Fannie Mae-No Politics (FNMA)

[Robert from yahoo bd]

ROLG: "Given that the GSEs are financial insurers with no risk of deposit flight, it occurs to me that there is an example of a financial guarantor in the banking sector that might offer an example for the amount of capital that should be required of a financial guarantor. That is the FDIC’s Deposit Insurance Fund (DIF).

The DIF at 12/31/2022 held $128.2 billion of capital to insure a total of $11 trillion of bank deposits (out of a total of $18 trillion, with the difference representing the uninsured deposits of individual depositors in excess of $250,000), or a capital ratio of 1.27%.

Even given that bank risks are more diverse than the risks the GSEs insure against, I wonder why this 1.27% capital ratio might not serve as a good comparable for a sensible GSE capital ratio."

TH: "The FDIC is a different type of financial guarantor compared with Fannie and Freddie. The FDIC’s Deposit Insurance Fund (DIF) is more analogous to the reserves of a property and casualty insurer, in that both types of insurance are required of the customers who make up their client base (banks for the DIF, and home and auto owners for property and casualty insurance companies). Because of that, each of these insurer types can make up for unexpectedly high current losses by raising their premiums on future business to whatever level is necessary, and their customers have no choice but to pay up (that’s why virtually all property and casualty insurers are rated AAA). Fannie and Freddie can’t do that, at least not nearly to the same degree; their current capital and guaranty fees have to be able to handle a specified amount of stress losses on their own, without the help of future income (or premiums)."