Regulating Housing GSEs: Thoughts on Institutional Structure and Authorities
AbstractMany of the benefits that the housing government-sponsored enterprises (GSEs) transmit to homebuyers stem from an implied federal guarantee arising from the GSEsâ charter benefits and past supervisory forbearance. But this implicit guarantee also represents a risk to taxpayers if one of these GSEsâFannie Mae, Freddie Mac, or the Federal Home Loan Bank (FHLB) Systemâbecomes insolvent and the government provides financial assistance. ; In the wake of a $5 billion accounting restatement by Freddie Mac in 2003, concerns about taxpayer liability associated with the housing GSEs have led to various legislative proposals to reorganize their regulatory oversight. This article discusses these proposals, drawing on lessons from U.S. banking regulation to identify and evaluate the points of contention. ; The legislative proposals generally pertain to institutional design (where the safety-and-soundness regulator is located, how it is funded, and whom it should supervise) and institutional authorities (for example, discretion to alter capital requirements and the ability to appoint conservators and receivers). ; With respect to institutional design, the authors conclude that there may not be a clearly dominant approach. In regard to institutional authorities, the authors recommend that the safety-and-soundness regulator have responsibility for approving new programs and other activities, the discretion to set both minimum and risk-based capital requirements, receivership authority, and other enforcement authorities comparable to the federal banking agencies.
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Bibliographic InfoPaper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 04-01.
Date of creation: 2004
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- W. Scott Frame & Lawrence J. White, 2004. "Regulating housing GSEs: thoughts on institutional structure and authorities," Economic Review, Federal Reserve Bank of Atlanta, issue Q 2, pages 87 - 102.
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- W. Scott Frame & Lawrence J. White, 2004.
"Emerging competition and risk-taking incentives at Fannie Mae and Freddie Mac,"
922, Federal Reserve Bank of Chicago.
- Lawrence J. White & W. Scott Frame, 2004. "Emerging Competition and Risk-Taking Incentives at Fannie Mae and Freddie Mac," Working Papers 04-02, New York University, Leonard N. Stern School of Business, Department of Economics.
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