ABA Offers Feedback on FHFA’S GSE Capital Proposal

In a comment letter to the Federal Housing Finance Agency on Friday, the American Bankers Association offered feedback on a proposal that would create a new framework for risk-based capital requirements for Fannie Mae and Freddie Mac to ensure that the GSEs could cover losses and continue operations in the event of stress. The proposal also includes two alternatives for an updated minimum leverage capital requirement

In its comments — which reflect input from ABA’s GSE policy committee and other ABA member bankers — ABA acknowledged the importance of developing robust and sound capital standards for the enterprise, adding that “the FHFA is on the right path striking the balance between leverage and risk-based capital standards by establishing a leverage ratio requirement that operates as a backstop.” ABA also noted that the process being undertaken by FHFA may help to inform the legislative debate about the future role of the enterprises and what capital standards should be developed as part of that process.

ABA recommended that given the monoline nature of the GSEs’ businesses, FHFA should also consider how to measure concentration risk and potentially develop capital requirements around it. The association also cautioned FHFA to “not let ‘phantom capital’ be a driving force that undermines or curtails programs or activities that the market finds useful.”