Incentives Askew?

8 Pages Posted: 25 Jan 2005 Last revised: 16 Mar 2010

See all articles by William R. Emmons

William R. Emmons

Federal Reserve Bank of St. Louis - Banking Supervision and Regulation; Washington University in St. Louis

Gregory E Sierra

Southern Illinois University Edwardsville

Abstract

From a public policy perspective, any reform of Fannie Mae and Freddie Mac in light of recent accounting revelations should include the crucial task of recalibrating managerial incentives to decrease the large risk appetite of the owners of two highly leveraged financial institutions that are perceived by many capital market participants to enjoy a government guarantee of their liabilities. In turn, Fannie and Freddie's safety-and-soundness regulator - who is essentially the debtholders' and taxpayers' representative - must be admitted to the two firms' boardrooms in a way that is atypical of an ordinary publicly held company.

Keywords: Fannie Mae, Freddie Mac, accounting, acounting practices, regulation, GSE, government-sponsored enterprises, corporate governance, CEO incentives

JEL Classification: G28, G21, K20, M41

Suggested Citation

Emmons, William R. and Sierra, Gregory E., Incentives Askew?. Regulation, Vol. 27, No.4, pp. 22-28, Winter 2004, Available at SSRN: https://ssrn.com/abstract=654004

William R. Emmons (Contact Author)

Federal Reserve Bank of St. Louis - Banking Supervision and Regulation ( email )

411 Locust St
Saint Louis, MO 63011
United States

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Gregory E. Sierra

Southern Illinois University Edwardsville ( email )

Campus Box 1104
Edwardsville, IL 62026-1102
United States
618-650-2633 (Phone)

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