June 3 -- The Federal Housing Finance Agency (FHFA or the Agency) is adopting a final rule (final rule) that supplements the FHFA Enterprise Regulatory Capital Framework (ERCF) rule by requiring the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac, and with Fannie Mae, each an Enterprise) to submit annual capital plans to FHFA and provide prior notice for certain capital actions. The final rule incorporates the stress capital buffer determination from the ERCF into the capital planning process. The requirements in the final rule are consistent with the regulatory framework for capital planning for large bank holding companies. This rule is effective August 2, 2022.
The final rule's requirement to develop capital plans will allow the Enterprises to identify the amount of capital they need to raise to meet the ERCF's requirements, and to consider the timing of when to raise capital, and what types of capital to raise. The final rule, like the ERCF, is intended to provide a stable regulatory framework for the Enterprises for an extended period, including after they achieve adequate capitalization under the ERCF.
After carefully considering the comments on the proposed rule, and as described in this preamble, FHFA is adopting the capital planning requirements and stress capital buffer determination as proposed. FHFA continues to believe that the Enterprises should have robust systems and processes in place that incorporate forward-looking projections of revenue and losses to monitor and maintain their internal capital adequacy. Furthermore, each Enterprise should operate with an amount of capital that is commensurate with each Enterprise's risk profile. FHFA also believes that the stress capital buffer determination should be part of the capital planning process.
Specifically, the final rule will require an Enterprise to develop and maintain a capital plan, which the Enterprise must generally submit to FHFA by May 20 of each year, after it has been reviewed by the Enterprise's board of directors or a designated committee thereof. The plan must contain certain mandatory elements, including an assessment of the expected sources and uses of capital over a planning horizon that reflects the Enterprise's size and complexity, assuming both expected and stressful conditions. This includes the Enterprise's internal baseline scenario and internal stress scenario, as well as additional scenarios that may be provided by FHFA. The planning horizon is at least five years for the Enterprise's scenarios and at least nine consecutive quarters for the FHFA scenarios. The capital plans also must include any planned capital actions and consider the regulatory capital buffers.
The final rule includes the factors that FHFA will consider in reviewing a plan, including its comprehensiveness and reasonableness given the assumptions and analysis underlying the plan and the robustness of the Enterprise's capital adequacy process. A plan must be resubmitted if there is a material change in the Enterprise's risk profile, financial condition, or corporate structure. FHFA also may require an Enterprise to resubmit its capital plan if the plan is incomplete or FHFA determines resubmission is necessary to monitor risks to capital adequacy. In general, an Enterprise must receive prior approval from FHFA to make a capital distribution, if the distribution would occur after an event that requires a resubmission. There is also a post-notice requirement for certain capital distributions.
In addition to requiring a capital plan, the rule incorporates the stress capital buffer from the ERCF into the capital planning process and makes the necessary conforming amendments to the ERCF. After FHFA notifies the Enterprise of its stress capital buffer each year, the Enterprise must adjust its planned capital distributions to be consistent with the capital distribution limitations effective under the new stress capital buffer. The final rule changes the stress capital buffer's calculation method slightly by considering an Enterprise's planned common stock dividends for the fourth through seventh quarters of the planning horizon rather than the ERCF direction to use each of the nine quarters of the planning horizon.
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https://www.federalregister.gov/d/2022-11928