FHFA has followed the banking agencies to implement the Dodd-Frank demand that entities with over $10 billion in assets governed by a primary federal agency be subject to annual stress tests.  The rule generally tracks the smaller-bank model just finalized, going nowhere near the stringency of the FRB’s tougher approach for systemic firms and BHCs over $50 billion even though the GSEs (except for a FHLB or two) are all of equivalent size and systemic reach. Given that Fannie and Freddie are in conservatorship, the tests will have little capital impact on them unless FHFA uses the scenarios (see below) to require the GSEs to hold more capital than would otherwise apply and, thus, to remit less to Treasury to pay down the taxpayer stake.  Given FHFA’s hopes of winding down Fannie and Freddie, this seems unlikely in the near term.  However, the FHLBs could be significantly affected by the stress tests, perhaps leading to a sharp reduction in member dividends at the weaker Banks.

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