Risk-based Capital Management

Freddie Mac strongly believes that capital should be linked to risk, and that a stress-test-based capital standard is superior to a capital standard based on ratios. In fact, for more than 15 years, we have run our own rigorous capital stress tests in order to assess and manage our exposure to risks. OFHEO's risk-based capital test requires us to maintain sufficient capital to survive a simulated ten-year financial crisis that includes substantial credit losses and sustained and severe shocks to interest rates. In addition the risk-based capital test requires Freddie Mac to hold 30% additional capital than the requirement computed by the test in order to account for management and operations risks. In comparison to traditional ratio tests, the risk-based capital test permits OFHEO to assess Freddie Mac's performance under conditions that are highly stressful to our principal risk exposures.

OFHEO's current risk-based capital test, along with its minimum capital requirements and comprehensive examination program, provide a more stringent and wide-ranging set of tools for evaluating safety and soundness than is used by any other financial regulator. The publicly released results demonstrate the effectiveness of our risk management practices and clearly establish that we are among the world's best-capitalized financial institutions.

Our commitment is clear: we will maintain our leadership in this arena and ensure that Freddie Mac continues to serve millions of America's families for generations to come.