Analysis of the Proposed 2020 FHFA Rule on Enterprise Capital

Brief

Analysis of the Proposed 2020 FHFA Rule on Enterprise Capital

Abstract

This brief examines the Federal Housing Finance Agency’s (FHFA’s) 2020 notice of proposed rulemaking (2020 NPR) for the government-sponsored enterprises’ (GSEs’) capital standards and finds that there are several issues of concern that will distort the relationship between capital and risk. The researchers urge FHFA to better tailor its proposed risk-based capital requirements to the risk and mission of these monoline entities and rely less heavily on a Basel-like framework. The researchers offer a package of specific adjustments that will better align capital with risk, without reducing the overall rigor or stringency of the capital standard. Better tying capital to risk will result in a better-regulated and stronger mortgage finance system.

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