The Federal Housing Finance Board voted to let the banks use their existing capital to increase their holdings of agency mortgage-backed securities for two years, effective immediately.
The move is expected to help stabilize the mortgage finance market roiled by months of increasing foreclosures and other failed investments.
"Increasing the agency MBS investment authority for the banks is another way in which the system can perform its traditional mission," said Finance Board Chairman Ronald Rosenfeld, in a prepared statement.