Rule2022-11928
Capital Planning and Stress Capital Buffer Determination
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 3, 2022
Effective
August 2, 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 supplements the FHFA Enterprise Regulatory Capital Framework (ERCF) rule by requiring the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac, and with Fannie Mae, each an Enterprise) to submit annual capital plans to FHFA and provide prior notice for certain capital actions. The final rule incorporates the stress capital buffer determination from the ERCF into the capital planning process. The requirements in the final rule are consistent with the regulatory framework for capital planning for large bank holding companies.
Full Text
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[Federal Register Volume 87, Number 107 (Friday, June 3, 2022)]
[Rules and Regulations]
[Pages 33615-33621]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-11928]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 87, No. 107 / Friday, June 3, 2022 / Rules
and Regulations
[[Page 33615]]
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1240
RIN 2590-AB16
Capital Planning and Stress Capital Buffer Determination
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 supplements the FHFA Enterprise
Regulatory Capital Framework (ERCF) rule by requiring the Federal
National Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac, and with Fannie Mae, each an
Enterprise) to submit annual capital plans to FHFA and provide prior
notice for certain capital actions. The final rule incorporates the
stress capital buffer determination from the ERCF into the capital
planning process. The requirements in the final rule are consistent
with the regulatory framework for capital planning for large bank
holding companies.
DATES: This rule is effective August 2, 2022.
FOR FURTHER INFORMATION CONTACT: Andrew Varrieur, Acting Senior
Associate Director, Office of Capital Policy, (202) 649-3141,
<a href="/cdn-cgi/l/email-protection#0849666c7a6d7f265e697a7a616d7d7a486e606e69266f677e"><span class="__cf_email__" data-cfemail="0647686274637128506774746f63737446606e606728616970">[email protected]</span></a>; Ron Sugarman, Principal Policy Analyst,
Office of Capital Policy, (202) 649-3208, <a href="/cdn-cgi/l/email-protection#82d0edecacd1f7e5e3f0efe3ecc2e4eae4e3ace5edf4"><span class="__cf_email__" data-cfemail="df8db0b1f18caab8beadb2beb19fb9b7b9bef1b8b0a9">[email protected]</span></a>; or
Mark Laponsky, Deputy General Counsel, Office of General Counsel, (202)
649-3054, <a href="/cdn-cgi/l/email-protection#034e6271682d4f62736c6d70687a43656b65622d646c75"><span class="__cf_email__" data-cfemail="a6ebc7d4cd88eac7d6c9c8d5cddfe6c0cec0c788c1c9d0">[email protected]</span></a> (these are not toll-free numbers);
Federal Housing Finance Agency, 400 Seventh St. 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 Comments on the Proposed Rule
A. Stress Capital Buffer
B. Board's Duties
C. Compliance Date
IV. Paperwork Reduction Act
V. Regulatory Flexibility Act
VI. Congressional Review Act
I. Introduction
On December 27, 2021, FHFA published in the Federal Register a
notice of proposed rulemaking (the proposal or proposed rule) seeking
comments on FHFA's proposal to require each Enterprise to submit annual
capital plans to FHFA and provide prior notice for certain capital
actions. The proposal incorporated the determination of the stress
capital buffer from the ERCF \1\ into the capital planning process. The
requirements in the proposal were consistent with the regulatory
framework for capital planning for large bank holding companies. FHFA
is now adopting this final rule as proposed.
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\1\ 86 FR 73187 (Dec. 27, 2021).
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The final rule's requirement to develop capital plans will allow
the Enterprises to identify the amount of capital they need to raise to
meet the ERCF's requirements, and to consider the timing of when to
raise capital, and what types of capital to raise. The final rule, like
the ERCF, is intended to provide a stable regulatory framework for the
Enterprises for an extended period, including after they achieve
adequate capitalization under the ERCF.
II. Overview of the Final Rule
After carefully considering the comments on the proposed rule, and
as described in this preamble, FHFA is adopting the capital planning
requirements and stress capital buffer determination as proposed. FHFA
continues to believe that the Enterprises should have robust systems
and processes in place that incorporate forward-looking projections of
revenue and losses to monitor and maintain their internal capital
adequacy. Furthermore, each Enterprise should operate with an amount of
capital that is commensurate with each Enterprise's risk profile. FHFA
also believes that the stress capital buffer determination should be
part of the capital planning process.
Specifically, the final rule will require an Enterprise to develop
and maintain a capital plan, which the Enterprise must generally submit
to FHFA by May 20 of each year, after it has been reviewed by the
Enterprise's board of directors or a designated committee thereof. The
plan must contain certain mandatory elements, including an assessment
of the expected sources and uses of capital over a planning horizon
that reflects the Enterprise's size and complexity, assuming both
expected and stressful conditions. This includes the Enterprise's
internal baseline scenario and internal stress scenario, as well as
additional scenarios that may be provided by FHFA. The planning horizon
is at least five years for the Enterprise's scenarios and at least nine
consecutive quarters for the FHFA scenarios. The capital plans also
must include any planned capital actions and consider the regulatory
capital buffers.
The final rule includes the factors that FHFA will consider in
reviewing a plan, including its comprehensiveness and reasonableness
given the assumptions and analysis underlying the plan and the
robustness of the Enterprise's capital adequacy process. A plan must be
resubmitted if there is a material change in the Enterprise's risk
profile, financial condition, or corporate structure. FHFA also may
require an Enterprise to resubmit its capital plan if the plan is
incomplete or FHFA determines resubmission is necessary to monitor
risks to capital adequacy. In general, an Enterprise must receive prior
approval from FHFA to make a capital distribution, if the distribution
would occur after an event that requires a resubmission. There is also
a post-notice requirement for certain capital distributions.
In addition to requiring a capital plan, the rule incorporates the
stress capital buffer from the ERCF into the capital planning process
and makes the necessary conforming amendments to the ERCF. After FHFA
notifies the Enterprise of its stress capital buffer each year, the
Enterprise must adjust its planned capital distributions to be
consistent with the capital distribution limitations effective under
the new stress capital buffer. The final rule
[[Page 33616]]
changes the stress capital buffer's calculation method slightly by
considering an Enterprise's planned common stock dividends for the
fourth through seventh quarters of the planning horizon rather than the
ERCF direction to use each of the nine quarters of the planning
horizon.
III. General Comments on the Proposed Rule
FHFA received public comment letters on the proposed rule from a
total of 12 different commenters. These commenters represented a
variety of interested parties including one Enterprise (Freddie Mac),
two trade associations, one corporation, and eight private
individuals.\2\ Three of the private individuals submitted multiple
comment letters each, resulting in FHFA receiving a total of 21 comment
letters on the proposed rule.
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\2\ See comments on Capital Planning and Stress Capital Buffer
Determination Proposed Rule, available at <a href="https://www.fhfa.gov/SupervisionRegulation/Rules/Pages/Comment-List.aspx?RuleID=714">https://www.fhfa.gov/SupervisionRegulation/Rules/Pages/Comment-List.aspx?RuleID=714</a>. The
comment period for the proposed rule closed on February 25, 2022.
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Freddie Mac was very supportive of the capital planning and stress
capital buffer processes that would be required by the proposal but
offered specific suggestions for modifying the stress capital buffer
determination, the board duty provisions, and the compliance date for
submission of the capital plans in the rule.
Of the 20 other letters, 19 were on conservatorship issues, while
one expressed concern about FHFA's Duty to Serve program that was
unrelated to capital planning or the stress capital buffer. Some of the
conservatorship related letters dealt with the U.S. Department of the
Treasury's (Treasury) investment in the Enterprises through the
Preferred Stock Purchase Agreements and common stock warrants, prospect
of future exits from the conservatorships, and how that may affect
capital planning. Other letters dealt with aspects of the
conservatorships that were unrelated to capital planning or the stress
capital buffer. Most of the conservatorship letters were from private
individuals and some of these individuals mentioned they were
Enterprise shareholders. One conservatorship letter was from a trade
association and one was from a corporation. The trade association
commenter, while offering general support for the proposal's objective
of making certain the Enterprises are operating with capital positions
that reflect their risk profile, also expressed concern about
Treasury's investment and desired clarity about exits from the
conservatorships. The corporation commenter was similarly concerned
about Treasury's investment as an impediment to raising capital.
FHFA has determined not to make changes to the rule in response to
the comments on the Duty to Serve program or conservatorship issues. As
FHFA stated in the preamble to its proposal, the rule is a framework
for ongoing capital planning consistent with the regulatory
requirements for large banks. The final rule, like the ERCF, is
intended to provide a stable regulatory framework for the Enterprises
for an extended period, including after they achieve adequate
capitalization under the ERCF.
FHFA did not receive any comments regarding the mandatory elements
of a capital plan, FHFA's review of a capital plan, an Enterprise's
potential resubmission of a capital plan, FHFA's approval requirements
for certain capital actions, or post notice requirements. FHFA is
adopting those portions of the rule as proposed.
Freddie Mac's comments on the stress capital buffer, board's
duties, and compliance date are discussed below:
A. Stress Capital Buffer
The proposal included a minor change to the stress capital buffer
calculation compared to the finalized ERCF to align with a recent
amendment to the regulatory banking framework. In addition, the
proposal incorporated the stress capital buffer from the ERCF into the
capital planning process.
Under both the ERCF and proposal, the buffer would be determined by
FHFA, with the calculation based on the results of a supervisory stress
test, subject to a floor of 0.75 percent of the Enterprise's adjusted
total assets as of the last day of the previous calendar quarter.
However, until such time as FHFA develops its supervisory stress test,
or in any year that FHFA does not determine the stress capital buffer,
the buffer would be equal to 0.75 percent of an Enterprise's adjusted
total assets.
Consistent with recent amendments to the Federal Reserve Board's
banking rule, the proposal's calculation method prefunds an
Enterprise's planned common stock dividends for the fourth through
seventh quarters of the planning horizon rather than using the existing
ERCF instruction to use each of the nine quarters of the planning
horizon.
The proposal incorporated the stress capital buffer into the
capital planning process by requiring an Enterprise, within two
business days of receiving its stress capital buffer from FHFA, to
adjust its planned capital distributions for the fourth through seventh
quarters of the planning horizon to be consistent with effective
capital distribution limitations assuming the stress capital buffer
provided by FHFA, in place of any stress capital buffer currently in
effect.
Freddie Mac proposed to eliminate the 0.75 percent floor,
supervisory stress test, and inclusion of planned dividends in the
stress capital buffer calculation. Freddie Mac preferred to use capital
depletion in Freddie Mac's Dodd-Frank Act Stress Test (DFAST) instead
of a new supervisory stress test to be developed by FHFA. Freddie Mac
proposed to apply the severely adverse scenario without a deferred tax
asset write off or prefunding common stock dividends, holding the
balance sheet constant over the stress horizon, and observing the
quarter with the largest cumulative losses, all without applying the
0.75 percent floor.
Freddie Mac said the floor of 0.75 percent of adjusted total assets
is inappropriate for the Enterprises. Freddie Mac stated that for
banks, the static floor was intended to address concerns that larger
institutions could use a dynamic stress capital buffer based on stress
testing to lower their capital requirements relative to smaller peers.
However, they noted the Enterprises do not have a subset of smaller
competitors. They said the Federal Reserve Board noted in its rule that
about half of the bank population would be above the floor making the
buffer risk sensitive. Freddie Mac believes their buffer would be below
the floor, blunting risk sensitivity and increasing risk-taking if they
managed toward the floor.
Freddie Mac also proposed to remove the add-on for planned common
stock dividends for the fourth through seventh quarters, given that
they are not forecasted to pay dividends in the near term due to their
current capital position.
Consistent with the banking approach, FHFA believes that the
development of a supervisory stress test is important for the stress
capital buffer determination, and preferrable to reliance on the
Enterprise's DFAST model. The 0.75 percent buffer floor and
consideration of common stock dividends already were a part of the ERCF
as published by FHFA on December 17, 2020. FHFA's only change from the
ERCF regarding common stock dividends was a reduction from using the
full nine quarter stress horizon to using four quarters to be
consistent with the banking framework. While the Enterprises are not
currently able to pay dividends, it is important to keep the
[[Page 33617]]
dividend provision forward looking since the Enterprises are working
toward building capital to meet the standards in the ERCF. Therefore,
FHFA is keeping the stress capital buffer determination unchanged in
the final rule.
B. Board Duties
Freddie Mac asked that FHFA clarify the role of its board of
directors in the final rule. The proposed rule stated that the
Enterprise's board of directors, or a designated committee thereof,
must at least annually and prior to submission of the capital plan: (1)
Review the robustness of the Enterprise's process for assessing capital
adequacy: (2) Ensure that any deficiencies in the Enterprise's process
for assessing capital adequacy are appropriately remedied; and (3)
approve the Enterprise's capital plan. The Enterprise wanted the term
``ensure'' changed to ``oversee'' or ``review'' since the board plays
an oversight role. FHFA believes that while an Enterprise's management
is responsible for remedying any deficiencies in the process for
assessing capital adequacy, the board, as part of its oversight role,
is ultimately responsible for ensuring that it gets done. FHFA's
language on the board's duties is also consistent with the banking
framework. Therefore, FHFA is keeping the language on the board's
duties unchanged in the final rule.
C. Compliance Date
Freddie Mac asked FHFA to clarify that the annual May 20 capital
plan submission dates will start in 2023, in the event that the final
rule becomes effective before May 20, 2022, so that they will have
sufficient time to prepare their first plan submission. FHFA agrees
that the first plan submission under the final rule will be May 20,
2023. Given the final rule's publication date and effective date, no
changes are necessary to the rule.
IV. 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.
V. 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 Regulatory Flexibility Act and 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.
VI. 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, 4611-12, 4631-36, FHFA
amends part 1240 of title 12 of the Code of Federal Regulations 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 continues to read as follows:
Authority: 12 U.S.C. 4511, 4513, 4513b, 4514, 4515, 4517, 4526,
4611-12, 4631-36.
0
2. In Sec. 1240.11, revise paragraph (a)(7) to read as follows:
Sec. 1240.11 Capital conservation buffer and leverage buffer.
(a) * * *
(7) Stress capital buffer. (i) The stress capital buffer for an
Enterprise is the stress capital buffer determined under Sec. 1240.500
except as provided in paragraph (a)(7)(ii) of this section.
(ii) If an Enterprise has not yet received a stress capital buffer
requirement, its stress capital buffer for purposes of this part is
0.75 percent of the Enterprise's adjusted total assets, as of the last
day of the previous calendar quarter.
* * * * *
0
3. Add subpart H, consisting of Sec. Sec. 1240.500 through 1240.502,
to read as follows:
Subpart H--Capital Planning and Stress Capital Buffer Determination
Sec. 1240.500 Capital planning and stress capital buffer
determination.
(a) Purpose. This section establishes capital planning and prior
notice and approval requirements for capital distributions by the
Enterprises. This section also establishes FHFA's process for
determining the stress capital buffer applicable to the Enterprises.
(b) Scope and reservation of authority--(1) Applicability. This
section applies to the Enterprises.
(2) Reservation of authority. Nothing in this section shall limit
the authority of FHFA to issue or enforce a capital directive or take
any other supervisory or enforcement action, including an action to
address unsafe or unsound practices or conditions or violations of law.
(c) Definitions. For purposes of this section, the following
definitions apply:
Adjusted total assets has the same meaning as under subpart A of
this part.
Advanced approaches means the risk-weighted assets calculation
methodologies as set forth in subpart E of this part.
Capital action means any issuance of a debt or equity capital
instrument, any capital distribution, and any similar action that FHFA
determines could impact an Enterprise's consolidated capital.
Capital distribution means a redemption or repurchase of any debt
or equity capital instrument, a payment of common or preferred stock
dividends, a payment that may be temporarily or permanently suspended
by the issuer on any instrument that is eligible for inclusion in the
numerator of any minimum regulatory capital ratio, and any similar
transaction that FHFA determines to be in substance a distribution of
capital.
Capital plan means a written presentation of an Enterprise's
capital planning strategies and capital adequacy process that includes
the mandatory elements set forth in paragraph (d)(2) of this section.
Capital plan cycle means the period beginning on January 1 of a
calendar year and ending on December 31 of that year.
Capital policy means an Enterprise's written principles and
guidelines used for capital planning, capital issuance,
[[Page 33618]]
capital usage and distributions, including internal capital goals; the
quantitative or qualitative guidelines for capital distributions; the
strategies for addressing potential capital shortfalls; and the
internal governance procedures around capital policy principles and
guidelines.
Common equity tier 1 capital has the same meaning as under subpart
C of this part.
Effective capital distribution limitations means any limitations on
capital distributions established by FHFA by order or regulation,
provided that, for any limitations based on risk-weighted assets, such
limitations must be calculated using the standardized approach, as set
forth in subpart D of this part.
Final planned capital distributions means the planned capital
distributions included in a capital plan that include the adjustments
made pursuant to paragraph (g) of this section, if any.
Internal baseline scenario means a scenario that reflects the
Enterprise's expectation of the economic and financial outlook,
including expectations related to the Enterprise's capital adequacy and
financial condition.
Internal stress scenario means a scenario designed by an Enterprise
that stresses the specific vulnerabilities of the Enterprise's risk
profile and operations, including those related to the Enterprise's
capital adequacy and financial condition.
Planning horizon means the period of at least nine consecutive
quarters for the FHFA scenarios and at least five years for the
Internal scenarios, beginning with the quarter preceding the quarter in
which the Enterprise submits its capital plan, over which the relevant
projections extend, unless otherwise directed by FHFA.
Regulatory capital ratio means a capital ratio for which FHFA has
established minimum requirements for the Enterprise by regulation or
order, including, as applicable, the Enterprise's regulatory capital
ratios calculated under subpart B of this part; except that the
Enterprise shall not use the advanced approaches to calculate its
regulatory capital ratios.
Severely adverse scenario has the same meaning as under 12 CFR part
1238.
Stability capital buffer has the same meaning as under subpart G of
this part.
Stress capital buffer means the amount calculated under paragraph
(e) of this section.
Supervisory stress test means a stress test conducted by FHFA using
a severely adverse scenario and the assumptions contained in 12 CFR
part 1238.
(d) Capital planning requirements and procedures--(1) Annual
capital planning. (i) An Enterprise must develop and maintain a capital
plan.
(ii) An Enterprise must submit its complete capital plan to FHFA by
May 20 of each calendar year, or such later date as directed by FHFA.
(iii) The Enterprise's board of directors or a designated committee
thereof must at least annually and prior to submission of the capital
plan under paragraph (d)(1)(ii) of this section:
(A) Review the robustness of the Enterprise's process for assessing
capital adequacy;
(B) Ensure that any deficiencies in the Enterprise's process for
assessing capital adequacy are appropriately remedied; and
(C) Approve the Enterprise's capital plan.
(2) Mandatory elements of capital plan. A capital plan must contain
at least the following elements:
(i) An assessment of the expected uses and sources of capital over
the planning horizon that reflects the Enterprise's size, complexity,
risk profile, and scope of operations, assuming both expected and
stressful conditions, including:
(A) Estimates of projected revenues, expenses, losses, reserves,
and pro forma capital levels, including regulatory capital ratios, and
any additional capital measures deemed relevant by the Enterprise, over
the planning horizon under a range of scenarios, including the Internal
baseline scenario and at least one Internal stress scenario, as well as
any additional scenarios that FHFA may provide the Enterprise after
giving notice to the Enterprise;
(B) A discussion of the results of any stress test required by law
or regulation, and an explanation of how the capital plan takes these
results into account; and
(C) A description of all planned capital actions over the planning
horizon. Planned capital actions must be consistent with any effective
capital distribution limitations, except as may be adjusted pursuant to
paragraph (g) of this section. In determining whether an Enterprise's
planned capital distributions are consistent with effective capital
distribution limitations, an Enterprise must assume that:
(1) Any countercyclical capital buffer amount currently applicable
to the Enterprise remains at the same level, except that the Enterprise
must reflect any increases or decreases in the countercyclical capital
buffer amount that have been announced by FHFA at the times indicated
by FHFA's announcement for when such increases or decreases will take
effect; and
(2) Any stability capital buffer currently applicable to the
Enterprise when the capital plan is submitted remains at the same
level, except that the Enterprise must reflect any increase in its
stability capital buffer pursuant to Sec. 1240.400(c)(1), beginning in
the fifth quarter of the planning horizon.
(ii) A detailed description of the Enterprise's process for
assessing capital adequacy, including:
(A) A discussion of how the Enterprise will, under expected and
stressful conditions, maintain capital commensurate with its risks, and
maintain capital above the regulatory capital ratios;
(B) A discussion of how the Enterprise will, under expected and
stressful conditions, maintain sufficient capital to continue its
operations by maintaining ready access to funding, meeting its
obligations to creditors and other counterparties, and continuing to
serve as a credit intermediary;
(iii) The Enterprise's capital policy; and
(iv) A discussion of any expected changes to the Enterprise's
business plan that are likely to have a material impact on the
Enterprise's capital adequacy or liquidity.
(3) Data collection. Upon the request of FHFA, the Enterprise shall
provide FHFA with information regarding:
(i) The Enterprise's financial condition, including its capital;
(ii) The Enterprise's structure;
(iii) Amount and risk characteristics of the Enterprise's on- and
off-balance sheet exposures, including exposures within the
Enterprise's trading account, other trading-related exposures (such as
counterparty-credit risk exposures) or other items sensitive to changes
in market factors, including, as appropriate, information about the
sensitivity of positions to changes in market rates and prices;
(iv) The Enterprise's relevant policies and procedures, including
risk management policies and procedures;
(v) The Enterprise's liquidity profile and management;
(vi) The loss, revenue, and expense estimation models used by the
Enterprise for stress scenario analysis, including supporting
documentation regarding each model's development and validation; and
(vii) Any other relevant qualitative or quantitative information
requested by FHFA to facilitate review of the Enterprise's capital plan
under this section.
[[Page 33619]]
(4) Resubmission of a capital plan. (i) An Enterprise must update
and resubmit its capital plan to FHFA within 30 calendar days of the
occurrence of one of the following events:
(A) The Enterprise determines there has been or will be a material
change in the Enterprise's risk profile, financial condition, or
corporate structure since the Enterprise last submitted the capital
plan to FHFA; or
(B) FHFA instructs the Enterprise in writing to revise and resubmit
its capital plan, as necessary to monitor risks to capital adequacy,
for reasons including, but not limited to:
(1) The capital plan is incomplete or the capital plan, or the
Enterprise's internal capital adequacy process, contains material
weaknesses;
(2) There has been, or will likely be, a material change in the
Enterprise's risk profile (including a material change in its business
strategy or any risk exposure), financial condition, or corporate
structure;
(3) The Internal stress scenario(s) are not appropriate for the
Enterprise's business model and portfolios, or changes in financial
markets or the macro-economic outlook that could have a material impact
on an Enterprise's risk profile and financial condition require the use
of updated scenarios; or
(ii) FHFA may extend the 30-day period in paragraph (d)(4)(i) of
this section for up to an additional 60 calendar days, or such longer
period as FHFA determines appropriate.
(iii) Any updated capital plan must satisfy all the requirements of
this section; however, an Enterprise may continue to rely on
information submitted as part of a previously submitted capital plan to
the extent that the information remains accurate and appropriate.
(5) Confidential treatment of information submitted. The
confidentiality of information submitted to FHFA under this section and
related materials shall be determined in accordance with applicable
exemptions under the Freedom of Information Act (5 U.S.C. 552(b)) and
FHFA's rule in 12 CFR part 1214--Availability of Non-Public
Information.
(e) Calculation of the stress capital buffer--(1) General. FHFA
will determine the stress capital buffer that applies under Sec.
1240.11 pursuant to this paragraph (e). FHFA will calculate the
Enterprise's stress capital buffer requirement annually.
(2) Stress capital buffer calculation. An Enterprise's stress
capital buffer is equal to the Enterprise's adjusted total assets, as
of the last day of the previous calendar quarter, multiplied by the
greater of:
(i) The following calculation:
(A) The ratio of an Enterprise's common equity tier 1 capital to
adjusted total assets, as of the final quarter of the previous capital
plan cycle, unless otherwise determined by FHFA; minus
(B) The lowest projected ratio of the Enterprise's common equity
tier 1 capital to adjusted total assets, in any quarter of the planning
horizon under a supervisory stress test; plus
(C) The ratio of:
(1) The sum of the Enterprise's planned common stock dividends
(expressed as a dollar amount) for each of the fourth through seventh
quarters of the planning horizon; to
(2) The adjusted total assets of the Enterprise in the quarter in
which the Enterprise had its lowest projected ratio of common equity
tier 1 capital to adjusted total assets, in any quarter of the planning
horizon under a supervisory stress test; and (ii) 0.75 percent.
(3) Recalculation of stress capital buffer. If an Enterprise
resubmits its capital plan pursuant to paragraph (d)(4) of this
section, FHFA may recalculate the Enterprise's stress capital buffer.
FHFA will provide notice of whether the Enterprise's stress capital
buffer will be recalculated within 75 calendar days after the date on
which the capital plan is resubmitted, unless FHFA provides notice to
the Enterprise that it is extending the time period.
(f) Review of capital plans by FHFA. FHFA will consider the
following factors in reviewing an Enterprise's capital plan:
(1) The comprehensiveness of the capital plan, including the extent
to which the analysis underlying the capital plan captures and
addresses potential risks stemming from activities across the
Enterprise and the Enterprise's capital policy;
(2) The reasonableness of the Enterprise's capital plan, the
assumptions and analysis underlying the capital plan, and the
robustness of its capital adequacy process;
(3) Relevant supervisory information about the Enterprise and its
subsidiaries;
(4) The Enterprise's regulatory and financial reports, as well as
supporting data that would allow for an analysis of the Enterprise's
loss, revenue, and reserve projections;
(5) The results of any stress tests conducted by the Enterprise or
FHFA; and
(6) Other information requested or required by FHFA, as well as any
other information relevant, or related, to the Enterprise's capital
adequacy.
(g) FHFA notice of stress capital buffer; final planned capital
distributions--(1) Notice. FHFA will provide an Enterprise with notice
of its stress capital buffer and an explanation of the results of the
supervisory stress test. Unless otherwise determined by FHFA, notice
will be provided by August 15 of the calendar year in which the capital
plan was submitted pursuant to paragraph (d)(1)(ii) of this section or
within 90 calendar days of receiving notice that FHFA will recalculate
the Enterprise's stress capital buffer pursuant to paragraph (e)(3) of
this section.
(2) Response to notice--(i) Request for reconsideration of stress
capital buffer. An Enterprise may request reconsideration of a stress
capital buffer provided under paragraph (g)(1) of this section. To
request reconsideration of a stress capital buffer, an Enterprise must
submit to FHFA a request pursuant to paragraph (h) of this section.
(ii) Adjustments to planned capital distributions. Within two
business days of receipt of notice of a stress capital buffer under
paragraph (g)(1) or (h)(5) of this section, as applicable, an
Enterprise must:
(A) Determine whether the planned capital distributions for the
fourth through seventh quarters of the planning horizon under the
Internal baseline scenario would be consistent with effective capital
distribution limitations assuming the stress capital buffer provided by
FHFA under paragraph (g)(1) or (h)(5) of this section, as applicable,
in place of any stress capital buffer in effect; and
(1) If the planned capital distributions for the fourth through
seventh quarters of the planning horizon under the Internal baseline
scenario would not be consistent with effective capital distribution
limitations assuming the stress capital buffer provided by FHFA under
paragraph (g)(1) or (h)(5) of this section, as applicable, in place of
any stress capital buffer in effect, the Enterprise must adjust its
planned capital distributions such that its planned capital
distributions would be consistent with effective capital distribution
limitations assuming the stress capital buffer provided by FHFA under
paragraph (g)(1) or (h)(5) of this section, as applicable, in place of
any stress capital buffer in effect; or
(2) If the planned capital distributions for the fourth through
seventh quarters of the planning horizon under the Internal baseline
scenario would be consistent with effective capital distribution
limitations assuming the
[[Page 33620]]
stress capital buffer provided by FHFA under paragraph (g)(1) or (h)(5)
of this section, as applicable, in place of any stress capital buffer
in effect, the Enterprise may adjust its planned capital distributions.
An Enterprise may not adjust its planned capital distributions to be
inconsistent with the effective capital distribution limitations
assuming the stress capital buffer provided by FHFA under paragraph
(g)(1) or (h)(5) of this section, as applicable; and
(B) Notify FHFA of any adjustments made to planned capital
distributions for the fourth through seventh quarters of the planning
horizon under the Internal baseline scenario.
(3) Final planned capital distributions. FHFA will consider the
planned capital distributions, including any adjustments made pursuant
to paragraph (g)(2)(ii) of this section, to be the Enterprise's final
planned capital distributions on the later of:
(i) The expiration of the time for requesting reconsideration under
paragraph (i) of this section; and
(ii) The expiration of the time for adjusting planned capital
distributions pursuant to paragraph (g)(2)(ii) of this section.
(4) Effective date of final stress capital buffer. (i) FHFA will
provide an Enterprise with its final stress capital buffer and
confirmation of the Enterprise's final planned capital distributions by
August 31 of the calendar year that a capital plan was submitted
pursuant to paragraph (d)(1)(ii) of this section, unless otherwise
determined by FHFA. A stress capital buffer will not be considered
final so as to be agency action subject to judicial review under 5
U.S.C. 704 during the pendency of a request for reconsideration made
pursuant to paragraph (h) of this section or before the time for
requesting reconsideration has expired.
(ii) Unless otherwise determined by FHFA, an Enterprise's final
planned capital distributions and final stress capital buffer shall:
(A) Be effective on October 1 of the calendar year in which a
capital plan was submitted pursuant to paragraph (d)(1)(ii) of this
section; and
(B) Remain in effect until superseded.
(5) Publication. With respect to an Enterprise subject to this
section, FHFA may disclose publicly any or all of the following:
(i) The stress capital buffer provided to an Enterprise under
paragraph (g)(1) or (h)(5) of this section;
(ii) Adjustments made pursuant to paragraph (g)(2)(ii) of this
section;
(iii) A summary of the results of the supervisory stress test; and
(iv) Other information.
(h) Administrative remedies; request for reconsideration. The
following requirements and procedures apply to any request under this
paragraph (h):
(1) General. To request reconsideration of a stress capital buffer,
provided under paragraph (g) of this section, an Enterprise must submit
a written request for reconsideration.
(2) Timing of request. A request for reconsideration of a stress
capital buffer, provided under paragraph (g) of this section, must be
received within 15 calendar days of receipt of a notice of an
Enterprise's stress capital buffer.
(3) Contents of request. (i) A request for reconsideration must
include a detailed explanation of why reconsideration should be granted
(that is, why a stress capital buffer should be reconsidered). With
respect to any information that was not previously provided to FHFA in
the Enterprise's capital plan, the request should include an
explanation of why the information should be considered.
(ii) A request for reconsideration may include a request for an
informal hearing on the Enterprise's request for reconsideration.
(4) Hearing. (i) FHFA may, in its sole discretion, order an
informal hearing if FHFA finds that a hearing is appropriate or
necessary to resolve disputes regarding material issues of fact.
(ii) An informal hearing shall be held within 30 calendar days of a
request, if granted, provided that FHFA may extend this period upon
notice to the requesting party.
(5) Response to request. Within 30 calendar days of receipt of the
Enterprise's request for reconsideration of its stress capital buffer
submitted under paragraph (h)(2) of this section or within 30 days of
the conclusion of an informal hearing conducted under paragraph (h)(4)
of this section, FHFA will notify the Enterprise of its decision to
affirm or modify the Enterprise's stress capital buffer, provided that
FHFA may extend this period upon notice to the Enterprise.
(6) Distributions during the pendency of a request for
reconsideration.
During the pendency of FHFA's decision under paragraph (h)(5) of
this section, the Enterprise may make capital distributions that are
consistent with effective distribution limitations, unless prior
approval is required under paragraph (i)(1) of this section.
(i) Approval requirements for certain capital actions--(1)
Circumstances requiring approval--resubmission of a capital plan.
Unless it receives prior approval pursuant to paragraph (i)(3) of this
section, an Enterprise may not make a capital distribution (excluding
any capital distribution arising from the issuance of a capital
instrument eligible for inclusion in the numerator of a regulatory
capital ratio) if the capital distribution would occur after the
occurrence of an event requiring resubmission under paragraph
(d)(4)(i)(A) or (B) of this section.
(2) Contents of request. A request for a capital distribution under
this section must contain the following information:
(i) The Enterprise's capital plan or a discussion of changes to the
Enterprise's capital plan since it was last submitted to FHFA;
(ii) The purpose of the transaction;
(iii) A description of the capital distribution, including for
redemptions or repurchases of securities, the gross consideration to be
paid and the terms and sources of funding for the transaction, and for
dividends, the amount of the dividend(s); and
(iv) Any additional information requested by FHFA (which may
include, among other things, an assessment of the Enterprise's capital
adequacy under a severely adverse scenario, a revised capital plan, and
supporting data).
(3) Approval of certain capital distributions. (i) FHFA will act on
a request for prior approval of a capital distribution within 30
calendar days after the receipt of all the information required under
paragraph (i)(2) of this section.
(ii) In acting on a request for prior approval of a capital
distribution, FHFA will apply the considerations and principles in
paragraph (f) of this section, as appropriate. In addition, FHFA may
disapprove the transaction if the Enterprise does not provide all of
the information required to be submitted under paragraph (i)(2) of this
section.
(4) Disapproval and hearing. (i) FHFA will notify the Enterprise in
writing of the reasons for a decision to disapprove any proposed
capital distribution. Within 15 calendar days after receipt of a
disapproval by FHFA, the Enterprise may submit a written request for a
hearing.
(ii) FHFA may, in its sole discretion, order an informal hearing if
FHFA finds that a hearing is appropriate or necessary to resolve
disputes regarding material issues of fact. An informal hearing shall
be held within 30 calendar days of a request, if granted, provided that
FHFA may extend this period upon notice to the requesting party.
(iii) Written notice of the final decision of FHFA shall be given
to the Enterprise within 60 calendar days of
[[Page 33621]]
the conclusion of any informal hearing ordered by FHFA, provided that
FHFA may extend this period upon notice to the requesting party.
(iv) While FHFA's decision is pending and until such time as FHFA
approves the capital distribution at issue, the Enterprise may not make
such capital distribution.
(j) Post notice requirement. An Enterprise must notify FHFA within
15 days of making a capital distribution if:
(1) The capital distribution was approved pursuant to paragraph
(i)(3) of this section; or
(2) The dollar amount of the capital distribution will exceed the
dollar amount of the Enterprise's final planned capital distributions,
as measured on an aggregate basis beginning in the fourth quarter of
the planning horizon through the quarter at issue.
Sec. Sec. 1240.501-1240.502 [Reserved]
Sandra L. Thompson,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2022-11928 Filed 6-2-22; 8:45 am]
BILLING CODE 8070-01-P
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</html>Indexed from Federal Register on June 3, 2022.
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