Federal Reserve Bank of New York economists look for ways to improve the market-making capacity of prime dealers for agency MBS.

The Fed and commercial banks purchased a combined $1 trillion in agency MBS over the past 12 months, more than 145% of the net supply. (Includes data chart.)

The Federal Reserve Bank of New York diversifies its roster of counterparties that support the purchase of agency CMBS.

FHFA said the plan to have “living wills” is akin to what the Federal Reserve and the FDIC require for their bank charges.

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.

The council said any distress that affects the secondary mortgage market activities of the GSEs “could pose a risk to financial stability if those risks are not properly mitigated.”

The Federal Reserve Bank of New York will have likely added nearly $1.5 trillion of MBS to the System Open Markets Account by January, and the Fed will once again own more than a third of all agency product.

MBA President Bob Broeksmit argues that the new LLPA “flies in the face of the administration’s recent executive actions urging federal agencies to take all measures within their authorities to support struggling homeowners.”

When panic first set in over the economic impact of COVID-19, investors sold off historically large volumes of MBS and Treasuries. As a result, liquidity and pricing efficiency both took a beating. It was the Fed’s gluttonous appetite for these securities that brought markets off the cliff.

The final rule will have implications on adoption of the Secured Overnight Financing Rate.