Capital Markets School - October 2023

Internal Use Only

Credit Risk

Explicit Guarantee versus Implicit Guarantee • Explicit – GNMA (a unit of HUD), • Implicit – FNMA/FHLMC (via FHFA and the US Treasury Senior Preferred Stock Purchase Agreement), FHLB, Tennessee Valley Authority

US Agency Debt

• GNMA • FNMA • FHLMC

15

Internal Use Only

Credit Risk

A bank’s due diligence process is a key safeguard to mitigating credit risk.

Banks should be able to demonstrate a professional level of credit analysis for all credit ‐ related (i.e. non ‐ US Treasury or explicitly supported) securities.

Per the Uniform Agreement on the Classification and Appraisal of Securities Held by Depository Institutions:

“The depth of analysis should be a function of the security’s risk characteristics, including its size, nature, and complexity. Individual security analysis should form the basis of any classification determination.”

16