Reflecting recent regulatory developments, we have provided you with in-depth analyses of the Fed’s 2018 CCAR stress test scenarios, a sweeping proposal to redefine the relationship between CCAR and risk-based capital, changes to the enhanced supplementary leverage ratio (eSLR) for the very biggest banks, and CECL’s impact on all of these capital requirements. In each of these analyses, we said the bottom-line impact is a moving target, with a recent Karen Petrou memo laying out all the moving pieces. Here, we provide a cumulative-impact assessment of these rules with a focus on the resulting shape of the U.S. residential-mortgage market. Our first big-picture conclusion is that no mortgage product with big-bank participation can be designed without careful, forward-looking analysis of all of these capital incentives in concert with relevant pricing considerations. Conclusion two: we expect that most of these sum total-impact analyses will favor products with recognized risk-based capital mitigation, continuing the need for a USG backstop and creating demand for third-party guarantors blessed by the stress tests. Conclusion three: comments on the new capital rules are among the most important near-term advocacy issues facing both big banks and the borrowers, credit enhancers, and GSEs who need them.
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