In this analysis, we assess the impact of the FRB’s newly-announced framework for the all-critical stress tests called CCAR.  Governing BHCs and certain foreign banks with assets over $50 billion, CCAR is the binding constraint for U.S. capital requirements – as it goes, so go asset allocations.  We thus turn here to what the new framework – largely yet to be issued in any formal way – means for residential-housing finance.  For large banks and most especially for the very largest, it means a lot more capital pain if they have a prayer of making all-critical capital distributions.  More capital means optimized capital which we conclude means more USG/agency securitization/investment and on-portfolio positions.  If FHFA changes its stress-test paradigm to match the one the FRB plans to use in 2017 – which it usually does – the new approach will also make GSE results initially still more dramatic as to how deep a capital hole they would have under an acute-stress scenario.

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