US regulators have underestimated potential bank losses on preferred stock issued by Fannie Mae and Freddie Mac, the American Bankers Association said yesterday.

Nearly a third of US banks hold preferred stock issued by the mortgage financiers that were taken into conservatorship this month, says an industry survey conducted by the ABA. The average bank exposure to such securities relative to core equity capital was 11 per cent. “The negative impact on banks – particularly Main Street community banks – is far greater than regulators first thought,” said Edward Yingling, chief executive of the ABA in a letter to the Treasury, the Federal Reserve and other regulators.

Financial Times