Statement on Investments in Fannie Mae and Freddie Mac Equity Securities
On September 7, 2008, the Federal Housing Finance Agency placed Fannie Mae and Freddie
Mac into conservatorship. This action, while disruptive in the near term, was deemed necessary
to provide stability to domestic and global financial markets, support the availability of mortgage
credit, and protect taxpayers. The FDIC believes that these government-sponsored enterprises
are important to the home mortgage market.
The federal banking agencies issued a statement on September 7th indicating that they will work
with the limited number of smaller institutions that have significant holdings of Fannie Mae or
Freddie Mac common and preferred shares in relation to their capital (see PR-78-2008).
Consistent with this interagency press release, the FDIC reminds institutions that investments in
perpetual preferred stock and common stock with readily determinable fair values, if not held for
trading purposes, should be reported as available-for-sale equity securities and that any net
unrealized losses on these securities are deducted from regulatory capital.
For the limited number of smaller institutions with Fannie Mae or Freddie Mac equity securities
that are significant compared to their capital, the FDIC is committed to a flexible supervisory
approach and will work with institutions that need to develop a Capital Restoration Plan under
the Prompt Corrective Action guidelines (Part 325, Subpart B, of the FDIC's regulations). The
FDIC will also take into account the unique nature of this situation when considering requests for
waivers from brokered deposit restrictions.
Furthermore, Minority Depository Institutions are reminded that technical assistance is available
from the FDIC, pursuant to Section 308 of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989.
The following guidance and information should be consulted for additional details about matters
discussed in this Financial Institution Letter.