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Fannie, Fintech Face Congress With Wall Street Watching Closely

Felice Maranz
(Bloomberg) -- Analysts will be scrutinizing separate hearings on Tuesday for signals on the future of housing finance and financial technology.At 10 a.m., the Senate Banking Committee will hold a hearing titled, “Should Fannie Mae and Freddie Mac Be Designated as Systemically Important Financial Institutions?” Fannie and Freddie shares have soared so far this year amid optimism the Trump administration will move to release them from government control.At 2 p.m., the House Financial Services Task Force on Financial Technology will discuss, “Overseeing the Fintech Revolution: Domestic and International Perspectives on Fintech Regulation.”Here’s a sample of commentary about what to look for:Compass Point, Isaac BoltanskyThough the Fannie and Freddie hearing is supposed to focus on SIFI designation, it will “undoubtedly careen into broader debates over structure” and finger-pointing about the crisis, Boltansky wrote in a note. Compass Point believes a SIFI-like capital buffer may require Fannie and Freddie to raise their fees by at least 10 basis points in order to deliver the same return on equity, and is watching for a final capital rule, which may come as early as July.Boltanksy sees the fintech task force’s “practical impact” on policy as likely limited, given a narrow window for legislating. Lawmakers will probably discuss “regulatory sandboxes,” a U.K. concept designed to foster innovation, and may voice “concern that America appears to be losing the race for fintech innovation.”Height Capital Markets, Ed GroshansBased on Basel Committee assessment methodology, “it is obvious that Fannie Mae and Freddie Mac are systemically important financial institutions,” Groshans wrote in a note. “The GSEs’ business model and operations hits each of the SIFI assessment criteria, which are size, interconnectedness, global (cross-jurisdictional) activity, and complexity.”That’s not new, he pointed out, while the Federal Housing Finance Agency (FHFA) and the Financial Stability Oversight Council (FSOC) haven’t yet acted to reduce the entities’ potential effect on the global financial system or the U.S. housing market. “The real issue,” he said, “is what the appropriate SIFI capital surcharge for GSEs would be.”He noted that as of the first quarter, Fannie had total assets of $3.4 trillion and Freddie had $2.1 trillion; that puts them on the same level as JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co., all of which are designated as SIFIs and subject to a SIFI capital surcharge, he said.Capital Alpha, Charles GabrielThe Fannie, Freddie hearing may be “notable merely for the attending senators’ comments on the FHFA’s and Trump administration’s evolving plans to reform the GSES, if necessary by end-running Congress,” as the witness list includes academicians rather than regulators or investors.To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.netTo contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Will DaleyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

(Bloomberg) -- Analysts will be scrutinizing separate hearings on Tuesday for signals on the future of housing finance and financial technology.

At 10 a.m., the Senate Banking Committee will hold a hearing titled, “Should Fannie Mae and Freddie Mac Be Designated as Systemically Important Financial Institutions?” Fannie and Freddie shares have soared so far this year amid optimism the Trump administration will move to release them from government control.

At 2 p.m., the House Financial Services Task Force on Financial Technology will discuss, “Overseeing the Fintech Revolution: Domestic and International Perspectives on Fintech Regulation.”

Here’s a sample of commentary about what to look for:

Compass Point, Isaac Boltansky

Though the Fannie and Freddie hearing is supposed to focus on SIFI designation, it will “undoubtedly careen into broader debates over structure” and finger-pointing about the crisis, Boltansky wrote in a note. Compass Point believes a SIFI-like capital buffer may require Fannie and Freddie to raise their fees by at least 10 basis points in order to deliver the same return on equity, and is watching for a final capital rule, which may come as early as July.

Boltanksy sees the fintech task force’s “practical impact” on policy as likely limited, given a narrow window for legislating. Lawmakers will probably discuss “regulatory sandboxes,” a U.K. concept designed to foster innovation, and may voice “concern that America appears to be losing the race for fintech innovation.”

Height Capital Markets, Ed Groshans

Based on Basel Committee assessment methodology, “it is obvious that Fannie Mae and Freddie Mac are systemically important financial institutions,” Groshans wrote in a note. “The GSEs’ business model and operations hits each of the SIFI assessment criteria, which are size, interconnectedness, global (cross-jurisdictional) activity, and complexity.”

That’s not new, he pointed out, while the Federal Housing Finance Agency (FHFA) and the Financial Stability Oversight Council (FSOC) haven’t yet acted to reduce the entities’ potential effect on the global financial system or the U.S. housing market. “The real issue,” he said, “is what the appropriate SIFI capital surcharge for GSEs would be.”

He noted that as of the first quarter, Fannie had total assets of $3.4 trillion and Freddie had $2.1 trillion; that puts them on the same level as JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co., all of which are designated as SIFIs and subject to a SIFI capital surcharge, he said.

Capital Alpha, Charles Gabriel

The Fannie, Freddie hearing may be “notable merely for the attending senators’ comments on the FHFA’s and Trump administration’s evolving plans to reform the GSES, if necessary by end-running Congress,” as the witness list includes academicians rather than regulators or investors.

To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Will Daley

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.