In this analysis, we assess the FRB’s newly-proposed counter-cyclical capital buffer (CCyB), a capital add-on intended to come in and out of use when the FRB fears growing procyclicality. In sharp contrast to global CCyBs and some proposed earlier in the U.S., the FRB’s buffer is neither asset-class nor lending-criterion specific. As a result, it couldn’t clamp down specifically on mortgage lending in areas like multi-family – a major FRB worry these days – or squash residential loans above LTV thresholds (a real fear of private MIs). In fact, because of the way the FRB has structured its CCyB, it creates a strong incentive to portfolio mortgage finance and hold USG/GSE RMBS.

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