Countercyclical capital regime revisited: Tests of robustness

These tests of robustness support the conclusion that the SW countercyclical capital regime should produce capital requirements sufficient to ensure an entity would remain solvent during severe house price cycles. This conclusion is strongly supported by a test of concept of the countercyclical framework using Fannie Mae's historical book of business. If the countercyclical capital requirement had been in place during the run-up to the recent house price bubble, Fannie Mae would have been sufficiently capitalized to withstand losses it sustained in the subsequent housing crisis. This result is particularly noteworthy given that key components of the SW stress test were designed based upon pre-2002 data.