China does not plan to emulate US GSEs: adviser

24 Mar, 2006

China has no desire to create Freddie Mac or Fannie Mae style government sponsored enterprises (GSEs) to help develop its mortgage market, a former regulator of the two US home funding companies said on Thursday.
International banks are eager to take advantage of business opportunities in China, but the high profile economy has many regulatory hurdles for foreign banks seeking profits.
China's top two mortgage lenders are state-owned banks the Industrial Commercial Bank of China and China Construction Bank. The smaller Beijing-based CCB is 9 percent owned by the number 2 US bank, North Carolina- based Bank of America.
Armando Falcon, a Virginia-based principal for Canonbury Advisors and formerly a director of the Office of Federal Housing Enterprise Oversight in the US, said he met with senior officials from the People's Bank of China, the Chinese central bank, in January.
"The Chinese are adamant about having private sector mortgage lenders that are not reliant on government subsidies," the former regulator of the two US government sponsored enterprises (GSE) told a bond conference in Italy.
Falcon said Freddie and Fannie were created during the Depression in the 1930s, and Americans are still living with their unintended consequences.
Freddie and Fannie hold a combined $1.4 trillion in mortgage portfolios. Senator Richard Shelby, a Republican from Alabama, along with the Federal Reserve and the White House argue that the portfolios pose a risk to the financial system of the world's largest economy by aggregating interest rate risk, and requiring the two listed companies to engage in extensive and complicated hedging.

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