Government sponsored enterprise

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A Government sponsored enterprise, also known as a GSE, is a publicly held corporation with public purposes. The U.S. Congress creates GSEs to reduce the cost of capital for certain borrowing sectors of the economy such as students, farmers and homeowners. [1]

These entities carry a backing from the U.S. Government but it is important to note they are not direct obligations from the U.S. Government. Because of this, these securities will offer a yield premium over Treasuries.

Government sponsored enterprises usually have common characteristics such as; private sector ownership, limited competition, activities limited by congressional charter and chartered privledges that create inferred federal guarantee of obligations. [2]

Examples of GSE's include; the Federal Agricultural Mortgage Corporation, also known as Farmer Mac, the Federal Home Loan Mortgage Corporation, also known as Freddie Mac and the Federal National Mortgage Association, also known as Fannie Mae, the Federal Home Loan Bank System, the Federal Farm Credit Bank and the Resolution Funding Corporation.

References

  1. Government-sponsored enterprise. Investopedia.
  2. CRS Report for Congress: Government - Sponsored Enterprises. FAS.