Major Banks Don’t Have Sufficient Reserves to Pay All Putbacks, Fed Says

By Kyle Chezum Updated on 12/1/2010

12/01/2010

Federal Reserve governor Daniel Tarullo, who has been investigating mortgage putback claims levied against major banks, testified today that the banks at fault may not have sufficient reserves on hand to buy back mortgages.  The four largest banks together have retained about $9.7 billion in reserves, compared to $13.3 billion in putback requests from Fannie Mae and Freddie Mac.

The Fed is currently investigating the possible extent of the risk banks face from putback requests and the potential damage putbacks may cause.  Significant depletion of reserves is likely and may have unforeseen macroeconomic effects.

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