Reply #78: FDIC to help small banks with Fannie, Freddie exposure By Michael R. Crittenden [View All]

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http://www.marketwatch.com/news/story/fdic-help-small-banks-fannie/story.aspx?guid={483D04C3-02AA-4639-800E-3066DFC0623E}&siteid=yahoomy



Last update: 12:43 p.m. EDT Sept. 7, 2008WASHINGTON (MarketWatch) -- U.S. banking regulators said Sunday they will work with banks whose holdings of Fannie Mae and Freddie Mac securities could be adversely affected by the federal government's takeover of the two firms over the weekend.

"Any negative impact will be narrowly focused only on a few smaller institutions. Regulators will be working closely with those few banks to develop capital plans to assist their recovery," Federal Deposit Insurance Corp. Chairwoman Sheila Bair said in a statement.

The Treasury Department and Federal Housing Finance Agency jointly announced a takeover of the firms Sunday morning, along with a number of lending and investment plans to be made through Treasury to shore up the two troubled mortgage-finance firms. The plan includes Treasury purchasing mortgage-backed securities in the firms, as well as a senior preferred stock purchase agreement starting at $1 billion with each firm.

Placing the two firms into conservatorship under the FHFA means holders of the firms' common stock and outstanding preferred stock will be first in line to absorb any future losses at the companies.

Some of the holders of these securities are banks, and Treasury Secretary Henry Paulson said regulators will be evaluating the affect of their moves on various institutions.

"The agencies encourage depository institutions to contact their primary federal regulator if they believe that losses on their holdings of Fannie Mae or Freddie Mac...are likely to reduce their regulatory capital below 'well capitalized'," Paulson said. "The banking agencies are prepared to work with the affected institutions to develop capital restoration plans consistent with the capital regulations."

A joint release from the FDIC, Federal Reserve, Office of Thrift Supervision, and Office of the Comptroller of the Currency said that only a limited number of banks have GSE holdings that are significant compared to their capital. The agencies also gave firms guidance on how to account for the holdings.

"All institutions are reminded that investments in preferred stock and common stock with readily determinable fair value should be reported as available-for-sale equity security holdings, and that any net unrealized losses on these securities are deducted from regulatory capital," the joint release from the regulators said.

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