An Analysis of the Systemic Risks Posed by Fannie Mae and Freddie Mac and an Evaluation of the Policy Options for Reducing Those Risks

Eisenbeis, Robert; Frame, W. Scott; Wall, Larry D.

doi:10.2139/ssrn.898179

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An Analysis of the Systemic Risks Posed by Fannie Mae and Freddie Mac and an Evaluation of the Policy Options for Reducing Those Risks

FRB of Atlanta Working Paper No. 2006-2

56 Pages Posted: 25 Apr 2006

See all articles by Robert Eisenbeis

Larry D. Wall

Federal Reserve Bank of Atlanta - Research Department

Date Written: April 2006

Abstract

Fannie Mae and Freddie Mac are government-sponsored enterprises that are central players in U.S. secondary mortgage markets. Over the past decade, these institutions have amassed enormous mortgage- and non-mortgage-oriented investment portfolios that pose significant interest-rate risks to the companies and a systemic risk to the financial system. This paper describes the nature of these risks and systemic concerns and then evaluates several policy options for reducing the institutions' investment portfolios. We conclude that limits on portfolio size (assets or liabilities) would be the most desirable approach to mitigating the systemic risk posed by Fannie Mae and Freddie Mac.

Keywords: Government-sponsored enterprises, systemic risk, portfolio limits

JEL Classification: G21, G28

Suggested Citation: Suggested Citation

Eisebeis, Robert and Frame, W. Scott and Wall, Larry D., An Analysis of the Systemic Risks Posed by Fannie Mae and Freddie Mac and an Evaluation of the Policy Options for Reducing Those Risks (April 2006). FRB of Atlanta Working Paper No. 2006-2, Available at SSRN: https://ssrn.com/abstract=898179 or http://dx.doi.org/10.2139/ssrn.898179