On Friday, the FRB advanced a proposal simmering since 2011 to impose single-counterparty credit limits (SCCLs) on the largest U.S. banks. Federal Home Loan Banks are exempt by law from the new rules, but Fannie and Freddie could well have come under them, sharply reducing the ability of big banks to be GSE investors and counterparties. In the FRB’s 2011 SCCL proposal, bank holdings of agency RMBS would have been subject to the SCCLs. In the latest proposal, they aren’t, giving Fannie and Freddie a still bigger break for as long as they remain in conservatorship. The FRB initially decided against a blanket GSE exemption out of fears that it would perpetuate this zombie status; five years later, and it seems as reconciled to it as everyone else, reinforcing market dependence on the GSEs and complicating any future change.

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