- 07/18/2008 OFHEO Working Paper 08-2 Enterprise Credit Default Swaps and Market Discipline: Preliminary Analysis: “Financial regulators are interested in harnessing market information and market discipline to improve the supervision and performance of financial institutions. Recent growth in the market for credit default swaps (CDS), derivative instruments that allow for the trading of credit risk, presents the possibility of a new and important source of such information. The current paper explores the potential role of the rapidly expanding CDS market in providing market information relative to Fannie Mae and Freddie Mac (the Enterprises). Since there is an inherent link between CDS and bonds, a preliminary question is whether the CDS market provides information not captured in the bond market. With respect to the Enterprises, this question takes on added importance in light of the previous research that failed to find default risk signals in bond market and stock market information. Thus, if CDS markets only replicate bond market information, little reason exists to invest additional regulatory resources monitoring them. To explore this topic, the paper first summarizes theory and evidence linking CDS pricing and bond pricing. This summary focuses on reasons why and evidence that the information from these markets may differ.”
- 07/17/2008 MORTGAGE MARKET NOTE 08-2: Fannie Mae and Freddie Mac Capital: “Discussions about the capital of Fannie Mae and Freddie Mac are sometimes confusing because of the various alternative types of capital and capital requirements. This note is intended to provide a quick reference for the different measures of capital, the capital requirements, the capital classifications, and data for recent years and the first quarter of this year.”
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