FHFA – Federal Home Loan Banks’ Compliance with Regulatory Limits on Extensions of Unsecured Credit

by Sabrina I. Pacifici on August 19, 2013

FHFA’s Oversight of the  Federal Home Loan Banks’  Compliance with Regulatory Limits  on Extensions of Unsecured Credit Evaluation Report, EVL–2013–008, August 6, 2013

“FHLBanks also make a variety of investments, including extensions of short term unsecured credit to domestic and foreign-owned financial institutions. Such credit can pose greater financial risks than advances because it is not secured by collateral. In June 2012, we issued a report that identified potentially risky unsecured credit management practices by some FHLBanks. These practices include large exposures to counterparties located in the financially troubled Eurozone.  Moreover, the report found that several FHLBanks violated FHFA’s regulatory  limits on unsecured credit that exposed them to potentially greater losses in the event of a counterparty’s failure or default. We recommended that FHFA (1)  assess the extent of regulatory violations as part of its 2012 horizontal review  of unsecured credit risk management practices across the FHLBank System,  and (2) consider revising its regulation to mitigate the risks associated with  unsecured credit. FHFA agreed with these recommendations.”

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