Treasury Secretary Steven Mnuchin said he is “not going to do anything that jeopardizes taxpayers.” But his real concerns? How to adequately capitalize Fannie and Freddie first.
The FHFA wants the GSEs to hold liquid assets to cover 30 days of anticipated cash outflows, plus a $10 billion buffer. That’s similar to the liquidity coverage ratio employed by bank regulators.
Justice Breyer characterized the net worth sweep as the nationalization of the GSEs. The government and the court-appointed amicus curiae disagreed, describing it as a simple renegotiation of a contract.
Treasury Secretary Steven Mnuchin suggested in a Senate hearing that Fannie and Freddie may not have enough capital to exit conservatorship before Trump leaves office.
In September, the FSOC endorsed the FHFA’s capital rule, even urging the agency to use tougher, more bank-like standards. What the report didn’t say was how the council reached its conclusions.
If the FHFA wants to release the GSEs from conservatorship before President Trump leaves office, it will need a big assist from Treasury. And therein lies the problem.
Under the final rule, Fannie and Freddie will have to hold slightly more than $283 billion in capital. That’s $49 billion more than what FHFA had estimated when it re-proposed the rule in May.
The new rule provides clarity about how much and what kind of capital Fannie and Freddie will need in order to exit conservatorships. But the likelihood of that kind of capital raise seems remote.
This won’t be Ron Klain’s first dance at the White House. He has also served as chief of staff of two vice-presidents: Joe Biden (2009-2011) and Al Gore (1995-1999).
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