In his
testimony before the Senate Banking, Housing, and Urban Affairs Committee, U.S. Treasury Secretary Henry Paulson outlined the Treasury's initiative for addressing the challenges facing Fannie Mae and Freddie Mac.
In his testimony, Secretary Paulson called the GSEs "central to the availability of housing finance." He added, "Continued confidence in the GSEs is important to maintaining financial system and market stability." Reflecting the uncertainty associated with the risks facing both GSEs, he declined to ask for a specific credit line explaining, "Given the difficulty in determining the appropriate size of the credit line we are not proposing a particular dollar amount."
The Treasury initiative consists of three components:
1. An 18-month temporary increase in the Treasury's existing authority to make credit available to Fannie Mae and/or Freddie Mac.
2. An 18-month temporary authority under which the Treasury could purchase equity stakes in Fannie Mae and/or Freddie Mac.
3. Enhanced regulation under which the Federal Reserve would gain access to information from the two GSEs and play a consultative role in setting capital requirements for Fannie Mae and Freddie Mac. The Federal Reserve would not become the GSEs' primary regulator.
Finally, Secretary Paulson told the Senate Banking Committee that the "there are no immediate plans" by the GSEs "to access either the proposed liquidity or the proposed capital backstop."
In the wake of Fed Chairman Bernanke's testimony and coinciding with the start of Secretary Paulson's remarks, the Dow Jones Industrials turned higher. At 12:44 pm EDT, the Dow was up just over 15 points.