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DS News Webcast: Monday 9/8/2014

The Congressional Budget Office released a cost estimate on Friday for a senate bill introduced in June 2013 that would eliminate GSEs Fannie Mae and Freddie Mac and replace them with a private insurance company system with a government backstop. According to the newly-released estimate, removing the two GSEs would save the government billions of dollars in the next 10 years. Under the new bill, the new system of guaranteeing mortgage-backed securities would mean less risk for the government, therefore costing the government less money.

Fannie Mae and Freddie Mac would no longer offer guarantees on securities under the new bill; instead, the newly-established Federal Mortgage Insurance Corporation would offer guarantees on securities that originated in the primary market. FMIC would then guarantee payment of principal and interest by charging fees on the underlying mortgages. Private capital would take on some of the losses before the government payments would kick in. CBO estimates that the new bill would result in a reduction of direct government spending by about $60 billion from 2015 to 2024.

The Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency finalized a rule with regards to the "liquidity coverage ratio" of large financial institutions, the Federal Reserve Board announced. The new rule requires affected institutions to keep high quality liquid assets on hand that the institution can easily convert into an amount of cash that is that same as or greater than the company's cash outflow less the projected cash inflow during a 30-day stress period.

 

About Author: Jordan Funderburk

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