The Federal Home Loan Bank System: A Government Sponsored Enterprise that Avoided Conservatorship

Abstract

In September 2008, the US government placed Fannie Mae and Freddie Mac into conservatorship and entered into preferred stock purchase agreements with each. Since that time, these two government-sponsored enterprises (GSEs) have received $148 billion in taxpayer-injected equity. By contrast, the other housing-oriented GSE, the Federal Home Loan Bank System, has remained profitable throughout the crisis on a consolidated basis. This paper offers explanations as to why the Federal Home Loan Bank System did not meet the same fate as Fannie Mae and Freddie Mac, with a primary focus on differences in their respective business models, and important regulatory and charter/governance differences. The paper concludes with a financial condition update of the Federal Home Loan Bank System.

Keywords: Fannie Mae, Freddie Mac, conservatorship, government-sponsored enterprises