Page 36 - May-June 2018 GSE Report Flip Book

FANNIE MAE AND FREDDIE MAC MAJAYN-UAJRUYNE20210818
FHFA proposes minimum capital requirements for GSEs post-conservatorship
The Federal Housing Finance Agency has proposed new minimum capital requirements for Fannie Mae and Freddie Mac that would go into effect when FHFA ends its conservatorship of
the two GSEs. Under the proposal, Fannie’s and Freddie’s targeted combined capital would be $180.9 billion. The proposal would also include components for market and operational risk. The agency has proposed two different minimum capital requirements for the GSEs—(1) 2.5% capital requirement for all assets and off-balance sheet guarantees and (2) 1.5% capital requirement for the GSEs’ trust assets and 4% capital for all non-trust assets. FHFA has asked for public comment on both minimum capital requirement structures.
“FHFA’s proposed rule is based on a capital framework that is generally consistent with the regulatory capital framework for large banks, but reflects differences in the charters, business operations, and risk profiles of the Enterprises,” wrote the agency.
Is FHFA’s proposed GSE capital requirements an intellectual exercise of sign of change ahead for the enterprises? “It seems like a reasonable compromise in terms of numbers, but obviously it’s theoretical,” said Bose George, a managing director at Keefe, Bruyette & Woods. “It’s a framework people can use for the future.”
Others, however, saw the proposal as having a more substantial impact.
FHFA’s proposed capital framework “is largely the one [the GSEs] use today” with regard to pricing and counterparty risk management, according to Urban Insitute’s Jim Parrott. “It really does provide a sort of blueprint for the kinds of things we ought to be thinking about legislatively,” said Parrott. “Even if we defer to the regulators ultimately, at least we see at the end of the day what a rich capital regime should look like, and then we can decide then and our legislators can decide then what role they want to play in setting guardrails around what a regulator ought to do.”
“What’s nice about it really first and foremost is for the first time it shows those who are not in FHFA or the GSEs exactly how the capitalization framework that they use today works,” added Parrott. “It should be helpful going forward because even if the next FHFA migrates off of this somehow, it is the document to which we’ll all turn to understand what we’re trying to argue about.” (American Banker, Hannah Lang, 06/15/18)
In a letter to FHFA Director Watt, the trade organizations and civil rights groups wrote:
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