Following its morning meeting, FSOC late Friday released the staff statement expressing its near-term decision on systemic risk in the secondary mortgage market. Although the Council decided against designating Fannie and Freddie or market practices, this is conditional – FHFA’s capital rules must stay tough and come with new prudential standards or the Council will start designating. Given current political realities, this may prove a hollow threat, but we think it’s meaningful – a new FSOC won’t act fast, especially in the face of strong Fed opposition to relaxing finalized standards covered by Administrative Procedure Act protections. Sunk costs create new realities.

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