Delivering on the Promise of Risk Sharing

Research Report

Delivering on the Promise of Risk Sharing

Abstract

Most policymakers, regulators, and market participants agree that government-sponsored enterprises (GSEs) should continue to share a considerable portion of their risk on new business. The question is how they should share the risk. To answer that question, we must clarify what we’re trying to accomplish in risk sharing and evaluate the design choices with those objectives in mind. In this brief, we conclude that each choice presents different strengths and weaknesses, and that a full understanding of the trade-offs will only be understood as the different structures are tested in the market. We further conclude that GSEs must expand the types of risk-sharing transactions they are engaged in. To date, risk sharing has been focused on too few structures. GSEs should also be more transparent with the terms and pricing of the transactions so that policymakers and stakeholders can better evaluate the relative merits of future design choices.

Centers

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