A RISK that is been hanging over an illiquid corner of the United States credit market since last year’s banking crisis seems to have been quietly taken off the table.
The failures of Silicon Valley Bank (SVB) and Signature Bank in March 2023 left the Federal Deposit Insurance Corporation (FDIC) with a large portfolio of assets, and BlackRock – which was brought in to sell them – offloaded most within a few months.
But the FDIC till last year was still holding some US$13 billion in face value of Ginnie Mae project loan securities, a type of debt that is backed by apartment loans. The amount rivalled the volume of new Ginnie Mae securities that are often sold in a given year, raising the risk of a fire sale that would upset the market.
The FDIC’s annual report last month, however, reported that it sold US$10.5 billion of the securities in January to trusts tied to the Federal Financing Bank (FFB), an arm of the US Treasury. The trusts sold notes to the FFB, though the precise mechanics of the transaction were not described.
A spokesperson for the US Treasury referred questions to the FDIC. The FDIC declined to comment.
Strategists at Santander US Capital Markets in New York flagged the transaction in a note to clients on Friday (Mar 15), saying it tied up some loose ends from the bank failures. The note said the face value of the securities was US$12.3 billion.
“The transaction gets the securities off the FDIC books and likely eliminates the possibility that the securities might flow into the private markets,” they wrote in the note. BLOOMBERG
