FHFA's Oversight of the Federal Home Loan Banks' Unsecured Credit Risk Management Practices

by Sabrina I. Pacifici on June 30, 2012

FHFA’s Oversight of the Federal Home Loan Banks’ Unsecured Credit Risk Management Practices, Evaluation Report 2012-005, June 28, 2012

  • “Extensions of unsecured credit by the FHLBanks to, among
    others, European financial institutions, increased substantially
    in 2010 and 2011, even as the risks associated with doing so were intensifying. For example, FHFA-OIG found that in 2011 one FHLBank extended more than $1 billion in unsecured credit to a European bank despite indications of increased risks associated with doing so, e.g., the bank’s credit rating was downgraded and it later suffered a multibillion dollar loss. FHFA internal documents from that period also noted the rapid, system-wide growth in unsecured credit, certain FHLBanks’ large exposures to particular financial institutions, and the increasing credit and other risks associated with such lending.”

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