Capital Planning and Stress Capital Buffer Determination, 73187-73194 [2021-27589]

Agencies

• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 86, Number 245 (Monday, December 27, 2021)]
[Proposed Rules]
[Pages 73187-73194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27589]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 86, No. 245 / Monday, December 27, 2021 / 
Proposed Rules

[[Page 73187]]



FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1240

RIN 2590-AB16


Capital Planning and Stress Capital Buffer Determination

AGENCY: Federal Housing Finance Agency.

ACTION: Notice of proposed rulemaking: Request for comments.

-----------------------------------------------------------------------

SUMMARY: The Federal Housing Finance Agency (FHFA or the Agency) is 
proposing to require 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 
the Agency and provide prior notice for certain capital actions (the 
proposal or proposed rule). The Agency is also incorporating the 
determination of the stress capital buffer into the capital planning 
process. The requirements in this proposal are consistent with the 
regulatory framework for capital planning for large bank holding 
companies.

DATES: Comments must be received on or before February 25, 2022.

ADDRESSES: You may submit your comments on the proposed rule, 
identified by regulatory information number (RIN) 2590-AB16, by any one 
of the following methods:
     Agency website: www.fhfa.gov/open-for-comment-or-input.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comment to the Federal eRulemaking Portal, please also send it by email 
to FHFA at [email protected] to ensure timely receipt by FHFA. 
Include the following information in the subject line of your 
submission: Comments/RIN 2590-AB16.
     Hand Delivered/Courier: The hand delivery address is: 
Clinton Jones, General Counsel, Attention: Comments/RIN 2590-AB16, 
Federal Housing Finance Agency, 400 Seventh Street SW, Washington, DC 
20219. Deliver the package at the Seventh Street entrance Guard Desk, 
First Floor, on business days between 9 a.m. and 5 p.m.
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Clinton Jones, 
General Counsel, Attention: Comments/RIN 2590-AB16, Federal Housing 
Finance Agency, 400 Seventh Street SW, Washington, DC 20219. Please 
note that all mail sent to FHFA via U.S. Mail is routed through a 
national irradiation facility, a process that may delay delivery by 
approximately two weeks. For any time-sensitive correspondence, please 
plan accordingly.

FOR FURTHER INFORMATION CONTACT: Andrew Varrieur, Acting Senior 
Associate Director, Office of Capital Policy, (202) 649-3141, 
[email protected]; Ron Sugarman, Principal Policy Analyst, 
Office of Capital Policy, (202) 649-3208, [email protected]; or 
Mark Laponsky, Deputy General Counsel, Office of General Counsel, (202) 
649-3054, [email protected]. These are not toll-free numbers. 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:

Comments

    FHFA invites comments on all aspects of the proposed rule. Copies 
of all comments will be posted without change and will include any 
personal information you provide, such as your name, address, email 
address, and telephone number, on the FHFA website at https://www.fhfa.gov. In addition, copies of all comments received will be 
available for examination by the public through the electronic 
rulemaking docket for this proposed rule also located on the FHFA 
website.

Table of Contents

I. Background
II. Capital Plans
    A. Annual Capital Planning Requirement
    B. Mandatory Elements of a Capital Plan
    C. FHFA Review of a Capital Plan
    D. Resubmission of a Capital Plan
III. Approval Requirements for Certain Capital Actions and Post 
Notice Requirement
IV. Stress Capital Buffer
    A. Determination of the Stress Capital Buffer
    B. Conforming Amendments to the ERCF
V. Regulatory Analyses
    A. Regulatory Flexibility Act
    B. Paperwork Reduction Act

I. Background

    FHFA is proposing to require the Enterprises to submit annual 
capital plans to the Agency and provide prior notice for certain 
capital actions. The Agency is also incorporating the determination of 
the stress capital buffer from the final Enterprise Regulatory Capital 
Framework (ERCF) into the capital planning process. The requirements in 
this proposal are consistent with the regulatory framework for capital 
planning for large bank holding companies.
    During the years leading up to the 2007 financial crisis, many 
financial institutions made significant distributions of capital, in 
the form of stock repurchases and dividends, without due consideration 
of the effects that a prolonged economic downturn could have on their 
capital adequacy and ability to continue to operate and remain credit 
intermediaries during times of economic and financial stress. In 2011, 
the Board of Governors of the Federal Reserve System (Board) first 
proposed amendments to Regulation Y (12 CFR 225.8) to require large 
banks to submit annual capital plans and to provide notice before 
making certain capital distributions.\1\
---------------------------------------------------------------------------

    \1\ Originally, as a part of the capital plan rule, the Board 
could object to a firm's capital plan based on a qualitative 
assessment. However, amendments in 2019 changed this requirement 
such that after the 2020 Comprehensive Capital Analysis and Review 
(CCAR), no firm would be subject to a potential qualitative 
objection if the firm successfully passed several qualitative 
evaluations. All firms subject to the Board's capital plan rule have 
successfully passed the required number of qualitative evaluations 
such that no firms are subject to the qualitative objection going 
forward. In 2020, the Board's rule was amended to incorporate the 
stress capital buffer into the capital planning process. The Board 
made further updates to the rule in 2021, primarily to tailor the 
requirements based on risk.
---------------------------------------------------------------------------

    FHFA's proposal builds upon the Agency's existing supervisory 
expectation 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

[[Page 73188]]

capital adequacy. In FHFA's opinion, the Enterprises generally should 
operate with capital positions well above the minimum regulatory 
capital ratios, with the amount of capital held commensurate with each 
Enterprise's risk profile. The Enterprises should have internal 
processes for assessing their capital adequacy that reflect a full 
understanding of their risks and ensure that they hold capital 
corresponding to those risks to maintain overall capital adequacy.
    The board of directors and senior management of the Enterprises are 
ultimately responsible for overseeing an Enterprise's capital planning 
strategies and internal capital adequacy processes. The proposal does 
not diminish the responsibility of the Enterprise and its board of 
directors and senior management with respect to capital planning. 
Rather, the proposal is intended to: (i) Establish minimum supervisory 
standards for such strategies and processes for the Enterprises; (ii) 
describe how the boards of directors and senior management of the 
Enterprises should communicate the strategies and processes, including 
any material changes to FHFA; and (iii) provide FHFA with an 
opportunity to review the Enterprises' planned capital distributions.
    The proposal is also consistent with FHFA's practice of requiring 
company-run stress tests from each Enterprise. In 2014, the Agency 
began requiring its regulated entities to conduct stress tests pursuant 
to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010 (Dodd-Frank Act). As amended by section 401 of the Economic 
Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), the 
Dodd-Frank Act requires certain financial companies with total 
consolidated assets of more than $250 billion, and which are regulated 
by a primary federal financial regulatory agency, to conduct periodic 
stress tests to determine whether the companies have sufficient capital 
to absorb losses and support operations during adverse economic 
conditions.
    Dodd-Frank Act stress testing (DFAST) is a forward-looking exercise 
that assesses the impact on capital levels that would result from 
immediate financial shocks and nine quarters of adverse economic 
conditions. FHFA requires Fannie Mae and Freddie Mac to submit the 
results of stress tests based on two scenarios: A baseline scenario and 
a severely adverse scenario. The Agency aligned its DFAST scenario 
variables and assumptions with those used by the Board for its stress 
testing of banks. The Agency's dates for the capital plan submission 
and initial notice of the stress capital buffer lag the timeline 
imposed by the Board by 45 days. This is due to differences in the 
timing of the implementation of the annual DFAST process for banks 
versus the Enterprises. FHFA provides the Enterprises with DFAST 
instructions and guidance with a 30-day lag after the Board issues 
instructions to the banks. The Enterprises also report DFAST results to 
FHFA with a 30-day lag compared to the banks reporting results to the 
Board. Under the proposal, the Enterprises would need to submit their 
capital plans to FHFA by May 20, the same date that the DFAST results 
are due to the Agency. FHFA and the Enterprises release DFAST results 
to the public between August 1 and August 15. By August 15, the Agency 
would also provide the Enterprises with initial notices of their stress 
capital buffers. The final stress capital buffers will be provided to 
the Enterprises on August 31 and they will be effective on October 1. 
These last two dates align with the banking timeline.
    The Federal Housing Enterprises Financial Safety and Soundness Act 
of 1992 establishes minimum leverage ratios for the Enterprises by 
statute and requires FHFA to establish risk-based capital levels for an 
Enterprise by regulation. FHFA may also set higher leverage 
requirements by regulation. FHFA did both in the ERCF, published in the 
Federal Register on December 17, 2020 (85 FR 82198, 12 CFR part 
1240).\2\ FHFA may address an Enterprise's failure to meet a capital 
threshold that is required by statute or regulation through enforcement 
mechanisms. For example, pursuant to FHFA's Prompt Corrective Action 
and general enforcement authority, it may require an Enterprise to 
develop and implement a capital restoration plan, restrict asset growth 
or activities, and take other appropriate actions to remediate the 
violation of law.\3\ The Agency may also use the enforcement tools 
available under its authority to prescribe and enforce prudential 
management and operations standards (PMOS).\4\ The Enterprises are 
currently in conservatorship, are subject to the restrictions of the 
Senior Preferred Stock Purchase Agreements between them and the U.S. 
Treasury, and do not hold capital anywhere near the levels specified in 
the ERCF. The capital plans will allow the Enterprises to identify the 
amount of capital they need to raise to close the gap with the ERCF, 
and to consider the timing of when to raise capital, and what types of 
capital to raise. The provisions on capital distributions of this 
proposed rule, like those of the ERCF, are unlikely to be of practical 
effect soon. This proposed 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.
---------------------------------------------------------------------------

    \2\ FHFA subsequently proposed amendments to refine the 
prescribed leverage buffer amount and capital treatment of credit 
risk transfers, 86 FR 53230 (Sept. 27, 2021), and proposed a rule to 
introduce additional public disclosure requirements, 86 FR 60589 
(Nov. 3, 2021).
    \3\ See 12 U.S.C. ch. 46, subch. II (Prompt Corrective Action), 
& subch. III (general enforcement authority).
    \4\ See 12 U.S.C. 4513b. The ERCF is a prudential standard for 
purposes of that statutory section, 12 CFR 1240.1(e)(3).
---------------------------------------------------------------------------

II. Capital Plans

A. Annual Capital Planning Requirement

    The proposal would require an Enterprise to develop and maintain a 
capital plan. For purposes of the proposal, a capital plan is defined 
as a written presentation of the Enterprise's capital planning 
strategies and capital adequacy processes that includes a set of 
mandatory elements.
    An Enterprise must submit its complete capital plan to FHFA by May 
20 of each calendar year, or such later date as directed by the Agency. 
The Enterprise's board of directors or a designated committee thereof 
must at least annually, review the robustness of the Enterprise's 
process for assessing capital adequacy, ensure that any deficiencies in 
the Enterprise's process for assessing capital adequacy are 
appropriately remediated, and approve the Enterprise's capital plan 
before it is submitted to the Agency.

B. Mandatory Elements of a Capital Plan

    A capital plan would be required to contain at least the following 
elements:
    1. An assessment of the expected sources and uses 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.
    2. 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 Enterprise's 
Internal baseline scenario and at least one Internal stress scenario, 
as well as any additional scenarios that FHFA may

[[Page 73189]]

provide the Enterprise after giving notice to the Enterprise.
    3. 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.
    4. A description of all planned capital actions over the planning 
horizon. Planned capital actions must be consistent with any effective 
capital distribution limitations established by FHFA by order or 
regulation. The Enterprise must also consider its regulatory capital 
buffers in planning capital actions.
    5. 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.
    6. 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.
    7. The Enterprise's capital policy (defined below).
    8. 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.
    These proposed mandatory elements of a capital plan are consistent 
with FHFA's existing supervisory practice with respect to the 
information that it expects the Enterprises to include in a capital 
plan for internal planning purposes.
    For purposes of the proposal, a capital action would be defined as 
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.
    A capital distribution would be defined as 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 policy would be defined as the written principles and 
guidelines used for capital planning, issuance, usage and 
distributions, including internal capital goals, quantitative or 
qualitative guidelines for distributions, strategies for addressing 
shortfalls and internal governance.
    Internal baseline scenario would be defined as a scenario that 
reflects the Enterprise's expectation of the economic and financial 
outlook. Internal stress scenario would be defined as a scenario 
designed by an Enterprise that stresses the specific vulnerabilities of 
the Enterprise's risk profile and operations. Both scenarios would also 
include expectations related to the Enterprise's capital adequacy and 
financial condition.
    The planning horizon would be defined as at least nine consecutive 
quarters for the FHFA scenarios, consistent with DFAST, and at least 
five years for the Internal scenarios, consistent with the Enterprise's 
corporate forecasts. FHFA's proposal differs from the banking 
framework, which has a nine-quarter horizon for both the regulator's 
scenarios and bank's Internal scenarios. The proposal's longer-term 
horizon for the Internal scenarios would better allow FHFA to assess 
each Enterprise's plan to rebuild capital to come into compliance with 
the ERCF.
    An Enterprise must include pro forma estimates of its minimum 
regulatory capital ratios in its capital plan. If FHFA were to adopt 
additional or different minimum regulatory capital ratios in the 
future, an Enterprise would be required to incorporate these minimum 
capital ratios into its capital plan as they come into effect and 
reflect them in its planning horizon.
    In connection with its submission of a capital plan to FHFA, an 
Enterprise would be required to provide certain data to FHFA. To the 
greatest extent possible, the data templates, and any other data 
requests, would be designed to minimize the burden on the Enterprise 
and to avoid duplication. Upon the request of FHFA, an Enterprise must 
provide the Agency with information on its financial condition and 
capital, structure, amount and risk characteristics of on- and off-
balance sheet exposures, risk management policies and procedures, 
liquidity profile, models used for stress scenario analysis, and any 
other relevant qualitative or quantitative information requested by the 
Agency to facilitate review of the Enterprise's capital plan.

C. FHFA Review of a Capital Plan

    The proposal provides that FHFA would consider the following 
factors in reviewing an Enterprise's capital plan:
    1. The comprehensiveness of the capital plan, including the extent 
to which the underlying analysis addresses potential risks from 
activities across the Enterprise and the Enterprise's capital policy;
    2. The reasonableness of the capital plan, assumptions and analysis 
underlying the capital plan and robustness of its capital adequacy 
process;
    3. Relevant supervisory information about the Enterprise and its 
subsidiaries;
    4. The Enterprise's regulatory and financial reports, and 
supporting data to 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 required by FHFA or related to the 
Enterprise's capital adequacy.

D. Resubmission of a Capital Plan

    1. Under the proposal, an Enterprise would be required to update 
and resubmit its capital plan to FHFA within 30 days if 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 last submitted plan to FHFA, or if the Agency directs the 
Enterprise in writing to revise and resubmit its plan, as necessary to 
monitor risks to capital adequacy, for reasons including, but not 
limited to: The capital plan is incomplete or the capital plan, or the 
Enterprise's internal capital adequacy processes, 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) in the capital plan 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.
    FHFA may extend the 30-day resubmission period for up to an 
additional 60 days, or such longer period as the Agency determines 
appropriate.
    If a capital plan is resubmitted by an Enterprise, FHFA will 
provide notice within 75 days, unless extended, on whether it will 
recalculate the stress capital buffer. Unless otherwise determined by 
FHFA, the Agency will provide notice to the Enterprise of the new 
buffer within 90 days of its decision to recalculate the buffer.

[[Page 73190]]

III. Approval Requirements for Certain Capital Actions and Post Notice 
Requirement

    An Enterprise must receive prior approval from FHFA before making 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 an event requiring the resubmission of a capital 
plan.
    In making a request for a capital distribution under this part of 
the proposal, the Enterprise must discuss any changes to the capital 
plan since it was last submitted to FHFA, provide the purpose of the 
transaction, and a description of the proposed capital distribution. 
The Agency may request additional information, which may include an 
assessment of the Enterprise's capital adequacy under a severely 
adverse scenario, a revised capital plan, and supporting data.
    FHFA will act on requests for prior approval within 30 days of 
receiving all the required information. If the transaction is not 
approved, the Agency will notify the Enterprise of the reasons for its 
decision, and the Enterprise will have 15 days to submit a request for 
a hearing. If after considering the request FHFA decides to grant a 
hearing, it will be held within 30 days of FHFA's receipt of the 
request for a hearing. The Agency will give written notice to the 
Enterprise of its decision within 60 days of the conclusion of the 
hearing. FHFA may decide to extend the periods for the hearing and for 
rendering its decision.
    An Enterprise must notify FHFA within 15 days of making a capital 
distribution if it was approved under a request for prior approval 
(when a plan needs to be resubmitted), or if the 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.

IV. Stress Capital Buffer

A. Determination of the Stress Capital Buffer

    The proposal incorporates the stress capital buffer from the ERCF 
into the capital planning process. The buffer is determined by FHFA, 
and the calculation is 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 the Agency develops its supervisory stress 
test, or in any year that FHFA does not determine the stress capital 
buffer, the buffer is equal to 0.75 percent of an Enterprise's adjusted 
total assets, as of the last day of the previous calendar quarter.
    The proposal has changed the 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. This change is consistent with the Board's recent amendments 
to the banking rule, which uses four quarters of planned common stock 
dividends.
    FHFA will provide the Enterprise with notice of its stress capital 
buffer and explanation of the results of the supervisory stress test by 
August 15 of each year, unless otherwise determined by the Agency. 
Within two business days of receiving its stress capital buffer, an 
Enterprise must 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 the Agency, in place of any stress capital buffer 
currently in effect.
    An Enterprise may request reconsideration of its stress capital 
buffer by submitting a written request within 15 days of receipt of its 
buffer from FHFA. The Enterprise may also request an informal hearing. 
The hearing, if granted by the Agency, will take place within 30 days 
of FHFA's receipt of the request for a hearing. FHFA will provide its 
decision within 30 days of receiving the written reconsideration 
request or within 30 days of the conclusion of the hearing. The time 
period for the hearing and for providing the decision may be extended 
by the Agency.
    If the Enterprise does not request reconsideration, FHFA will 
provide the Enterprise with its final stress capital buffer by August 
31 and the buffer will be effective on October 1, unless otherwise 
determined by the Agency.

B. Conforming Amendments to the ERCF

    Since the proposal incorporates the stress capital buffer into the 
capital planning process, it is necessary for FHFA to make conforming 
amendments to the ERCF. The stress capital buffer determination in the 
ERCF would be replaced with a reference to the determination of the 
buffer in the capital planning rule. The stress capital buffer would 
remain as a component of the capital conservation buffer in the ERCF.
    FHFA solicits comments on all aspects of the proposal.

V. Regulatory Analyses

A. 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 FHFA has certified that the regulation will not have a 
significant economic impact on a substantial number of small entities. 
FHFA has considered the impact of the proposed rule under the 
Regulatory Flexibility Act. FHFA certifies that the proposed rule, if 
adopted as a final rule, would not have a significant economic impact 
on a substantial number of small entities because the proposed rule is 
applicable only to the Enterprises, which are not small entities for 
purposes of the Regulatory Flexibility Act.

B. 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 proposed 
rule contains no such collection of information requiring OMB approval 
under the PRA. Therefore, no information has been submitted to OMB for 
review.

List of Subjects in 12 CFR Part 1240

    Capital, Credit, Enterprise, Investments, Reporting and 
recordkeeping requirements.

Authority and Issuance

    Accordingly, 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 proposes to amend 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 is revised to read as follows:

    Authority:  12 U.S.C. 4511, 4513, 4513b, 4514, 4515, 4517, 4526, 
4611-12, 4631-36.

0
2. Amend Sec.  1240.11 by revising paragraph (a)(7) to read as follows:

[[Page 73191]]

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 per paragraph (a)(7)(i) of this section, 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 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, 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

[[Page 73192]]

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.
    (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; or
    (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;

[[Page 73193]]

    (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 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.

[[Page 73194]]

    (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 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.

Sandra L. Thompson,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2021-27589 Filed 12-23-21; 8:45 am]
BILLING CODE 8070-01-P