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48 LAWMAKERS BELIEVE 'TOO BIG TO FAIL' IS STILL ALIVE SEVEN YEARS AFTER THE CRISIS Two years ago, U.S. Sens. Sherrod Brown (D-Ohio) and David Vitter (R-Louisiana) introduced a bipartisan bill in an attempt to end taxpayer bailouts. In May, Vitter and Senator Elizabeth Warren (D-Massachusetts) authored similar bipartisan legislation, the Bailout Preven- tion Act, aimed at ending "Too Big to Fail." ree weeks after the Vitter-Warren bill was introduced in the Senate, Reps. Scott Garrett (R-New Jersey) and Mike Capuano (D-Massa- chusetts) introduced a similar bill in the House that would limit the Fed's ability to bail out big banks in times of a crisis. Some lawmakers are skeptical that Too Big to Fail has ended seven years after the crisis despite claims from some high-level government officials such as Treasury Secretary Jacob Lew that it has ended. e Government Account- ability Office (GAO) released the results of a comprehensive study in July 2014 indicating that the larger national banks have not only received assistance from government bailout programs, but they also enjoy a taxpayer backstop that community and regional banks do not, and that advantage widens during an economic crisis. e report was requested by Vitter and Brown two years earlier. "[e GAO report] confirms that in times of crisis, the largest megabanks receive an ad- vantage over Main Street financial institutions," Vitter and Brown said in a joint statement. "Wall Street lobbyists may try to spin that the advantage has lessened. But if the Army Corps of Engineers came out with study that said a levee system works pretty well when it's sunny— but couldn't be trusted in a hurricane—we would take that as evidence we need to act. We can fix Too Big to Fail by passing our bipartisan legisla- tion, which would ensure that Wall Street mega- banks—instead of taxpayers—have adequate capital to cover their losses in a crisis." e GAO report suggested that under more normal credit conditions or if there were another financial crisis, investors would flock to the Too Big to Fail institutions. e report also confirmed that the large Wall Street banks enjoy roughly the same advantages as they did seven years ago, suggesting a lack of progress in ending Too Big to Fail. Despite the findings of the GAO study and recent claims by lawmakers, Department of Treasury Secretary Jacob Lew said in an ad- dress at the Brookings Institution in July that companies designated as "systemically important financial institutions" (SIFIs) are held to higher standards for taxpayer protection and that the law ended Too Big to Fail. "To keep taxpayers from ever having to step in to save a financial firm again, Wall Street Reform ended 'Too Big to Fail' as a matter of law," Lew told the audience at the Brookings Institution. "In addition, regulators now have modern, commonsense tools to protect taxpay- ers. For example, the FSOC can designate large institutions as 'systematically important' and hold them to higher standards. Also, in the event of a crisis or a bankruptcy, regulators can seize large financial institutions and wind them down in an orderly way." In July, the House Financial Services Finan- cial Institutions and Consumer Credit Subcom- mittee held a hearing to discuss the criteria for designating a company as a SIFI, criticizing the $50 billion asset threshold required by Dodd- Frank. Some members of that subcommittee said in the hearing they believe that Dodd-Frank is codifying Too Big to Fail by continuing to designate companies as SIFIs. Also in July, the Senate Subcommittee on Financial Institutions and Consumer Protection held a hearing to discuss strategies that would end to end Too Big to Fail. "It's no secret that Too Big to Fail is still around. If another financial crisis happened tomorrow—and that's still a real risk—nobody doubts that megabanks would be calling on the federal government to bail them out again," Vit- ter said in May when the Bailout Prevention Act was introduced. "Our legislation makes com- monsense reforms to the Fed's emergency lend- ing powers to protect taxpayers the next time the megabanks lead us into another crisis." FREDDIE MAC EXPANDS STACR PROGRAM WITH HIGH LTV OFFERING Freddie Mac announced its intention to sell its first actual loss offering of loans with high loan-to-value (LTV) ratios, further expanding the GSE's Structured Agency Credit Risk (STACR) debt notes program. e offering, STACR HQA series, includes loans with LTVs ranging from 80 to 95 percent. e STACR 2015-HQA1 offering is Freddie Mac's sixth STACR offering of 2015 and 15th overall since the program began in 2013. e first 14 STACR transactions have resulted in the transfer of credit risk on $235.5 billion in unpaid principal balance (UPB), according to a report released the FHFA, in August. In addition to the announcement of the STACR HQA series, Freddie Mac also announced it will provide STACR preliminary payment disclosure on the fourth business day of every month following the release of Participation Certificate (PC) disclosures instead of the 25th. "e STACR market is becoming more sensitive to prepayment speeds, and these changes provide investors with access to the information as soon as possible," said Mike Reynolds, Freddie Mac VP of Credit Risk Transfer. "Our goal is to be attuned to what the market is looking for and to adjust our disclosures accordingly." e STACR 2015-HQA1 offering, $872 million, will be the third STACR transaction for Freddie Mac in which in which losses are allocated based on actual losses realized on the related reference obligations instead of using a fixed severity approach to allocate losses, according to Freddie Mac. e transaction includes a reference pool of single-family residential mortgages with a UPB of more than $19 million. e loans in the reference pool are 30-year fixed rate loans acquired by Freddie Mac between August, 1, 2014, and November 30, 2015, and all have LTVs ranging from 80 to 95 percent, Freddie Mac reported. e co-lead managers and joint bookrunners for the STACR 2015-HQA1 offering are Bank of America Merrill Lynch and Nomura, while Deutsche Bank and BNP Paribas are co-managers for the deal. Williams Capital will be a selling group member, according to Freddie Mac.

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