So to many that feels like an example of moral hazard. Privatizing gains while socializing losses. To put a finer point on it, The FHLB system is all but assured of repayment by its priority lien on pledged capital. What exactly is the disincentive against extending advances to a failing bank, especially when the benefits accrue to the system while the costs are likely borne by the FDIC as receiving ultimately by the deposit insurance firm? (03:12–03:18)
CLAIM
Asserts that the Federal Home Loan Bank system is assured of repayment due to its priority lien on pledged capital.
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