Subcommittee on Capital Markets,
Securities and Government Sponsored Enterprises
Richard H. Baker, Chairman
|For Immediate Release:||Contact: Pat Cave (202) 225-4221|
|Wednesday, March 22, 2000||or|
Of Rep. Richard Baker
Chairman, Subcommittee on Capital Markets, Securities
and Government Sponsored Enterprises
House Banking and Financial Services Committee
Housing GSE Regulatory Reform Hearing
The Committee meets today to discuss the "Housing Finance Regulatory Improvement Act," H.R. 3703. Chairman Leach and I introduced this bill to improve the regulatory structure of the three housing GSEs and thereby reduce the financial risk posed to taxpayers and the economy.
The bill is based on a GAO recommendation to consolidate regulation of the three housing GSEs into one independent board. Currently three agencies regulate the three housing GSEs. The Federal Housing Finance Board regulates the Federal Home Loan Banks for safety and soundness and mission compliance; the Office of Federal Housing Enterprise Oversight regulates Fannie Mae and Freddie Mac for safety and soundness; and the Department of Housing and Urban Development regulates Fannie and Freddie for mission compliance.
Although the current regulatory structure works, the GAO study concluded that a single independent regulator would lead to improved oversight and more effective regulation. GAO believes a single regulator would be more independent, objective and prominent in its oversight capacity.
H.R. 3703 proposes a five-member board consisting of the HUD Secretary, Treasury Secretary, and three citizen members appointed by the President and confirmed by the Senate. The boards principal duties would be to ensure the housing GSEs operate in a financially safe and sound manner, carry out their mission, and remain adequately capitalized.
The housing GSEs are large and growing larger. Their total debt obligation is about two-thirds of the roughly $3.5 trillion federal debt held by the public. By improving the existing regulatory structure of the housing GSEs in todays good economic climate, we can reduce future risk to the taxpayer and the economy.
This bill will give the board the authority to approve new activities pursuant to the public interest and review ongoing activities of the housing GSEs to ensure legal compliance. The non-mission related growth into capital markets by the housing GSEs is an area not covered sufficiently by the current regulatory structure. The board will be required to limit nonmission-related assets that the housing GSEs may hold at any time.
The bill will eliminate each GSEs line of credit with the Treasury, require annual credit ratings and mandate a study of the effects a GSE failure would have on depository institutions.
This bill seeks to improve supervision and diminish systemic risk now rather than waiting for a time of crisis to expose the faults of a hobbled regulatory structure.
Today we will hear first from a representative of the Treasury Department who will identity the potential risks involved and advise us on how best to organize a regulatory structure to protect against this potential liability. After that, we will hear from the regulators of the housing GSEs who will provide us their expertise in how to set up a new regulatory framework. I look forward to the witnesses comments on this legislation.