Economics, Regulation

Fannie and Freddie are obviously SIFIs. Earth calling FSOC

Image credit: Frontpage / Shutterstock.com

Image credit: Frontpage / Shutterstock.com

The Financial Stability Oversight Council (FSOC), a big committee of regulators, is playing with making insurance companies and asset managers into “SIFIs” (Systemically Important Financial Institutions), regulated by the Federal Reserve in addition to others.  There does not appear to be much of an argument for this, other than the Federal Reserve’s belief in its own ability to know what is right for everybody else—a belief for which the history of the Fed provides no support.

More to the point, the two most obvious SIFIs of all have not been so designated, and do not appear even to be under consideration. These are Fannie Mae and Freddie Mac. Is the FSOC asleep or what?

There is no doubt whatsoever that Fannie and Freddie have been and are huge sources of systemic risk. They are giant: Fannie is bigger than JPMorgan and Freddie is bigger than Citigroup. They are both demonstrably too big to fail. They are super-leveraged—more leveraged than anybody else. They pile risk on the taxpayers. If Fannie and Freddie are not SIFIs, then nobody is a SIFI.

Until the FSOC formally designates Fannie and Freddie as the SIFIS they so unquestionably are, then FSOC has zero intellectual credibility. Earth to FSOC—Hello?  Hello?

Alex J. Pollock is a resident fellow at the American Enterprise Institute.

Follow AEIdeas on Twitter at @AEIdeas.

2 thoughts on “Fannie and Freddie are obviously SIFIs. Earth calling FSOC

  1. And they already have a proven, demonstrable impact on the stability of the financial system, the only SIFI or potential SIFI that has such a track record. They are the only real live examples that anyone can point to in demonstration of the validity of the whole concept of SIFIs. All of the others are theoretical.

  2. One has to wonder what political considerations are behind these SIFI designations. Fidelity, Vanguard, and other large asset managers are being considered for SIFI consideration (or have they already been so designated?), but other other obvious candidates are being ignored. Freddie and Fannie are GSEs, quasi-public/quasi-private entities, whereas asset managers are clearly in the private sector. Is that the political difference? Quasi-publics can’t cause systemic risk but private firms can? Heaven help this country…..

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