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Inside Washington (12/18/2009)
* WASHINGTON (12/21/09)--The mortgage market is stable but may be carrying some risk, financial observers said. Fannie Mae and Freddie Mac are still buying loans and subprime borrowers can still find financing. The Federal Housing Administration has taken over Fannie and Freddie’s more “perilous” lending, and by transferring the risk to the government, the market has avoided trouble. However, observers wonder if the future will bring new complications or an excess of old problems. Robert Pozen, chairman of MFS Investment Management and senior lecturer at Harvard Business School, said important lessons from the crisis are being ignored, he told American Banker (Dec. 18). He is leery about the extension of an $8,000 tax credit to first-time homebuyers. However, there are some positive signs. In the case of Fannie and Freddie, both are doing their job, so there hasn’t been pressure to fix them, said James Lockhart, former director of the Federal Housing Finance Agency. But although fixing Fannie and Freddie is on the “backburner” because they don’t pose a problem, they still have to be addressed, he said ... * WASHINGTON (12/21/09)--The Senate Banking Committee approved the renomination of Federal Reserve Board Chairman Ben Bernanke Thursday, but there likely will be a heated debate in the Senate over his nomination. Analysts expect him to win, but he faces opposition from legislators including Sens. Bernie Sanders (I-Vt.) and John McCain (R-Ariz.). Sen. Richard Shelby (R-Ala.), the committee’s ranking member, voted against Bernanke. Senate Banking Committee Chairman Chris Dodd (D-Conn.) told reporters that lawmakers will “no choice” but to approve his nomination. Dodd also stumped for his reform bill, which would eliminate the Fed’s banking supervisory power. The House passed a bill that would make the Fed a systemic risk regulator but without consumer protection functions (American Banker Dec. 18) ... * WASHINGTON (12/21/09)--The Federal Deposit Insurance Corp. (FDIC) warned against interest rate risk (IRR) in its Winter 2009 Supervisory Insights report. IRR is the potential for changes in interest rates to reduce a bank’s earnings or economic value. Financial institutions should be vigilant in their oversight and control of IRR exposures, FDIC said. Given the current low interest rate environment, it is important that financial institutions plan for increases in interest rates and prepare for the associated risks, the agency said. Financial institutions should be prepared to manage the risk of declining yield spreads between longer-term investments, loans and other assets and shorter-term deposits and other liabilities. FDIC advised institutions to reduce their IRR exposure and increase capital if their capital and earnings are insufficient against changes in interest rates ...


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