Stress Testing of Regulated Entities, 16528-16531 [2020-05476]
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Federal Register / Vol. 85, No. 57 / Tuesday, March 24, 2020 / Rules and Regulations
DATES:
PART 204—RESERVE
REQUIREMENTS OF DEPOSITORY
INSTITUTIONS (REGULATION D)
1. The authority citation for part 204
continues to read as follows:
Authority: 12 U.S.C. 248(a), 248(c), 461,
601, 611, and 3105.
2. Section 204.10 is amended by
revising paragraph (b)(5) to read as
follows:
■
*
Naa
Awaa Tagoe, Senior Associate Director,
Office of Financial Analysis, Modeling
and Simulations, (202) 649–3140,
naaawaa.tagoe@fhfa.gov; Karen Heidel,
Assistant General Counsel, Office of
General Counsel, (202) 649–3073,
karen.heidel@fhfa.gov; or Mark D.
Laponsky, Deputy General Counsel,
Office of General Counsel, (202) 649–
3054, mark.laponsky@fhfa.gov. The
telephone number for the
Telecommunications Device for the Deaf
is (800) 877–8339.
SUPPLEMENTARY INFORMATION:
FOR FURTHER INFORMATION CONTACT:
■
§ 204.10
This rule is effective: March 24,
2020.
Payment of interest on balances.
*
*
*
*
(b) * * *
(5) The rates for IORR and IOER are:
TABLE 1 TO PARAGRAPH (b)(5)
I. Background
Section 401 of the EGRRCPA, (Pub. L.
115–174, section 401) amended the
IORR ...........................................
0.10 Dodd-Frank Act requirements to
IOER ...........................................
0.10 implement stress testing. Prior to the
passage of the EGRRCPA,1 section 165(i)
of the Dodd-Frank Act 2 required each
*
*
*
*
*
financial company with total
By order of the Board of Governors of the
consolidated assets of more than $10
Federal Reserve System, March 16, 2020.
billion to conduct annual stress tests. In
Ann Misback,
addition, section 165 required FHFA to
Secretary of the Board.
issue regulations for regulated entities to
[FR Doc. 2020–05805 Filed 3–23–20; 8:45 am]
conduct their stress tests, which were
BILLING CODE 6210–01–P
required to include at least three
different stress testing scenarios:
‘‘baseline,’’ ‘‘adverse,’’ and ‘‘severely
FEDERAL HOUSING FINANCE
adverse.’’ 3 In September 2013, FHFA
AGENCY
published in the Federal Register a final
rule implementing the Dodd-Frank Act
12 CFR Part 1238
stress testing requirements. FHFA’s
RIN 2590–AB05
regulation, located at 12 CFR part 1238,
requires each regulated entity to
Stress Testing of Regulated Entities
conduct an annual stress test based on
scenarios provided by FHFA and
AGENCY: Federal Housing Finance
consistent with FHFA prescribed
Agency.
methodologies and practices. The
ACTION: Final rule.
regulation also requires that the agency
issue to the regulated entities stress test
SUMMARY: The Federal Housing Finance
scenarios that are generally consistent
Agency (FHFA) is adopting a final rule
with and comparable to those developed
that amends its stress testing rule,
by the FRB not later than 30 days after
consistent with section 401 of the
the FRB publishes its scenarios.4
Economic Growth, Regulatory Relief,
Section 401 of EGRRCPA amended
and Consumer Protection Act
certain aspects of the stress testing
(EGRRCPA). These amendments adopt
requirements applicable to financial
the proposed amendments without
companies in section 165(i) of the Doddchange to modify the minimum
Frank Act.5 Specifically, after 18
threshold for the regulated entities to
months, section 401 of EGRRCPA raises
conduct stress tests increased from $10
the minimum asset threshold for
billion to $250 billion; removal of the
application of the stress testing
requirements for Federal Home Loan
requirement from $10 billion to $250
Banks (Banks) subject to stress testing;
billion in total consolidated assets,
and removal of the adverse scenario
revises the requirement for financial
from the list of required scenarios.
These amendments align FHFA’s rule
1 Public Law 115–174, 132 Stat. 1296 (2018).
with rules adopted by other financial
2 Public Law 111–203, 124 Stat. 1376 (2010),
institution regulators that implement
codified at 12 U.S.C. 5365.
the Dodd-Frank Wall Street Reform and
3 12 U.S.C. 5365(i)(2)(C).
Consumer Protection Act (Dodd-Frank
4 12 CFR 1238.3(b).
Act) stress testing requirements, as
5 Public Law 115–174, 132 Stat. 1296–1368
amended by EGRRCPA.
(2018).
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companies to conduct stress tests
‘‘annually,’’ and instead requires them
to conduct stress tests ‘‘periodically’’,
and no longer requires the stress test to
include an ‘‘adverse’’ scenario, thus
reducing the number of required stress
test scenarios from three to two.
II. Discussion of Public Comments
On December 16, 2019, FHFA
published in the Federal Register
proposed amendments to the stress
testing requirements for the regulated
entities. The comment period closed on
January 15, 2020. FHFA received one
comment which stated that the
threshold of $250 billion in total
consolidated assets was too high and
lowering the threshold to $100 billion in
total consolidated assets would be more
appropriate. EGRRCPA set the threshold
at $250 billion in total consolidated
assets and the proposed rule reflects this
statutory requirement. The Enterprises
will continue to be covered by the rule
at its new threshold, however, the Banks
will not. After several years of assessing
the Banks’ stress tests, FHFA believes
that its other supervision tools are
sufficient for the agency’s purposes, and
that the additional burden on the Banks
of conducting the annual stress tests is
not necessary. FHFA retains under its
general supervisory powers the
discretion to require stress testing by the
Banks if FHFA determines that it would
be useful. Therefore, FHFA is adopting
as its final rule the same rule proposed
on December 16, 2019, without any
change.
III. Summary of Final Rule
FHFA is adopting the proposed
revisions to FHFA’s rule without change
as follows: The rule discontinues the
Dodd-Frank Act stress testing of the
Banks; prescribes the frequency of stress
testing; and reduces the number of
scenarios mandated for Enterprise
Dodd-Frank Act stress testing. These
revisions are described in more detail
below.
A. Minimum Asset Threshold
As described above, section 401 of
EGRRCPA amends section 165 of the
Dodd-Frank Act by raising the
minimum threshold for financial
companies required to conduct stress
tests from $10 billion to $250 billion. As
there are no Banks with total
consolidated assets of over $250 billion,
the Banks will no longer be subject to
the stress testing requirements of this
rule. As the total consolidated assets for
each Enterprise exceed the $250 billion
threshold, the Enterprises remain
subject to stress testing under this rule.
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B. Frequency of Stress Testing
Section 401 of EGRRCPA also revised
the requirement under section 165 of
the Dodd-Frank Act for financial
companies to conduct stress tests,
changing the required frequency from
‘‘annual’’ to ‘‘periodic.’’ The term
‘‘periodic’’ is not defined in EGRRCPA.
Because of the Enterprises’ total
consolidated asset amounts, their
function in the mortgage market, size of
their retained portfolios, and their share
of the mortgage securitization market,
FHFA will continue to require the
Enterprises to conduct stress tests on an
annual basis. This is consistent with
FHFA’s regulatory mission to ensure
each of the regulated entities ‘‘operates
in a safe and sound manner.’’ 6
C. Removal of the ‘‘Adverse’’ Scenario
As discussed above, section 401 of
EGRRCPA amends section 165(i) of the
Dodd-Frank Act to no longer require the
FRB to include an ‘‘adverse’’ stresstesting scenario, reducing the number of
stress test scenarios from three to two.
The ‘‘baseline’’ scenario is a set of
conditions that affect the U.S. economy
or the financial condition of the
regulated entities, and that reflect the
consensus views of the economic and
financial outlook, and the ‘‘severely
adverse’’ scenario is a more severe set of
conditions and the most stringent of the
former three scenarios. Although the
‘‘adverse’’ scenario has provided some
additional value in limited
circumstances, the ‘‘baseline’’ and
‘‘severely adverse’’ scenarios largely
cover the full range of expected and
stressful conditions. Therefore FHFA
does not consider it necessary, for its
supervisory purposes, to require the
additional burden of analyzing an
‘‘adverse’’ scenario.
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IV. Coordination With the FRB and the
Federal Insurance Office
In accordance with section
165(i)(2)(C), FHFA has coordinated with
both the FRB and the Federal Insurance
Office (FIO). On November 1, 2019, the
FRB published a final rule which
revised ‘‘the minimum threshold for
state member banks to conduct stress
tests from $10 billion to $250 billion,’’
and revised ‘‘the frequency with which
state member banks with assets greater
than $250 billion would be required to
conduct stress tests,’’ in addition to
removing the adverse scenario from the
list of required scenarios.7 The FDIC
adopted its final rule; 8 and the OCC its
6 12
U.S.C. 4513(a)(1)(B)
FR 59032 (Nov. 1, 2019).
8 84 FR 56929 (Oct. 24, 2019).
final rule.9 Although FHFA’s final rule
is not identical to those of the FRB, the
FDIC, and the OCC, it is consistent and
comparable with them.
V. Paperwork Reduction Act
The final rule does not contain any
collections of information pursuant to
the Paperwork Reduction Act of 1995
(44 U.S.C. 3501, et seq.). Therefore,
FHFA has not submitted any
information to the Office of
Management and Budget for review.
VI. Administrative Procedure Act
This final rule is effective
immediately upon publication in the
Federal Register. Section 553(d)(3) of
the Administrative Procedure Act (APA)
provides for a delayed effective date
after publication of a rule, except ‘‘as
otherwise provided by the agency for
good cause found and published with
the rule.’’ The changes to part 1238
primarily cover how FHFA will
implement the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(Dodd-Frank Act) stress testing
requirements, as amended by section
401 of EGRRCPA. These amendments,
applicable to large financial companies,
became effective on November 24, 2019.
Consistent with section 553(d)(3) and
for the reasons discussed below, FHFA
finds good cause exists to publish this
final rule with an immediate effective
date. Without this rule, the Enterprises
and Federal Home Loan Banks will be
required to conduct stress testing under
the prior rule, incurring additional
expense and burden which FHFA has
determined is not necessary for
purposes of safety and soundness. In
addition, an immediate effective date
permits FHFA to synchronize its
supervisory efforts related to stress
testing with the FRB and the FDIC.
Accordingly, the FHFA finds good cause
for the final rule to take effect
immediately upon publication in the
Federal Register.
VII. Regulatory Flexibility Act
The final rule applies only to the
regulated entities, which do not come
within the meaning of small entities as
defined in the Regulatory Flexibility Act
(see 5 U.S.C. 601(6)). Therefore, in
accordance with section 605(b) of the
Regulatory Flexibility Act (5 U.S.C.
605(b)), the General Counsel of FHFA
certifies that this final rule will not have
a significant economic impact on a
substantial number of small entities.
7 84
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VIII. 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 not
a major rule and has verified this
determination with the Office of
Information and Regulatory Affairs of
the OMB.
List of Subjects in 12 CFR Part 1238
Administrative practice and
procedure, Capital, Federal Home Loan
Banks, Government-sponsored
enterprises, Regulated entities,
Reporting and recordkeeping
requirements, Stress test.
Authority and Issuance
For the reasons stated in the
preamble, and under the authority of 12
U.S.C. 5365(i), FHFA amends part 1238
of Title 12 of the Code of Federal
Regulations as follows:
PART 1238—STRESS TESTING OF
REGULATED ENTITIES
1. The authority citation for part 1238
continues to read as follows:
■
Authority: 12 U.S.C. 1426, 4513, 4526,
4612; 5365(i).
■
2. Revise § 1238.1 to read as follows:
§ 1238.1
Authority and purpose.
(a) Authority. This part is issued by
the Federal Housing Finance Agency
(FHFA) under section 165(i) of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank
Act), Public Law 111–203, 124 Stat.
1376, 1423–32 (2010), 12 U.S.C. 5365(i),
as amended by section 401 of the
Economic Growth, Regulatory Relief,
and Consumer Protection Act
(EGRRCPA), Public Law 115–174, 132
Stat. 1296 (2018), 12 U.S.C. 5365(i); and
the Safety and Soundness Act (12 U.S.C.
4513, 4526, 4612).
(b) Purpose. (1) This part implements
section 165(i)(2) of the Dodd-Frank Act,
as amended by section 401 of the
EGRRCPA, which requires all large
financial companies that have total
consolidated assets of more than $250
billion, and are regulated by a primary
federal financial regulatory agency, to
conduct periodic stress tests.
(2) This part establishes requirements
that apply to each Enterprise’s
performance of periodic stress tests. The
purpose of the periodic stress test is to
provide the Enterprises, FHFA, and the
FRB with additional, forward-looking
information that will help them to
assess capital adequacy at the
Enterprises under various scenarios; to
review the Enterprises’ stress test
results; and to increase public
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disclosure of the Enterprises’ capital
condition by requiring broad
dissemination of the stress test scenarios
and results.
■
3. Revise § 1238.2 to read as follows:
§ 1238.2
Definitions.
For purposes of this part, the
following definitions apply:
Planning horizon means the period of
time over which the stress projections
must extend. The planning horizon
cannot be less than nine quarters.
Scenarios are sets of economic and
financial conditions used in the
Enterprises’ stress tests, including
baseline and severely adverse.
Stress test is a process to assess the
potential impact on an Enterprise of
economic and financial conditions
(‘‘scenarios’’) on the consolidated
earnings, losses, and capital of the
Enterprise over a set planning horizon,
taking into account the current
condition of the Enterprise and the
Enterprise’s risks, exposures, strategies,
and activities.
■
4. Revise § 1238.3 to read as follows:
§ 1238.3
Annual stress test.
(a) In general. Each Enterprise:
(1) Shall complete an annual stress
test of itself based on its data as of
December 31 of the preceding calendar
year;
(2) The stress test shall be conducted
in accordance with this section and the
methodologies and practices described
in § 1238.4 and in a supplemental
guidance or order.
(b) Scenarios provided by FHFA. In
conducting its annual stress tests under
this section, each Enterprise must use
scenarios provided by FHFA, which
shall be generally consistent with and
comparable to those established by the
FRB, that reflect a minimum of two sets
of economic and financial conditions,
including a baseline and severely
adverse scenario. Not later than 30 days
after the FRB publishes its scenarios,
FHFA will issue to the Enterprises a
description of the baseline and severely
adverse scenarios that each Enterprise
shall use to conduct its annual stress
tests under this part.
■
5. Revise § 1238.4 to read as follows:
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§ 1238.4
Methodologies and practices.
(a) Potential impact. Except as noted
in this subpart, in conducting a stress
test under § 1238.3, each Enterprise
shall calculate how each of the
following is affected during each quarter
of the stress test planning horizon, for
each scenario:
(1) Potential losses, pre-provision net
revenues, and future pro forma capital
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positions over the planning horizon;
and
(2) Capital levels and capital ratios,
including regulatory capital and net
worth, and any other capital ratios
specified by FHFA.
(b) Planning horizon. Each Enterprise
must use a planning horizon of at least
nine quarters over which the impact of
specified scenarios would be assessed.
(c) Additional analytical techniques.
If FHFA determines that the stress test
methodologies and practices of an
Enterprise are deficient, FHFA may
determine that additional or alternative
analytical techniques and exercises are
appropriate for an Enterprise to use in
identifying, measuring, and monitoring
risks to the financial soundness of the
Enterprise, and require an Enterprise to
implement such techniques and
exercises in order to fulfill the
requirements of this part. In addition,
FHFA will issue guidance annually to
describe the baseline and severely
adverse scenarios, and methodologies to
be used in conducting the annual stress
test.
(d) Controls and oversight of the stress
testing processes. (1) The appropriate
senior management of each Enterprise
must ensure that the Enterprise
establishes and maintains a system of
controls, oversight, and documentation,
including policies and procedures,
designed to ensure that the stress testing
processes used by the Enterprises are
effective in meeting the requirements of
this part. These policies and procedures
must, at a minimum, describe the
Enterprise’s testing practices and
methodologies, validation and use of
stress test results, and processes for
updating the Enterprise’s stress testing
practices consistent with relevant
supervisory guidance;
(2) The board of directors, or a
designated committee thereof, shall
review and approve the policies and
procedures established to comply with
this part as frequently as economic
conditions or the condition of the
Enterprise warrants, but at least
annually; and
(3) Senior management of the
Enterprise and each member of the
board of directors shall receive a
summary of the stress test results.
■ 6. Revise § 1238.5 to read as follows:
§ 1238.5 Required report to FHFA and FRB
of stress test results and related
information.
(a) Report required for stress tests. On
or before May 20 of each year, the
Enterprises must report the results of
the stress tests required under § 1238.3
to FHFA, and to the FRB, in accordance
with paragraph (b) of this section;
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(b) Content of the report for annual
stress test. Each Enterprise must file a
report in the manner and form
established by FHFA.
(c) Confidential treatment of
information submitted. Reports
submitted to FHFA under this part are
FHFA property and records (as defined
in 12 CFR part 1202). The reports are
and include non-public information
contained in or related to examination,
operating, or condition reports prepared
by, on behalf of, or for the use of, FHFA
in connection with the performance of
the agency’s responsibilities regulating
or supervising the Enterprises.
Disclosure of any reports submitted to
FHFA or the information contained in
any such report is prohibited unless
authorized by this part, legal obligation,
or otherwise by the Director of FHFA.
■ 7. Revise § 1238.6 to read as follows:
§ 1238.6 Post-assessment actions by the
Enterprises.
Each Enterprise shall take the results
of the stress test conducted under
§ 1238.3 into account in making
changes, as appropriate, to the
Enterprise’s capital structure (including
the level and composition of capital); its
exposures, concentrations, and risk
positions; any plans for recovery and
resolution; and to improve overall risk
management. If an Enterprise is under
FHFA conservatorship, any postassessment actions shall require prior
FHFA approval.
■ 8. Revise § 1238.7 to read as follows:
§ 1238.7 Publication of results by
regulated entities.
(a) Public disclosure of results
required for stress tests of the
Enterprises. The Enterprises must
disclose publicly a summary of the
stress test results for the severely
adverse scenario not earlier than August
1 and not later than August 15 of each
year. The summary may be published
on the Enterprise’s website or in any
other form that is reasonably accessible
to the public.
(b) Information to be disclosed in the
summary. The information disclosed by
each Enterprise shall, at minimum,
include—
(1) A description of the types of risks
being included in the stress test;
(2) A high-level description of the
scenario provided by FHFA, including
key variables (such as GDP,
unemployment rate, housing prices, and
foreclosure rate, etc.);
(3) A general description of the
methodologies employed to estimate
losses, pre-provision net revenue, and
changes in capital positions over the
planning horizon;
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(4) A general description of the use of
the required stress test as one element
in an Enterprise’s overall capital
planning and capital assessment. If an
Enterprise is under conservatorship, this
description shall be coordinated with
FHFA;
(5) Aggregate losses, pre-provision net
revenue, net income, net worth, pro
forma capital levels and capital ratios
(including regulatory and any other
capital ratios specified by FHFA) over
the planning horizon, under the
scenario; and
(6) Such other data fields, in such
form (e.g., aggregated), as the Director
may require.
Dated: March 11, 2020.
Mark A. Calabria,
Director, Federal Housing Finance Agency.
[FR Doc. 2020–05476 Filed 3–23–20; 8:45 am]
BILLING CODE 8070–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
RIN 2120–AA64
Airworthiness Directives; MD
Helicopters Inc. Helicopters
Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule.
AGENCY:
The FAA is adopting a new
airworthiness directive (AD) for MD
Helicopters Inc. (MDHI) Model 600N
helicopters. This AD requires
establishing a life limit for the main
rotor (M/R) blade upper control
collective/longitudinal link assembly
(link assembly). This AD was prompted
by the discovery that the life limit was
omitted from the maintenance manual.
The actions of this AD are intended to
prevent an unsafe condition on these
products.
SUMMARY:
This AD is effective April 28,
2020.
For service information
related to this final rule, contact MD
Helicopters, Inc., Attn: Customer
Support Division, 4555 E. McDowell
Rd., Mail Stop M615, Mesa, AZ 85215–
9734; telephone 1–800–388–3378; fax
480–346–6813; or at https://
www.mdhelicopters.com. You may
review this service information at the
FAA, Office of the Regional Counsel,
Southwest Region, 10101 Hillwood
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ADDRESSES:
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Examining the AD Docket
You may examine the AD docket on
the internet at https://
www.regulations.gov by searching for
and locating Docket No. FAA–2017–
1125; or in person at Docket Operations
between 9 a.m. and 5 p.m., Monday
through Friday, except Federal holidays.
The AD docket contains this AD, any
comments received, and other
information. The street address for
Docket Operations is U.S. Department of
Transportation, Docket Operations, M–
30, West Building Ground Floor, Room
W12–140, 1200 New Jersey Avenue SE,
Washington, DC 20590.
FOR FURTHER INFORMATION CONTACT:
Payman Soltani, Aerospace Engineer,
Airframe Section, Los Angeles ACO
Branch, Compliance and Airworthiness
Division, FAA, 3960 Paramount Blvd.,
Lakewood, California 90712; telephone
562–627–5313; email payman.soltani@
faa.gov.
SUPPLEMENTARY INFORMATION:
[Docket No. FAA–2017–1125; Product
Identifier 2017–SW–078–AD; Amendment
39–19880; AD 2020–06–11]
DATES:
Pkwy., Room 6N–321, Fort Worth, TX
76177. For information on the
availability of this material at the FAA,
call 817–222–5110.
Discussion
The FAA issued a notice of proposed
rulemaking (NPRM) to amend 14 CFR
part 39 by adding an AD that would
apply to MDHI Model 600N helicopters
with a yaw stability augmentation
system and with an M/R link assembly
part number (P/N) 600N7617–1
installed. The NPRM published in the
Federal Register on September 10, 2018
(83 FR 45580). The NPRM was
prompted by a report from MDHI that
during a review of the Airworthiness
Limitations section of the applicable
maintenance manual, MDHI discovered
that it did not include a life limit for
link assemblies installed on MDHI
Model 600N helicopters with a yaw
stability augmentation system. Link
assembly P/N 600N7617–1, which is
made of aluminum, is a life-limited part
with a life limit of 15,000 hours timein-service (TIS). MDHI subsequently
revised the Airworthiness Limitations
section of the maintenance manual to
include the life limit. The NPRM
proposed to require creating a
component history card or equivalent
record for each affected link assembly,
if one does not exist, and recording a
life limit of 15,000 hours TIS. This
NPRM also proposed to require
determining the hours TIS of the link
assembly and removing the link
assembly from service according to the
new life limit. The proposed
requirements were intended to prevent
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16531
a link assembly remaining in service
beyond its life limit, which could result
in fatigue failure, loss of M/R blade
pitch control, and subsequent loss of
helicopter control.
Comments
The FAA gave the public the
opportunity to participate in developing
this final rule. The following presents
the comments received on the NPRM
and the FAA’s response to each
comment.
Request
MDHI expressed concern that the
requirements proposed by the NPRM do
not definitively eliminate the risk of a
life limit being exceeded.
MDHI stated that link assembly P/N
600N7617–1 is not serialized and is
aware that link assemblies have been
installed on aircraft with multiple serial
numbers, possibly indicating that link
assemblies P/N 600N7617–1 may not
have a reliable TIS record. MDHI also
stated if the TIS is unknown, arbitrarily
setting the TIS to the aircraft hours may
not adequately reflect the actual TIS of
link assembly P/N 600N7617–1.
FAA Response
The FAA acknowledges link assembly
P/N 600N7617–1 is not serialized and
the possibility of cross-installation on
multiple aircraft. However, the FAA has
determined that using the hours TIS of
the helicopter mitigates the risk to an
acceptable level because there is a small
number of link assemblies P/N
600N7617–1 in-service, the usage rate
for MDHI Model 600N helicopters is
similar throughout the fleet, and the
15,000 hours TIS life limit includes a
built-in life reduction for different
variabilities.
Request
MDHI requested the FAA mandate the
replacement of link assembly P/N
600N7617–1 with link assembly P/N
600N7617–5. MDHI explained that
installation of link assembly P/N
600N7617–5 is consistent with
production and field modification
installations of the yaw stability
augmentation system (YSAS), which
requires installation of link assembly P/
N 600N7617–5, and that link assembly
P/N 600N7617–5 is not subject to lifelimiting fatigue, therefore eliminating
this potential safety risk.
FAA Response
The FAA agrees that replacing link
assembly P/N 600N7617–1 with link
assembly P/N 600N7617–5 is beneficial
but disagrees that the replacement is
required for airworthiness. Link
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]]>Agencies
[Federal Register Volume 85, Number 57 (Tuesday, March 24, 2020)]
[Rules and Regulations]
[Pages 16528-16531]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05476]
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FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1238
RIN 2590-AB05
Stress Testing of Regulated Entities
AGENCY: Federal Housing Finance Agency.
ACTION: Final rule.
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SUMMARY: The Federal Housing Finance Agency (FHFA) is adopting a final
rule that amends its stress testing rule, consistent with section 401
of the Economic Growth, Regulatory Relief, and Consumer Protection Act
(EGRRCPA). These amendments adopt the proposed amendments without
change to modify the minimum threshold for the regulated entities to
conduct stress tests increased from $10 billion to $250 billion;
removal of the requirements for Federal Home Loan Banks (Banks) subject
to stress testing; and removal of the adverse scenario from the list of
required scenarios. These amendments align FHFA's rule with rules
adopted by other financial institution regulators that implement the
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank
Act) stress testing requirements, as amended by EGRRCPA.
DATES: This rule is effective: March 24, 2020.
FOR FURTHER INFORMATION CONTACT: Naa Awaa Tagoe, Senior Associate
Director, Office of Financial Analysis, Modeling and Simulations, (202)
649-3140, [email protected]; Karen Heidel, Assistant General
Counsel, Office of General Counsel, (202) 649-3073,
[email protected]; or Mark D. Laponsky, Deputy General Counsel,
Office of General Counsel, (202) 649-3054, [email protected]. The
telephone number for the Telecommunications Device for the Deaf is
(800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
Section 401 of the EGRRCPA, (Pub. L. 115-174, section 401) amended
the Dodd-Frank Act requirements to implement stress testing. Prior to
the passage of the EGRRCPA,\1\ section 165(i) of the Dodd-Frank Act \2\
required each financial company with total consolidated assets of more
than $10 billion to conduct annual stress tests. In addition, section
165 required FHFA to issue regulations for regulated entities to
conduct their stress tests, which were required to include at least
three different stress testing scenarios: ``baseline,'' ``adverse,''
and ``severely adverse.'' \3\ In September 2013, FHFA published in the
Federal Register a final rule implementing the Dodd-Frank Act stress
testing requirements. FHFA's regulation, located at 12 CFR part 1238,
requires each regulated entity to conduct an annual stress test based
on scenarios provided by FHFA and consistent with FHFA prescribed
methodologies and practices. The regulation also requires that the
agency issue to the regulated entities stress test scenarios that are
generally consistent with and comparable to those developed by the FRB
not later than 30 days after the FRB publishes its scenarios.\4\
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\1\ Public Law 115-174, 132 Stat. 1296 (2018).
\2\ Public Law 111-203, 124 Stat. 1376 (2010), codified at 12
U.S.C. 5365.
\3\ 12 U.S.C. 5365(i)(2)(C).
\4\ 12 CFR 1238.3(b).
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Section 401 of EGRRCPA amended certain aspects of the stress
testing requirements applicable to financial companies in section
165(i) of the Dodd-Frank Act.\5\ Specifically, after 18 months, section
401 of EGRRCPA raises the minimum asset threshold for application of
the stress testing requirement from $10 billion to $250 billion in
total consolidated assets, revises the requirement for financial
companies to conduct stress tests ``annually,'' and instead requires
them to conduct stress tests ``periodically'', and no longer requires
the stress test to include an ``adverse'' scenario, thus reducing the
number of required stress test scenarios from three to two.
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\5\ Public Law 115-174, 132 Stat. 1296-1368 (2018).
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II. Discussion of Public Comments
On December 16, 2019, FHFA published in the Federal Register
proposed amendments to the stress testing requirements for the
regulated entities. The comment period closed on January 15, 2020. FHFA
received one comment which stated that the threshold of $250 billion in
total consolidated assets was too high and lowering the threshold to
$100 billion in total consolidated assets would be more appropriate.
EGRRCPA set the threshold at $250 billion in total consolidated assets
and the proposed rule reflects this statutory requirement. The
Enterprises will continue to be covered by the rule at its new
threshold, however, the Banks will not. After several years of
assessing the Banks' stress tests, FHFA believes that its other
supervision tools are sufficient for the agency's purposes, and that
the additional burden on the Banks of conducting the annual stress
tests is not necessary. FHFA retains under its general supervisory
powers the discretion to require stress testing by the Banks if FHFA
determines that it would be useful. Therefore, FHFA is adopting as its
final rule the same rule proposed on December 16, 2019, without any
change.
III. Summary of Final Rule
FHFA is adopting the proposed revisions to FHFA's rule without
change as follows: The rule discontinues the Dodd-Frank Act stress
testing of the Banks; prescribes the frequency of stress testing; and
reduces the number of scenarios mandated for Enterprise Dodd-Frank Act
stress testing. These revisions are described in more detail below.
A. Minimum Asset Threshold
As described above, section 401 of EGRRCPA amends section 165 of
the Dodd-Frank Act by raising the minimum threshold for financial
companies required to conduct stress tests from $10 billion to $250
billion. As there are no Banks with total consolidated assets of over
$250 billion, the Banks will no longer be subject to the stress testing
requirements of this rule. As the total consolidated assets for each
Enterprise exceed the $250 billion threshold, the Enterprises remain
subject to stress testing under this rule.
[[Page 16529]]
B. Frequency of Stress Testing
Section 401 of EGRRCPA also revised the requirement under section
165 of the Dodd-Frank Act for financial companies to conduct stress
tests, changing the required frequency from ``annual'' to ``periodic.''
The term ``periodic'' is not defined in EGRRCPA. Because of the
Enterprises' total consolidated asset amounts, their function in the
mortgage market, size of their retained portfolios, and their share of
the mortgage securitization market, FHFA will continue to require the
Enterprises to conduct stress tests on an annual basis. This is
consistent with FHFA's regulatory mission to ensure each of the
regulated entities ``operates in a safe and sound manner.'' \6\
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\6\ 12 U.S.C. 4513(a)(1)(B)
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C. Removal of the ``Adverse'' Scenario
As discussed above, section 401 of EGRRCPA amends section 165(i) of
the Dodd-Frank Act to no longer require the FRB to include an
``adverse'' stress-testing scenario, reducing the number of stress test
scenarios from three to two. The ``baseline'' scenario is a set of
conditions that affect the U.S. economy or the financial condition of
the regulated entities, and that reflect the consensus views of the
economic and financial outlook, and the ``severely adverse'' scenario
is a more severe set of conditions and the most stringent of the former
three scenarios. Although the ``adverse'' scenario has provided some
additional value in limited circumstances, the ``baseline'' and
``severely adverse'' scenarios largely cover the full range of expected
and stressful conditions. Therefore FHFA does not consider it
necessary, for its supervisory purposes, to require the additional
burden of analyzing an ``adverse'' scenario.
IV. Coordination With the FRB and the Federal Insurance Office
In accordance with section 165(i)(2)(C), FHFA has coordinated with
both the FRB and the Federal Insurance Office (FIO). On November 1,
2019, the FRB published a final rule which revised ``the minimum
threshold for state member banks to conduct stress tests from $10
billion to $250 billion,'' and revised ``the frequency with which state
member banks with assets greater than $250 billion would be required to
conduct stress tests,'' in addition to removing the adverse scenario
from the list of required scenarios.\7\ The FDIC adopted its final
rule; \8\ and the OCC its final rule.\9\ Although FHFA's final rule is
not identical to those of the FRB, the FDIC, and the OCC, it is
consistent and comparable with them.
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\7\ 84 FR 59032 (Nov. 1, 2019).
\8\ 84 FR 56929 (Oct. 24, 2019).
\9\ 84 FR 54472 (Oct. 10, 2019).
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V. Paperwork Reduction Act
The final rule does not contain any collections of information
pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et
seq.). Therefore, FHFA has not submitted any information to the Office
of Management and Budget for review.
VI. Administrative Procedure Act
This final rule is effective immediately upon publication in the
Federal Register. Section 553(d)(3) of the Administrative Procedure Act
(APA) provides for a delayed effective date after publication of a
rule, except ``as otherwise provided by the agency for good cause found
and published with the rule.'' The changes to part 1238 primarily cover
how FHFA will implement the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) stress testing requirements, as amended
by section 401 of EGRRCPA. These amendments, applicable to large
financial companies, became effective on November 24, 2019. Consistent
with section 553(d)(3) and for the reasons discussed below, FHFA finds
good cause exists to publish this final rule with an immediate
effective date. Without this rule, the Enterprises and Federal Home
Loan Banks will be required to conduct stress testing under the prior
rule, incurring additional expense and burden which FHFA has determined
is not necessary for purposes of safety and soundness. In addition, an
immediate effective date permits FHFA to synchronize its supervisory
efforts related to stress testing with the FRB and the FDIC.
Accordingly, the FHFA finds good cause for the final rule to take
effect immediately upon publication in the Federal Register.
VII. Regulatory Flexibility Act
The final rule applies only to the regulated entities, which do not
come within the meaning of small entities as defined in the Regulatory
Flexibility Act (see 5 U.S.C. 601(6)). Therefore, in accordance with
section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 605(b)), the
General Counsel of FHFA certifies that this final rule will not have a
significant economic impact on a substantial number of small entities.
VIII. 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 not a major rule and
has verified this determination with the Office of Information and
Regulatory Affairs of the OMB.
List of Subjects in 12 CFR Part 1238
Administrative practice and procedure, Capital, Federal Home Loan
Banks, Government-sponsored enterprises, Regulated entities, Reporting
and recordkeeping requirements, Stress test.
Authority and Issuance
For the reasons stated in the preamble, and under the authority of
12 U.S.C. 5365(i), FHFA amends part 1238 of Title 12 of the Code of
Federal Regulations as follows:
PART 1238--STRESS TESTING OF REGULATED ENTITIES
0
1. The authority citation for part 1238 continues to read as follows:
Authority: 12 U.S.C. 1426, 4513, 4526, 4612; 5365(i).
0
2. Revise Sec. 1238.1 to read as follows:
Sec. 1238.1 Authority and purpose.
(a) Authority. This part is issued by the Federal Housing Finance
Agency (FHFA) under section 165(i) of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-Frank Act), Public Law 111-203, 124
Stat. 1376, 1423-32 (2010), 12 U.S.C. 5365(i), as amended by section
401 of the Economic Growth, Regulatory Relief, and Consumer Protection
Act (EGRRCPA), Public Law 115-174, 132 Stat. 1296 (2018), 12 U.S.C.
5365(i); and the Safety and Soundness Act (12 U.S.C. 4513, 4526, 4612).
(b) Purpose. (1) This part implements section 165(i)(2) of the
Dodd-Frank Act, as amended by section 401 of the EGRRCPA, which
requires all large financial companies that have total consolidated
assets of more than $250 billion, and are regulated by a primary
federal financial regulatory agency, to conduct periodic stress tests.
(2) This part establishes requirements that apply to each
Enterprise's performance of periodic stress tests. The purpose of the
periodic stress test is to provide the Enterprises, FHFA, and the FRB
with additional, forward-looking information that will help them to
assess capital adequacy at the Enterprises under various scenarios; to
review the Enterprises' stress test results; and to increase public
[[Page 16530]]
disclosure of the Enterprises' capital condition by requiring broad
dissemination of the stress test scenarios and results.
0
3. Revise Sec. 1238.2 to read as follows:
Sec. 1238.2 Definitions.
For purposes of this part, the following definitions apply:
Planning horizon means the period of time over which the stress
projections must extend. The planning horizon cannot be less than nine
quarters.
Scenarios are sets of economic and financial conditions used in the
Enterprises' stress tests, including baseline and severely adverse.
Stress test is a process to assess the potential impact on an
Enterprise of economic and financial conditions (``scenarios'') on the
consolidated earnings, losses, and capital of the Enterprise over a set
planning horizon, taking into account the current condition of the
Enterprise and the Enterprise's risks, exposures, strategies, and
activities.
0
4. Revise Sec. 1238.3 to read as follows:
Sec. 1238.3 Annual stress test.
(a) In general. Each Enterprise:
(1) Shall complete an annual stress test of itself based on its
data as of December 31 of the preceding calendar year;
(2) The stress test shall be conducted in accordance with this
section and the methodologies and practices described in Sec. 1238.4
and in a supplemental guidance or order.
(b) Scenarios provided by FHFA. In conducting its annual stress
tests under this section, each Enterprise must use scenarios provided
by FHFA, which shall be generally consistent with and comparable to
those established by the FRB, that reflect a minimum of two sets of
economic and financial conditions, including a baseline and severely
adverse scenario. Not later than 30 days after the FRB publishes its
scenarios, FHFA will issue to the Enterprises a description of the
baseline and severely adverse scenarios that each Enterprise shall use
to conduct its annual stress tests under this part.
0
5. Revise Sec. 1238.4 to read as follows:
Sec. 1238.4 Methodologies and practices.
(a) Potential impact. Except as noted in this subpart, in
conducting a stress test under Sec. 1238.3, each Enterprise shall
calculate how each of the following is affected during each quarter of
the stress test planning horizon, for each scenario:
(1) Potential losses, pre-provision net revenues, and future pro
forma capital positions over the planning horizon; and
(2) Capital levels and capital ratios, including regulatory capital
and net worth, and any other capital ratios specified by FHFA.
(b) Planning horizon. Each Enterprise must use a planning horizon
of at least nine quarters over which the impact of specified scenarios
would be assessed.
(c) Additional analytical techniques. If FHFA determines that the
stress test methodologies and practices of an Enterprise are deficient,
FHFA may determine that additional or alternative analytical techniques
and exercises are appropriate for an Enterprise to use in identifying,
measuring, and monitoring risks to the financial soundness of the
Enterprise, and require an Enterprise to implement such techniques and
exercises in order to fulfill the requirements of this part. In
addition, FHFA will issue guidance annually to describe the baseline
and severely adverse scenarios, and methodologies to be used in
conducting the annual stress test.
(d) Controls and oversight of the stress testing processes. (1) The
appropriate senior management of each Enterprise must ensure that the
Enterprise establishes and maintains a system of controls, oversight,
and documentation, including policies and procedures, designed to
ensure that the stress testing processes used by the Enterprises are
effective in meeting the requirements of this part. These policies and
procedures must, at a minimum, describe the Enterprise's testing
practices and methodologies, validation and use of stress test results,
and processes for updating the Enterprise's stress testing practices
consistent with relevant supervisory guidance;
(2) The board of directors, or a designated committee thereof,
shall review and approve the policies and procedures established to
comply with this part as frequently as economic conditions or the
condition of the Enterprise warrants, but at least annually; and
(3) Senior management of the Enterprise and each member of the
board of directors shall receive a summary of the stress test results.
0
6. Revise Sec. 1238.5 to read as follows:
Sec. 1238.5 Required report to FHFA and FRB of stress test results
and related information.
(a) Report required for stress tests. On or before May 20 of each
year, the Enterprises must report the results of the stress tests
required under Sec. 1238.3 to FHFA, and to the FRB, in accordance with
paragraph (b) of this section;
(b) Content of the report for annual stress test. Each Enterprise
must file a report in the manner and form established by FHFA.
(c) Confidential treatment of information submitted. Reports
submitted to FHFA under this part are FHFA property and records (as
defined in 12 CFR part 1202). The reports are and include non-public
information contained in or related to examination, operating, or
condition reports prepared by, on behalf of, or for the use of, FHFA in
connection with the performance of the agency's responsibilities
regulating or supervising the Enterprises. Disclosure of any reports
submitted to FHFA or the information contained in any such report is
prohibited unless authorized by this part, legal obligation, or
otherwise by the Director of FHFA.
0
7. Revise Sec. 1238.6 to read as follows:
Sec. 1238.6 Post-assessment actions by the Enterprises.
Each Enterprise shall take the results of the stress test conducted
under Sec. 1238.3 into account in making changes, as appropriate, to
the Enterprise's capital structure (including the level and composition
of capital); its exposures, concentrations, and risk positions; any
plans for recovery and resolution; and to improve overall risk
management. If an Enterprise is under FHFA conservatorship, any post-
assessment actions shall require prior FHFA approval.
0
8. Revise Sec. 1238.7 to read as follows:
Sec. 1238.7 Publication of results by regulated entities.
(a) Public disclosure of results required for stress tests of the
Enterprises. The Enterprises must disclose publicly a summary of the
stress test results for the severely adverse scenario not earlier than
August 1 and not later than August 15 of each year. The summary may be
published on the Enterprise's website or in any other form that is
reasonably accessible to the public.
(b) Information to be disclosed in the summary. The information
disclosed by each Enterprise shall, at minimum, include--
(1) A description of the types of risks being included in the
stress test;
(2) A high-level description of the scenario provided by FHFA,
including key variables (such as GDP, unemployment rate, housing
prices, and foreclosure rate, etc.);
(3) A general description of the methodologies employed to estimate
losses, pre-provision net revenue, and changes in capital positions
over the planning horizon;
[[Page 16531]]
(4) A general description of the use of the required stress test as
one element in an Enterprise's overall capital planning and capital
assessment. If an Enterprise is under conservatorship, this description
shall be coordinated with FHFA;
(5) Aggregate losses, pre-provision net revenue, net income, net
worth, pro forma capital levels and capital ratios (including
regulatory and any other capital ratios specified by FHFA) over the
planning horizon, under the scenario; and
(6) Such other data fields, in such form (e.g., aggregated), as the
Director may require.
Dated: March 11, 2020.
Mark A. Calabria,
Director, Federal Housing Finance Agency.
[FR Doc. 2020-05476 Filed 3-23-20; 8:45 am]
BILLING CODE 8070-01-P
