The U.S. Treasury Department wants to hire someone to help manage risks and protect against losses on federal programs, according to an internal memo.
The Treasury intends to create the job of chief risk officer to oversee a small team and “provide permanent financial risk-management expertise,” according to the memo from Undersecretary for Domestic Finance Mary Miller to staff in her division in Washington. Miller refers to the memo, dated Sept. 16 and obtained by Bloomberg News, as a “strategic plan.” Treasury spokesman Anthony Coley declined to comment.
The department has been forced to assume responsibility for losses at other federal agencies. Mortgage-finance companies Fannie Mae and Freddie Mac are under a Treasury conservatorship that started in 2008. The Federal Housing Administration last month drew about $1.7 billion from the Treasury to shore up FHA’s insurance fund after losses on defaulted mortgages depleted reserves.
“It’s a credit risk to Treasury when there are losses on these insurance and guarantee programs, and then Treasury has to foot the bill,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc., a Washington regulatory research firm whose clients include the world’s largest banks. “Getting a handle on all those guarantee and credit risks is a good idea.”
Miller’s memo also proposed strengthening the Office of Financial Research’s “ability to provide analytical support” to the Financial Stability Oversight Council. The research office gives data to the FSOC, a group of regulators led by Treasury Secretary Jacob J. Lew that was created by the Dodd-Frank law to help prevent another financial crisis.
Miller’s memo reiterated the Treasury’s plans to wind down Fannie Mae and Freddie Mac “while assuring the continued flow of mortgage credit” and said the department will work with the White House and Congress “to develop and implement a plan for long-term reform of the mortgage finance system.”
The two government-sponsored enterprises have paid the Treasury a combined $146 billion in the form of dividends on the government’s stake, which does not count as a repayment of the aid they received after the financial crisis.
President Barack Obama said in August that private capital should take the lead role in the mortgage market, with the government providing a backstop only against catastrophic risk.
Timothy F. Geithner, Lew’s predecessor at the Treasury, released a white paper in February 2011 outlining three options for winding down and replacing Fannie Mae and Freddie Mac. The options ranged from near-complete privatization to a system in which the government would serve as a catastrophic reinsurer of mortgage securities, with private capital taking most of the up-front risk.
Miller’s plan includes a “complete build-out” of the Treasury’s Office of Critical Infrastructure Protection to “keep pace with growing cyber threats.” The Treasury also wants to establish a central role for the Federal Insurance Office, according to the memo. The office, created by Dodd-Frank, advises the FSOC and the Treasury secretary on insurance issues.
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