In this report, we analyze the policy and market impact of a new report from FHFA’s Office of the Inspector General (OIG) that confirmed our recent assessment of the sharp spike in big-bank borrowers at several of the FHLBs.  We do not concur that this incurs solvency risk for the Home Loan Banks – thanks, prior lien – but do concur that it raises strategic and mission questions to the extent that the sharp spike in borrowings from the very biggest banks is used to support borrower liquidity, not housing finance.  We expect a hike in big-bank borrowing costs now that the blue-light special may be off the floor.

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