Washington, D.C. – The Federal Housing Finance Agency (FHFA) is seeking comments on a proposed regulation on capital requirements for Fannie Mae and Freddie Mac (the Enterprises). The proposed rule would implement a new framework for risk-based capital requirements and a revised minimum leverage capital requirement for the Enterprises.
FHFA suspended regulatory capital requirements after placing the Enterprises into conservatorships in September 2008. While the capital requirements in this rule would also be suspended while the Enterprises remain in conservatorship, FHFA believes it is appropriate to communicate the Agency’s views as a financial regulator about capital adequacy and to allow market participants and all stakeholders to comment on the proposed capital requirements.
“We think it is important for FHFA, as the prudential regulator for Fannie Mae and Freddie Mac, to articulate our views on capital requirements and to start a healthy discussion about the amount of capital the Enterprises should have to appropriately shield taxpayers from assistance,” said FHFA Director Melvin L. Watt. “In addition, feedback on this proposed rule will inform FHFA’s views as conservator in making possible refinements to our assumptions about capital as we evaluate the Enterprises’ business decisions during conservatorship.”
The proposed rule builds on FHFA’s work with the Enterprises to develop a Conservatorship Capital Framework (CCF) that is now being used to align capital guidelines for both Enterprises. Despite the Enterprises’ limited ability to hold capital under the Senior Preferred Stock Purchase Agreements (PSPAs), FHFA developed this aligned risk management framework to better inform each Enterprise’s business decisions while in conservatorship and both Enterprises use the CCF to make their regular business decisions. FHFA also uses the CCF in its role as conservator to assess Enterprise guarantee fees, activities, and operations and to guard against the Enterprises making competitive decisions that could adversely impact safety and soundness.
FHFA invites interested parties to submit comments on the proposed rule via FHFA.gov within 60 days of publication in the Federal Register or via mail, FHFA, Eighth Floor, 400 Seventh Street, SW, Washington, DC 20219. FHFA will also be holding a webinar on the proposed rule on June 19 at 1:30 p.m. EDT to explain the proposed rule and answer questions. Register for the webinar here.
Link to Proposed Rule (Proposed-Rule-Enterprise-Capital-Fact-Sheet)
Link to Fact Sheet: Proposed Rule on Enterprise Capital (E Capital to Fed Reg for Web)
It is very similar to Moelis plan
Josh Rosner’s view of FHFA’s proposal (381737512-GF-Co-FHFA-s-Proposed-Capital-Rule)
Proposed Minimum Leverage Capital Requirements
The proposed rule includes two alternative leverage ratio proposals. In proposing these two alternatives, FHFA is seeking to obtain feedback on how to establish a minimum leverage requirement that would serve as a backstop to the proposed risk-based capital requirements, while avoiding or mitigating potential impact on the Enterprises’ marginal economic decision-making.
Alternative 1: The Enterprises would be required to hold capital equal to 2.5 percent of total assets and off-balance sheet guarantees. This approach, consistent with Basel leverage capital requirements for banks, would require the Enterprises to hold a minimum amount of capital for assets and guarantees that does not differentiate between the risk characteristics of assets and guarantees
Alternative 2: The Enterprises would be required to hold capital equal to 1.5 percent of trust assets and 4 percent of non-trust assets. This approach, consistent with the Enterprises’ Safety and Soundness Act, differentiates between the greater funding risks of the Enterprises’ non-trust assets and the lower funding risks of the Enterprises’ trust assets while increasing the capital requirements for both relative to the current statutory requirements.
FHFA Proposes Minimum Capital Requirements $181 Billion for Fannie and Freddie.
TimelessInvestor
FHFA Proposes Minimum Capital Requirements $181 Billion for Fannie and Freddie
FHFA Proposes Minimum Capital Requirements $181 Billion for Fannie and Freddie- from FHFA web site and also IMF news. FHFA will also be holding a webinar on the proposed rule on June 19 at 1:30 p.m. EDT to explain the proposed rule and answer questions. It is a step in the right direction, even though the future is still murky because we do not know whether and when the recap will happen.
FHFA Issues Proposed Rule on Enterprise Capital
Washington, D.C. – The Federal Housing Finance Agency (FHFA) is seeking comments on a proposed regulation on capital requirements for Fannie Mae and Freddie Mac (the Enterprises). The proposed rule would implement a new framework for risk-based capital requirements and a revised minimum leverage capital requirement for the Enterprises.
FHFA suspended regulatory capital requirements after placing the Enterprises into conservatorships in September 2008. While the capital requirements in this rule would also be suspended while the Enterprises remain in conservatorship, FHFA believes it is appropriate to communicate the Agency’s views as a financial regulator about capital adequacy and to allow market participants and all stakeholders to comment on the proposed capital requirements.
“We think it is important for FHFA, as the prudential regulator for Fannie Mae and Freddie Mac, to articulate our views on capital requirements and to start a healthy discussion about the amount of capital the Enterprises should have to appropriately shield taxpayers from assistance,” said FHFA Director Melvin L. Watt. “In addition, feedback on this proposed rule will inform FHFA’s views as conservator in making possible refinements to our assumptions about capital as we evaluate the Enterprises’ business decisions during conservatorship.”
The proposed rule builds on FHFA’s work with the Enterprises to develop a Conservatorship Capital Framework (CCF) that is now being used to align capital guidelines for both Enterprises. Despite the Enterprises’ limited ability to hold capital under the Senior Preferred Stock Purchase Agreements (PSPAs), FHFA developed this aligned risk management framework to better inform each Enterprise’s business decisions while in conservatorship and both Enterprises use the CCF to make their regular business decisions. FHFA also uses the CCF in its role as conservator to assess Enterprise guarantee fees, activities, and operations and to guard against the Enterprises making competitive decisions that could adversely impact safety and soundness.
FHFA invites interested parties to submit comments on the proposed rule via FHFA.gov within 60 days of publication in the Federal Register or via mail, FHFA, Eighth Floor, 400 Seventh Street, SW, Washington, DC 20219. FHFA will also be holding a webinar on the proposed rule on June 19 at 1:30 p.m. EDT to explain the proposed rule and answer questions. Register for the webinar here.
Link to Proposed Rule (Proposed-Rule-Enterprise-Capital-Fact-Sheet)
Link to Fact Sheet: Proposed Rule on Enterprise Capital (E Capital to Fed Reg for Web)
It is very similar to Moelis plan
Josh Rosner’s view of FHFA’s proposal (381737512-GF-Co-FHFA-s-Proposed-Capital-Rule)
Proposed Minimum Leverage Capital Requirements
The proposed rule includes two alternative leverage ratio proposals. In proposing these two alternatives, FHFA is seeking to obtain feedback on how to establish a minimum leverage requirement that would serve as a backstop to the proposed risk-based capital requirements, while avoiding or mitigating potential impact on the Enterprises’ marginal economic decision-making.
Alternative 1: The Enterprises would be required to hold capital equal to 2.5 percent of total assets and off-balance sheet guarantees. This approach, consistent with Basel leverage capital requirements for banks, would require the Enterprises to hold a minimum amount of capital for assets and guarantees that does not differentiate between the risk characteristics of assets and guarantees
Alternative 2: The Enterprises would be required to hold capital equal to 1.5 percent of trust assets and 4 percent of non-trust assets. This approach, consistent with the Enterprises’ Safety and Soundness Act, differentiates between the greater funding risks of the Enterprises’ non-trust assets and the lower funding risks of the Enterprises’ trust assets while increasing the capital requirements for both relative to the current statutory requirements.
FHFA Proposes Minimum Capital Requirements $181 Billion for Fannie and Freddie.
June 12, 2018 … By Paul Muolo …pmu…@imfpubs.com
The regulator is proposing two “alternative” leverage ratios for the government-sponsored enterprises, one that requires each to hold capital equal to 2.5 percent of assets and off-balance sheet guarantees.
Labeled “Alternative 2,” the other requires the mortgage giants to hold capital equal to 1.5 percent of “trust” assets and 4.0 percent of non-trust assets. The regulator/conservator notes this differentiates “between the greater funding risks of the enterprises’ non-trust assets and the lower fundings risk” of their trust assets.
As for risk-based capital, the FHFA is proposing an “operational” requirement of 8 basis points for all assets and guarantees. It also wants a “risk variant going concern buffer” of 75 bps of all assets.
Based on their book of business for 2017, the GSEs would have to come up with $180.9 billion in risk based capital, the FHFA estimates.
In a statement accompanying the proposal, the agency stresses that even though Fannie and Freddie will not have to meet the standards right away, the agency wants to “start a healthy discussion about the amount of capital the enterprises should have to appropriately shield taxpayers from assistance.”
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My name is Samual Lau. I am a long-term value investor and a zealous disciple of Ben Graham. And I am a MBA graduated in May 2010 from Carnegie Mellon University. My concentrations are Finance, Strategy and Marketing.