. Broker- dealers are compensated in fees for certain transactions they conduct.  Generally, the fees a broker-dealer can earn for capital markets  transactions depend on the type of the transactions or the broker-dealer’s  role in transactions.

The Office of Finance identifies and approves broker-dealers for the  banks’ debt issuance transactions, including diverse broker-dealers that  are minority-, women-, disabled-, and veteran-owned. As part of its  approval process, the Office of Finance assesses the broker-dealers  based on their track record in conducting certain debt transactions, and  reviews documents including broker-dealers’ audited financial statements,  documentation on capital sustainability, legal or regulatory issues,  diversity certification, procedures, and any other issues that may affect  their eligibility or performance. For investment transactions, the banks  approve broker-dealers for their own investment needs according to their  own qualification requirements. Similar to the Office of Finance’s  requirements, the banks’ qualification requirements can include financial  performance and capital requirements.

FHFA’s Diversity-Related Requirements and Oversight of FHLBanks

To implement requirements in HERA, in December 2010, FHFA issued  the Minority and Women Inclusion rule to set forth minimum requirements  for FHLBank diversity programs and reporting, as previously noted.  Among other things, the 2010 rule required each bank to create its own  OMWI or designate an office to perform duties related to the bank’s  diversity efforts, and establish policies related to diversity and inclusion,  including workforce and business activities (which can include suppliers  and broker-dealers used for capital markets activities).

The 2010 rule also requires FHLBanks to submit an annual report to  FHFA that describes the gender and racial/ethnic composition of the  bank’s workforce and of the suppliers and broker-dealers used in  business activities and past and future diversity and inclusion efforts in  these areas. The 2010 rule also requires the banks to report on  businesses owned by individuals with disabilities that enter into contracts  with the FHLBank and the number of individuals with a disability or  disabilities for certain workforce data, including the number of individuals  who separated from the bank and the number of employees promoted. In  2017, FHFA added the requirement for each FHLBank to develop a  standalone strategic plan on diversity and inclusion or incorporate a  diversity and inclusion plan into their general strategic plan.

FHFA conducts annual examinations and off-site monitoring of  FHLBanks. FHFA’s examination includes reviewing the banks’ diversity  and inclusion efforts, financial reporting, and corporate governance by  bank board directors.

Our Previous Work on Diversity in the Financial Services Sector

We previously reported on diversity in the financial services sector,  including FHLBank board governance and board diversity. In 2017, we  reported that representation of women and minorities at the management  level in the financial services sector showed marginal or no increase  during 2007–2015. In a 2015 report on FHLBank board governance, we  found that FHFA and FHLBanks had taken steps to increase board  diversity, including creating regulations that encouraged the banks to  consider diversity in board candidate selection and developing processes  to identify and nominate independent directors. In a 2019 report on  FHLBank board diversity, we found that since 2015, FHLBanks increased  the share of women and minority directors on FHLBank boards, but the  banks continued to face challenges in increasing diversity among  directors elected from member institutions. We recommended that  FHFA, in consultation with FHLBanks, review the banks’ data collection  processes for board demographic information and communicate effective  practices to banks. FHFA agreed with our recommendation. The agency  stated that it planned to engage with FHLBank leadership in 2019 to  discuss board data collection issues and explore the feasibility and  practicability for FHLBanks to adopt processes that could lead to more  complete data on board director demographics.

FHLBanks Increased Gender Diversity in Senior Management in 2011–2017 and Reported Taking Steps to Promote Workforce Diversity

Across the 11 FHLBanks, the share of women in senior-management  positions increased from 2011 to 2017, while the share of minorities  remained about the same. In the FHLBank workforce overall, the share  of female and minority employees was similar in 2011 and 2017.  Individual FHLBanks reported a number of challenges in recruiting and  retaining a diverse workforce, including limited hiring opportunities due to  low employee turnover and a small workforce and competition for diverse  talent from larger and better-known companies. Despite these challenges,  banks have been taking steps to help maintain or increase a diverse  workforce.

Share of Women in Senior Management Increased and Minorities Remained about the Same across the FHLBank System, but Varied by Bank

Female representation. The share of women in senior management  across all 11 FHLBanks increased by about 7 percentage points from  2011 to 2017 based on the most recently available EEOC data. As  shown in figure 2, the percentage of women across 11 banks was about  21 percent in 2011 (35 individuals) and 28 percent in 2017 (47  individuals). While female representation in senior management  collectively increased for the 11 FHLBanks from 2011 to 2017, there was  substantial variation among the individual banks. We discuss  representation at individual banks in more detail later in this section.

Six banks increased the share of women in senior management during  this time period (ranging from about 10 to 20 percentage points); three  banks decreased (from about 6 to 13 percentage points); and the share  for two banks did not change.

One FHLBank decreased its number of senior-management positions  between 2011 and 2017 by reclassifying those positions, while another  bank increased the number of senior-management positions through  reclassification, according to staff from each bank respectively. Bank staff  noted some banks have fewer senior-management positions because  they interpret EEOC’s definition of senior management more narrowly,  while others have more senior-management positions because they  interpret the definition more broadly. These differences could have  affected the comparability of the share of women and minorities in senior  management among individual banks in the period we reviewed. Also,  because of the relatively small number of senior managers at the  FHLBanks, a small change in the number of such managers can result in  a larger change in the associated percentage.

Minority representation. The share of minority senior management  across all 11 FHLBanks was approximately 14 percent (23 individuals) in  both 2011 and 2017. Five banks increased the share of minority senior  management (from about 1 to 23 percentage points); three banks  decreased (from about 6 to 13 percentage points); and three banks did  not change. Four banks did not have any minorities in senior  management in 2017 (see fig. 3).

The largest racial/ethnic group among senior management in 2017 was  Asian (about 5 percent) followed by African-American and Hispanic (both  at about 4 percent). See figure 4.

Female and minority representation combined. The combined share  of female and minority senior management across 11 banks increased 7  percentage points—from about 32 percent (54 employees) in 2011 to 39  percent (65 employees) in 2017. At individual FHLBanks, the percentage  of female and minority senior management increased at seven banks by  a range of about 3 to 29 percentage points, decreased at three FHLBanks  by about 11 to 13 percentage points, and stayed the same at one bank.  While combined female and minority representation increased overall,  eight of the 11 banks did not have any female minorities in senior- management positions in 2017 (see fig. 5).

Share of Women and Minorities in FHLBank Senior Management Was Similar to That of Financial Services Industry

Using EEOC data, we also examined the composition of the senior- management workforce in the financial services industry to determine  how FHLBank senior management compares with the broader financial  services industry. The percentage of women, minorities, and women  and minorities combined in senior management in FHLBanks overall was  similar to the corresponding share of senior management in the financial  services industry in 2017. Specifically, the respective percentages for the  FHLBanks and the financial services industry in 2017 were approximately

28 percent and 30 percent for female senior management;

14 percent and 13 percent for minority senior management; and

39 percent and 38 percent for female and minority senior  management.

Shares of women and minorities in senior management for individual  FHLBanks varied more in comparison with the financial services industry  in their districts.

Four banks had a higher share of women in senior management than  the financial services industry in their respective bank districts (from  about 1 to 14 percentage points higher); and seven banks had a lower  share (from about 3 to 15 percentage points lower).

Five FHLBanks had a higher share of minorities in senior  management than the financial services industry in their respective  districts (from about 2 to 27 percentage points higher); the other six  had a similar or lower share (from about 1 to 8 percentage points  lower).

Four banks had a higher percentage of women and minorities  combined in senior management than the financial service industry in  their respective bank districts (from about 7 to 27 percentage points  higher), two banks had a modestly lower share (no more than 3  percentage points), and the remaining five banks had a share that  was lower by more than 8 percentage points.

Share of Female and Minority Employees Overall Did Not Change Significantly in 2011–2017

We also reviewed the representation of women and minorities in the  overall FHLBank workforce and for each FHLBank. Although the  difference in the share of female and minority employees across 11  FHLBanks in 2011–2017 was not large, both women and minorities were  better represented in first- and mid-level management and professional  positions than in senior management.

Female representation. Across the 11 FHLBanks, the overall share of  female employees in 2017 (about 45 percent) was somewhat lower than  the share in 2011 (about 47 percent), although the total number of female  employees increased from 1,317 in 2011 to 1,355 in 2017 (see fig. 6). In  2017, the share of women in job categories below the senior- management level was higher than the share of women in senior  management. Specifically, the share of women in first- and mid-level  management positions was about 41 percent and in professional  positions about 44 percent, both higher than the percentage of women in  senior management (about 28 percent). Employees in these positions can  be potential candidates for the banks’ management.

Minority representation. The share of racial/ethnic minority employees  in the overall FHLBank workforce in 2017 (about 33 percent) was slightly  higher than the share in 2011 (about 31 percent), and the number of  racial/ethnic minorities increased during this period from 864 employees  in 2011 to 1,007 employees in 2017. During this time period, the share of  minorities in first- and mid-level management positions increased by  approximately 6 percentage points (from about 21 percent in 2011 to 27  percent in 2017); the share of professionals increased by about 3  percentage points (from about 34 percent in 2011 to 37 percent in 2017),  and the share of minorities in other job categories, such as administrative,  decreased by about 3 percentage points (from about 41 percent in 2011  to 38 percent in 2017). Similar to the share of female employees, the  share of minority employees in first- and mid-level management (about 27  percent) and professional positions (about 37 percent) was higher than  that for senior management (about 14 percent) in 2017.

Among these employees in 2017, Asians accounted for the largest share  (about 16 percent), followed by African-Americans (about 11 percent) and  Hispanics (about 5 percent), as shown in figure 7.

Female and minority representation. When looking at the combined  representation of women and minorities in the overall FHLBank  workforce, the share of women and minorities was similar in 2011 and  2017 at about 61 percent (1,704 employees in 2011 and 1,847  employees in 2017). The number of female and minority employees  increased by 143 (about 8 percent) during this period. Similarly, the  number of total employees increased by about 200 (about 8 percent) from  2011 to 2017.

At the individual bank level, the share of female and minority employees  increased at six banks (from about 1 to 6 percentage points) and  decreased at the remaining five banks (from about 2 to 4 percentage  points) from 2011 to 2017. In 2017, the percentage of female and minority  employees across the 11 banks ranged from about 48 to 77 percent of  the workforce at the individual banks (see fig. 8).

Share of Women Was Lower among FHLBank Employees Than in the Financial Services Industry and General Population but Share of Minorities Was Similar

Women generally were less represented among FHLBank employees  than in the financial services industry (overall and by FHLBank district)  and in college-educated populations in selected metropolitan areas.  Minorities were similarly represented across the categories. First, we  compared the representation of women and minorities among FHLBank  employees (overall and by bank) with such representation in the financial  services industry (overall and by FHLBank district) in 2017 to help  determine how similar the FHLBank workforce was to that of other  financial institutions. The workforce in the financial service industry can  represent a pool of potential employees for the FHLBanks.

The share of female employees in FHLBanks overall was about 14  percentage points lower than the corresponding share in the financial  services industry (about 45 percent in FHLBanks and 59 percent in  the financial services industry) in 2017. Each of the FHLBanks had a  lower share of female employees than the financial services industry  in the bank’s district (by about 2 to 27 percentage points).

The share of racial/ethnic minority employees was about 33 percent  across the FHLBanks and the financial services industry in 2017. Six  FHLBanks had a similar or higher share of minority employees than  the financial services industry in their respective districts (by about 1  to 21 percentage points); the other five had a lower share (by less  than 1 percentage point to about 11 percentage points).

The combined percentage of female and minority employees across  the FHLBanks was about 10 percentage points lower than the  corresponding percentage in the financial services industry in 2017  (about 61 percent and 71 percent, respectively). All FHLBanks except  one had a lower share in this combined category than the financial  services industry in their districts.

Second, we compared the share of women and minorities among each  FHLBank’s employees in 2017 with the population with at least a  bachelor’s degree in the metropolitan statistical areas associated with  each bank’s headquarters city in 2018 (see table 2). This population can  provide potential employees for the banks’ workforce.

The percentage of female employees in seven banks was lower than  the estimated share of females with at least a bachelor’s degree in  their respective metropolitan areas (smaller than the lower end of the  range of the estimated percentage for each area). For the remaining  four banks, the share of female employees was similar to that of the  estimated share for their respective metropolitan areas (within the  range of the estimated percentage for each area).

The percentage of minority employees in nine banks was similar to  the estimated share of minorities in the population in the respective  metropolitan areas around each bank’s headquarters. In two banks,  the share of minority employees exceeded the corresponding  estimated percentage for this population (larger than the upper end of  the range of the estimated percentage for each area).

To provide additional context on the demographic composition of the  population served by the FHLBanks, we compared the share of female  and minority employees at each FHLBank in 2017 with the share of the  female and minority population in each bank district (all of which are  multistate areas). All FHLBanks except two had a lower share of female  employees than the female share of the population in their respective  bank districts (by at least 5 percentage points). The percentage of  minority employees at one bank was higher than the share of the minority  population in its bank district (by about 11 percentage points); the  individual percentages at five banks were similar (no more than 3  percentage points difference); and the individual percentages at the  remaining five banks were lower by at least 4 percentage points.

FHLBanks Reported Some Challenges and Have Been Taking Steps to Help Maintain and Increase a Diverse Workforce

FHLBanks Reported Ongoing Challenges to Recruiting and Retaining a Diverse Workforce

FHLBanks reported continuing challenges to recruiting and retaining a  diverse workforce, including the following:  Low turnover rates and small workforce. Staff of four banks said that  low turnover rates have limited opportunities for hiring or promoting  diverse candidates. For example, the percentage of employees leaving  individual banks in 2017 ranged from about 5 to 12 percent. In  comparison, the average estimated separation rate for the financial  services industry as a whole was about 25 percent in 2017. Additionally,  staff of four banks noted that the size of their workforce is relatively small,  which also limits opportunities for hiring and promotion. The number of  employees in individual FHLBanks ranged from 202 to 462 in 2017 (see  table 3).

Population in geographic location not diverse. Staff of four banks  stated that their geographic location makes it challenging to recruit  diverse talent because the population in the area is relatively undiverse.  Two banks indicated it can be difficult to attract potential candidates to  work in their geographic location. Despite these stated challenges, as we  previously noted, the 2017 share of minorities in each bank was similar to  or exceeded the 2018 share of minorities with at least a bachelor’s  degree in their respective metropolitan areas.

Competition for women and minority candidates. Staff of five banks  said that competition for diverse talent is high because banks compete  with other companies in their districts that are larger or have better brand  recognition, such as large investment banks and technology companies.  For example, staff of four banks noted that the FHLBanks are not well  known compared with these larger organizations. Staff from one bank  noted that the compensation the bank offered was lower than that of  larger firms—including for internships—which can make it difficult to  attract diverse candidates. Staff of two banks also noted that relatively  low unemployment rates in their areas mean that diverse candidates have  other employment options, making it more challenging to attract such  candidates.

Difficulty aligning bank needs and requirements with skillsets of  diverse candidates. Staff of six banks said that there may be few women  or minority candidates who meet specific skill or job requirements. For  example, staff of five of these banks noted that it can be challenging to  find diverse candidates in certain technical fields, such as information  technology. Staff of three banks also noted that diversity in the financial  services industry overall is limited, which contributes to a limited pool of  diverse candidates.

FHLBanks Described Practices They Use to Help Maintain and Increase Workforce Diversity

We found that FHLBanks implemented and continue to implement a  variety of practices to maintain and increase diversity in their workforces,  based on our review of the FHLBanks’ annual Office of Minority and  Women Inclusion (OMWI) reports, FHFA examination documents,  FHLBank diversity and inclusion strategic plans, and interviews with  FHLBank staff from all 11 banks. These practices align with leading  practices we previously identified on diversity management. The leading  practices can help the banks address some of the challenges described  previously and recruit and retain a diverse workforce, which also can  contribute to a more diverse pipeline for management positions.

Bank leadership commitment to diversity and inclusion. All 11  FHLBanks have implemented practices intended to demonstrate  leadership’s commitment to diversity and inclusion, which included the  following examples.

All 11 FHLBanks include workforce diversity objectives in their  diversity and inclusion strategic plans and generally established goals  that were quantitative, qualitative, or both related to their workforce  diversity programs, based on our review of the banks’ annual reports.  Examples of such goals included increasing employee awareness of  diversity and inclusion and percentage targets for workforce diversity  composition and recruitment. The FHLBanks also incorporate  diversity and inclusion into their incentive compensation goals or  performance competencies. An example of such goals relates to  participation in diversity and inclusion training and other events.

All 11 FHLBanks track data on the diversity composition of their  workforce; external and internal applicants for open positions, new  hires, promotions, and separated employees; and progress in meeting  diversity and inclusion goals and objectives.

The OMWI officers at all 11 banks report directly to the bank’s chief  executive officer/president or the equivalent of the chief operating  officer. The board of each bank also receives periodic updates on the  bank’s diversity and inclusion efforts.

Staff of eight banks said that senior leaders, such as the chief  executive officer, express their commitment to diversity and inclusion  through participation in internal diversity and inclusion events, in  written materials, and by sponsoring employee groups that represent  diverse employees.

Targeted recruitment. All 11 banks reported several targeted diversity  recruitment efforts to increase recognition and build a potential pipeline of  diverse employees. For example, all banks conducted outreach to  colleges that have diverse student populations, according to banks’  annual reports and staff, and FHFA examination documents. All banks  also conducted outreach to local and national professional and other  organizations that represent diverse communities. Seven banks indicated  that they engage with their communities, such as by participating in  community events and volunteer activities, and partnering with community  organizations. They noted that these efforts can help enhance their  bank’s brand recognition and in turn can help recruit and retain diverse  employees.

To build a pipeline of diverse employees, all 11 banks offered a college  internship program and six banks offered a high school internship or work  study program for which they try to recruit diverse candidates. The banks  also engaged in efforts to build the potential pipeline of diverse  employees in the long term, such as by participating in programs or  activities to increase skillsets among young women and minorities in  technical or financial services fields.

Employee involvement/feedback. All 11 banks described efforts to  create a more inclusive environment for employees, according to banks’  annual reports and bank staff. For example, nine banks have an  employee resource group or other organization representing employees,  and can engage in diversity and inclusion activities, such as professional  development and cultural events, according to the banks’ annual reports.  Nine banks reported that they conducted employee surveys or meetings  to obtain feedback from employees on diversity and inclusion efforts,  according to the banks’ annual reports and staff. Staff from one bank told  us that when conducting interviews with employees leaving their  organization, they include a question specifically on diversity and  inclusion to identify potential employee retention practices.

Training on diversity and inclusion topics. Ten banks offered training  courses on diversity and inclusion topics for all employees, according to  the banks’ annual reports and FHFA examination documents. Ten banks  hosted events or informal training related to diversity and inclusion,  including events sponsored by employee groups, according to bank  documents and staff.

Development of succession plans that address diversity and  inclusion. All 11 banks engaged in succession planning, but FHFA’s  2018 diversity and inclusion examination found that the banks addressed  diversity and inclusion in their succession planning to varying degrees.  FHFA staff explained that banks should evaluate potential successors on  their demonstrated ability to manage diversity and inclusion using  performance competencies. Examples of such competencies include  assessing candidates on their ability to include diverse groups when  making team decisions and supporting the bank’s diversity and inclusion  efforts.

FHLBanks’ Use of Diverse Suppliers and Broker-Dealers Varied among Banks in 2018, and FHLBanks Implemented Key Diversity Practices FHLBanks Used a New Format for More Consistent Reporting in 2018 and Varied in Their Use of Diverse Suppliers and Broker-Dealers

FHFA worked with FHLBanks and developed instructions and templates  for more consistent reporting of 2018 data on the banks’ use of diverse  suppliers and broker-dealers, including those that are minority- and  women-owned. FHLBanks’ use of minority- and women-owned  suppliers and broker-dealers in 2018 varied among the banks. Banks also  told us there are challenges that may slow or limit their use of diverse  suppliers and broker-dealers. They generally implemented key practices  to help ensure they consider diverse suppliers and broker-dealers in  searches for business partners.

Data reporting. Before 2018, FHFA had not issued a standardized data  reporting template for FHLBank data on use of diverse suppliers and  broker-dealers; therefore, data were not comparable across banks or  years. As part of the requirements of FHFA’s 2010 Minority and Women  Inclusion regulation, in 2012 the banks and the Office of Finance began  reporting data on their business activities with diverse businesses  (minority-, women-, and disabled-owned) in the preceding year.

However, the data prior to 2018 were not comparable across years and  banks because the banks did not use consistent methods or definitions in  their data reporting. To develop a common understanding and make the  data more consistent, FHFA and the banks began working together in  2017 to develop a data dictionary and data templates. FHLBanks used  the new templates to report their 2018 data.

Minority- and women-owned suppliers. In 2018, FHLBanks varied in  their use of minority- and women-owned suppliers (see fig. 9). The 11  banks entered into more than 2,900 supplier contracts overall in 2018  (ranging from 60 to 477 per bank). Of the total number of contracts, about  10 percent (279 contracts) were with minority-owned suppliers and about  12 percent (340 contracts) were with women-owned suppliers. Among  the individual banks, the share of contracts entered into with minority- owned suppliers in 2018 ranged from about 1 percent to 38 percent and  from about 4 percent to 25 percent for contracts with women-owned  suppliers.

In 2018, FHLBanks’ total supplier expenditure was about $453 million, of  which about 8 percent and 13 percent, respectively, went to minority- and  women-owned suppliers. Among the individual banks, the percentage of  the total annual 2018 expenditure that went to minority-owned businesses  varied from about 3 percent to 15 percent, and to women-owned  businesses from about 2 percent to 31 percent (see fig. 10). According to  FHFA staff, annual expenditure paid to suppliers can vary from year to  year. More specifically, an increase in a bank’s annual supplier  expenditure in any one year is usually related to long-term, large  investments made during that year, such as construction costs or  investment in technology products and services. FHFA staff noted that  these one-time increases in expenditures can provide opportunities to  increase the use of diverse suppliers. FHFA staff said bank data showed  that for example, in 2018, three FHLBanks each had large one time  investments in construction or building maintenance.

Diverse broker-dealers in debt transactions. FHLBanks conduct  capital markets transactions with broker-dealers that meet certain  qualifications (such as capital sustainability and financial performance),  including those that have been approved as diverse broker-dealers. As  previously mentioned, these transactions include debt issuance and  investments. The Office of Finance acts as an agent to the banks and  primarily functions to issue and service all debt transactions. In addition, it  identifies and approves broker-dealers for the banks’ debt issuance  transactions, including dealers that are minority-, women-, disabled-, and  veteran-owned.

As of December 31, 2018, the Office of Finance had 64 approved broker- dealers, 16 of which were diverse broker-dealers, including seven  minority-owned and five women-owned firms. In 2019, the Office of  Finance added two additional diverse broker-dealers, one minority-owned  and one disabled veteran-owned, bringing the total to 18. This represents  an increase in the number of approved diverse broker-dealers from 10 in  2014 (see table 4). A total of 69 broker-dealers conducted at least one  debt transaction with the Office of Finance in 2018. Ten percent of these  broker-dealers were minority-owned and 7 percent were women-owned.

In 2018, FHLBanks issued about $8 trillion in debt transactions. Of this  total volume, approximately 3 percent of transactions were conducted  with minority-owned broker-dealers and less than 1 percent with women- owned broker-dealers. Similarly, minority-owned broker-dealers received  approximately 5 percent of the fees paid to broker-dealers overall on  these transactions, and women-owned broker-dealers received  approximately 0.5 percent. While the Office of Finance reports debt  volume data and other data, such as number of transactions conducted  by diverse broker-dealers, to FHFA, staff noted that they also use two  other performance goals to measure their capital markets diversity efforts.  These two goals are the utilization of diverse broker-dealers in debt  issuance programs and the number of outreach engagements with  diverse broker-dealers (such as marketing and investor meetings).  According to Office of Finance staff, as of June 2019, diverse broker- dealers had the opportunity to participate in all FHLBank debt issuance  programs. However, as discussed later, some practices that the Office of  Finance implements to control risk may limit diverse broker-dealers from  taking a more substantial role in certain types of transactions.

Diverse broker-dealers in investment transactions. FHLBanks make  investments based on their investment needs and identify and approve  broker-dealers for their investment needs according to their own  qualification requirements. As shown in figure 11, the number of minority- owned broker-dealers approved by the FHLBanks ranged from five to 12,  and the number of approved women-owned broker-dealers ranged from  one to seven as of December 2018.

Of the total number of broker-dealers that conducted at least one  investment transaction with FHLBanks in 2018, the share of minority- or  women-owned broker-dealers varied among banks (see fig. 12). Of the  10 banks that made investment transactions in 2018, shares for individual  banks ranged from 0 percent to about 22 percent for minority-owned  broker-dealers and from 0 percent to 10 percent for women-owned  broker-dealers.

In 2018, FHLBanks conducted about $12 trillion in investment  transactions, less than 1 percent of which was conducted with minority- owned broker-dealers or with women-owned broker-dealers. Of the total  number of transactions conducted by the banks, minority-owned dealers  and women-owned dealers each accounted for less than 1 percent.

FHLBanks Described Challenges That May Slow or Limit Their Use of Diverse Suppliers and Broker-Dealers

FHLBank staff reported some challenges that may slow or limit their use  of diverse suppliers and broker-dealers, such as those owned by  minorities, women, and individuals with a disability. For example, staff  from seven banks said that the bank’s needs for goods and services are  small or can fluctuate from year to year. Staff from two banks added that  this can make it difficult to consistently increase or maintain the use of  diverse suppliers. For example, staff from one bank described a building  construction project that increased the use of diverse suppliers during the  year in which the construction took place, but had no effect in the  subsequent year because construction had been completed.

In addition, staff from five banks said some bank procurement needs are  fulfilled by continuing contracts with existing vendors. For example, staff  from two banks said that some bank needs, such as existing information  system support, are offered by continuing suppliers that may not be  diverse suppliers.

Additionally, staff from five banks said that there are not always diverse  suppliers that can meet the bank’s needs. For instance, staff from one  bank said it can be difficult to find diverse suppliers to fill some  contracting needs that require specific skills or expertise, such as the  vendors used to review technical risk-assessment models.

FHLBank staff also reported challenges that may slow or limit their use of  diverse broker-dealers. For example, staff from six banks and the Office  of Finance said that diverse broker-dealers often do not have the level of  capital required by the banks to make the capital markets transactions the  banks need. Staff from five banks said this is because diverse broker- dealers generally are smaller firms. In addition, staff from seven banks  said that diverse broker-dealers may be limited in the services and  products they can offer the banks. For example, staff from one bank told  us that some diverse broker-dealers have fewer financial resources,  which limits them to basic transactions as opposed to more complex  transactions.

Staff from six banks also said that their capital markets transactions are  dependent on membership needs or market conditions for funding, which  can lead to year-by-year fluctuations in transaction levels. Staff from four  banks said that the fluctuations affect the bank’s need for broker-dealers  overall, and make it challenging for the bank to maintain or increase use  of diverse broker-dealers. Office of Finance staff also noted this  challenge, adding that many factors, such as underwriting capacity and  experience, may affect a broker-dealer’s ability and desire to participate in  the FHLBanks’ debt issuance programs. Staff further said that individual  broker-dealers are responsible for identifying investors to be able to  participate in debt transactions; the Office of Finance cannot control  whether a broker-dealer can identify an investor.

FHLBanks Generally Implemented Key Practices That Can Help Ensure They Consider Qualified Diverse Businesses

We previously identified key practices for increasing opportunities for  minority- and women-owned asset managers. We found these practices  can be applied to diverse suppliers and broker-dealers and used by  organizations, such as FHLBanks, to help ensure they consider qualified  diverse suppliers and broker-dealers in their selection process. Diverse  suppliers and broker-dealers include businesses owned by minorities,  women, and individuals with a disability. The key practices are

Demonstrate top leadership commitment: Demonstrate  commitment to increasing opportunities for diverse businesses.

Conduct outreach: Conduct outreach to inform diverse businesses  about opportunities and the selection processes.

Communicate priorities and expectations: Explicitly communicate  priorities and expectations about inclusive practices to staff and  ensure those expectations are met.

Remove potential barriers: Review policies and practices to remove  barriers that limit the participation of diverse businesses.

FHLBanks Implemented Key Practices for Supplier Diversity

We found that FHLBanks generally implemented the four key practices in  their supplier management programs, based on our review of the  FHLBanks’ 2017 and 2018 annual OMWI reports and interviews with  OMWI staff from all 11 banks, and with bank staff with responsibility for  vendor management.

Demonstrate top leadership commitment. The FHLBanks  demonstrated top leadership commitment to supplier diversity through  strategic plans, goals, and reporting. All 11 FHLBanks include supplier  diversity as a component of their diversity and inclusion strategic plans. In  addition, the banks generally established quantitative or qualitative goals  related to their supplier diversity programs; for example, the percentage  of total expenditure with diverse suppliers. FHFA told us that they have  been working with the banks to assess these goals and ensure they are  outcome-based. Furthermore, the 11 banks track their progress in  meeting diversity and inclusion objectives and goals. Each FHLBank’s  OMWI director reports to the bank’s chief executive officer/president or  the equivalent of the chief operating officer. The FHLBank boards also  receive periodic updates on the bank’s diversity and inclusion efforts.

Conduct outreach. FHLBanks use a variety of methods to reach  potential diverse suppliers. All 11 banks work with local or national  industry organizations, such as the National Minority Supplier  Development Council and Women’s Business Enterprise National  Council, to identify potential suppliers. Nine banks described attending  events hosted by these organizations, such as matchmaking sessions or  business fairs, and at least two banks reported using their databases to  search for diverse suppliers. Staff from seven banks said that they  proactively meet with potential vendors to educate them on bank needs  and processes. Staff from one bank said they have invited a number of  diverse vendors to the bank to meet bank managers and discuss their  goods and services. This has resulted in contract proposals from five  different diverse vendors. Staff from five banks also described using  advertising and social media to reach a broad base of potential diverse  suppliers; for example, one bank described placing advertisements in  publications that target diverse businesses.

Communicate priorities and expectations. FHLBanks communicated  priorities and expectations on supplier diversity to bank staff through  policies and training. All 11 banks have a written policy that outlines the  requirements for bank staff to include a diverse supplier in their search  whenever the need for a new contract is identified. In addition, all 11  banks conducted staff training on supplier diversity or on their vendor  management policy.

Remove potential barriers. According to our interviews with external  stakeholders knowledgeable about working with diverse suppliers,  diverse businesses may face barriers as they seek to obtain contracts.  FHLBanks took steps that could ameliorate these barriers.

Supplier contracts are often made through existing relationships and  networks. Diverse suppliers may not have access to these networks  and therefore miss opportunities to apply for contracts. As previously  mentioned, FHLBanks conducted targeted recruitment of diverse  suppliers. By actively seeking to build relationships with these  suppliers, the FHLBanks have been working to address this barrier.

The procurement process itself can be complicated and difficult to  understand. Smaller diverse businesses may have limited staff and  skill to navigate the process. Staff from seven banks have addressed  this barrier by conducting one-on-one meetings with potential vendors  to walk them through the bank’s procurement processes.

Third- Party Certification of Supplier  Diversity Status  According to the Federal Housing Finance  Agency’s (FHFA) 2010 Minority and Women  Inclusion regulation, a firm qualifies as a  minority- or women-owned business when it is  more than 50 percent owned and controlled  by one or more minority individuals or women  and more than 50 percent of net profit or loss  accrues to a member of those groups.  Businesses can submit documentation to  approved third-party certifiers to obtain a  certification of their diversity status. Certifiers  then review the documentation and  sometimes conduct site visits to confirm the  diversity status of the business.

The process to certify as a diverse business with a third party can be  confusing or costly, according to two external stakeholders we  interviewed. The preambles to the 2010 Minority and Women  Inclusion rule and its 2017 amendments state that while FHFA prefers  reliance on certifications from qualified, independent third parties,  FHFA also allows for reliance on self-certifications by the businesses.  The FHLBanks each confirmed that they allow businesses to self- certify their diversity status.

A small diverse supplier may not be able to fulfill a large contract  requiring multiple services. An external stakeholder we interviewed  told us that this barrier can be overcome when diverse suppliers join  forces to fulfill multipart contracts. For example, a supplier that  provides pens can join with a supplier that provides paper to fulfill a  single office supplies contract. To do this, suppliers need advance  notice of bank needs to create a business plan. Three banks told us  that before meeting with potential suppliers, they work with various  business departments in the bank to identify upcoming purchasing  needs and share those with the suppliers.

All 11 banks have a representative on the systemwide OMWI Council  Procurement Sub-Working Group, which meets monthly. The subgroup  spent the majority of 2017 addressing the challenge of FHFA data  reporting. An OMWI Council representative told us that the members use  the subgroup as forum to discuss key issues. In addition, the  representative said the subgroup plans to focus on improving its outreach  efforts in 2019. Two banks reported that they hold internal meetings to  discuss trends and potential barriers and make updates to their supplier  diversity program.

FHLBanks Implemented Key Practices for Broker- Dealer Diversity

We found that the FHLBanks and the Office of Finance generally  implemented the four key practices for their capital markets programs,  based on our review of the FHLBanks’ 2017 and 2018 annual OMWI  reports and interviews with OMWI staff from all 11 banks, the Office of  Finance, and with bank staff with responsibility for capital market  activities.

Demonstrate top leadership commitment. Similar to the banks’  supplier management programs, FHLBanks demonstrated top leadership  commitment to capital markets diversity through strategic plans, goals,  and reporting. All 11 FHLBanks and the Office of Finance include capital  markets diversity as a component of their diversity and inclusion strategic  plans. They also generally established quantitative or qualitative goals  related to their capital markets diversity programs, such as the  percentage of transactions conducted with diverse broker-dealers. The 11  banks and the Office of Finance track their progress in meeting diversity  and inclusion objectives and goals. In addition, the OMWI director reports  to the chief executive officer/president or the equivalent of the chief  operating officer. The FHLBank and the Office of Finance boards also  receive periodic updates on the bank’s and the Office of Finance’s  diversity and inclusion efforts, respectively.

Conduct outreach. FHLBanks and the Office of Finance interacted with  diverse broker-dealers through regular communication and face-to-face  meetings. Staff from all 11 banks and the Office of Finance reported  some form of regular communication with diverse broker-dealers to keep  the broker-dealers informed on bank capital markets activities and needs.  In addition, all 11 banks and the Office of Finance reported attending  events to interact with diverse broker-dealers. For example, on behalf of  the OMWI Council Capital Markets Subgroup, the FHLBank of New York  hosts an annual Diverse Dealer Reception at which the banks and the  Office of Finance can interact with current approved diverse broker- dealers and those in the pipeline for potential approval. At the 2017  reception, diverse broker-dealers were provided with contact information  for all capital market staff in the FHLBank System and a brochure listing  examples of ways diverse broker-dealers could engage with the system.

Staff from all 11 banks and the Office of Finance also told us they hold  one-on-one meetings with diverse broker-dealers to explain bank  processes and needs. In addition, Office of Finance staff told us they help  diverse broker-dealers build relationships with investors by accompanying  them to one-on-one meetings with investors to introduce FHLBank  securities products.

Communicate priorities and expectations. FHLBanks communicate  priorities and expectations on capital markets diversity to bank staff  through policies and by sharing practices systemwide. Ten of the banks  and the Office of Finance have a written policy or procedure related to the  use of diverse broker-dealers, which outlines the importance of  engagement with diverse broker-dealers or how bank staff should interact  with them. The OMWI Council Capital Markets Subgroup also developed  a list of aspirational practices for the 11 banks. These practices include  many activities related to the four key practices we identified, such as  engaging in regular communication and periodically examining capital  market operations to identify potential obstacles to increasing business  with diverse broker-dealers. Staff from one bank told us that having the  practices codified in a document helps ensure consistent expectations  across the system.

Remove potential barriers. FHLBanks and the Office of Finance made  changes to their capital markets practices and certain features of their  debt products to increase access for diverse broker-dealers. For example,  the Office of Finance, with input from the OMWI Council Capital Markets  Subgroup, reduced the capital requirements on some types of debt  transactions to bring in more diverse broker-dealers. The Office of  Finance also told us that in the case of a new type of debt product  created in November 2018, they allow multiple broker-dealers to  participate in various roles, including diverse broker-dealers.

However, FHFA staff told us that although the FHLBanks and the Office  of Finance made changes to debt and investment products offered to  diverse dealers, the banks and the Office of Finance have not always  used a systematic process to review and evaluate debt and investment  policies and procedures for potential changes that may expand  participation by diverse broker-dealers. In 2017 and 2018, FHFA asked  the banks and the Office of Finance, respectively, to develop such a  process to facilitate opportunities for diverse broker-dealers. FHFA  determined that 10 banks had addressed this request. FHFA staff noted  that they will review the remaining entities’ progress in addressing this  request in 2019 examinations.

In addition, each bank and the Office of Finance has a representative on  the systemwide OMWI Council Capital Markets Subgroup. According to  staff from four banks, the subgroup’s monthly meetings provide them with  an opportunity to discuss barriers and practices. In 2018, the subgroup  administered a survey to the approved diverse broker-dealers to solicit  suggestions and feedback on their interactions with the banks. Bank staff  told us the survey did not result in any program changes, but provided  information on how they could communicate more effectively.

However, diverse broker-dealers still may face barriers in some areas,  according to three diverse broker-dealers and two industry stakeholders,  with whom we spoke. The Office of Finance has been taking steps to  address these barriers where possible.

Some practices that the Office of Finance implements to control risk  can limit diverse broker-dealers from taking a more substantial role in  transactions associated with certain debt products. For example,  according to Office of Finance staff, only the top eight broker-dealers  (ranked by the Office of Finance based on performance) can lead  transactions for certain longer-term and larger-size debt products.  Two diverse broker-dealers told us this requirement limits their ability  to participate in these transactions. For example, one broker-dealer  told us that because diverse broker-dealers generally are newer firms  with less capacity relative to the top eight broker-dealers, it would be  unlikely that they would ever be one of the top eight. Office of Finance  staff told us these products accounted for less than 1 percent of the  FHLBank’s total debt issuance in 2018 based on net proceeds  received. According to the Office of Finance, they rely on these top  eight broker-dealers because they can better cover any risk posed by  the transactions. The Office of Finance allows diverse broker-dealers  to serve as co-managers on these larger transactions, but diverse  broker-dealers told us that acting as a co-manager did not noticeably  increase the share of transactions they could execute or their own fee  revenue.

Staff from the Office of Finance said the office does not implement  quotas as a way to maintain or increase the use of diverse broker- dealers, but rather focuses on providing diverse broker-dealers with  opportunities and on implementing outreach opportunities. According  to these staff, the percentage of transactions conducted and fees  received by diverse broker-dealers as a whole has increased over  time.

The Office of Finance told us they recently met with diverse broker- dealers about another risk-management practice that may limit the  participation of diverse broker-dealers. According to Office of Finance  staff, this practice requires broker-dealers to have at least $100 million  in capital to conduct certain complex debt transactions. According to  external stakeholders, a higher capital requirement may limit the  participation of diverse broker-dealers, who generally have less  capital, in these transactions. Staff from the Office of Finance said that  they have been evaluating whether it is appropriate to modify the  requirement. Their evaluation is part of the office’s continual process  to evaluate debt issuance programs.

Three diverse broker-dealers and one industry stakeholder we  interviewed said that increased transparency by FHLBanks and the  Office of Finance in information provided to broker-dealers could help  diverse broker-dealers identify opportunities and better understand  the banks’ needs. For example, one diverse broker-dealer and one  industry stakeholder said that access to information on the fees paid  to broker-dealers on different types of capital markets transactions  could help them take advantage of areas of greater opportunity. This  information is reported by the Office of Finance and FHLBanks to  FHFA, but generally is not released publicly. The preamble of FHFA’s  Minority and Women Inclusion rule notes that FHFA treats this  information as confidential because it can affect the agency’s  oversight of the banks. However, FHFA does not prohibit FHLBanks  and the Office of Finance from publishing their diversity information if  they so choose. Office of Finance staff told us that they do not publish  data on fees or broker-dealer transactions for certain debt product  because they consider this proprietary and competitive information.  They said publishing the data could increase the leverage of broker- dealers and also could lead to an adverse impact on investor  participation and support.

FHFA Oversight of FHLBanks’ Diversity and Inclusion Efforts Includes Conducting Examinations and Reviewing Bank Data

FHFA’s oversight of FHLBanks includes annual examinations,  development of instructions and templates to improve data quality,  incorporation of bank data in oversight, and communication of agency  expectations for diversity and inclusion efforts to the banks through  various mechanisms.

Began examining FHLBanks’ diversity and inclusion efforts in 2017.  In 2017, FHFA started reviewing FHLBanks’ diversity and inclusion efforts  in its annual examinations of the banks. FHFA developed a separate  examination module (to add to its examination manual) in 2016 for  reviewing the banks’ diversity and inclusion efforts and the banks’  oversight of these efforts. The areas that FHFA reviews include strategic  planning and associated goals for diversity and inclusion, board oversight,  organizational structure of diversity and inclusion programs, workforce,  suppliers (which encompasses broker-dealers in the capital markets  program), reporting structure and processes, and internal audit and  compliance.

In the 2017 and 2018 examinations, FHFA found the banks generally took  steps to promote and maintain diversity and inclusion in their workforce  and use of diverse suppliers and broker-dealers. FHFA also identified  some areas for improvement. Specifically, in the 2017 examinations,  FHFA recommended that all 11 banks improve their reporting and  program goals on workforce diversity and use of diverse suppliers and  broker-dealers. For example, FHFA specifically found that six banks  needed to improve performance measurement of their supplier diversity  goals. In the 2018 examinations, FHFA recommended that seven banks  enhance their succession planning to ensure that potential successors  are assessed on how well they manage and implement diversity and  inclusion. As previously discussed, FHFA also asked FHLBanks and the  Office of Finance to develop a more systematic process to review and  determine potential changes to their debt and investment policies that  could expand participation by diverse broker-dealers.

Based on our review of FHFA’s examination documentation, FHFA  followed its processes to document, communicate, and resolve  examination findings related to diversity and inclusion in its 2017 and  2018 examinations. For example, FHFA examiners prepared  memorandums to document the assessment and findings of each  individual bank’s diversity and inclusion efforts and communicated  findings to bank management and boards. Consistent with the  examination manual, FHFA followed up on 2017 examination findings and  banks’ remediation actions during the 2018 examinations. As of March  2019, FHFA determined that 10 banks satisfactorily remediated findings  from the 2017 examination related to goals and reporting issues, among  other things. For the remaining bank, management has not completed all  remediation steps to address FHFA’s examination findings, according to  FHFA staff. FHFA staff added that they will review the bank’s actions  again in the 2019 examination and assess the banks’ progress in  addressing the 2018 examination findings.

According to FHFA staff, they plan to make some changes to the diversity  and inclusion examination module. For example, in the module FHFA  plans to more explicitly separate the information on the review of diversity  efforts related to use of diverse broker-dealers from use of diverse  suppliers (they are currently under one examination component).

Developed instructions and templates to improve data quality. To  enhance the quality of the data and information submitted by FHLBanks  on their workforce diversity and use of diverse suppliers and broker- dealers, FHFA worked with FHLBanks and developed instructions and  templates to help FHLBanks submit more consistent data on a quarterly  basis. During 2018, FHFA requested that banks submit quarterly diversity  data on their workforce and the use of diverse suppliers and broker- dealers. FHFA also developed a data reporting manual that includes a  data dictionary, and templates for the quarterly and annual data and for  the annual report to help FHLBanks more consistently report diversity  data for their workforces and use of diverse suppliers and broker-dealers.

FHFA staff told us that they reviewed the banks’ 2018 data to identify any  discrepancies, and they worked with the banks to clarify data definitions  and correct the discrepancies. For example, some banks had used an  incorrect definition to account for their diverse supplier expenditures.  Because 2018 was the first year in which the banks used the new  templates, FHFA staff said they had expected some discrepancies in the  data as the banks became familiar with the data definitions. Staff said  FHFA plans to continue to work with the banks to help them achieve a  common understanding of the data definitions.

Incorporated bank data in oversight. According to FHFA staff, in 2018  they began to use the banks’ quarterly data for ongoing monitoring of the  banks’ diversity and inclusion efforts in workforce, procurement, and  capital markets. For example, the FHFA OMWI office assesses each  bank’s diversity performance in these three areas using the quarterly  data, and has been considering developing benchmarks. FHFA staff said  the quarterly data provide more detailed information on the banks’ use of  diverse businesses; for example, the types of goods or services for which  the banks contract with diverse businesses. FHFA staff noted that the  additional data not only inform FHFA’s oversight but also can help the  banks’ internal reporting on diversity and inclusion efforts.

Additionally, FHFA plans to review the banks’ data reporting systems as  part of its annual examinations to help ensure banks have the appropriate  controls for data reporting. FHFA staff said that the agency expects the  banks to establish the appropriate data system to ensure the quality of  data reported to FHFA and for internal reporting.

Communicated with FHLBanks, including on data templates and  expectations. FHFA provided clarification on the roles and duties of the  banks’ OMWI officers and the scope of diversity regulations. FHFA  collected the banks’ feedback and responded to questions on the new  quarterly data reporting and the new data instructions and templates.  Subsequently, FHFA modified the data templates in 2019 to allow the  banks to more efficiently report their diversity data on a quarterly and  annual basis. For example, FHFA consolidated data fields common to  quarterly and annual reporting, among other things. Additionally, FHFA  provided responses to the banks on their questions on the data and  annual report templates when the templates were first introduced in 2018  and revised in 2019. FHFA staff said the annual report template helped  clarify FHFA’s expectation on annual report content.

In addition, FHFA staff noted that since 2015, FHFA’s OMWI director has  met with the bank presidents and board of directors of most of the  FHLBanks, and began in 2018 to have at least one visit for each bank  every other year. The FHFA OMWI director also generally attends the  semi-annual conferences of the banks’ OMWI officers, during which she  has the opportunity to meet with the banks’ presidents individually. During  these meetings, the OMWI director or staff discussed diversity issues  such as strategic planning, results of the banks’ annual reports, and  examinations.

We provided a draft of this report to FHFA, each of the 11 FHLBanks, and  the Office of Finance for review and comment. FHFA, six FHLBanks, and  the Office of Finance provided technical comments, which we  incorporated as appropriate. The other five FHLBanks did not have any  comments.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the Director of FHFA, and other interested  parties. In addition, the report will be available at no charge on the GAO  website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-8678 or ortiza@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix I.

Appendix I: GAO Contact and Staff Acknowledgments

Anna Maria Ortiz, (202) 512-8678, ortiza@gao.gov.

In additional to the individual named above, Kay Kuhlman (Assistant  Director), Anna Chung (Analyst in Charge), Meghana Acharya, Laurie  Chin, Kaitlan Doying, Jill Lacey, Moon Parks, Barbara Roesmann,  Jessica Sandler, and Jena Sinkfield made key contributions to this report.

We previously reported on diversity in board directors at Federal Home Loan Banks. Now we’re looking at their efforts to diversify their workforces and companies they do business with—such as targeted recruiting in colleges and professional organizations to build a pipeline of diverse employees.

the share of women in senior management at these banks increased; minority representation was about the same

the share of women and minorities in the workforce overall was about the same and was higher than in senior management

In 2018, banks varied in their purchases of goods and services from minority- and women-owned companies.