All but one of the 12 Federal Home Loan Banks reported a gain in the first quarter, evidence of the systems' great efforts to stabilize finances. The FHLBs are considered government-sponsored enterprises like Fannie Mae and Freddie Mac. These companies provide wholesale funding housing and community developments. The FHLB of Seattle was the only one to report a loss in the first quarter. Combined net income for the 12 FHLBs totaled $358 million in the quarter, up 10% from one year ago. Total assets at the banks dropped to $848.7 billion in the first quarter, down 3% from the fourth quarter. Advances declined 7% during the first quarter, and demand among members decreased, as well. "Advance demand remained subdued because of continued availability of alternative funding sources as well as high deposit balances and low demand for loans at member institutions," according to the FHLB Office of Finance. In a note to clients, FTN Financial said downsizing the FHLBs in the financial system would be "a mistake." "Raising the cost of term funding to regional banks simply improves the market position of larger banks. You don’t shrink systemic risk by reducing the Federal Home Loan Banks. You shrink systemic risk by diversifying assets across a broad range of business models in different financial intermediaries," according to FTN. "FHLB has a major role in facilitating that diversification for banks, insurance companies, and credit unions." Write to Jon Prior. Follow him on Twitter @JonAPrior.