Rule2022-11582
Enterprise Regulatory Capital Framework-Public Disclosures for the Standardized Approach
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 2, 2022
Effective
August 1, 2022
Issuing agencies
Federal Housing Finance Agency
Abstract
The Federal Housing Finance Agency (FHFA or the Agency) is adopting a final rule (final rule) that amends the Enterprise Regulatory Capital Framework (ERCF) by introducing new public disclosure requirements for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac, and with Fannie Mae, each an Enterprise). The requirements include quantitative and qualitative disclosures related to risk management, corporate governance, capital structure, and capital requirements and buffers under the standardized approach.
Full Text
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[Federal Register Volume 87, Number 106 (Thursday, June 2, 2022)]
[Rules and Regulations]
[Pages 33423-33435]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-11582]
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FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1240
RIN 2590-AB18
Enterprise Regulatory Capital Framework--Public Disclosures for
the Standardized Approach
AGENCY: Federal Housing Finance Agency.
ACTION: Final rule.
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SUMMARY: The Federal Housing Finance Agency (FHFA or the Agency) is
adopting a final rule (final rule) that amends the Enterprise
Regulatory Capital Framework (ERCF) by introducing new public
disclosure requirements for the Federal National Mortgage Association
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie
Mac, and with Fannie Mae, each an Enterprise). The requirements include
quantitative and qualitative disclosures related to risk management,
corporate governance, capital structure, and capital requirements and
buffers under the standardized approach.
DATES: This rule is effective August 1, 2022.
FOR FURTHER INFORMATION CONTACT: Andrew Varrieur, Senior Associate
Director, Office of Capital Policy, (202) 649-3141,
<a href="/cdn-cgi/l/email-protection#b5f4dbd1c7d0c29be3d4c7c7dcd0c0c7f5d3ddd3d49bd2dac3"><span class="__cf_email__" data-cfemail="a3e2cdc7d1c6d48df5c2d1d1cac6d6d1e3c5cbc5c28dc4ccd5">[email protected]</span></a>; Christopher Vincent, Senior Financial
Analyst, Office of Capital Policy, (202) 649-3685,
<a href="/cdn-cgi/l/email-protection#d390bba1baa0a7bca3bbb6a1fd85babdb0b6bda793b5bbb5b2fdb4bca5"><span class="__cf_email__" data-cfemail="febd968c978d8a918e969b8cd0a897909d9b908abe9896989fd0999188">[email protected]</span></a>; or James Jordan, Associate General
Counsel, Office of General Counsel, (202) 649-3075,
<a href="/cdn-cgi/l/email-protection#5e143f333b2d7014312c3a3f301e3836383f70393128"><span class="__cf_email__" data-cfemail="ffb59e929a8cd1b5908d9b9e91bf9997999ed1989089">[email protected]</span></a> (these are not toll-free numbers); Federal
Housing Finance Agency, 400 7th Street SW, Washington, DC 20219. For
TTY/TRS users with hearing and speech disabilities, dial 711 and ask to
be connected to any of the contact numbers above.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Overview of the Final Rule
III. General Overview of Comments on the Proposed Rule
IV. Public Disclosure Requirements
A. General Requirements
B. Standardized Approach
C. Market Risk
V. Frequency of Disclosures
VI. Compliance Dates
VII. Location of Disclosures and Audit Requirements
VIII. Proprietary and Confidential Information
IX. Paperwork Reduction Act
X. Regulatory Flexibility Act
[[Page 33424]]
XI. Congressional Review Act
I. Introduction
On November 3, 2021, FHFA published in the Federal Register a
notice of proposed rulemaking (proposed rule) seeking comments on
amendments to the ERCF that would implement new public disclosure
requirements for the Enterprises.\1\ FHFA proposed these amendments to
improve market discipline and encourage sound risk-management practices
at the Enterprises by ensuring that market participants have access to
sufficient information with which they can assess an Enterprise's
material risks and capital adequacy and make informed investment
decisions. Public disclosures that are clear, comprehensive, useful,
consistent over time, and comparable across Enterprises will facilitate
such analyses and will therefore contribute to the safety and soundness
of the Enterprises, decreasing risk to U.S. taxpayers. FHFA is now
adopting in this final rule the proposed amendments, substantially as
proposed, with minor modifications as discussed in the relevant
sections of this preamble.
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\1\ 86 FR 60589.
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The public disclosure requirements in the final rule align with
many of the public disclosure requirements for large banking
organizations under the regulatory capital framework adopted by United
States banking regulators (U.S. banking framework). Modern bank
disclosure requirements were initially contemplated by the Basel
Committee on Banking Supervision (BCBS) under Pillar 3 of Basel II in
order to complement the minimum capital requirements and the
supervisory review process and were later expanded with additional
requirements in Basel III. In much the same way, the public disclosure
requirements in the final rule will bolster the ERCF as it aims to
ensure that each Enterprise operates in a safe and sound manner and is
positioned to fulfill its statutory mission to provide stability and
ongoing assistance to the secondary mortgage market across the economic
cycle, in particular during periods of financial stress.\2\
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\2\ 85 FR 82150.
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II. Overview of the Final Rule
The final rule implements quantitative and qualitative disclosure
requirements related to risk management, corporate governance, capital
structure, statutory capital requirements, supplemental capital
requirements, including risk-weighted assets calculated under the
standardized approach, and capital buffers. In contrast to the U.S.
banking framework, which has fewer requirements and buffers under the
standard approach than under the advanced approaches, the ERCF requires
the Enterprises to satisfy the same capital buffers and leverage
requirements under the standard approach and under the advanced
approaches. Therefore, the final rule adapts the public disclosure
requirements in the U.S. banking framework to reflect the ERCF's
standardized approach, blending elements from the U.S. banking
framework's standardized and advanced approaches. While the final rule
implements disclosure requirements for the ERCF's standardized approach
only, FHFA may in the future consider additional disclosure
requirements related to the advanced approaches.
In general, the final rule requires quarterly quantitative
disclosures and annual qualitative disclosures, provided the
Enterprises disclose any material changes to disclosure items as soon
as practicable, and no later than the end of the next calendar quarter.
As discussed below, Enterprises will publish on their websites their
first public disclosure reports under the final rule in the first
quarter of 2023. This timeframe will allow the Enterprises to establish
the internal reporting and governance functions necessary to fulfill
the disclosure requirements and will minimize duplicative reporting by
aligning the schedule of annual qualitative disclosures with the
Securities and Exchange Commission's (SEC) reporting schedule for Form
10-K.
The final rule balances the potential costs of disclosures with the
many benefits, including the benefits of increased market discipline of
the Enterprises. By allowing market participants to assess key
information about the Enterprises' risk profiles and associated levels
of capital, the final rule will promote transparency, increase the
amount of information available to the public, and encourage sound risk
management practices at the Enterprises. In doing so, the final rule
will foster financial stability at the Enterprises and in the broader
housing finance market both during and after the Enterprisers'
conservatorships. However, enhanced public disclosures could be costly
for the Enterprises. The final rule strikes an appropriate balance
between the market benefits of disclosure and the additional financial
burden to the Enterprises by permitting the Enterprises to fulfill many
of the disclosure requirements by relying on similar disclosures made
in accordance with accounting standards or SEC mandates. When an
Enterprise fulfills a disclosure requirement using information provided
in a different regulatory report, the Enterprise must provide a summary
table that specifically indicates where the cross-referenced
disclosures may be found and provide a reconciliation of regulatory
capital elements as they relate to its balance sheet in any audited
consolidated financial statements should there be differences between
the accounting or other disclosures and the disclosures required under
the final rule.
As proposed, the final rule also introduces a materiality concept
for items not explicitly identified as required disclosures. The
materiality concept is designed to ensure that improvements in public
disclosures come not only from regulatory standards, but also as a
result of efforts made by management at the Enterprises to communicate
advances in risk management processes and internal reporting systems to
public shareholders and other market participants. In a manner similar
to the requirements for U.S. banking organizations, the final rule
requires an Enterprise to decide which additional disclosures are
relevant based on this materiality concept. Information is material if
its omission or misstatement could change or influence the assessment
or decision of a user relying on that information for the purpose of
making investment decisions. Similarly, the final rule requires an
Enterprise to have a formal disclosure policy approved by its board of
directors that addresses the Enterprise's approach for determining
which disclosures are necessary and appropriate. The policy must
address internal controls, disclosure controls, and procedures.
III. General Overview of Comments on the Proposed Rule
FHFA received six public comment letters on the proposed rule.\3\
In general, commenters were very supportive of the proposed disclosure
requirements. Most commenters recommended FHFA adopt the amendments to
the ERCF as proposed, with a few specific recommendations which are
discussed in the relevant sections below.
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\3\ See comments on Amendments to the Enterprise Regulatory
Capital Framework Rule--Public Disclosures for the Standardized
Approach, available at <a href="https://www.fhfa.gov/SupervisionRegulation/Rules/Pages/Comment-List.aspx?RuleID=710">https://www.fhfa.gov/SupervisionRegulation/Rules/Pages/Comment-List.aspx?RuleID=710</a>. The comment period for the
proposed rule closed on January 3, 2022.
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However, one commenter expressed only measured support for the
[[Page 33425]]
disclosure requirements due to the Enterprises being in
conservatorships. The commenter stated that without more certainty
regarding the future of the Enterprises, a rule requiring the
Enterprises to devote substantial time and resources to developing and
producing these disclosures seems to be premature. FHFA maintains that
requirements that encourage sound risk-management practices, such as
comprehensive, consistent, and comparable public disclosures, serve an
important function at the Enterprises regardless of an Enterprise's
conservatorship status.
In addition to comments directly related to the proposed
amendments, FHFA also received several comments on other matters, such
as the magnitude of funds remitted to the U.S. Department of the
Treasury by the Enterprises relative to cumulative draws, the costs of
owning or renting a home in the U.S., and the implications of mortgage
originators selling their debt to other financial institutions. FHFA
acknowledges the importance of these topics and will thoroughly
consider the public's feedback on these issues when relevant
rulemakings and policy decisions are under consideration.
IV. Public Disclosure Requirements
A. General Requirements
The proposed rule would implement general requirements related to a
formal disclosure policy, the concept of materiality, and fulfilling
disclosure requirements by relying on other required public reports.
Market participants consider many factors when making their
assessment of an Enterprise, including the Enterprise's risk profile
and the techniques it uses to identify, measure, monitor, and control
the risks to which the Enterprise is exposed. Accordingly, the proposed
rule would require an Enterprise to have a formal disclosure policy
approved by its board of directors that addresses the Enterprise's
approach for determining which disclosures are necessary and
appropriate. The policy would be required to address internal controls,
disclosure controls, and procedures. The board of directors and senior
management would ensure the appropriate review of the disclosures and
that effective internal controls, disclosure controls, and procedures
are maintained. One or more senior officers of the Enterprise would be
required to attest that the disclosures meet the requirements of the
proposed rule. The final rule adopts the requirements related to a
formal disclosure policy as proposed.
For items not explicitly identified as required disclosures, the
proposed rule would require an Enterprise to decide which additional
disclosures are relevant based on a materiality concept. Information is
material if its omission or misstatement could change or influence the
assessment or decision of a user relying on that information for the
purpose of making investment decisions. Through the implementation of a
materiality concept, FHFA would encourage the management of each
Enterprise to regularly review its public disclosures and enhance these
disclosures, where appropriate, to clearly identify all significant
risk exposures and their effects on the Enterprise's financial
condition and performance, cash flow, and earnings potential. The final
rule adopts the requirements related to the materiality concept as
proposed.
To help mitigate the financial burden of public disclosures, the
proposed rule would allow an Enterprise to fulfill some of the
disclosure requirements by relying on similar disclosures made in
accordance with accounting standards or SEC mandates. In addition, an
Enterprise could use information provided in regulatory reports to
fulfill the disclosure requirements. In these situations, an Enterprise
would be required to provide a reconciliation of regulatory capital
elements as they relate to its balance sheet in any audited
consolidated financial statements should there be differences between
the accounting or other disclosures and the disclosures required under
the proposed rule. In addition, an Enterprise would be required to
provide a summary table that specifically indicates where all the
cross-referenced disclosures may be found. The final rule adopts,
without change, the proposed requirements related to fulfilling
disclosure requirements by relying on other required reports.
B. Standardized Approach
The proposed rule would require public disclosures related to the
ERCF standardized approach across eleven categories, with each category
containing qualitative disclosures and quantitative disclosures, with
one exception. The categories are: (1) Capital structure; (2) capital
adequacy; (3) capital buffers; (4) credit risk: general disclosures;
(5) general disclosure for counterparty credit risk-related exposures;
(6) credit risk mitigation; (7) credit risk transfers (CRT) and
securitization; (8) equities; (9) interest rate risk for non-trading
activities; (10) operational risk; and (11) tier 1 leverage ratio. The
first 10 categories would require both quantitative and qualitative
disclosures, while the required disclosures related to the tier 1
leverage ratio would be quantitative only. Many of the disclosures
described within the categories are identical to the disclosures
applicable to U.S. banking organizations subject to the standardized
approach. Others have been modified to reflect the ERCF, such as those
referring to statutory core capital and statutory total capital,
adjusted total capital, the prescribed capital conservation buffer
amount (PCCBA), and CRT. In addition, FHFA has excluded several
disclosure items that are included in the U.S. banking framework for
activities or categorizations not relevant in the ERCF, such as
exposures to foreign banks, statutory multifamily mortgages, and high
volatility commercial real estate (HVCRE).
The standardized approach in the ERCF differs broadly from the U.S.
banking standardized approach in its inclusion of risk-weighted assets
for operational risk and market risk, in its application of capital
buffers, and in its application of leverage ratio requirements. In
contrast to capital requirements for banking organizations subject to
the standardized approach in the U.S. banking framework, the
standardized approach in the ERCF requires an Enterprise to capitalize
operational and market risks, to apply every component of the PCCBA
including the countercyclical capital buffer, and to apply the same
leverage ratio requirements and prescribed leverage buffer amount
(PLBA) regardless of approach. Accordingly, the proposed rule would
require an Enterprise to publicly disclose qualitative and quantitative
information related to these items in the standardized approach.
Several of the proposed rule's qualitative disclosure requirements
for operational risk pertain to the advanced measurement approach
(AMA). These disclosures would include a description of the AMA, as
well as a discussion of relevant internal and external factors
considered in the Enterprise's measurement approach. Because the
Enterprises are not required to implement the AMA approach until at
least January 1, 2025, FHFA would expect the AMA-related disclosures to
begin at the same time. Until then, the Enterprises are required to
adhere to an operational risk capital requirement of 15 basis points of
adjusted total assets.
Advanced approaches banking organizations must disclose information
related to total leverage exposure (TLE) and the supplementary leverage
ratio,
[[Page 33426]]
while standardized approach banking institutions are not required to do
so. The ERCF analog to the concept of TLE is adjusted total assets, and
the analog to the concept of the supplementary leverage ratio is the
tier 1 leverage ratio. In contrast to the U.S. banking framework, the
ERCF tier 1 leverage ratio requirement is the same for an Enterprise
operating under the standardized or advanced approaches. In addition,
under the ERCF the PCCBA is based on adjusted total assets, while the
capital conservation buffer in the U.S. banking framework is based on
risk-weighted assets. For these reasons, FHFA included disclosures
related to the leverage ratio and adjusted total assets within the
disclosure requirements for the standardized approach.
Many of the disclosure requirements for the standardized approach
are also applicable to the advanced approach. For example, the
disclosure items described within the categories for capital structure,
PCCBA, PLBA, operational risk, and leverage would not differ
conditional on whether an Enterprise's total risk-weighted assets are
higher under the standardized approach or the advanced approach.
Because these items are applicable to the standardized approach, the
proposed rule would include disclosures related to these items within
the disclosure requirements for the standardized approach.
The proposed rule would require an Enterprise to make the required
disclosures publicly available for each of the last three years or such
shorter time period beginning when the disclosure requirements come
into effect. The public disclosure requirements are designed to provide
important information to market participants on capital, risk
exposures, risk assessment processes, and, thus, the capital adequacy
of an Enterprise. Although the disclosure requirements are categorized
into tables, the substantive content is the focus of the disclosure
requirements, not the tables themselves. The proposed rule would
require an Enterprise to make the disclosures described in tables 1
through 11 to Sec. 1240.63.
Table 1 disclosures, ``Capital Structure,'' would provide summary
information on the terms and conditions of the main features of
regulatory capital instruments, which would allow for an evaluation of
the quality of the capital available to absorb losses within an
Enterprise. An Enterprise also would disclose the total amount of
common equity tier 1, core, tier 1, total, and adjusted total capital,
with separate disclosures for deductions and adjustments to capital.
Table 2 disclosures, ``Capital Adequacy,'' would provide
information on an Enterprise's approach for categorizing and risk-
weighting its exposures, as well as the amount of total risk-weighted
assets. The table would also include common equity tier 1, tier 1, and
adjusted total risk-based capital ratios.
Table 3 disclosures, ``Capital Buffers,'' would require an
Enterprise to disclose the PCCBA, the PLBA, eligible retained income,
and any limitations on capital distributions and certain discretionary
bonus payments, as applicable.
One commenter recommended FHFA either clarify or remove the
proposed requirement that an Enterprise discuss the differential
effects, if any, the buffers have on an Enterprise's business by
geographic breakdown. The commenter noted that the ERCF buffers are
applied at the Enterprise-level, not by business line, and are based on
adjusted total assets rather than risk-weighted assets. For these
reasons, items that do vary by geographic region, such as house price
appreciation, should have no differential impact on the capital
buffers. In light of the commenter's recommendation and rationale, FHFA
removed from the final rule the Table 3 line (a) requirement to discuss
the differential effects, if any, the buffers have on an Enterprise's
business by geographic breakdown.
Tables 4, 5, and 6 disclosures, related to credit risk,
counterparty credit risk, and credit risk mitigation, respectively,
would provide market participants with insight into different types and
concentrations of credit risk to which an Enterprise is exposed and the
techniques it uses to measure, monitor, and mitigate those risks. These
disclosures are intended to enable market participants to assess the
credit risk exposures of the Enterprise without revealing proprietary
information.
Table 7 disclosures, ``CRT and Securitization,'' would provide
information to market participants on the amount of credit risk
transferred and retained by an Enterprise through CRT and
securitization transactions, the types of products securitized by the
Enterprise, the risks inherent in the Enterprise's securitized assets,
the Enterprise's policies regarding credit risk mitigation, and the
names of any entities that provide external credit assessments of a
securitization. These disclosures would provide for a better
understanding of how securitization transactions impact the credit risk
of an Enterprise. To further facilitate that understanding,
securitization transactions in which the originating Enterprise does
not retain any securitization exposure would be shown separately and
would only be reported for the year of inception.
One commenter recommended that certain required market risk
disclosures from proposed Sec. Sec. 1240.205(d)(7) and (d)(8) be
relocated to this Table 7. These disclosures relate to the monitoring
of changes in the credit risk of securitization positions and to the
policy governing the use of credit risk mitigation to mitigate the
risks of securitization and resecuritization positions. While FHFA
agrees that these required disclosures are more appropriate to Table 7,
FHFA determined that no additions to the table in the final rule were
necessary given disclosure items (a)(4) and (a)(5) of Table 7, which
adequately cover these topics.
Table 8 disclosures, ``Equities,'' would provide market
participants with an understanding of the types of equity securities
held by the Enterprise and how they are valued. The table would also
provide information on the capital allocated to different equity
products and the amount of unrealized gains and losses. (In comparison
with bank holding companies subject to the Federal Reserve Board's
Regulation Q, on which the proposed regulation was based, the types of
equity securities that may be held by the Enterprises are limited.
Their capital treatment is governed by 12 CFR 1240.51 and 1240.52.)
Table 9 disclosures, ``Interest Rate Risk for Non-trading
Activities,'' would require an Enterprise to provide certain
quantitative and qualitative disclosures regarding the Enterprise's
management of interest rate risks.
Table 10 disclosures, ``Operational Risk,'' would require an
Enterprise to provide certain qualitative disclosures regarding the
advanced measurement approach, when applicable, and a description of
the use of insurance for the purpose of mitigating operational risk.
These disclosures would include a description of the AMA, as well as a
discussion of relevant internal and external factors considered in the
Enterprise's measurement approach.
Table 11 disclosures, ``Tier 1 Leverage Ratio,'' would provide
information related to an Enterprise's adjusted total assets, including
adjustments for fiduciary assets, derivative exposures, repo-style
transactions, and off-balance sheet exposures. The table would also
include an Enterprise's tier 1 leverage ratio. These disclosures are
intended to enable market participants to assess the aggregate exposure
to risk at an
[[Page 33427]]
Enterprise and to consider that risk against the Enterprise's capital
backstop.
The final rule adopts the disclosure requirements for the
standardized approach substantially as proposed, with one adjustment to
Table 3, as discussed above.
C. Market Risk
In Sec. 1240.205, the proposed rule would require an Enterprise to
make public disclosures related to market risk for covered positions
under the standardized approach. These disclosures would provide
quantitative and qualitative information related to an Enterprise's
market risk profile, market risk valuation strategies, internal
controls, and disclosure controls and procedures. The quantitative
disclosures would detail exposure amounts and risk-weighted assets for
material portfolios of covered positions, as well as on-balance sheet
and off-balance sheet securitization positions by exposure type.
The proposed rule's market risk disclosure requirements would
include a formal disclosure policy approved by an Enterprise's board of
directors that addresses the Enterprise's approach for determining its
market risk disclosures. The policy would address the associated
internal controls and disclosure controls and procedures and would
contain requirements related to the verification and attestation of
disclosures and the maintaining of effective controls and procedures.
The requirements would also include quarterly quantitative disclosures
for each material portfolio of covered positions related to exposure
and risk-weighted asset amounts as well as the aggregate amount of on-
balance sheet and off-balance sheet securitization positions by
exposure type.
In addition, an Enterprise would be required to make annual public
disclosures for each material portfolio of covered positions related
generally to portfolio composition and valuation policies, procedures,
and methodologies. These disclosures would include, among other things,
key valuation assumptions and information on significant changes, model
characteristics used to calculate risk-weighted assets for market risk,
and a description of the approaches used for validating and evaluating
the accuracy of internal models and modeling processes. In addition,
the annual disclosures would include a description of the Enterprise's
processes for monitoring changes in the market risk of securitization
positions.
As discussed above, one commenter recommended that certain credit
risk disclosures in proposed Sec. Sec. 1240.205(d)(7) and (d)(8) be
relocated to a more appropriate section. FHFA determined that these
disclosures, related to the monitoring of changes in the credit risk of
securitization positions and to the policy governing the use of credit
risk mitigation to mitigate the risks of securitization and
resecuritization positions, were already present in Table 7 of Sec.
1240.63. As a result, FHFA has removed reference to credit risk from
proposed Sec. 1240.205(d)(7) and deleted proposed Sec.
1240.205(d)(8).
The final rule adopts the disclosure requirements for market risk
under the standardized approach substantially as proposed, with
adjustments to proposed Sec. Sec. 1240.205(d)(7) and (d)(8), as
discussed above.
V. Frequency of Disclosures
The proposed rule would require the Enterprises to make
quantitative disclosures on a quarterly basis, consistent with the
disclosure requirements for most regulated financial institutions and
frequently enough to capture most changes in risk profiles. The
proposed rule would also require the Enterprises to make qualitative
disclosures that provide a general summary of an Enterprise's risk-
management objectives and policies, reporting system, and definitions
may be disclosed annually. However, if a material change occurs, where
for the purpose of these disclosure requirements a material change
means a change such that the omission or misstatement of which could
change or influence the assessment or decision of a user relying on
that information for the purpose of making investment decisions, the
proposed rule would require the Enterprises to disclose a brief
discussion of this change and its likely impact as soon as practicable,
and no later than the end of the next calendar quarter.
The proposed rule would also require that the disclosures be
timely. As described above, an Enterprise may be able to fulfill some
of the proposed disclosure requirements by relying on similar
disclosures made in accordance with accounting standards or SEC
mandates. FHFA acknowledges that timing of disclosures required under
other federal laws, including disclosures required under the federal
securities laws and their implementing regulations by the SEC, may not
always align with the timing of required Enterprise disclosures. For
this reason, the proposed rule described timely disclosures as being no
later than the applicable SEC disclosure deadlines for the
corresponding Form 10-K annual report at the end of a fiscal year and
the corresponding Form 10-Q at the end of other calendar quarters. In
cases where an Enterprise's fiscal year-end does not coincide with the
end of a calendar quarter, FHFA would consider the timeliness of
disclosures on a case-by-case basis. In some cases, management may
determine that a material change has occurred, such that the most
recent reported amounts do not reflect the Enterprise's capital
adequacy and risk profile. In those cases, an Enterprise would need to
disclose the general nature of these changes and briefly describe how
they are likely to affect public disclosures going forward. An
Enterprise would make these interim disclosures as soon as practicable
after the determination that a material change has occurred.
The concept of timely disclosures was described in the preamble to
the proposed rule, but not explicitly in the proposed rule itself. FHFA
has determined to formalize the concept of timely disclosures in the
final rule by adopting similar disclosure deadlines as those discussed
above, while adding a short buffer of 10 business days. Therefore, the
final rule adopts, without change, the proposed requirements related to
the frequency of public disclosures and requires the proposed
disclosure requirements to be made in a timely manner no later than 10
business days after an Enterprise files its corresponding Annual Report
or Quarterly report on SEC Form 10-K or Form 10-Q, respectively.
VI. Compliance Dates
The compliance date for the disclosure requirements under the
proposed rule would be six months from the date of publication of the
final rule in the Federal Register. In addition, the proposed rule
would generally require qualitative disclosures to be made annually
``after the end of the fourth calendar quarter.'' One commenter
recommended that FHFA reconsider this compliance date to align the
required annual qualitative public disclosures, and in particular an
Enterprise's first public disclosures under the final rule which must
be made after the end of the fourth calendar quarter, with the more
comprehensive annual qualitative disclosures included in an
Enterprise's Annual Report on the SEC's Form 10-K. The commenter
recommended this alignment because the required public disclosures
under the final rule would likely reference disclosures made on Form
10-K.
[[Page 33428]]
Upon consideration of the commenter's recommendation, the final
rule adopts a compliance date for the new standardized approach
disclosure requirements in Sec. Sec. 1240.61 to 1240.63 and Sec.
1240.205 of no later than 10 business days after an Enterprise files
its Annual Report on SEC Form 10-K for the fiscal year ending December
31, 2022. This compliance date will align the new public disclosures
with the reporting cycle for the Enterprises' Annual Reports, while
providing a short buffer for the publication of an Enterprise's first
disclosure report. Further, FHFA has determined that the costs to an
Enterprise of producing a public disclosure report containing extensive
qualitative disclosures one quarter before the Enterprise produces a
public disclosure report where many of the same qualitative disclosures
will likely be included by reference outweigh the benefits to investors
and market participants of having the report one quarter earlier, in
particular given the Enterprises' current significant capital deficits
relative to capital requirements and buffers under the ERCF.
The proposed rule would also amend the reporting requirement
compliance dates in Sec. 1240.4(b) to remove references to parts of
the ERCF that do not contain reporting requirements. Specifically, the
proposed rule would remove references to compliance dates for reporting
requirements in subparts C and G of 12 CFR 1240, Sec. Sec. 1240.162(d)
and 1240.204, as these parts do not contain reporting requirements. The
proposed rule would retain without modification the January 1, 2022
compliance dates for reporting requirements outlined in Sec. Sec.
1240.1(f) and 1240.41.
The final rule adopts, without change, the proposed amendments to
other reporting requirement compliance dates in the ERCF.
VII. Location of Disclosures and Audit Requirements
The proposed rule would require an Enterprise to ensure that
required disclosures are publicly available (for example, included on a
public website) for each of the last three years or such shorter time
period beginning when the proposed rule, if adopted as a final rule,
comes into effect. In general, management of an Enterprise would have
some discretion to determine the appropriate medium and location of the
disclosures, provided the Enterprise meets the requirements related to
cross-referencing described below. Furthermore, an Enterprise would
have flexibility in formatting its public disclosures unless otherwise
ordered by FHFA under its general authority to follow specific
reporting guidelines or procedures, including potentially utilizing
specified templates for certain quantitative disclosure elements. For
example, FHFA may determine that standardizing the way the Enterprises
present a subset of the required quantitative disclosures would
facilitate the ability of market participants to compare attributes or
results across Enterprises and better assess the risk profile and
capital adequacy of each Enterprise. Conversely, there may be aspects
of the required disclosures that cannot easily be standardized or where
comparison across Enterprises may be less meaningful to market
participants, such as descriptions of an Enterprise's risk management
practices or certain analyses that contain bespoke risk metrics.
FHFA encourages each Enterprise to make all required disclosures
available in one place on the Enterprise's public website, the address
of which should be communicated in the Enterprise's regulatory report.
However, the proposed rule would permit an Enterprise to provide the
disclosures in more than one place, such as in its public financial
reports (for example, in Management's Discussion and Analysis included
in SEC filings) or other regulatory reports, as long as the Enterprise
also provides a summary table on its public website that specifically
indicates where all the disclosures may be found (for example,
regulatory report schedules, page numbers in annual reports).
The proposed rule would require an Enterprise to reconcile
disclosures of regulatory capital elements as the elements relate to an
Enterprise's balance sheet in any audited consolidated financial
statements. However, disclosures under the proposed rule which are not
included in the footnotes to the audited financial statements would not
be subject to external audit reports for financial statements or
internal control reports from management and the external auditor.
Therefore, the proposed rule would not introduce any new audit
requirements, and under the proposed rule, the audit requirements for
an Enterprise's required public disclosures would be identical to the
audit requirements for a banking organization's required public
disclosures in the U.S. banking framework.
The final rule adopts, without change, the proposed requirements
related to the location of disclosures and audit requirements.
VIII. Proprietary and Confidential Information
FHFA believes that the proposed disclosure requirements strike an
appropriate balance between the need for meaningful disclosure and the
protection of proprietary and confidential information. Accordingly,
FHFA believes that an Enterprise would be able to provide all these
disclosures without revealing proprietary and confidential information.
Only in rare circumstances might the required disclosure of certain
items of information compel an Enterprise to reveal confidential and
proprietary information. In these unusual situations, FHFA proposed
that if an Enterprise believes that disclosure of specific commercial
or financial information would compromise its position by making public
information that is either proprietary or confidential in nature, the
Enterprise need not disclose those specific items. Instead, the
Enterprise must disclose more general information about the subject
matter of the requirement, together with the fact that, and the reason
why, the specific items of information have not been disclosed. This
provision would apply only to those disclosures included in the
proposed rule and would not apply to disclosure requirements imposed by
accounting standards or other regulatory agencies.
The final rule adopts the requirements related to proprietary and
confidential information as proposed.
IX. Paperwork Reduction Act
The Paperwork Reduction Act (PRA) (44 U.S.C. 3501 et seq.) requires
that regulations involving the collection of information receive
clearance from the Office of Management and Budget (OMB). The final
rule contains no such collection of information requiring OMB approval
under the PRA. Therefore, no information has been submitted to OMB for
review.
X. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that
a regulation that has a significant economic impact on a substantial
number of small entities, small businesses, or small organizations must
include an initial regulatory flexibility analysis describing the
regulation's impact on small entities. FHFA need not undertake such an
analysis if the agency has certified that the regulation will not have
a significant economic impact on a substantial number of small
entities. 5 U.S.C. 605(b). FHFA has considered the impact of the final
rule under the
[[Page 33429]]
Regulatory Flexibility Act. FHFA certifies that the final rule will not
have a significant economic impact on a substantial number of small
entities because the final rule is applicable only to the Enterprises,
which are not small entities for purposes of the Regulatory Flexibility
Act.
XI. Congressional Review Act
In accordance with the Congressional Review Act (5 U.S.C. 801 et
seq.), FHFA has determined that this final rule is a major rule and has
verified this determination with the Office of Information and
Regulatory Affairs of OMB.
List of Subjects for 12 CFR Part 1240
Capital, Credit, Enterprise, Investments, Reporting and
recordkeeping requirements.
Authority and Issuance
For the reasons stated in the Preamble, under the authority of 12
U.S.C. 4511, 4513, 4513b, 4514, 4515-17, 4526, 4611-4612, 4631-36, FHFA
amends part 1240 of title 12 of the Code of Federal Regulation as
follows:
CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY
SUBCHAPTER C--ENTERPRISES
PART 1240--CAPITAL ADEQUACY OF ENTERPRISES
0
1. The authority citation for part 1240 is revised to read as follows:
Authority: 12 U.S.C. 4511, 4513, 4513b, 4514, 4515, 4517, 4526,
4611-4612, 4631-36.
0
2. Amend Sec. 1240.4 by revising paragraph (b) to read as follows:
Sec. 1240.4 Transition.
* * * * *
(b) Reporting requirements. (1) For any reporting requirement under
Sec. 1240.1(f) or Sec. 1240.41, the compliance date will be January
1, 2022.
(2) For any reporting requirement under Sec. Sec. 1240.61 through
1240.63, the compliance date will be no later than 10 business days
after an Enterprise files its Annual Report on SEC Form 10-K for the
fiscal year ending December 31, 2022.
(3) For any reporting requirement under Sec. 1240.205, the
compliance date will be no later than 10 business days after an
Enterprise files its Annual Report on SEC Form 10-K for the fiscal year
ending December 31, 2022.
* * * * *
0
3. Add Sec. Sec. 1240.61 through 1240.63 to Subpart D to read as
follows:
Subpart D--Risk-Weighted Assets--Standardized Approach
* * * * *
Sec.
1240.61 Purpose and scope.
1240.62 Disclosure requirements.
1240.63 Disclosures.
* * * * *
Sec. 1240.61 Purpose and scope.
Sections 1240.61 through 1240.63 of this subpart establish public
disclosure requirements related to the capital requirements and buffers
described in subpart B and subpart G.
Sec. 1240.62 Disclosure requirements.
(a) An Enterprise must provide timely public disclosures each
calendar quarter of the information in the applicable tables in Sec.
1240.63, where for the purpose of these disclosure requirements timely
means no later than 10 business days after an Enterprise files its
corresponding Annual Report on SEC Form 10-K at the end of a fiscal
year or its corresponding Quarterly Report on SEC Form 10-Q at the end
of other calendar quarters. If a material change occurs, where for the
purpose of these disclosure requirements a material change means a
change such that the omission or misstatement of which could change or
influence the assessment or decision of a user relying on that
information for the purpose of making investment decisions, then an
Enterprise must disclose a brief discussion of this change and its
likely impact as soon as practicable thereafter, and no later than the
end of the next calendar quarter. Qualitative disclosures that have not
changed from the prior quarter may be omitted from the next quarterly
disclosure but must be disclosed at least annually after the end of the
fourth calendar quarter.
(b) Unless otherwise directed by FHFA, the Enterprise's management
may provide all of the disclosures required by Sec. Sec. 1240.61
through 1240.63 in one place on the Enterprise's public website or may
provide the disclosures in more than one public financial report or
other regulatory reports, provided that the Enterprise publicly
provides a summary table specifically indicating the location(s) of all
such disclosures.
(c) An Enterprise must have a formal disclosure policy approved by
the board of directors that addresses its approach for determining the
disclosures it makes. The policy must address the associated internal
controls and disclosure controls and procedures.
(d) The Enterprise's board of directors and senior management are
responsible for establishing and maintaining an effective internal
control structure over the disclosures required by this subpart, and
must ensure that appropriate review of the disclosures takes place. The
Chief Risk Officer and the Chief Financial Officer of the Enterprise
must attest that the disclosures meet the requirements of this subpart.
(e) If an Enterprise believes that disclosure of specific
commercial or financial information would prejudice seriously its
position by making public certain information that is either
proprietary or confidential in nature, the Enterprise is not required
to disclose these specific items but must disclose more general
information about the subject matter of the requirement, together with
the fact that, and the reason why, the specific items of information
have not been disclosed.
Sec. 1240.63 Disclosures.
(a) Except as provided in Sec. 1240.62, an Enterprise must make
the disclosures described in Tables 1 through 11 of this section
publicly available for each of the last three years (that is, twelve
quarters) or such shorter period until an Enterprise has made twelve
quarterly disclosures pursuant to this part beginning with the
disclosure for the quarter ending December 31, 2022.
(b) An Enterprise must publicly disclose each quarter the
following:
(1) Regulatory capital ratios for common equity tier 1 capital,
additional tier 1 capital, tier 1 capital, tier 2 capital, total
capital, core capital, and adjusted total capital, including the
regulatory capital elements and all the regulatory adjustments and
deductions needed to calculate the numerator of such ratios;
(2) Total risk-weighted assets, including the different regulatory
adjustments and deductions needed to calculate total risk-weighted
assets; and
(3) A reconciliation of regulatory capital elements as they relate
to its balance sheet in any audited consolidated financial statements.
[[Page 33430]]
Table 1 to Paragraph (b)(3)--Capital Structure
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures........... (a) Summary information on the terms
and conditions of the main features
of all regulatory capital
instruments.
Quantitative disclosures.......... (b) The amount of common equity tier
1 capital, with separate disclosure
of:
(1) Common stock and related
surplus;
(2) Retained earnings;
(3) AOCI (net of tax) and other
reserves; and
(4) Regulatory adjustments and
deductions made to common equity
tier 1 capital.
(c) The amount of core capital, with
separate disclosure of:
(1) The par or stated value of
outstanding common stock;
(2) The par or stated value of
outstanding perpetual,
noncumulative preferred stock;
(3) Paid-in capital; and
(4) Retained earnings.
(d) The amount of tier 1 capital,
with separate disclosure of:
(1) Additional tier 1 capital
elements, including additional
tier 1 capital instruments and
tier 1 minority interest not
included in common equity tier 1
capital; and
(2) Regulatory adjustments and
deductions made to tier 1
capital.
(e) The amount of total capital,
with separate disclosure of:
(1) The general allowance for
foreclosure losses; and
(2) Other amounts from sources of
funds available to absorb losses
incurred by the Enterprise that
the Director by regulation
determines are appropriate to
include in determining total
capital.
(f) The amount of adjusted total
capital, with separate disclosure
of:
(1) Tier 2 capital elements,
including tier 2 capital
instruments; and
(2) Regulatory adjustments and
deductions made to adjusted
total capital.
------------------------------------------------------------------------
Table 2 to Paragraph (b)(3)--Capital Adequacy
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures........... (a) A summary discussion of the
Enterprise's approach to assessing
the adequacy of its capital to
support current and future
activities.
Quantitative disclosures.......... (b) Risk-weighted assets for:
(1) Exposures to sovereign
entities;
(2) Exposures to certain
supranational entities and MDBs;
(3) Exposures to GSEs;
(4) Exposures to depository
institutions and credit unions;
(5) Exposures to PSEs;
(6) Corporate exposures;
(7) Aggregate single-family
mortgage exposures categorized
by:
(i) Performing loans;
(ii) Non-modified re-performing
loans;
(iii) Modified re-performing
loans;
(iv) Non-performing loans;
(8) Aggregate multifamily
mortgage exposures categorized
by:
(i) Multifamily fixed-rate
exposures;
(ii) Multifamily adjustable-
rate exposures;
(9) Past due loans;
(10) Other assets;
(11) Insurance assets;
(12) Off-balance sheet exposures;
(13) Cleared transactions;
(14) Default fund contributions;
(15) Unsettled transactions;
(16) CRT and other securitization
exposures; and
(17) Equity exposures.
(c) Standardized market risk-
weighted assets as calculated under
subpart F of this part.
(d) Risk-weighted assets for
operational risk.
(e) Common equity tier 1, tier 1,
and adjusted total risk-based
capital ratios.
(f) Total standardized risk-weighted
assets.
------------------------------------------------------------------------
Table 3 to Paragraph (b)(3)--Capital Buffers
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures........... (a) A summary discussion of the
Enterprise's capital buffers.
Quantitative disclosures.......... (b) At least quarterly, the
Enterprise must calculate and
publicly disclose the prescribed
capital conservation buffer amount
and all its components as described
under Sec. 1240.11.
(c) At least quarterly, the
Enterprise must calculate and
publicly disclose the prescribed
leverage buffer amount as described
under Sec. 1240.11.
(d) At least quarterly, the
Enterprise must calculate and
publicly disclose the eligible
retained income of the Enterprise,
as described under Sec. 1240.11.
(e) At least quarterly, the
Enterprise must calculate and
publicly disclose any limitations
it has on distributions and
discretionary bonus payments
resulting from the capital buffer
framework described under Sec.
1240.11, including the maximum
payout amount for the quarter.
------------------------------------------------------------------------
[[Page 33431]]
(c) For each separate risk area described in Tables 4 through 9,
the Enterprise must, as a general qualitative disclosure requirement,
describe its risk management objectives and policies, including:
Strategies and processes; the structure and organization of the
relevant risk management function; the scope and nature of risk
reporting and/or measurement systems; policies for hedging and/or
mitigating risk and strategies and processes for monitoring the
continuing effectiveness of hedges and/or mitigants.
Table 4 to Paragraph (c) \1\--Credit Risk: General Disclosures
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures........... (a) The general qualitative
disclosure requirement with respect
to credit risk (excluding
counterparty credit risk disclosed
in accordance with Table 5 of this
section), including the:
(1) Policy for determining past
due or delinquency status;
(2) Policy for placing loans on
nonaccrual;
(3) Policy for returning loans to
accrual status;
(4) Description of the
methodology that the Enterprise
uses to estimate its adjusted
allowance for credit losses,
including statistical methods
used where applicable;
(5) Policy for charging-off
uncollectible amounts; and
(6) Discussion of the
Enterprise's credit risk
management policy.
Quantitative disclosures.......... (b) Total credit risk exposures and
average credit risk exposures,
after accounting offsets in
accordance with GAAP, without
taking into account the effects of
credit risk mitigation techniques
(for example, collateral and
netting not permitted under GAAP),
over the period categorized by
major types of credit exposure. For
example, the Enterprises could use
categories similar to that used for
financial statement purposes. Such
categories might include, for
instance:
(1) Loans, off-balance sheet
commitments, and other non-
derivative off-balance sheet
exposures;
(2) Debt securities; and
(3) OTC derivatives.
(c) Geographic distribution of
exposures, categorized in
significant areas by major types of
credit exposure.\2\
(d) Industry or counterparty type
distribution of exposures,
categorized by major types of
credit exposure.
(e) By major industry or
counterparty type:
(1) Amount of loans not past due
or past due less than 30 days;
(2) Amount of loans past due 30
days but less than 90 days;
(3) Amount of loans past due 90
days and on nonaccrual;
(4) Amount of loans past due 90
days and still accruing; \3\
(5) The balance in the adjusted
allowance for credit losses at
the end of each period,
disaggregated on the basis of
loans not past due or past due
less than 30 days, loans past
due 30 days but less than 90
days, loans past due 90 days and
on nonaccrual, and loans past
due 90 days and still accruing;
and
(6) Charge-offs during the
period.
(f) Amount of past due loans
categorized by significant
geographic areas including, if
practical, the amounts of
allowances related to each
geographical area,\4\ further
categorized as required by GAAP.
(g) Reconciliation of changes in the
adjusted allowance for credit
losses.\5\
(h) Remaining contractual maturity
delineation (for example, one year
or less) of the whole portfolio,
categorized by credit exposure.
------------------------------------------------------------------------
\1\ Table 4 does not cover equity exposures, which should be reported in
Table 8 of this section.
\2\ Geographical areas consist of areas within the United States and
territories. An Enterprise might choose to define the geographical
areas based on the way the Enterprise's portfolio is geographically
managed. The criteria used to allocate the loans to geographical areas
must be specified.
\3\ An Enterprise may, but is not required to, also provide an analysis
of the aging of past-due loans.
\4\ The portion of the general allowance that is not allocated to a
geographical area should be disclosed separately.
\5\ The reconciliation should include the following: A description of
the allowance; the opening balance of the allowance; charge-offs taken
against the allowance during the period; amounts provided (or
reversed) for estimated expected credit losses during the period; any
other adjustments (for example, exchange rate differences, business
combinations, acquisitions, and disposals of subsidiaries), including
transfers between allowances; and the closing balance of the
allowance. Charge-offs and recoveries that have been recorded directly
to the income statement should be disclosed separately.
Table 5 to Paragraph (c)--General Disclosure for Counterparty Credit
Risk-Related Exposures
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures........... (a) The general qualitative
disclosure requirement with respect
to OTC derivatives, eligible margin
loans, and repo-style transactions,
including a discussion of:
(1) The methodology used to
assign credit limits for
counterparty credit exposures;
(2) Policies for securing
collateral, valuing and managing
collateral, and establishing
credit reserves;
(3) The primary types of
collateral taken; and
(4) The impact of the amount of
collateral the Enterprise would
have to provide given a
deterioration in the
Enterprise's own
creditworthiness.
Quantitative Disclosures.......... (b) Gross positive fair value of
contracts, collateral held
(including type, for example, cash,
government securities), and net
unsecured credit exposure.\1\ An
Enterprise also must disclose the
notional value of credit derivative
hedges purchased for counterparty
credit risk protection and the
distribution of current credit
exposure by exposure type.\2\
(c) Notional amount of purchased and
sold credit derivatives, segregated
between use for the Enterprise's
own credit portfolio and in its
intermediation activities,
including the distribution of the
credit derivative products used,
categorized further by protection
bought and sold within each product
group.
------------------------------------------------------------------------
\1\ Net unsecured credit exposure is the credit exposure after
considering both the benefits from legally enforceable netting
agreements and collateral arrangements without taking into account
haircuts for price volatility, liquidity, etc.
\2\ This may include interest rate derivative contracts, foreign
exchange derivative contracts, equity derivative contracts, credit
derivatives, commodity or other derivative contracts, repo-style
transactions, and eligible margin loans.
[[Page 33432]]
Table 6 to Paragraph (c)--Credit Risk Mitigation \1\ \2\
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures........... (a) The general qualitative
disclosure requirement with respect
to credit risk mitigation,
including:
(1) Policies and processes for
collateral valuation and
management;
(2) A description of the main
types of collateral taken by the
Enterprise;
(3) The main types of guarantors/
credit derivative counterparties
and their creditworthiness; and
(4) Information about (market or
credit) risk concentrations with
respect to credit risk
mitigation.
Quantitative Disclosures.......... (b) For each separately disclosed
credit risk portfolio, the total
exposure that is covered by
eligible financial collateral, and
after the application of haircuts.
(c) For each separately disclosed
portfolio, the total exposure that
is covered by guarantees/credit
derivatives and the risk-weighted
asset amount associated with that
exposure.
------------------------------------------------------------------------
\1\ At a minimum, an Enterprise must provide the disclosures in Table 6
in relation to credit risk mitigation that has been recognized for the
purposes of reducing capital requirements under this subpart. Where
relevant, the Enterprises may give further information about mitigants
that have not been recognized for that purpose.
\2\ Credit derivatives that are treated, for the purposes of this
subpart, as synthetic securitization exposures should be excluded from
the credit risk mitigation disclosures and included within those
relating to securitization (Table 7 of this section).
Table 7 to Paragraph (c)--CRT and Securitization
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures........... (a) The general qualitative
disclosure requirement with respect
to a securitization (including
synthetic securitizations),
including a discussion of:
(1) The Enterprise's objectives
for securitizing assets,
including the extent to which
these activities transfer credit
risk of the underlying exposures
away from the Enterprise to
other entities and including the
type of risks assumed and
retained with resecuritization
activity; \1\
(2) The nature of the risks
(e.g., liquidity risk) inherent
in the securitized assets;
(3) The roles played by the
Enterprise in the securitization
process \2\ and an indication of
the extent of the Enterprise's
involvement in each of them;
(4) The processes in place to
monitor changes in the credit
and market risk of
securitization exposures
including how those processes
differ for resecuritization
exposures;
(5) The Enterprise's policy for
mitigating the credit risk
retained through securitization
and resecuritization exposures;
and
(6) The risk-based capital
approaches that the Enterprise
follows for its securitization
exposures including the type of
securitization exposure to which
each approach applies.
(b) A list of:
(1) The type of securitization
SPEs that the Enterprise, as
sponsor, uses to securitize
third-party exposures. The
Enterprise must indicate whether
it has exposure to these SPEs,
either on- or off-balance sheet;
and
(2) Affiliated entities:
(i) That the Enterprise manages
or advises; and
(ii) That invest either in the
securitization exposures that
the Enterprise has securitized
or in securitization SPEs that
the Enterprise sponsors.\3\
(c) Summary of the Enterprise's
accounting policies for CRT and
securitization activities,
including:
(1) Whether the transactions are
treated as sales (i.e., sale
accounting has been obtained) or
financings;
(2) Recognition of gain-on-sale;
(3) Methods and key assumptions
applied in valuing retained or
purchased interests;
(4) Changes in methods and key
assumptions from the previous
period for valuing retained
interests and impact of the
changes;
(5) Treatment of synthetic
securitizations;
(6) How exposures intended to be
securitized are valued and
whether they are recorded under
subpart D of this part; and
(7) Policies for recognizing
liabilities on the balance sheet
for arrangements that could
require the Enterprise to
provide financial support for
securitized assets.
(d) An explanation of significant
changes to any quantitative
information since the last
reporting period.
Quantitative Disclosures.......... (e) The total outstanding exposures
securitized by the Enterprise in
securitizations that meet the
operational criteria provided in
Sec. 1240.41 (categorized into
traditional and synthetic
securitizations), by exposure type,
separately for securitizations of
third-party exposures for which the
bank acts only as sponsor.\4\
(f) For exposures securitized by the
Enterprise in securitizations that
meet the operational criteria in
Sec. 1240.41:
(1) Amount of securitized assets
that are past due categorized by
exposure type; and
(2) Losses recognized by the
Enterprise during the current
period categorized by exposure
type.\5\
(g) The total amount of outstanding
exposures intended to be
securitized categorized by exposure
type.
(h) Aggregate amount of:
(1) On-balance sheet
securitization exposures
retained or purchased
categorized by exposure type;
and
(2) Off-balance sheet
securitization exposures
categorized by exposure type.
(i)(1) Aggregate amount of
securitization exposures retained
or purchased and the associated
capital requirements for these
exposures, categorized between
securitization and resecuritization
exposures, further categorized into
a meaningful number of risk weight
bands and by risk-based capital
approach (e.g., CRTA, SSFA); and
(2) Aggregate amount disclosed
separately by type of underlying
exposure in the pool of any:
(i) After-tax gain-on-sale on a
securitization that has been
deducted from common equity tier
1 capital; and
(ii) Credit-enhancing interest-
only strip that is assigned a
1,250 percent risk weight.
[[Page 33433]]
(j) Summary of current year's
securitization activity,
including the amount of
exposures securitized (by
exposure type), and recognized
gain or loss on sale by exposure
type.
(k) Aggregate amount of
resecuritization exposures
retained or purchased
categorized according to:
(1) Exposures to which credit
risk mitigation is applied and
those not applied; and
(2) Exposures to guarantors
categorized according to
guarantor creditworthiness
categories or guarantor name.
------------------------------------------------------------------------
\1\ The Enterprise should describe the structure of resecuritizations in
which it participates; this description should be provided for the
main categories of resecuritization products in which the Enterprise
is active.
\2\ For example, these roles may include originator, investor, servicer,
provider of credit enhancement, sponsor, liquidity provider, or swap
provider.
\3\ Such affiliated entities may include, for example, money market
funds, to be listed individually, and personal and private trusts, to
be noted collectively.
\4\ ``Exposures securitized'' include underlying exposures originated by
the Enterprise, whether generated by them or purchased, and recognized
in the balance sheet, from third parties, and third-party exposures
included in sponsored transactions. Securitization transactions
(including underlying exposures originally on the Enterprise's balance
sheet and underlying exposures acquired by the Enterprise from third-
party entities) in which the originating Enterprise does not retain
any securitization exposure should be shown separately but need only
be reported for the year of inception. Enterprises are required to
disclose exposures regardless of whether there is a capital charge
under this part.
\5\ For example, charge-offs/allowances (if the assets remain on the
Enterprise's balance sheet) or credit-related write-off of interest-
only strips and other retained residual interests, as well as
recognition of liabilities for probable future financial support
required of the bank with respect to securitized assets.
Table 8 to Paragraph (c)--Equities
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative Disclosures........... (a) The general qualitative
disclosure requirement with respect
to equity risk for equities,
including:
(1) Differentiation between holdings
on which capital gains are expected
and those taken under other
objectives including for
relationship and strategic reasons;
and
(2) Discussion of important policies
covering the valuation of and
accounting for equity holdings.
This includes the accounting
techniques and valuation
methodologies used, including key
assumptions and practices affecting
valuation as well as significant
changes in these practices.
Quantitative Disclosures.......... (b) Carrying value disclosed on the
balance sheet of investments, as
well as the fair value of those
investments; for securities that
are publicly traded, a comparison
to publicly-quoted share values
where the share price is materially
different from fair value.
(c) The types and nature of
investments, including the amount
that is:
(1) Publicly traded; and
(2) Non publicly traded.
(d) The cumulative realized gains
(losses) arising from sales and
liquidations in the reporting
period.
(e)(1) Total unrealized gains
(losses) recognized on the balance
sheet but not through earnings.
(2) Total unrealized gains (losses)
not recognized either on the
balance sheet or through earnings.
(3) Any amounts of the above
included in tier 1 or tier 2
capital.
(f) Capital requirements categorized
by appropriate equity groupings,
consistent with the Enterprise's
methodology, as well as the
aggregate amounts and the type of
equity investments subject to any
supervisory transition regarding
regulatory capital requirements.\1\
------------------------------------------------------------------------
\1\ This disclosure must include a breakdown of equities that are
subject to the 0 percent, 20 percent, 100 percent, 300 percent, 400
percent, and 600 percent risk weights, as applicable.
Table 9 to Paragraph (c)--Interest Rate Risk for Non-Trading Activities
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures........... (a) The general qualitative
disclosure requirement, including
the nature of interest rate risk
for non-trading activities and key
assumptions, including assumptions
regarding loan prepayments and
frequency of measurement of
interest rate risk for non-trading
activities.
Quantitative disclosures.......... (b) The increase (decline) in
earnings or economic value (or
relevant measure used by
management) for upward and downward
rate shocks according to
management's method for measuring
interest rate risk for non-trading
activities, categorized by currency
(as appropriate).
------------------------------------------------------------------------
Table 10 to Paragraph (c)--Operational Risk
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures........... (a) The general qualitative
disclosure requirement for
operational risk.
(b) Description of the AMA, when
applicable, including a discussion
of relevant internal and external
factors considered in the
Enterprise's measurement approach.
(c) A description of the use of
insurance for the purpose of
mitigating operational risk.
------------------------------------------------------------------------
Table 11 to Paragraph (c)--Tier 1 Leverage Ratio
------------------------------------------------------------------------
Dollar amounts in thousands
-----------------------------
Tril Bil Mil Thou
------------------------------------------------------------------------
Part 1: Summary comparison of accounting assets and adjusted total
assets
------------------------------------------------------------------------
1 Total consolidated assets as reported in
published financial statements.
2 Adjustment for fiduciary assets
recognized on balance sheet but excluded
from total leverage exposure.
3 Adjustment for derivative exposures.....
[[Page 33434]]
4 Adjustment for repo-style transactions..
5 Adjustment for off-balance sheet
exposures (that is, conversion to credit
equivalent amounts of off-balance sheet
exposures).
6 Other adjustments.......................
7 Adjusted total assets (sum of lines 1 to
6).
------------------------------------------------------------------------
Part 2: Tier 1 leverage ratio
------------------------------------------------------------------------
On-balance sheet exposures
------------------------------------------------------------------------
1 On-balance sheet assets (excluding on-
balance sheet assets for repo-style
transactions and derivative exposures,
but including cash collateral received in
derivative transactions).
2 LESS: Amounts deducted from tier 1
capital.
3 Total on-balance sheet exposures
(excluding on-balance sheet assets for
repo-style transactions and derivative
exposures, but including cash collateral
received in derivative transactions) (sum
of lines 1 and 2).
------------------------------------------------------------------------
Derivative exposures
------------------------------------------------------------------------
4 Current exposure for derivative
exposures (that is, net of cash variation
margin).
5 Add-on amounts for potential future
exposure (PFE) for derivative exposures.
6 Gross-up for cash collateral posted if
deducted from the on-balance sheet
assets, except for cash variation margin.
7 LESS: Deductions of receivable assets
for cash variation margin posted in
derivative transactions, if included in
on-balance sheet assets.
8 LESS: Exempted CCP leg of client-cleared
transactions.
9 Effective notional principal amount of
sold credit protection.
10 LESS: Effective notional principal
amount offsets and PFE adjustments for
sold credit protection.
11 Total derivative exposures (sum of
lines 4 to 10).
------------------------------------------------------------------------
Repo-style transactions
------------------------------------------------------------------------
12 On-balance sheet assets for repo-style
transactions, except include the gross
value of receivables for reverse
repurchase transactions. Exclude from
this item the value of securities
received in a security-for-security repo-
style transaction where the securities
lender has not sold or re-hypothecated
the securities received. Include in this
item the value of securities that
qualified for sales treatment that must
be reversed.
13 LESS: Reduction of the gross value of
receivables in reverse repurchase
transactions by cash payables in
repurchase transactions under netting
agreements.
14 Counterparty credit risk for all repo-
style transactions.
15 Exposure for repo-style transactions
where a banking organization acts as an
agent.
16 Total exposures for repo-style
transactions (sum of lines 12 to 15).
------------------------------------------------------------------------
Other off-balance sheet exposures
------------------------------------------------------------------------
17 Off-balance sheet exposures at gross
notional amounts.
18 LESS: Adjustments for conversion to
credit equivalent amounts.
19 Off-balance sheet exposures (sum of
lines 17 and 18).
------------------------------------------------------------------------
Capital and adjusted total assets
------------------------------------------------------------------------
20 Tier 1 capital.........................
21 Adjusted total assets (sum of lines 3,
11, 16, and 19).
------------------------------------------------------------------------
Tier 1 leverage ratio
------------------------------------------------------------------------
22 Tier 1 leverage ratio.................. (in percent)
------------------------------------------------------------------------
0
4. Add Sec. 1240.205 to Subpart F to read as follows:
Subpart F--Risk-weighted Assets--Market Risk
* * * * *
Sec. 1240.205 Market risk disclosures.
(a) Scope. An Enterprise must make timely public disclosures each
calendar quarter, where for the purpose of these disclosure
requirements timely means no later than 10 business days after an
Enterprise files its corresponding Annual Report on SEC Form 10-K at
the end of a fiscal year or its corresponding Quarterly Report on SEC
Form 10-Q at the end of other calendar quarters. If a significant
change occurs, such that the most recent reporting amounts are no
longer reflective of the Enterprise's capital adequacy and risk
profile, then a brief discussion of this change and its likely impact
must be provided as soon as practicable thereafter. Qualitative
disclosures that typically do not change each quarter may be disclosed
annually, provided any material changes are disclosed as soon as
practicable thereafter, and no later than the end of the next calendar
quarter, where for the purpose of these disclosure requirements a
material change means a
[[Page 33435]]
change such that the omission or misstatement of which could change or
influence the assessment or decision of a user relying on that
information for the purpose of making investment decisions. If an
Enterprise believes that disclosure of specific commercial or financial
information would prejudice seriously its position by making public
certain information that is either proprietary or confidential in
nature, the Enterprise is not required to disclose these specific items
but must disclose more general information about the subject matter of
the requirement, together with the fact that, and the reason why, the
specific items of information have not been disclosed.
(b) Location. The Enterprise's management may provide all of the
disclosures required by this section in one place on the Enterprise's
public website or may provide the disclosures in more than one public
financial report or other regulatory reports, provided that the
Enterprise publicly provides a summary table specifically indicating
the location(s) of all such disclosures.
(c) Disclosure policy. The Enterprise must have a formal disclosure
policy approved by the board of directors that addresses the
Enterprise's approach for determining its market risk disclosures. The
policy must address the associated internal controls and disclosure
controls and procedures. The board of directors and senior management
must ensure that appropriate verification of the disclosures takes
place and that effective internal controls and disclosure controls and
procedures are maintained. The Chief Risk Officer and the Chief
Financial Officer of the Enterprise must attest that the disclosures
meet the requirements of this subpart, and the board of directors and
senior management are responsible for establishing and maintaining an
effective internal control structure over the disclosures required by
this section.
(d) Quantitative disclosures. (1) For each material portfolio of
covered positions, the Enterprise must provide timely public
disclosures of the following information at least quarterly:
(i) Exposure amounts for each product type included in covered
positions as described in Sec. 1240.202; and
(ii) Risk-weighted assets for each product type included in covered
positions as described in Sec. 1240.202.
(2) In addition, the Enterprise must disclose publicly the
aggregate amount of on-balance sheet and off-balance sheet
securitization positions by exposure type at least quarterly.
(e) Qualitative disclosures. For each material portfolio of covered
positions as identified using the definitions in Sec. 1240.202, the
Enterprise must provide timely public disclosures of the following
information at least annually after the end of the fourth calendar
quarter, or more frequently in the event of material changes for each
portfolio:
(1) The composition of material portfolios of covered positions;
(2) The Enterprise's valuation policies, procedures, and
methodologies for covered positions including, for securitization
positions, the methods and key assumptions used for valuing such
positions, any significant changes since the last reporting period, and
the impact of such change;
(3) The characteristics of the internal models used for purposes of
this subpart;
(4) A description of the approaches used for validating and
evaluating the accuracy of internal models and modeling processes for
purposes of this subpart;
(5) For each market risk category (that is, interest rate risk,
credit spread risk, equity price risk, foreign exchange risk, and
commodity price risk), a description of the stress tests applied to the
positions subject to the factor;
(6) The results of the comparison of the Enterprise's internal
estimates for purposes of this subpart with actual outcomes during a
sample period not used in model development; and
(7) A description of the Enterprise's processes for monitoring
changes in the market risk of securitization positions, including how
those processes differ for resecuritization positions.
Sandra L. Thompson,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2022-11582 Filed 6-1-22; 8:45 am]
BILLING CODE 8070-01-P
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