dhollier@imfpubs.com

At a hearing of the Senate Banking Committee this week, Alex Pollock, senior fellow at the R Street Institute and former CEO of the Federal Home Loan Bank of Chicago, took a rhetorical approach to the question of whether the government-sponsored enterprises are systemically important financial institutions.

“Are Fannie Mae and Freddie Mac – which guarantee half the credit risk of the massive U.S. housing-finance sector and have combined assets of $5.5 trillion – systemically important?” he asked. “Obviously, they are. Are they financial companies? Of course. So, they are systemically important financial institutions as a simple fact.”

But that wasn’t exactly the question. The title of the hearing was: Should Fannie and Freddie be Designated as SIFIs?

There was little dispute among the three experts testifying about the GSEs’ size or the risk they pose. As Pollock put it: “…could Fannie and Freddie pose a threat to the financial stability of the U.S? They have already demonstrated that they can.” For more coverage of the topic, see the new edition of Inside MBS & ABS, now available online.