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New at TWI: Federal Home Loan Banks Loaned Billions to Prop Up Risky Lenders

The Atlanta Federal Home Loan Bank loaned $51.5 billion to Countrywide — a mortgage lender at the heart of the subprime crisis — in 2007. Washington Mutual, which went on to become the largest failed bank in American history, received $31 billion in loans from the San Francisco FHLB. IndyMac, which was seized by the federal regulators in July, also received $10 billion in advances from the San Francisco bank.

Were these low-profile, federally chartered banks just doing their jobs, as their defenders argue — or did the massive loans deepen the credit crisis by allowing business-as-usual to continue at some of the nation’s riskiest lenders? TWI’s Mary Kane has the story.

“People should be looking at this, including Congress,” said Peter Wallison, an American Enterprise Institute fellow who studies financial deregulation and a former general counsel for the Treasury Department. “It’s a very serious problem. The home loan banks kept the Countrywides and the IndyMacs in business. And they were the lenders who were the source of some of the problems we’re having now. Of course taxpayer dollars are at risk.”

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