Fannie Mae and Freddie Mac Fannie Mae and Freddie Mac are private corporations that were established by Congress and are referred to as government sponsored enterprises or GSEs. They are the largest “packagers” of individual mortgages into mortgage backed securities (MBS) which they guarantee against loss.
We will be addressing the following threats to your financial institutions stability. Counterparty risk. Internal and external vulnerability and threats. Stemming the tide of losses from overly aggressive practices in lending continues to retard the marketplace and has yet to reach equilibrium. The use of macro measures is of critical importance in returning the company to profitability.
\ The use of Macroeconomic Measures, Using Aggregate Data. These measures approach threats to financial stability from the top down: Is aggregate credit growing too fast? Are credit underwriting standards falling? Are asset prices too high relative to fundamentals? “In an internal boom-bust cycle, an initial market upswing entices new investors and rising prices until additional capital or investors’ nerves are exhausted.”(Evanoff, Kaufman, and Malliaris, 2012). “This process can be amplified by capital rules that encourage banks to increase leverage when the economy is expanding and loan losses are low.” (Hanson, Kashyap, and Stein, 2011). “In the ensuing bust, a credit crunch can occur as participants switch from lending too much to lending too little.” (Brunnermeier, 2009).
A selling point for some macroeconomic measures is their early-warning potential, which derives from the view that large-scale systemic imbalances should be visible in appropriately constructed aggregate measures (Alessi and Detken, 2011). For example, the Basel Committee proposed an increase in banks’ capital requirements when the ratio of a country’s total credit outstanding to its GDP rises above historic norms (BCBS, 2010).

Predictive or ex ante measures may be able to provide early warnings of a future crisis, for example, by identifying specific vulnerabilities in the structure of the system that may demand a preventive policy, or by identifying potential shocks to the financial system, such as those arising from asset price misalignments; Contemporaneous measures can alert policymakers on a real-time basis to the level of risks and vulnerabilities, for example, by identifying individual institutions that pose by outsized threats to financial stability, or by helping policymakers understand events as a crisis unfolds; and, Ex post measures support forensic analysis of crises after they occur and can help supervisors and senior management in the orderly liquidation of financial institutions that have failed.
Measures of Interconnectedness, Using Relationship Data. These measures take a network approach to the financial system. To date, these measures have had to make do with traditional data sources, inferring the underlying connections by observing co-movements in market prices. The data requirements for a fully detailed counterparty network model are potentially extensive. A key policy development related to models of interconnectedness is the requirement in the Dodd-Frank Act for large financial institutions to create resolution plans, also known as living wills. These plans must include details on firms’ ownership structures, assets, liabilities, contractual obligations, cross-guarantees, collateral pledges, major counterparties, and significant credit exposures. An example of what is possible going forward appears in Chart 3.1.1, which depicts the connections of the largest money market funds to the institutional issuers whose securities they hold. These data only became available in 2010 through the SEC’s new Form N-MFP. They can illuminate systemic fragility by revealing which issuers might face funding liquidity issues if a given money market fund experienced a run, or which money market funds would be harmed if an issuer were to default.

Myopia. Even if calculated accurately, CVA captures, at best, the immediate cost of a counterparty’s default. This is a myopic view in the sense that it does not capture the potential follow-on effects of such a default. One default can trigger financial distress at other firms and elevate counterparty risk across the financial system. A comprehensive macro prudential view of counterparty credit risk must incorporate these rippling, network effects, as well as the direct impact of a default.
Conclusion
Management should strengthen and promote best practices under the broad category of risk management. Counterparty risk management is of special importance to ensure resilience of the financial system because it addresses the linkages (internal and external) within financial systems. Without addressing and managing the apparent vulnerability and threats, counterparty risk management allows losses from one financial institution to propagate to others through the interconnectedness among financial intermediaries. Your strong financial management will provide buffers against threats and vulnerability to the world’s financial stability. There is need to strengthen the elements of the linkages (insured risk, exposure to third party guarantees, etc.) in meeting the needs and enabling the financial system to provide the appropriate needs and services to the broader economy. These linkages have inherent potential vulnerability and risks. Strengthening the elements of counterparty risk management with stronger internal controls and diligence in the evolving marketplace will help mitigate these challenges.

References:
Brunnermeier, Markus K. “Deciphering the Liquidity and Credit Crunch 2007–2008.” Journal of Economic Perspectives 23, no. 1 (2009): 77–100.
Hanson, Samuel G., Anil K. Kashyap, and Jeremy C. Stein. “A Macroprudential Approach to Financial Regulation.” Journal of Economic Perspectives 25, no. 1 (2011): 3–28.
Evanoff, Douglas D., George G. Kaufman, and A. G. Malliaris, ed. New Perspectives on Asset Price Bubbles: Theory, Evidence and Policy. New York: Oxford University Press, 2012.
Alessi, Lucia, and Carsten Detken. “Quasi real time early warning indicators for costly asset price boom/bust cycles: A role for global liquidity.” European Journal of Political Economy 27, no. 3 (2011): 520-533.
Basel Committee on Banking Supervision. International Convergence of Capital Measurement and Capital Standards: A Revised Framework. Bank for International Settlements. Basel: BCBS, June 2004.