The Federal Reserve is expected to get a “consultative role” in regulating mortgage financing enterprises Fannie Mae and Freddie Mac that will strengthen its ability to police market stability, Reuters reports.
“To protect the financial system from systemic risk going forward, the plan strengthens the GSE (government-sponsored enterprise) regulatory reform legislation currently moving through Congress by giving the Federal Reserve a consultative role in the new GSE regulator’s process for setting capital requirements and other prudential standards,” says Henry Paulson, treasury secretary in a statement.
Paulson was unveiling steps to increase Treasury credit lines to Fannie Mae and Freddie Mac and buy equity in them if needed to bolster confidence amid concerns over their home loan losses.
A senior Treasury official separately told a telephone conference call that the Fed’s consultative role was in line with suggestions laid out in the Treasury’s “blueprint” to modernize US financial regulations.Among other things, this will make the Fed the lead agency in ensuring financial market stability.
“This is one more extension of the broader-term vision that we are advocating,” the official says.
In addition to the offer of Treasury aid to Fannie Mae and Freddie Mac, the Fed saiys they could access its emergency cash, effectively opening the discount window in a move that echoes action it took in March to backstop investment banks.
Fed officials have since argued that they should have greater supervisory oversight of investment banks if they are going to take advantage of its lender-of-last resort credit.