A government-sponsored enterprise (GSE) is a legal entity created by a national or state government to undertake business on behalf of the government. GSEs in the US include Freddie Mac, Fannie Mae, and the 12 federal home loan banks, and have implied support from the government. They must meet certain parameters to be considered a GSE and cannot exercise powers reserved for the government.
A government-sponsored enterprise (GSE), also referred to as a state-owned enterprise or government-owned corporation, is a legal entity created by a national or state government to undertake business on behalf of the government. A GSE can be wholly or partially owned by the government, depending on the circumstances and guidelines set by the governing body. GSEs in the United States are a group of financial services companies created by Congress.
The US Congress created the first GSE, the Farm Credit System, in 1916. Every GSE in the US was created with the goal of overcoming inefficiencies and imperfections in the capital markets. Some of the best-known GSEs in the United States are those involved in mortgage financing: Freddie Mac, Fannie Mae and the 12 federal home loan banks. These companies have billions of US dollars (USD) on their balance sheets, and the federal government holds warrants, which would give it a nearly 80% stake in these companies, should the government decide to exercise the warrants. The Corporation for Public Broadcasting and the United States Postal Service are also GSEs.
A GSE has implied support from the US government, although they are not direct government obligations. For budgeting purposes, the US Congress has defined several parameters that an organization must meet to be considered a GSE. He must first have a federally authorized card. It must also be privately owned, meaning that individuals or entities must hold the controlling stock. A board of directors, mostly elected by private owners, must head it. In addition, it must be a financial institution with the power to borrow and lend.
There are certain things that a GSE must not do if it is to be considered only a GSE and not a government entity. It cannot exercise powers reserved for the government in the United States Constitution, such as the power to regulate interstate commerce or the power to collect taxes. Its employees are not federal employees and their wages are paid by the company’s businesses. Furthermore, a GSE has no power to commit government money to loans unless that government has previously provided such a guarantee. In practical terms, this also implies that a GSE benefits from an implicit government guarantee to facilitate lending, although this is not part of the stated definition.
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