Treasury official sees GSE legislation "soon"

BOSTON (Reuters) - Recent weeks have shown the consequences of failure to improve oversight of Fannie Mae and Freddie Mac, but Congress is expected to "soon" pass legislation for liquidity and capital backstops and a stronger regulator, a senior Treasury official said on Monday.

In prepared remarks to money managers in Boston, Anthony Ryan, acting Treasury undersecretary for domestic finance, said the operations of the two government-sponsored housing enterprises had grown exponentially over the last decade.

"During the last several weeks, we unfortunately have seen the consequences of having large, innovative financial institutions without appropriate oversight," he said, referring to the erosion of investor confidence in the mortgage finance giants.

"There is little doubt Fannie Mae and Freddie Mac have an effect on overall market stability and must have improved oversight," he added.

Ryan said he believed Congress would soon complete GSE legislation, which would include requests by U.S. Treasury Secretary Henry Paulson to give Fannie Mae (FNM.N) and Freddie Mac (FRE.N) backstops for liquidity and capital and provide a consultative role for the Federal Reserve in helping a new regulator set capital requirement.

"The Secretary has asked that these new provisions be included in the House- and Senate-passed GSE legislation," Ryan said. "We have been working closely with Congress and expect this legislation to be completed soon."

A Treasury spokeswoman also said on Monday the Treasury remained optimistic the GSE bill would be completed this week.

Ryan also said fund managers and investors must adopt new best practices guidance to strengthen market discipline and minimize risks. Ryan, who worked for two prominent Boston-based money managers before moving to the Treasury Department, stressed the private sector also bears responsibility in supporting market stability and said the government wants all market participants exercise discipline.

In response to a question about how the government may handle future problems after getting involved after investment bank Bear Stearns collapsed and mortgage lender IndyMac failed, Ryan said "there is no silver bullet" and stressed that preventing these situations was a shared responsibility.