Federal Guarantee Customization Workshop
By invitation only
June 14 - 15, 2012
Federal Reserve Bank of San Francisco, Los Angeles office
The federal government guarantees almost $1 trillion in small business, housing, energy and other loans annually. Better targeting of federal credit support programs is one way to address the credit risk problems that impede the flow of credit to underserved markets. However, loans to underserved borrowers may increase guarantee losses and corresponding "credit subsidy" costs - an important disincentive for federal policymakers.
Many states and localities have instituted their own credit enhancement programs to serve borrowers - and lenders - not adequately served by federal credit support. But, unlike the federal government, states are prohibited from pledging their credit on behalf of private interests. Instead they must back their guarantee programs with funded, but unrated, accounts that are typically 10 to 20 times larger than the credit subsidy for similar federal programs. As result, state programs offer credit risk protection that is both inferior and more expensive than federal initiatives.
Allowing states and localities to obtain federal backing for their programs by paying the associated credit subsidy costs would make state programs less expensive and more appealing to lenders. At the same time, it would permit federal credit agencies to target programs more effectively to underserved markets.
Toward that end, the Federal Guarantee Customization Workshop will bring together government officials, federal credit executives, lenders, institutional investors, and finance professionals to develop the framework of a pilot "customization" program aimed at addressing underserved markets in California.
Participants will help shape policy and program proposals designed to allow:
Banks and other lenders to extend credit into underserved markets without incurring significantly increased risk
States and localities to improve the capacity and quality of credit enhancement programs at reduced public cost
Federal agencies to increase the effectiveness of federal credit programs without additional cost federal taxpayers
Investors and finance professionals to gain insight into the opportunities created by the emergence of a new class of federally-guaranteed assets
The event's organizers are The Milken Institute; the Federal Reserve Bank of San Francisco's community development arm; Wall Street Without Walls, a national program to help community economic development organizations access the capital markets; and Capital Access Group, a network of finance and public policy professionals specializing in adapting proven financing techniques and structures to underserved markets.
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