As promised last week, we are following through with in-depth analyses of FHFA’s GSE post-conservatorship capital paradigm, starting here with big-picture conclusions about structural transformation.  Most importantly, we confirm our earlier conclusion that the new construct lays the groundwork for an end to the conservatorships just as soon as FHFA thinks the macroeconomy permits.  We will also build out Karen Petrou’s comments today in the American Banker that the new capital construct – while a leap – is not a bound too far for investors.  The overall construct of the new capital framework and the manner in which it will be implemented create better, but not fully-, recapitalized GSEs likely also under Fed systemic regulation.

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