Agency Issues Fannie & Freddie Stress Test Rules

     WASHINGTON (CN) – As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the government ordered the nation’s largest federally-backed financial institutions to conduct annual stress tests.
     The Federal Housing Finance Agency issued rules requiring Fannie Mae, Freddie Mac and other lenders that have more than $10 billion in assets to conduct annual stress tests to determine if they have the capital needed to absorb losses in case of economic crises.
     The new rules detail basic requirements for how the largest government-backed financial institutions should conduct and report annual stress tests.
     The rule aims for better regulation of those institutions with “additional, forward-looking information” to be provided to the FHFA.
     Institutions must use their data up to the end of September for each year they report on their stress tests, and must calculate how certain financial values and ratios are affected for a number of scenarios.
     Those scenarios, provided by the agency, include unemployment rates, housing prices and foreclosure rates.
     Each stress test will reflect at least three sets of economic and financial conditions, including a “baseline, adverse, and severely adverse scenario.”
     As part of the rule, the director of the FHFA can require a regulated institution that is worth less than $10 billion to conduct a stress test.
     The institutions also must publicly disclose a summary of their stress test results each year, which they can publish online or other publicly-accessible forms.
     In addition to the final rule, the agency issued three supplementary orders with identical text requiring government-backed lenders to conduct the stress tests.
     The agency said it will add new test scenarios, other instructions and guidance to the orders annually.

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