Fannie Mae (FNMA)

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Just in case anyone's having trouble sleeping, there is plenty of reading material and room for comment concerning the GSE's :)

under federal regulations.gov

I. U.S. GSE SECURITIES
Commenters suggested a variety of approaches to change the final rule's treatment of U.S. GSE securities. Under the proposed rule, U.S. GSE securities are classified as level 2A liquid assets, which are subject to a 15 percent haircut and, when combined with level 2B liquid assets, have a 40 percent maximum composition limit in the HQLA amount, as discussed in section II.B.5 of this Supplementary Information section.
Several commenters requested that the agencies designate debt securities issued and guaranteed by a U.S. GSEs as level 1 liquid assets in the final rule. Commenters also stated that the 15 percent haircut for such obligations was too high. A few commenters recommended that the agencies remove the 40 percent composition cap on level 2 liquid assets for U.S. GSE securities if the final rule does not include U.S. GSE securities as level 1 liquid assets. Other commenters suggested that the agenciesremove the “liquid and readily-marketable” requirement for the inclusion of U.S. GSE securities as level 2A liquid assets because the securities clearly meet these requirements. One commenter suggested a graduated cap approach, whereby U.S. GSE securities in excess of the 40 percent composition limit in the HQLA amount would be subject to a haircut that would increase as the proportion of U.S. GSE securities to total HQLA increases.
To support their request, commenters made various observations about the liquidity characteristics of U.S. GSE securities. Many commenters highlighted that the market for U.S. GSE securities is one of the deepest and most liquid in the world, with over $4 trillion in GSE mortgage backed securities (MBS) outstanding and a daily trading volume in GSE MBS that averages almost $230 billion. In particular, some commenters argued that MBS issued by FNMA and FHLMC are among the highest quality and most liquid assets. A number of commenters mentioned that U.S. GSE securities comprise a significant amount of the liquidity portfolios of banking organizations because they are recognized by the market as trading in deep and liquid markets. Commenters also contended that GSE securities, like U.S. Treasury securities, have the highest potential to generate liquidity for a covered company during periods of severe liquidity stress. For example, one commenter pointed out that during the 2007-2009 financial crisis, demand for FHLB consolidated obligations increased during the dramatic flight-to-quality event.
Commenters also urged the agencies to consider the potential adverse impact of classifying GSE securities as level 2A liquid assets. These commenters argued that the level 2A liquid asset designation would discourage banking organizations from investing in the securities and would therefore decrease liquidity in the secondary mortgage market. A commenter asserted that the 40 percent cap on level 2A and level 2B liquid assets would result in U.S. banking industry positions being concentrated in the U.S. Treasury and U.S. agency markets, rather than being more broadly diversified across those markets and the GSE market. Another commenter suggested that the agencies assess the impact to the value of U.S. GSE securities should banking organizations liquidate their holdings, which could in turn increase mortgage funding costs and decrease the availability of credit for mortgages.
Some commenters argued that other agency guidance and rules consider or imply that U.S. GSE securities are highly liquid. For example, one commenter stated that the agencies have provided previous guidance encouraging institutions to hold an amount of high-quality liquid assets and cited securities issued by U.S. GSEs as an example of such assets and urged the agencies to explain any deviation from this guidance. (42) Another commenter raised the issue that the Board's then-proposed enhanced liquidity standards under section 165 of the Dodd-Frank Act classified U.S. GSE securities as “fully liquid.” (43)
Commenters also urged the agencies to consider the fact that certain U.S. GSEs currently operate under the conservatorship of the Federal Housing Finance Agency (FHFA) and receive capital support from the U.S. Treasury. These commenters argued that GSE securities should receive level 1 liquid asset designation while the U.S. GSEs receive support from the U.S. government because the obligations are effectively guaranteed by the full faith and credit of the U.S. government. One commenter suggested that, while the U.S. GSEs are in conservatorship, the agencies permit these securities to receive a 10 percent risk weight under the capital rules and permit them to be in level 1 liquid assets.
Finally, commenters compared the treatment of U.S. GSE securities as level 2A liquid assets under the proposed rule to the classification of securities issued by certain multilateral development banks, such as the International Bank for Reconstruction and Development, the Inter-American Development Bank, the International Finance Corporation, the German Development Bank, the European Investment Bank, the German Agriculture Bank, and the Asian Development Bank as level 1 liquid assets. Commenters argued that the size and liquidity of the markets for these securities is much less than the size and liquidity of the market for U.S. GSE securities.
The agencies recognize that some securities issued and guaranteed by U.S. GSEs consistently trade in very large volumes and generally have been highly liquid, including during times of stress, as indicated by commenters. The agencies also recognize that certain U.S. GSEs currently operate under the conservatorship of FHFA and receive capital support from the U.S. Treasury. However, the obligations of the U.S. GSEs are currently effectively, but not explicitly, guaranteed by the full faith and credit of the United States. Under the agencies' risk-based capital rules, the obligations and guarantees of U.S. GSEs—including those operating under conservatorship of FHFA—continue to be assigned a 20 percent risk weight, rather than the zero percent risk weight assigned to securities explicitly guaranteed by the full faith and credit of the United States. The agencies have long held the view that obligations of U.S. GSEs should not be accorded the same treatment as obligations that carry the explicit, unconditional guarantee of the U.S. government and that are assigned a zero percent risk weight. Moreover, the agencies feel that the events related to the 2007-2009 financial stress that required these entities to be placed under conservatorship do not support temporarily improving GSE securities' HQLA status.
Consistent with the agencies' risk-based capital rules, the agencies are not assigning the most favorable regulatory treatment to securities issued and guaranteed by U.S. GSEs under the final rule, even while certain GSEs temporarily operate under the conservatorship of FHFA. The final rule assigns GSE securities to the level 2A liquid asset category, as long as they are investment grade consistent with the OCC's investment securities regulation (12 CFR part 1) as of the calculation date and are liquid and readily-marketable. Additionally, consistent with the agencies' risk-based capital rules' higher risk weight for the preferred stock of U.S. GSEs, the final rule excludes such preferred stock from HQLA.
The agencies are aware that certain previous agency guidance and rules recognize the liquid nature of U.S. GSE securities; (44) however, the guidance and rules do not specifically address the types of diversification requirements that are being required by the final rule's inclusion of different levels of HQLA. The final rule continues to recognize U.S. GSE securities as highly liquid instruments that trade in deep and active markets by including them as a level 2A liquid asset.
In response to commenters' suggestions to remove the 40 percent composition cap, or apply a graduated cap to U.S. GSE securities included as level 2A liquid assets, the agencies believe that the proposed 40 percent cap (when combined with level 2B liquid assets) should continue to apply to all level 2A liquid assets, including U.S. GSE securities. In this regard, commenters also expressed concernsthat the cap on level 2A liquid assets would result in concentrated positions in U.S. Treasury and agency markets. The agencies continue to believe that the 40 percent composition cap is appropriate to ensure that level 2 liquid assets comprise a smaller portion of a covered company's total HQLA amount, such that the majority of the HQLA amount is comprised of level 1 liquid assets, which are the assets that have consistently demonstrated the most liquidity during periods of market distress. The designation of certain assets as level 2A liquid assets indicates that the assets have characteristics that are associated with being relatively stable and significant sources of liquidity, but not to the same degree as level 1 liquid assets. The agencies believe that the level 2 liquid asset cap appropriately prevents concentrations of less liquid assets and ensures a sufficient stock of the most liquid assets to meet stressed outflows during a period of significant market distress. As a result, level 2A liquid assets, when combined with level 2B liquid assets, cannot exceed 40 percent of the HQLA amount under the final rule.
Commenters expressed concerns that the proposed designation of U.S. GSE securities as level 2A liquid assets would result in broad market consequences, including decreased liquidity in the secondary mortgage market, increased mortgage funding costs, and impact to the fair value of U.S. GSE securities. The agencies do not believe the treatment of U.S. GSE securities will have broad market consequences as the largest market participants generally have already adjusted their funding profile and assets in anticipation of the LCR requirement with little impact on the overall market. Furthermore, the agencies highlight that the final rule does not prohibit covered companies from investing in U.S. GSE securities and instead continues to allow covered companies to participate fully in U.S. GSE securities markets.

http://www.regulations.gov/#!documentDetail;D=FDIC-2014-0108-0001