Fannie and Freddie are obviously SIFIs

Article Highlights

  • There is no doubt whatsoever that Fannie and Freddie have been and are huge sources of systemic risk.

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  • If Fannie and Freddie are not SIFIs, then nobody is.

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  • Until the FSOC formally designates Fannie and Freddie as SIFIs, then the FSOC has zero intellectual credibility.

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The Financial Stability Oversight Council (FSOC), a big committee of regulators, is playing with making insurance companies and asset managers into “SIFIs” (Systemically Important Financial Institutions), regulated by the Federal Reserve in addition to others.  There does not appear to be much of an argument for this, other than the Federal Reserve’s belief in its own ability to know what is right for everybody else—a belief for which the history of the Fed provides no support.

More to the point, the two most obvious SIFIs of all have not been so designated, and do not appear even to be under consideration. These are Fannie Mae and Freddie Mac. Is the FSOC asleep or what?

There is no doubt whatsoever that Fannie and Freddie have been and are huge sources of systemic risk. They are giant: Fannie is bigger than JPMorgan and Freddie is bigger than Citigroup. They are both demonstrably too big to fail. They are super-leveraged—more leveraged than anybody else. They pile risk on the taxpayers. If Fannie and Freddie are not SIFIs, then nobody is a SIFI.

Until the FSOC formally designates Fannie and Freddie as the SIFIS they so unquestionably are, then FSOC has zero intellectual credibility. Earth to FSOC—Hello?  Hello?

Alex J. Pollock is a resident fellow at the American Enterprise Institute.

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About the Author

 

Alex J.
Pollock
  • Alex J. Pollock is a resident fellow at the American Enterprise Institute (AEI), where he studies and writes about housing finance; government-sponsored enterprises, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; retirement finance; and banking and central banks. He also works on corporate governance and accounting standards issues.


    Pollock has had a 35-year career in banking and was president and CEO of the Federal Home Loan Bank of Chicago for more than 12 years immediately before joining AEI. A prolific writer, he has written numerous articles on financial systems and is the author of the book “Boom and Bust: Financial Cycles and Human Prosperity” (AEI Press, 2011). He has also created a one-page mortgage form to help borrowers understand their mortgage obligations.


    The lead director of CME Group, Pollock is also a director of the Great Lakes Higher Education Corporation and the chairman of the board of the Great Books Foundation. He is a past president of the International Union for Housing Finance.


    He has an M.P.A. in international relations from Princeton University, an M.A. in philosophy from the University of Chicago, and a B.A. from Williams College.


  • Phone: 202.862.7190
    Email: apollock@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: emily.rapp@aei.org

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