Letter to FHFA on Enterprise Liquidity Requirements

Alfred M. Pollard
General Counsel
Federal Housing Finance Agency
Eighth Floor, 400 Seventh Street SW,
Washington, DC 20219

Dear Sir and Madam:
The American Bankers Association (ABA) appreciates the opportunity to comment on the Federal Housing Finance Agency‘s (FHFA) proposed rule that would implement four liquidity and funding requirements for Fannie Mae and Freddie Mac (the Enterprises). The proposal would establish four quantitative liquidity requirements collectively intended to increase the Enterprises’ ability to withstand a liquidity stress over the short, intermediate and longer terms. The proposal is based on the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), quantitative liquidity ratios which apply to the largest banks.

ABA generally supports a robust capital and liquidity regime for the Enterprises, and applauds FHFA’s efforts to advance an orderly process of ending conservatorships. As a threshold matter, however, it is difficult to comment on the proposal and its underlying assumptions without a full understanding of the precise form the GSEs will take going forward, and what segments of the market they will serve. These will be critical factors in assessing both the Enterprises’ liquidity risk and needs during a stress and the competitive affects such a guarantee would have on other participants. Accordingly, we urge the FHFA to provide greater detail on this and other fundamental factors essential to evaluating the merits of the proposed standards.

We recognize that this is a complex undertaking with multiple stakeholders. However, if FHFA moves forward with the proposal, it must ensure that the rules neither create an unlevel playing field for banking organizations that provide the same services and products nor disrupt the mortgage, Treasury or short-term funding markets. Once the FHFA considers comments -- and additional information and analysis with respect to the liquidity standards’ underlying assumptions are provided– we urge the agency to seek additional public comment. Subsequently, we urge the FHFA to allow the markets sufficient transition time and regularly review the standards to ensure they are not causing market distortions or other unintended consequences, revising them as needed.

Download the comment letter to read the full text.