Fed's Fisher: Fannie, Freddie capital was too low

By Alister Bull

AUSTIN, Texas (Reuters) - A Federal Reserve examination of Fannie Mae and Freddie Mac had determined their capital was of poor quality and inadequate for the risks they faced, a top Fed official said on Monday.

"In sending our examiners in, we concluded that the capital of these institutions was too low relative to their exposure," Federal Reserve Bank of Dallas President Richard Fisher told a community luncheon hosted by the Dallas Fed.

"That capital, in and of itself, was of low quality. And when, for example, you looked at temporary impairments and so on, we found that many of them might not be so temporary," Fisher said.

The government's takeover of the two mortgage giants, announced on Sunday, was aimed to ensure financial stability, help the housing market, and protect taxpayers.

Fisher stressed the action had been taken by the U.S. Treasury, with the Fed acting only in a consultative role through its chairman, Ben Bernanke.

"It was in a consultative role that the chairman was called in... This decision was made by the United States Treasury. It is the United States Treasury that will lend the money and produce the backing," he said.

Fisher also pointed out that the U.S. central bank had warned for many years that Fannie and Freddie's size were a threat to the country and that they should be controlled.

"Over and over again, Alan Greenspan and Ben Bernanke, and those of us who have spoken on this issue, but particularly former chairman Greenspan, warned that the situation at Freddie and Fannie was not sustainable," he said.  Continued...