# The Dangerous Role of America’s Weird Lenders-of-Next-to-Last Resort.

1 Opinion August 17, 2023 Financial Times ![Headshots of professors Kim Schoenholtz and Lawrence White](/sites/default/files/styles/246w/public/2023-08/white_kim.png?itok=85hsxGYr)By Stephen Cecchetti, Kim Schoenholtz, and Lawrence White

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Some government financial institutions strengthen the system; others do not. Nowhere is that clearer than with the tangled mess of the Federal Home Loan Bank system.

In the US the Federal Reserve plays a critical role in financial stabilisation as the lender of last resort. In contrast, the FHLB system — government-sponsored enterprises that currently in practice act as a lender of next-to-last resort — plays a destabilising role, keeping dying institutions artificially alive and increasing the ultimate costs of their failures.

But first, a quick primer on this uniquely weird aspect of the US financial system. Please stay with us, as their discreet but important role is often under-appreciated.

Read the full [*Financial Times* article](https://www.ft.com/content/1ca4240b-e1c3-44ec-9033-f9217ddd4fae).

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*Kim Schoenholtz is Clinical Professor Emeritus at NYU Stern.*

*Lawrence White is the Robert Kavesh Professorship in Economics and the ​Deputy Chair, Economics.*

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