Thursday, June 11, 2009

the federal financing bank

the most important off-budget agency is the federal financing bank (FFB), which began operation in 1974. Today it provides most of the financing for off-budget agencies and also for certain on-budget agencies. the FFB lends by three methods:
1- purchasing agency debt (bond)
2- purchasing loans and loan assets
3- purchasing loan guarantees
All these purchases are financed with funds borrowed directly from the Treasury. the original purpose of the FFB was to coordinate and to consolidate the borrowing of a number of federal agencies. The FFB was designed to act as an intermediary- buying securities issued by off-budget agencies and paying for them with funds borrowed from the Treasury. Funds lent by the FFB to off-budget agencies do not show up in the budget totals voted and authorized Congress.
federal agencies often guarantee loans to insure the lender against any loss resulting from default by the borrower. some of the most famous cases of loan guarantees involved the city of new york, CHRYSLER, and LOCKHEED. when the FFB purchases a guaranteed loan at the request of federal agency, that purchase is ultimately paid for by te treasury which will probably sell securities to cover the expense. such an action is an indirect loan from the treasury to the private-sector borrower, but it is a "loan" that will not show an anywhere in the federal budget or deficit. Nonetheless,total borrowing by the Treasury has increased to finance the purchase.

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