Monday, March 12, 2012

How Much Capital Do Fannie and Freddie Need?

They rarely make headlines anymore, but Fannie and Freddie are still under the conservatorship of the US government and both recently filed their 10-k for 2011.  As an exercise, I thought it might be interesting to run the numbers on how large the capital deficit is at each institution if they were required to adhere to Basel III requirements.  Below are the numbers:

Fannie Mae currently has -$4.5B in equity on its books, and Freddie has a deficit of $146M.  This implies that in total the two institutions would need to raise more than $180B in equity in order to be stand alone institutions compliant with Basel III in 2019.  This is roughly equivalent to the face value of the Greek Bonds which were just swapped.  Any chance that congress deals with this anytime within the next 10 years?

No comments:

Post a Comment

For compliance reasons, I don't post comments to the site, but I do like hearing from readers and am happy to answer any questions. Feel free to use the comment box to get in touch. Please leave an email address in your comment so that I can write back, or email me directly at