“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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