The Federal Housing Finance Agency (FHFA) supervises and regulates the government-sponsored enterprises Fannie Mae and Freddie Mac while exercising broad corporate powers as their conservator. In a new insight, Director of Financial Services Policy Thomas Kingsley discusses the longstanding question over when an enterprise directive constitutes corporate governance and when it is federal regulation subject to the Administrative Procedure Act.

He concludes:

The real test of FHFA’s dual role is unlikely to come from another abstract debate over whether the conservator has broad powers; Congress already answered that question in 2008, and the courts have largely confirmed it. The more interesting question is what happens when an emergency governance structure becomes the normal way of running two of the country’s most important financial institutions—and when the official running that structure is simultaneously their federal regulator and the chairman of both boards. If conservatorship is going to remain the answer for the foreseeable future, FHFA should eventually have to explain why the extraordinary powers of a conservator should continue to function as an ordinary instrument of housing policy.

Read the analysis.