Senate Banking Committee Chairman Richard Shelby, R-Ala., has proposed a bill to overhaul the government-sponsored enterprises regulatory structure that would eliminate the Federal Housing Finance Board and HUD's Office of Federal Housing Enterprise Oversight and transfer all GSE regulatory authority currently held by both those agencies to a new Federal Housing Enterprise Supervisory Agency.
The new agency would have one director, who would serve as chairman of the agency's four-member advisory board. The Treasury and HUD secretaries and Securities and Exchange Commission chairman would serve as the other three board members.
The new agency would have more regulatory power than OFHEO and the Federal Housing Finance Board now have. For example, the director would be authorized to place Fannie Mae, Freddie Mac or the Federal Home Loan Banks in either a conservatorship or receivership in the event of a financial crisis. Current law only gives the GSE regulators conservator powers.
"Receivership provisions will ultimately benefit the capital markets by providing a certain resolution process," Shelby said Friday. "The current law does not provide a clear resolution alternative, creates uncertainty and presents a moral hazard."
The bill would give the new regulator complete discretion over risk-based capital. The legislation would maintain the current 2.5 percent minimum capital standard for Fannie Mae and Freddie Mac but give the director the discretion to temporarily require the GSEs to meet a higher capital standard.
The legislation would prohibit the GSEs from launching new programs without approval from the new agency's director. It also would require the GSEs to provide the director with advanced notice of all plans for offering new products.
If the director determines that any planned product would undermine a GSE's safety and soundness, he could prohibit it from offering the product. But a GSE could offer the product if the director does not raise any objections within 30 days of being notified.
The bill would give the new regulator the same independent funding authority that banking regulators have under current law. The regulator would set its own budget, funded by annual assessments collected from the GSEs, and it would not require approval from Congress.
"I support the mission of Fannie Mae, Freddie Mac and the Federal Home Loan Banks," Shelby said. "My concern is that we must have a framework to ensure that these GSEs also operate in a safe and sound manner."
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