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Replies to post #552157 on Fannie Mae-No Politics (FNMA)
So, we can do the obvious calculations:
TABLE 2
Do we then consider the residual $36.4 billion “implied going-concern buffer” enough to maintain market confidence ?
Given that it is more than double the severely adverse scenario stress test loss, there is a good argument it does. But as the FHFA has never formally and publicly made the judgment call of how to calculate a total going-concern buffer for the GSEs, we can only posit that it is indeed adequate.
Regardless of the specifics of what the FHFA comes out with in its capital rule, there is no denying that the stress test results are a credible reminder how de-risked the GSEs are today versus just five years ago. The stress loss, at just 0.8 percent of assets, is a small amount (and would only be 0.4 percent if no DTA write-down is assumed), especially when compared to the 3 to 5 percent loss ratio range that I have heard policymakers most commonly discuss as being generated during the financial crisis.
It’s a quiet but major policy success that should get more attention in Washington.
Do we then consider the residual $36.4 billion “implied going-concern buffer” enough to maintain market confidence? Given that it is more than double the severely adverse scenario stress test loss, there is a good argument it does. But as the FHFA has never formally and publicly made the judgment call of how to calculate a total going-concern buffer for the GSEs, we can only posit that it is indeed adequate.
Regardless of the specifics of what the FHFA comes out with in its capital rule, there is no denying that the stress test results are a credible reminder how de-risked the GSEs are today versus just five years ago. The stress loss, at just 0.8 percent of assets, is a small amount (and would only be 0.4 percent if no DTA write-down is assumed), especially when compared to the 3 to 5 percent loss ratio range that I have heard policymakers most commonly discuss as being generated during the financial crisis.
It’s a quiet but major policy success that should get more attention in Washington.
Do we then consider the residual $36.4 billion “implied going-concern buffer” enough to maintain market confidence? Given that it is more than double the severely adverse scenario stress test loss, there is a good argument it does. But as the FHFA has never formally and publicly made the judgment call of how to calculate a total going-concern buffer for the GSEs, we can only posit that it is indeed adequate.
Regardless of the specifics of what the FHFA comes out with in its capital rule, there is no denying that the stress test results are a credible reminder how de-risked the GSEs are today versus just five years ago. The stress loss, at just 0.8 percent of assets, is a small amount (and would only be 0.4 percent if no DTA write-down is assumed), especially when compared to the 3 to 5 percent loss ratio range that I have heard policymakers most commonly discuss as being generated during the financial crisis.
It’s a quiet but major policy success that should get more attention in Washington.
