Federal Credit Fridays: The Good, the Bad, and the Ugly of Risk-Based Credit Spreads for Federal Credit

Welcome to Federal Credit Fridays! The U.S. government is one of the largest lenders and credit guarantors on earth. Its portfolio is estimated at over $3.6 trillion, as measured by loan assets and the face value of loan guarantees. The government uses credit for a wide variety of policy missions, including housing, higher education, small businesses, rural and urban economic development, infrastructure, and export promotion, among others. This podcast will familiarize you with the vast world of federal credit, and we hope that you’ll learn about similarities and differences between these programs as well as the importance of their work to achieving policy missions within the framework of public-private collaboration.

The Good, the Bad, and the Ugly of Risk-Based Credit Spreads for Federal Credit
Insights from the latest episode of Federal Credit Fridays, featuring Anthony Curcio and Brian Oakley

In this episode of Federal Credit Fridays, host Anthony Curcio is joined by federal credit expert Brian Oakley to explore one of the more complex—but crucial—topics in public finance: risk-based credit spreads. As federal lending programs evolve to support infrastructure, energy independence, and strategic industrial capacity, the conversation turns to how policymakers can (and should) price risk across asset classes.

The Good: Strategic Impact Through Rate Flexibility
When thoughtfully applied, risk-based spreads allow federal credit programs to meet borrowers where they are—supporting high-impact projects without overcommitting public resources. Oakley and Curcio discuss how even small reductions in borrowing rates (e.g., from 4% to 2% or 1%) can yield outsized benefits in sectors with strong recovery profiles, such as transportation and utilities.

“Even 4% is pretty compelling,” Oakley notes, “when you think about the multiplier effect… especially in infrastructure sectors where default risk is low.”

The flexibility to adjust rates based on risk and policy priorities allows federal programs to stimulate critical investments while still maintaining fiscal discipline.

The Bad: Oversimplification Risks
One pitfall discussed is the temptation to apply a one-size-fits-all approach. Curcio warns against oversimplifying the pricing strategy: “If we do nothing else with interest rate or fee policy, we’re likely looking at a 4–6% rate range. But to get it lower, we need to make deliberate choices.”

Using blanket markups or rigid pricing models can distort project selection, misallocate resources, or disincentivize private sector participation. Precision matters.

The Ugly: Hidden Costs and Missed Opportunities
Perhaps most overlooked are the unintended consequences of poorly calibrated spreads. As Oakley points out, longer loan tenors with decent credit quality and moderate markups can actually reduce subsidy costs over time—yet these opportunities are often missed due to conservative assumptions or legacy program rules.

Misjudging credit risk or ignoring duration dynamics can result in either excessive subsidy costs or missed investments in projects with substantial public benefit.

A Call for Smarter Structuring
Federal credit isn't about rescuing markets—it’s about accelerating progress where commercial lending falls short. Risk-based spreads, when structured with nuance, enable that acceleration without sacrificing stewardship.

At Summit Consulting, we help agencies and policymakers design, evaluate, and refine federal credit programs to maximize impact while managing risk. This episode underscores the importance of balancing financial rigor with mission-driven flexibility.

Federal Credit Fridays · The Good, the Bad, and the Ugly of Risk Based Credit Spreads for Federal Credit

Federal Credit Fridays: The Good, the Bad, and the Ugly of Risk-Based Credit Spreads for Federal Credit

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