Cracks are showing in the world of private credit, as investors are anxious to withdraw their investments from private credit funds amid higher default rates and write downs. Once an esoteric part of our financial system, private credit has metastasized across sectors, growing to a $2 trillion market. While the Treasury Department has already called for talks with state insurance commissioners amid worries about private-credit investments on the books of insurers, risk exposure runs much deeper: the trillion-dollar, taxpayer-subsidized Federal Home Loan Bank (FHLBank) System is also exposed. 

Congress created the FHLBank System during the Great Depression to help promote lending for homeownership. The Congressional Budget Office reported in 2024 that the FHLBanks’ annual government subsidy was roughly $7 billion, generated by special regulatory treatment, exemption from state and federal taxes and an implicit federal guarantee on their massive debt issuance. These public subsidies are passed through to FHLBank member banks and, increasingly, insurance companies in the form of cheap money and high dividends. Over the decades, as mortgage markets have become increasingly dominated by highly liquid mortgage-backed securities, the FHLBank role in housing finance has all but disappeared. FHLBanks have now become a taxpayer-subsidized profit generator for their members, including those with high appetites for risk.

For example, one such member is private equity giant Apollo Global Management, which gained access to the FHLBank System’s cheap loans after buying life insurance company, Athene. Other large private equity firms have acquired multiple insurance companies that are members of several FHLBanks.

Apollo openly touts its use of FHLBank advances as part of an “investment spread strategy,” meaning they invest the subsidized advances in higher-yielding assets, boosting their profits on the rate spread. In 2024, Athene became the largest borrower from the FHLBank of Des Moines. By the end of 2025 Athene had borrowed over $23 billion in government subsidized funding, equivalent to 21 percent of the FHLBank of Des Moines’ outstanding loans and the second highest of any borrower from any FHLBank. Other private equity firms use their FHLBank memberships to deploy similar strategies at lower levels of borrowing.

Athene’s highly concentrated borrowing exposes taxpayers and the FHLBank System to increasing and opaque risks. Apollo and other private credit giants have seen investors attempt to withdraw funds in response to declining asset valuations – well above the limit of 5 percent redemption caps the funds have set – due to concerns about the safety of the private credit funds’ assets. Athene engages in private credit lending through equity ownership in Apollo’s loan origination platforms and investment in their loan products.

Another private credit facility, Blue Owl Capital, which has also faced a wave of redemption requests, manages assets for 3 insurance companies, all of whom are FHLBank members. 

As an insurance company, these FHLBank members are not insured by the FDIC or NCUA. The extent of the System’s exposure to private credit – by definition lending outside the banking regulatory regime – remains unclear; neither the FHLBanks nor their regulator appear to have material information regarding these risks due to the opaque process by which private credit assets are valued and rated. The recently published 2025 Combined Financial Report for the FHLBanks does not mention the role of private credit once. 

However, private credit’s weakening presents risk to all FHLBanks and all their members, including the community banks and credit unions that the System purports to serve. FHLBanks are jointly and severally liable for the debt payments on all FHLBank debt. If Athene’s exposure to private credit creates financial stress for Des Moines, this could impact all the FHLBanks and their members. If global investors in FHLBank debt get concerned about these risks, all FHLBank members could see their borrowing costs go up. 

American taxpayers have zero stake in subsidizing the opaque, illiquid, and potentially high-risk investment portfolios of private equity companies: this represents a misuse of taxpayer dollars. The Federal Home Loan Bank enjoys its public subsidies as Congress founded it to support affordable liquidity for housing. The FHFA and Treasury should step in, to refocus the FHLBanks on their housing mission, and actually channel its government subsidy towards housing finance and construction. FHFA and Treasury would also be wise to bring in the FHLBanks for conversations about risk concentration on their books, and demand transparency on FHLBank lending and exposure to private credit. The example of such high loan concentration to Apollo, a leader in private credit lending, demonstrates just how far the FHLBanks have strayed from their housing mission, and how complacent they are about the risk of concentration in their lending. 

Jared Gaby-Biegel is a Senior Research Associate at the United Food and Commercial Workers International Union (UFCW), a labor union representing over 1 million workers in the U.S. and Canada across a range of industries including grocery, retail, and meatpacking.