We have analyzed new U.S. inter-agency guidance on counterparty credit risk (CCR). We conclude that it will add a new constraint on U.S. bank mortgage activity because of the tough new standards forcing a combined look at mortgage-related risk in portfolio, in MBS and through related activities (e.g., holding agency paper in the course of derivatives and securities-lending activities). The way around this, of course, would be to transfer the credit risk in CCR to a new counterparty, but this is complicated by constraints at private mortgage insurers and the uncertain fate of the GSEs and other credit enhancers.

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