First, the GSE regulator should have the broad authority necessary to set and adjust GSE capital requirements in line with the risks posed by the GSEs. Second, the GSEs should be subject to a clear and credible receivership process, a process that would establish that both shareholders and debt holders of a failed GSE would suffer financial losses.
Third, the GSEs’ portfolios should be anchored firmly to a well-understood public purpose approved by the Congress. The concentrated and potentially volatile nature of the GSEs’ portfolios, together with the lack of market discipline on GSE activities, makes ensuring adequate capital – the first element – especially important.