The Federal Home Loan banks (FHLBanks) increasingly turned to offering short-term, unsecured credit to financial institutions exposed to the turmoil in Europe as the 12-member cooperative's own core business dwindled, a government watchdog said Thursday.

The report by the Federal Housing Finance Agency's (FHFA) Office of the Inspector General depicts a startling picture where the banks, facing sluggish demand for advances, extended unsecured credit to domestic and foreign firms that were at times on the brink of failure.

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