WASHINGTON – The Federal Housing Finance Agency is proposing disclosure requirements for Fannie Mae and Freddie Mac that would closely follow international standards for major banks.
According to the proposed requirements, government-sponsored companies would have to disclose information on risk management, corporate governance and regulatory capital to market participants on a quarterly basis in order to create more transparency about the business practices of each company.
"These additional disclosure requirements are intended to promote market discipline and prudent risk management practices in companies," said Sandra Thompson, the acting director of the FHFA, in a statement. "These changes will also provide market participants with more information to assess a company's risks and capital adequacy."
The standards would correspond to those of the international Basel III agreements, which ensure that large banks maintain adequate capital and risk management processes and are transparent to their stakeholders.
The FHFA requirements would also likely provide more insight into Fannie and Freddie's compliance with the agency's capital limit. The capital regime, which was finalized under former FHFA director Mark Calabria, sets how much money companies must hold to protect themselves from losses once they are released from preservation.
In September, Thompson proposed revising the framework to encourage risk transfer to retail investors and to make the framework's leverage requirements more dynamic.
In its notice of the proposed rule released on Wednesday, the FHFA said the disclosure requirements would complement the objectives of the capital rule, according to which the GSEs "provide stability and continued support to the secondary mortgage market throughout the business cycle, especially during times of financial stress". . "
The agency acknowledged that the new disclosure requirements for Fannie and Freddie would "necessarily be a bit costly," but said the potential benefits would outweigh the costs.
"With the proposed rule, FHFA aims to strike a fair balance between the market advantages of the disclosure and the additional financial burden on a company making the disclosures," the proposal says.
The FHFA aims for the GSEs to meet the proposed disclosure requirements in at least six months. The agency also accepts public comments on the proposal for 60 days after it was published in the federal register.