Improved Regulatory Structure and Minimum Capital Standards Are Needed for Government-Sponsored Enterprises

GAO discussed federal oversight of government-sponsored enterprises (GSE), focusing on recommendations to establish: (1) appropriate regulatory authorities for GSE federal regulators; (2) a regulatory structure to administer GSE oversight; and (3) capital standards to adequately protect the government's interest in GSE. GAO noted that federal GSE oversight authorities lacked sufficient authority to set and enforce capital rules. GAO also noted that, to ensure that GSE carry out their public purposes safely and soundly: (1) GSE regulators need authority to set rules, monitor financial performance and compliance with regulations, set minimum capital requirements, enforce regulations by imposing appropriate sanctions, and levy assessments to cover supervisory costs; (2) authorities should supplement, not obstruct, the existing corporate governance at each GSE; (3) GSE should be regulated by a single, independent regulatory body overseen by an independent board of directors that is prominent in government; and (4) minimum capital standards should include the sum of capital levels determined by empirically based tests of GSE capital adequacy to withstand stressful economic environments and a ratio of capital to assets.