Shorting Long
This analysis builds on our in-depth assessment of the new inter-agency net stable funding ratio (NSFR) rule to highlight strategic implications for U.S. housing finance.  The major changes to the final NSFR generally do not alter the 2016 proposal’s direct impact, with the agencies reserving the most significant revision – and controversial it was – to ease the rule’s costs for the very largest banks key to repo, reverse-repo, and Treasury-market liquidity.  Housing finance can be collateral damage in funding-market debacles, making this additional stability – should it materialize – all to the good.  However, the NSFR’s direct implications for housing finance are more complex, likely encouraging greater reliance on government-backed securitization, a lot less reliance on the GSEs after they leave conservatorship, and still less higher-risk residential mortgage portfolio lending.