In this report, we assess the GSE impact of the FRB’s proposed framework imposing very stringent add-on requirements for U. S. bank holding companies with assets of at least $50 billion and, when designated, nonbank financial companies. As discussed below, the FRB’s approach here to GSE obligations departs dramatically from that proposed in the pending market-risk capital rules that replace ratings with new credit-risk criteria. We believe the Fed is trying to pick its way through a minefield: shutting down any future GSE-like hybrids while at the same time not taking such immediate punitive action that the fragile U. S. mortgage market goes into free-fall. All of these rules, along with several others in the works, also conspire to constrain all but the simplest forms of mortgage securitization – another impact we think the FRB intends.

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