The Bush Administration has announced it will temporarily raise the U.S. Department of Treasury's credit line to the nation's two major government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
In an announcement issued on July 13, Treasury Secretary Henry M. Paulson Jr. stated the White House was working with congressional leaders and federal regulators to create a three-part plan to ensure the continued financial health of the ailing GSEs.
‘First, as a liquidity backstop, the plan includes a temporary increase in the line of credit the GSEs have with Treasury,’ said Paulson. ‘Treasury would determine the terms and conditions for accessing the line of credit and the amount to be drawn. Second, to ensure the GSEs have access to sufficient capital to continue to serve their mission, the plan includes temporary authority for Treasury to purchase equity in either of the two GSEs if needed.’
The plan's third part, Paulson added, was to prevent a reprise of the current environment. ‘To protect the financial system from systemic risk going forward, the plan strengthens the GSE regulatory reform legislation currently moving through Congress by giving the Federal Reserve a consultative role in the new GSE regulator's process for setting capital requirements and other prudential standards,’ he said.