Deutsche Bank’s CEO Says Europe Could Use Its Own Fannie Mae
Deutsche Bank’s CEO Says Europe Could Use Its Own Fannie Mae
(Bloomberg) -- Europe should consider creating its own version of mortgage agencies such as Fannie Mae or Freddie Mac to give a boost to capital markets in a region that’s still heavily dependent on bank lending, Deutsche Bank Chief Executive Officer Christian Sewing said.
More than two-thirds of German and European companies are still financed by bank loans, Sewing said Friday at a banking conference in Frankfurt. Capital markets on the continent are still much less developed than in the U.S., limiting banks’ ability to sell off the debt and extend more loans, he said.
“Lets think about a European institution like that,” Sewing said. “Something like a European Fannie Mae, yes, I would be in favor of that.”
Europe’s banks have long struggled to keep up with Wall Street peers, in part because the region still lacks a unified capital market. Government-backed institutions like Fannie Mae, which buy home loans from banks, package and sell them, have played a key role in developing the market for securitizations in the U.S., allowing banks there to issue more loans while needing less of their own capital.
Congress created Fannie Mae -- the Federal National Mortgage Association -- in 1938 as government agency to revive the mortgage market after the Great Depression. By buying mortgages from lenders, it freed up money the banks could use to make more loans. It and Freddie Mac, a competitor created in 1968, helped the market for mortgage-backed securities grow by guaranteeing the payments of bonds it sold -- bonds that many investors treated as nearly as safe as those of the U.S. Treasury.
The system melted down in the 2007-2008 financial crisis, forcing the government to take direct control over the pair. Fannie and Freddie quickly rebounded, and their so-called agency MBS fuel the deepest and most liquid U.S. debt market after Treasuries.
To contact the reporters on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net;Steven Arons in Frankfurt at sarons@bloomberg.net
To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel
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