Herb Allison, the former Merrill Lynch executive who stepped in to take the reins at Fannie Mae last September, appears to be the leading candidate to be nominated to become assistant secretary of the Office of Financial Stability, according to various news reports.

In that capacity, the 65-year-old Allison would run the U.S. Treasury Department’s Troubled Asset Relief Program, or TARP, which is using $700 billion in taxpayer dollars to bolster the country’s financial system.

If Allison is nominated and accepts the job, there would be vacancies at the top of Fannie and Freddie Mac, which John Koskinen has been running as Freddie's interim CEO since David Moffett resigned suddenly from that post in March.

The Wall Street Journal suggests that one possible candidate to replace Allison at Fannie is Michael Williams, the agency’s current COO. The Federal Housing Financing Agency (FHFA), which regulates Fannie and Freddie, has been mum on future personnel changes.

Allison could be particularly well suited to manage TARP, which still has $134.5 billion to distribute, based on his background. At Merrill, Allison helped resolve the problems related to the giant hedge fund Long-Term Capital Management. And as chairman and CEO of the pension fund TIAA-CREF, Allison cut costs and payroll, according to the Financial Times.

He would be coming on at this job just as the federal government is planning to reveal the results of stress tests to determine the relative financial health of the country’s 19 largest banks, according to the New York Times. Some financial institutions, such as Goldman Sachs and JPMorgan Chase, want to pay back TARP money to get out from under government regulatory control.

Regulatory agencies are also pressuring Fannie and Freddie to revamp their operations in ways that, according to a report in Bloomberg.com this morning, might include breaking them up or restating their missions.

John Caulfield is senior editor at BUILDER magazine.

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