Blog FinReg + Policy Watch September 30, 2020

FSOC Issues Statement on Proposed Capital Rule for Fannie Mae and Freddie Mac

On September 25, the FSOC released a Statement on Activities-Based Review of Secondary Mortgage Market (Statement). According to the Statement, in conducting its review, the FSOC evaluated the FHFA’s proposed new capital rule (Proposed Capital Rule) that is intended to enhance the quality and quantity of required capital so as to ensure that each of Fannie Mae and Freddie Mac (Enterprises) remains well-capitalized both during and after a severe economic downturn and also to mitigate the potential risk to national housing finance markets posed by the Enterprises. Specifically, the FSOC considered whether the proposed capital rule (1) is appropriately sized and structured given the Enterprises’ risks and their key role in the housing finance system and (2) promotes stability in the broader housing finance system. The FSOC stated that any capital requirements “materially less” than what the FHFA proposed in the new capital rule “would likely not adequately mitigate the potential stability risk” posed by the Enterprises, and encouraged the FHFA to:

  • avoid market distortions that could result from lower credit risk requirements for the Enterprises;
  • consider the relative merits of alternative approaches for more dynamically calibrating the capital buffers; and
  • ensure high-quality capital by implementing regulatory capital definitions that are similar to those in the U.S. banking framework.

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