Fed Proposes Capital Reform to Revive Bank Mortgage Market
#federal_reserve #mortgage #capital_requirements #banking #regulation
Fed Moves to Revive Bank Mortgage Market
The Federal Reserve is preparing regulatory changes designed to encourage banks to increase their role in mortgage origination and servicing. Vice Chair for Supervision Michelle Bowman announced proposals that would fundamentally reshape how capital requirements apply to mortgage-related activities, addressing a decades-long decline in bank participation within the mortgage market.
Capital Requirements Reform
The proposed changes include removing the requirement to deduct mortgage servicing assets from regulatory capital while maintaining risk weights, and implementing more risk-sensitive mortgage loan classifications based on loan-to-value ratios. These modifications aim to reduce the disproportionately high capital burden currently imposed on banks holding mortgages with low loan-to-value ratios, thereby freeing up capital for community lending.
Market Impact and Implementation
Industry observers recognize these adjustments as critical steps toward restoring competitive balance in mortgage markets. By better aligning capital requirements with actual risk profiles, regulators hope to revitalize banks' capacity to serve creditworthy borrowers while maintaining safety and soundness standards throughout the financial system.
```About the Organizations Mentioned
Federal Reserve
## Overview and Mission The Federal Reserve, often called the "Fed," is the central bank of the United States, established by Congress in 1913 to provide the nation with a safer, more flexible, and stable monetary and financial system[1]. Its mission centers on a dual mandate from Congress: to promote maximum employment and maintain price stability, ensuring the dollar retains its value over time[1]. The Fed operates through a unique hybrid structure, combining a national Board of Governors in Washington, D.C., with 12 independent regional Reserve Banks, including institutions like the Cleveland Fed[1]. This decentralized setup allows the Fed to closely monitor economic conditions across diverse regions, industries, and communities, while maintaining independence from short-term political influences[1]. ## Key Functions The Fed’s responsibilities are broad and vital to the U.S. economy. It conducts monetary policy—primarily by influencing interest rates—to achieve its employment and inflation goals[2]. The Fed also supervises and regulates banks to ensure the safety and soundness of the financial system, works to minimize systemic risks, and fosters efficient payment and settlement systems[2]. Additionally, it promotes consumer protection and community development, addressing emerging issues through research, supervision, and enforcement of consumer laws[2]. ## History and Evolution The Federal Reserve is the third central bank in U.S. history, following two failed attempts in the 19th century[1]. Its creation was a response to the financial turbulence of the early 20th century, aiming to prevent crises and stabilize the economy. Over time, the Fed has evolved, adopting more transparent and inclusive policymaking processes. For example, it now conducts regular reviews of its monetary policy framework, engaging with academics, businesses, and the public to refine its strategies and communications[3][5]. ## Recent Developments and Achievements In 2025, the Fed completed its second major review of its monetary policy strategy, tools, and communications, reaffirming its commitment to transparenc
