Government Sponsored Enterprises

A group of financial services corporations created by the United States Congress whose function is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital market more efficient and transparent. Their objective is to enhance the availability and reduce the cost of credit to the targeted borrowing sectors, principally agriculture, home finance and education. Some of the GSEs (such as Fannie Mae and Freddie Mac) have been privately owned but publicly chartered; others, such as the Federal Home Loan Banks, are owned by the corporations that use their services. GSE securities carry no explicit government guarantee of creditworthiness, but lenders grant them favorable interest rates, and the buyers of their securities offer them high prices. This is partly due to an "implicit guarantee" that the government would not allow such important institutions to fail or default on debt.