Freddie Mac 2015 Annual Report Download - page 193

Risk Factors Liquidity Risks
Freddie Mac 2015 Form 10-K 191
LIQUIDITY RISKS
Our activities may be adversely affected by limited availability of financing and increased funding
costs.
The amount, type, and cost of our unsecured funding, including financing from other financial institutions
and the capital markets, directly affects our interest expense and results of operations. A number of
factors could make such financing more difficult to obtain, more expensive or unavailable on any terms,
both domestically and internationally, including:
• Market and other factors;
• Changes in U.S. government support for us;
• Reduced demand for our debt securities; and
• Competition for debt funding from other debt issuers
Market and Other Factors
Our ability to obtain funding in the public unsecured debt markets or by selling or pledging mortgage-
related and other securities as collateral to other institutions could cease or change rapidly. The cost of
available funding could increase significantly due to changes in market interest rates, market confidence,
operational risks, regulatory requirements and other factors. We may incur higher funding costs due to
our liquidity management practices and procedures. There can be no assurance that such practices and
procedures would provide us with sufficient liquidity to meet our ongoing cash obligations under all
circumstances. In particular, we believe that our liquidity contingency plans may be difficult or impossible
to execute during a liquidity crisis or period of significant market turmoil. If we cannot access the
unsecured debt markets, our ability to repay maturing indebtedness and fund our operations could be
eliminated or significantly impaired, as our alternative sources of liquidity (e.g., cash and other
investments) may not be sufficient to meet our liquidity needs.
We make extensive use of the Federal Reserve's payment system in our business activities. The Federal
Reserve requires that we fully fund accounts at the Federal Reserve Bank of New York to the extent
necessary to cover cash payments on our debt and mortgage-related securities each day, before the
Federal Reserve Bank of New York, acting as our fiscal agent, will initiate such payments. Although we
seek to maintain sufficient intraday liquidity to fund our activities through the Federal Reserve's payment
system, we have limited access to cash once the debt markets are closed for the day. Insufficient cash
may cause our account to be overdrawn, potentially resulting in penalties and reputational harm.
Prolonged wide spreads on long-term debt could cause us to reduce our long-term debt issuances and
further increase our reliance on short-term and callable debt issuances. This increased reliance could
increase the risk that we may be unable to refinance our debt when it becomes due and result in a
greater use of derivatives. This greater use of derivatives could increase the volatility of our
comprehensive income.
Our mortgage-related investments portfolio has contracted significantly since we entered into
conservatorship, but continues to contain assets that are less liquid than agency securities. Our ability to
use these less liquid assets as a significant source of liquidity (for example, through sales or use as
collateral in secured lending transactions) is limited.