. systemically important insurance companies : the consolidated approach by definition, the insurance companies designated by the fsoc are systemically important. for these firms, application of an aggregated approach like that of the bba could pose significant risks to the federal reserve's statutory aims of safety and soundness and financial stability. the bba, recall, would simply aggregate capital requirements that may not be founded upon financial stability considerations. a consolidated form of capital requirements is key to ensuring that risks to the financial system as a whole ( as compared, say, to investor or policyholder protection ) are accounted for. for these firms, then, the anpr is likely to seek comment on what we have internally been calling the consolidated approach ( ca ). let me note at the outset that this is not the consolidated capital framework we apply to bank holding companies. as with our capital requirements for bank holding companies, the ca would categorize all of the consolidated insurance group's assets and insurance liabilities into risk segments, apply risk factors to the amounts in each segment, and then set a minimum ratio of required capital comparing the consolidated capital requirements to the group's consolidated capital resources. however, the ca would use risk weights or risk factors that are more appropriate for the longer - term nature of most insurance liabilities. like the bcr of the iais, the ca would take a consolidated approach to capital requirements. however, unlike the bcr, the foundation of the ca would be consolidated financial information based on u. s. gaap, with appropriate adjustments for regulatory purposes. our current thought is that the ca would initially be relatively simple in design, with a relatively small number of risk categories. thus there would be a broad risk segmentation of asset classes and insurance liabilities. however, as we gained experience with the ca, we would have the option of making it increasingly granular in order to achieve greater risk sensitivity. the ca, as a consolidated capital framework, would help prevent intra - group regulatory arbitrage opportunities and the potential for double leverage. 10 it would also be compatible with supervisory stress testing, which – as you all know – is now a central component of our supervisory program for making systemically important firms highly resilient, as well as for giving us a more complete picture of risks in the financial system as a whole. obviously, the compliance costs associated with the ca will be higher than those of the bba. but this enhanced regulation is justified by the increased risks

randall s kroszner : improving the infrastructure for non - agency mortgage - backed securities speech by mr randall s kroszner, member of the board of governors of the us federal reserve system, at the federal reserve system conference on housing and mortgage markets, washington dc, 4 december 2008. the original speech, which contains a link to the documents mentioned, can be found on the us federal reserve system ’ s website. * * * i very much appreciate the opportunity to participate in this conference and to hear your insights firsthand about such a range of important topics. as you know, housing markets are weak. sales of new homes and of existing homes are well below their respective peaks around the middle of this decade. house prices have fallen sharply – the national price index published by the federal housing finance agency is down almost 8 percent from its high in the spring of 2007, and the case - shiller national index is down more than 20 percent from its peak about 2 - 1 / 2 years ago. residential construction has remained weak, with single - family housing starts having declined to less than a third the number seen early in 2006. even with the drop in homebuilding, the inventory of unsold new homes represents more than 10 months'supply at the recent pace of sales. taken together, these data suggest continuing near - term challenges for stabilization of the housing market. with the plunge in home sales and house prices as well as very tight lending conditions, mortgage borrowing by households has fallen sharply over the past two years or so. indeed, the latest information suggests that, on net, home mortgage debt may not have increased at all since the spring. moreover, most of the new mortgages that were originated in the past several months were funded with mortgage - backed securities ( mbs ) guaranteed by the government housing agencies – fannie mae, freddie mac, and ginnie mae. that is, origination of mortgages not eligible for a government guarantee has fallen dramatically as issuance of private - label mbs has virtually come to a halt this year. the rapid deterioration in credit quality of mortgages in subprime and so - called alt - a mbs pools – and the subsequent severe rating downgrades of the securities they backed – has significantly eroded the value of and investor confidence in private - label mbs. in my remarks today, i would like to suggest some fundamental changes in the structure of private - label mbs that might help a recovery, over time, in investor