June 01, 2009

One of New England’s most important banks, and a necessary catalyst to any potential housing market recovery, faces a crisis over a $4.1 billion investment portfolio that is riddled with junk-rated securities valued at 51 cents on the dollar — and sinking.For years, the Federal Home Loan Bank of Boston operated in a blissful state of obscurity, pumping out advances to more than 400 New England banks, credit unions and insurance companies.

Over the past five years, those advances, which rank right behind deposits as a key source of funding for bank loans, totaled $218 billion. Lenders of every size — from Bank of America to the MBTA Employees Credit Union — rely on the wholesale bank to grease the wheels of the economy.But suddenly, New England’s bank for banks is one of the worst-performing Federal Home Loan Banks in the country.