In two comment letters to the Federal Housing Finance Agency last week, the American Bankers Association weighed in on proposed changes to liquidity requirements for Fannie Mae and Freddie Mac, as well as proposed changes to resolution planning requirements for the two GSEs.
FHFA in December proposed four new liquidity and funding requirements for the GSEs collectively intended to increase the Enterprises’ ability to withstand a liquidity stress over the short, intermediate and longer terms. The proposal is based on the Liquidity Coverage Ratio and Net Stable Funding Ratio, quantitative liquidity ratios which apply to the largest banks. While offering support for a robust capital and liquidity regime for Fannie and Freddie, ABA noted that greater detail is needed to allow for a full evaluation of the proposed standards and urged FHFA to issue an updated proposal for comment.
With regard to the proposed resolution planning requirements—which would require Fannie and Freddie to develop so-called “living wills” detailing how they would facilitate resolution in the event that the FHFA is appointed receiver—ABA urged FHFA to follow three key principles when implementing these rules. Specifically, the GSEs should take into account reliance on their operations by other market participants, ensure transparency and continue to move ahead with GSE reform.