FHFA Proposes GSE Liquidity Rules

The Federal Housing Finance Agency on Thursday announced a proposed rule on liquidity requirements for Fannie Mae and Freddie Mac, including reporting rules and minimum liquidity and funding.

The four liquidity requirements in the proposed rule include:

  • A short-term 30-day requirement that is based on a cumulative net cash outflow analysis, plus an additional $10 billion cushion requirement that must be met by highly liquid assets, like Treasury securities.
  • A 365-day requirement extending the short-term cumulative cash outflow analysis to a full year. Over this intermediate term, Fannie and Freddie may count borrowings against certain fixed income instruments that the Fixed Income Clearing Corporation deems eligible collateral (subject to a haircut), which they cannot count under the 30-day requirement. There is no separate excess cushion required under this metric.
  • The ratio of long-term unsecured debt to less-liquid assets must be greater than 120 percent.
  • The ratio of the spread duration of unsecured debt to the spread duration of retained portfolio assets must be greater than 60 percent.

“During the 2008 financial crisis, Fannie Mae and Freddie Mac did not have enough truly liquid assets nor did they have consistent access to the longer-term unsecured debt markets. This liquidity and funding failure, along with their low capital levels, necessitated placing the Enterprises into conservatorship,” Director Mark Calabria said. “A companion to the new capital rule, today’s proposed rule will better ensure that the Enterprises are positioned to fulfill their countercyclical mission. Requiring the Enterprises to have enough liquid assets to continue supporting the mortgage market during times of severe stress protects taxpayers and the housing market.”

The proposed rule is open to public comment for 60 days.