[Federal Register Volume 86, Number 210 (Wednesday, November 3, 2021)]
[Proposed Rules]
[Pages 60589-60600]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23780]
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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.
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Federal Register / Vol. 86, No. 210 / Wednesday, November 3, 2021 /
Proposed Rules
[[Page 60589]]
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1240
RIN 2590-AB18
Enterprise Regulatory Capital Framework--Public Disclosures for
the Standardized Approach
AGENCY: Federal Housing Finance Agency.
ACTION: Notice of proposed rulemaking: Request for comments.
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SUMMARY: The Federal Housing Finance Agency (FHFA or the Agency) is
seeking comments on a notice of proposed rulemaking (proposed rule)
that would introduce new standardized approach disclosure requirements
for the Federal National Mortgage Association (Fannie Mae) and the
Federal Home Loan Mortgage Corporation (Freddie Mac, and with Fannie
Mae, each an Enterprise), including disclosures related to regulatory
capital instruments and risk-weighted assets calculated under the
Enterprise Regulatory Capital Framework (ERCF).
DATES: Comments must be received on or before January 3, 2022.
ADDRESSES: You may submit your comments on the proposed rule,
identified by regulatory information number (RIN) 2590-AB18, 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-AB18.
Hand Delivered/Courier: The hand delivery address is:
Clinton Jones, General Counsel, Attention: Comments/RIN 2590-AB18,
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-AB18, 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, Senior Associate
Director, Office of Capital Policy, (202) 649-3141,
[email protected]; Christopher Vincent, Senior Financial
Analyst, Office of Capital Policy, (202) 649-3685,
[email protected]; or James Jordan, Associate General
Counsel, Office of General Counsel, (202) 649-3075,
[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. Introduction
II. Proposed Disclosure Requirements
A. General Requirements
B. Standardized Approach
C. Market Risk
III. Frequency of Disclosures
IV. Compliance Period
V. Location of Disclosures and Audit Requirements
VI. Proprietary and Confidential Information
VII. Specific Public Disclosure Requirements
VIII. Paperwork Reduction Act
IX. Regulatory Flexibility Act
I. Introduction
FHFA is seeking comments on new public disclosure requirements for
the Enterprises. This proposed rule would expand the disclosure
requirements set forth in the ERCF published in the Federal Register on
December 17, 2020 (85 FR 82150) in order to improve market discipline
and encourage sound risk-management practices through meaningful public
disclosure.\1\ With public disclosures that are clear, comprehensive,
useful, consistent over time, and comparable across Enterprises, FHFA
believes that market participants would have sufficient information to
assess an Enterprise's material risks and capital adequacy,
contributing to the safety and soundness of the Enterprises and
decreasing risk to the U.S. taxpayers.
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\1\ In conservatorships, the Enterprises are supported by Senior
Preferred Stock Purchase Agreements (PSPAs) between the U.S.
Department of the Treasury (Treasury) and each Enterprise, through
FHFA as its conservator (Fannie Mae's Amended and Restated Senior
Preferred Stock Purchase Agreement with Treasury (September 26,
2008), https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/FNM/SPSPA-amends/FNM-Amend-and-Restated-SPSPA_09-26-2008.pdf; Freddie Mac's Amended and Restated Senior
Preferred Stock Purchase Agreement with Treasury (September 26,
2008), https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/FRE/SPSPA-amends/FRE-Amended-and-Restated-SPSPA_09-26-2008.pdf). The PSPAs, as amended by letter agreements
executed by the parties on January 14, 2021 (2021 Fannie Mae Letter
Agreement, https://home.treasury.gov/system/files/136/Executed-Letter-Agreement-for-Fannie-Mae.pdf; 2021 Freddie Mac Letter
Agreement, https://home.treasury.gov/system/files/136/Executed-Letter-Agreement-for-Freddie%20Mac.pdf), include a covenant at
section 5.15 which states: ``[The Enterprise] shall comply with the
Enterprise Regulatory Capital Framework [published in the Federal
Register at 85 FR 82150 on December 17, 2020] disregarding any
subsequent amendment or other modifications to that rule.''
Modifying that covenant will require agreement between the Treasury
and FHFA under section 6.3 of the PSPAs.
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The proposed rule would implement standardized approach public
disclosure requirements for the Enterprises that align with many of the
public disclosure requirements for large banking organizations under
the regulatory capital framework adopted by United States banking
regulators (U.S. banking framework). Modern bank disclosure
requirements were initially contemplated by the Basel Committee on
Banking Supervision (BCBS) under
[[Page 60590]]
Pillar 3 of Basel II in order to complement the minimum capital
requirements and the supervisory review process and were later expanded
with additional requirements in Basel III. In much the same way, the
public disclosure requirements in the proposed rule would complement
the ERCF as it aims to ensure that each Enterprise operates in a safe
and sound manner and is positioned to fulfill its statutory mission to
provide stability and ongoing assistance to the secondary mortgage
market across the economic cycle, in particular during periods of
financial stress.
Consistent with these stated objectives, and complementary to the
Enterprises' statutory duties and purposes, the proposed rule would
implement disclosure requirements related to risk management, corporate
governance, and regulatory capital, including risk-weighted assets
calculated under the ERCF's standardized approach, statutory capital
requirements, supplemental capital requirements, and capital buffers.
In contrast to U.S. banking organizations that are each either a
standardized approach institution or an advanced approaches
institution, an Enterprise is required to satisfy all requirements
under both the standardized approach and the advanced approach in the
ERCF, including any associated disclosure requirements. Therefore, the
proposed rule adapts the public disclosure requirements in the U.S.
banking framework to reflect the ERCF's standardized approach, blending
elements from the U.S. banking framework's standardized and advanced
approaches and establishing a level playing field for public
disclosures between the Enterprises and large, domestic banking
organizations. While the proposed rule would implement disclosure
requirements for the ERCF's standardized approach only, FHFA may in the
future consider additional disclosure requirements related to the
advanced approaches. FHFA seeks comments on all elements of the
proposed public disclosure requirements.
II. Proposed Disclosure Requirements
A. General Requirements
The proposed public disclosure requirements are designed to
facilitate market discipline of the Enterprises. By allowing market
participants to assess key information about an Enterprise's risk
profile and its associated levels of capital, FHFA believes the
proposed rule would encourage sound risk management practices and
foster financial stability both during and after conservatorship.
However, enhanced public disclosures would necessarily be somewhat
costly for the Enterprises. With the proposed rule, FHFA aims to strike
an appropriate balance between the market benefits of disclosure and
the additional financial burden to an Enterprise that provides the
disclosures. Importantly, an Enterprise may be able to fulfill some of
the proposed disclosure requirements by relying on similar disclosures
made in accordance with accounting standards or Securities and Exchange
Commission (SEC) mandates. In addition, an Enterprise could use
information provided in regulatory reports to fulfill the disclosure
requirements. In these situations, an Enterprise would be required to
explain any material differences between the accounting or other
disclosures and the disclosures required under the proposed rule.
Market participants consider many factors when making their
assessment of an Enterprise, including the Enterprise's risk profile
and the techniques it uses to identify, measure, monitor, and control
the risks to which the Enterprise is exposed. Accordingly, the proposed
rule would require an Enterprise to have a formal disclosure policy
approved by its board of directors that addresses the Enterprise's
approach for determining which disclosures are necessary and
appropriate. The policy would be required to address internal controls,
disclosure controls, and procedures. The board of directors and senior
management would ensure the appropriate review of the disclosures and
that effective internal controls, disclosure controls, and procedures
are maintained. One or more senior officers of the Enterprise would be
required to attest that the disclosures meet the requirements of the
proposed rule.
For items not explicitly identified in the proposed rule and in a
manner similar to the requirements for U.S. banking organizations, an
Enterprise would decide which additional disclosures are relevant based
on a materiality concept. Information is material if its omission or
misstatement could change or influence the assessment or decision of a
user relying on that information for the purpose of making investment
decisions. The materiality concept is designed to ensure that
improvements in public disclosures come not only from regulatory
standards, but also as a result of efforts made by management at the
Enterprises to communicate advances in risk management processes and
internal reporting systems to public shareholders and other market
participants. Accordingly, FHFA encourages the management of each
Enterprise to regularly review its public disclosures and enhance these
disclosures, where appropriate, to clearly identify all significant
risk exposures and their effects on the Enterprise's financial
condition and performance, cash flow, and earnings potential.
Question 1: What additional general disclosure requirements should FHFA
consider, and why?
B. Standardized Approach
The standardized approach disclosures in the proposed rule are
described across eleven categories, each detailing qualitative
disclosures, quantitative disclosures, or both. The categories are: (1)
Capital structure; (2) capital adequacy; (3) capital buffers; (4)
credit risk: General disclosures; (5) general disclosure for
counterparty credit risk-related exposures; (6) credit risk mitigation;
(7) credit risk transfers (CRT) and securitization; (8) equities; (9)
interest rate risk for non-trading activities; (10) operational risk;
and (11) tier 1 leverage ratio. Many of the disclosures described
within the categories are identical to the disclosures applicable to
U.S. banking organizations subject to the standardized approach. Others
have been modified to reflect the ERCF, such as those referring to
statutory core capital and statutory total capital, adjusted total
capital, the prescribed capital conservation buffer amount (PCCBA), and
CRT. In addition, FHFA has excluded several disclosure items that are
included in the U.S. banking framework for activities or
categorizations not relevant in the ERCF, such as exposures to foreign
banks, statutory multifamily mortgages, and high volatility commercial
real estate (HVCRE).
The standardized approach in the ERCF differs broadly from the U.S.
banking standardized approach in its inclusion of risk-weighted assets
for operational risk and market risk, in its application of capital
buffers, and in its application of leverage ratio requirements. In
contrast to capital requirements for banking organizations subject to
the standardized approach in the U.S. banking framework, the
standardized approach in the ERCF requires an Enterprise to capitalize
operational and market risks, to apply every component of the PCCBA
including the countercyclical capital buffer, and to apply the same
leverage ratio requirements and prescribed leverage buffer amount
(PLBA) regardless of approach. Accordingly, the
[[Page 60591]]
proposed rule would require an Enterprise to publicly disclose
qualitative and quantitative information related to these items in the
standardized approach. The proposed rule's disclosure requirements for
market risk are described in section II.C.
Several of the proposed rule's qualitative disclosure requirements
for operational risk pertain to the advanced measurement approach
(AMA). These disclosures would include a description of the AMA, as
well as a discussion of relevant internal and external factors
considered in the Enterprise's measurement approach. Because the
Enterprises are not required to implement the AMA approach until at
least January 1, 2025, FHFA would expect the AMA-related disclosures to
begin at the same time. Until then, and after as well, the Enterprises
are subject to an operational risk capital requirement floor of 15
basis points of adjusted total assets.
Advanced approaches banking organizations must disclose information
related to total leverage exposure (TLE) and the supplementary leverage
ratio, while standardized approach banking institutions are not
required to do so. The ERCF analog to the concept of TLE is adjusted
total assets, and the analog to the concept of the supplementary
leverage ratio is the tier 1 leverage ratio. In contrast to the U.S.
banking framework, the ERCF tier 1 leverage ratio requirement is the
same for an Enterprise operating under the standardized or advanced
approaches. For this reason, FHFA is including the leverage disclosure
category within the standardized approach section of the ERCF.
Many of the disclosure requirements for the standardized approach
are also applicable to the advanced approach. For example, the
disclosure items described within the categories for capital structure,
PCCBA, PLBA, operational risk, and leverage would not differ
conditional on whether an Enterprise's total risk-weighted assets are
higher under the standardized approach or the advanced approach.
Because these items are applicable to the standardized approach, the
proposed rule includes them. In contrast, the proposed rule excludes
disclosure requirements specific to the advanced approaches such as the
amount of credit risk-weighted assets calculated using an Enterprise's
internal models.
C. Market Risk
The proposed rule includes market risk disclosure requirements for
covered positions under the standardized approach. These requirements
include a formal disclosure policy approved by the board of directors
that addresses the Enterprise's approach for determining its market
risk disclosures. The policy would address the associated internal
controls and disclosure controls and procedures and would contain
requirements related to the verification and attestation of disclosures
and the ongoing maintaining of effective controls and procedures. The
requirements would also include quarterly quantitative disclosures for
each material portfolio of covered positions related to exposure and
risk-weighted asset amounts as well as the aggregate amount of on-
balance sheet and off-balance sheet securitization positions by
exposure type.
In addition, an Enterprise would be required to make annual public
disclosures for each material portfolio of covered positions related
generally to portfolio composition and valuation policies, procedures,
and methodologies. These disclosures would include, among other things,
key valuation assumptions and information on significant changes, model
characteristics used to calculate risk-weighted assets for market risk,
and a description of the approaches used for validating and evaluating
the accuracy of internal models and modeling processes. In addition,
the annual disclosures would include a description of the Enterprise's
processes for monitoring changes in the credit and market risk of
securitization positions and a description of the Enterprise's policy
governing the use of credit risk mitigation to mitigate the risks of
securitization and resecuritization positions.
III. Frequency of Disclosures
The proposed rule would require the Enterprises to make
quantitative disclosures on a quarterly basis, consistent with the
disclosure requirements for most regulated financial institutions and
frequently enough to capture most changes in risk profiles. However,
qualitative disclosures that provide a general summary of an
Enterprise's risk-management objectives and policies, reporting system,
and definitions may be disclosed annually, provided any significant
changes are disclosed in the interim.
The proposed rule would also require that the disclosures are
timely. As described above, an Enterprise may be able to fulfill some
of the proposed disclosure requirements by relying on similar
disclosures made in accordance with accounting standards or SEC
mandates. FHFA acknowledges that timing of disclosures required under
other federal laws, including disclosures required under the federal
securities laws and their implementing regulations by the SEC, may not
always align with the timing of required Enterprise disclosures. For
calendar quarters that do not correspond to fiscal year-end, FHFA would
consider those disclosures that are made within 45 days as timely. In
general, where an Enterprise's fiscal year-end coincides with the end
of a calendar quarter, FHFA would consider disclosures to be timely if
they are made no later than the applicable SEC disclosure deadline for
the corresponding Form 10-K annual report. In cases where an
Enterprise's fiscal year-end does not coincide with the end of a
calendar quarter, FHFA would consider the timeliness of disclosures on
a case-by-case basis. In some cases, management may determine that a
significant change has occurred, such that the most recent reported
amounts do not reflect the Enterprise's capital adequacy and risk
profile. In those cases, an Enterprise would need to disclose the
general nature of these changes and briefly describe how they are
likely to affect public disclosures going forward. An Enterprise would
make these interim disclosures as soon as practicable after the
determination that a significant change has occurred.
IV. Compliance Period
The standardized approach disclosure requirements in the proposed
rule would promote market discipline and prudent risk management
practices at the Enterprises regardless of the conservatorship status
of either Enterprise. Therefore, an Enterprise's compliance date for
the disclosure requirements outlined in the proposed rule would be six
months from the date of publication of the final rule in the Federal
Register.
The proposed rule would also amend the reporting requirement
compliance dates in Sec. 1240.4(b) to remove references to parts of
the ERCF that do not contain reporting requirements. Specifically, the
proposed rule would remove references to compliance dates for reporting
requirements in subparts C and G of 12 CFR 1240, Sec. Sec. 1240.162(d)
and 1240.204, as these parts do not contain reporting requirements. The
proposed rule would retain without modification the January 1, 2022
compliance dates for reporting requirements outlined in Sec. Sec.
1240.1(f) and 1240.41.
[[Page 60592]]
V. Location of Disclosures and Audit Requirements
The proposed rule would require an Enterprise to ensure that
required disclosures are publicly available (for example, included on a
public website) for each of the last three years or such shorter time
period beginning when the proposed rule, if adopted as a final rule,
comes into effect. In general, management of an Enterprise would have
some discretion to determine the appropriate medium and location of the
disclosures, provided the Enterprise meets the requirements related to
cross-referencing described below. Furthermore, an Enterprise would
have flexibility in formatting its public disclosures unless otherwise
ordered by FHFA under its general authority to follow specific
reporting guidelines or procedures, including potentially utilizing
specified templates for certain quantitative disclosure elements. For
example, FHFA may determine that standardizing the way the Enterprises
present a subset of the required quantitative disclosures would
facilitate the ability of market participants to compare attributes or
results across Enterprises and better assess the risk profile and
capital adequacy of each Enterprise. Conversely, there may be aspects
of the required disclosures that cannot easily be standardized or where
comparison across Enterprises may be less meaningful to market
participants, such as descriptions of an Enterprise's risk management
practices or certain analyses that contain bespoke risk metrics.
FHFA encourages each Enterprise to make all required disclosures
available in one place on the Enterprise's public website, the address
of which should be communicated in the Enterprise's regulatory report.
However, the proposed rule would permit an Enterprise to provide the
disclosures in more than one place, such as in its public financial
reports (for example, in Management's Discussion and Analysis included
in SEC filings) or other regulatory reports, as long as the Enterprise
also provides a summary table on its public website that specifically
indicates where all the disclosures may be found (for example,
regulatory report schedules, page numbers in annual reports).
The proposed rule would require an Enterprise to reconcile
disclosures of regulatory capital elements as the elements relate to an
Enterprise's balance sheet in any audited consolidated financial
statements. However, disclosures not included in the footnotes to the
audited financial statements would not be subject to external audit
reports for financial statements or internal control reports from
management and the external auditor. Under the proposed rule, the audit
requirements for an Enterprise's required public disclosures would be
identical to the audit requirements for a banking organization's
required public disclosures in the U.S. banking framework.
VI. Proprietary and Confidential Information
FHFA believes that the proposed disclosure requirements strike an
appropriate balance between the need for meaningful disclosure and the
protection of proprietary and confidential information. Accordingly,
FHFA believes that an Enterprise would be able to provide all these
disclosures without revealing proprietary and confidential information.
Only in rare circumstances might disclosure of certain items of
information required by the proposed rule compel an Enterprise to
reveal confidential and proprietary information. In these unusual
situations, FHFA proposes that if an Enterprise believes that
disclosure of specific commercial or financial information would
compromise its position by making public information that is either
proprietary or confidential in nature, the Enterprise need not disclose
those specific items. Instead, the Enterprise must disclose more
general information about the subject matter of the requirement,
together with the fact that, and the reason why, the specific items of
information have not been disclosed. This provision would apply only to
those disclosures included in this proposed rule and does not apply to
disclosure requirements imposed by accounting standards or other
regulatory agencies.
Question 2: In terms of proprietary and confidential information, are
any of the proposed disclosure requirements problematic, and why?
VII. Specific Public Disclosure Requirements
The public disclosure requirements are designed to provide
important information to market participants on capital, risk
exposures, risk assessment processes, and, thus, the capital adequacy
of an Enterprise. The substantive content of the tables in the proposed
rule is the focus of the disclosure requirements, not the tables
themselves.
An Enterprise would make the disclosures described in tables 1
through 11 to proposed Sec. 1240.63 and market risk disclosures
described in proposed Sec. 1240.205. The Enterprise would make these
disclosures publicly available for each of the last three years or such
shorter time period beginning when the proposed requirements come into
effect.
Table 1 disclosures, ``Capital Structure,'' would provide summary
information on the terms and conditions of the main features of
regulatory capital instruments, which would allow for an evaluation of
the quality of the capital available to absorb losses within an
Enterprise. An Enterprise also would disclose the total amount of
common equity tier 1, core, tier 1, total, and adjusted total capital,
with separate disclosures for deductions and adjustments to capital.
Table 2 disclosures, ``Capital Adequacy,'' would provide
information on an Enterprise's approach for categorizing and risk-
weighting its exposures, as well as the amount of total risk-weighted
assets. The table would also include common equity tier 1, tier 1, and
adjusted total risk-based capital ratios.
Table 3 disclosures, ``Capital Buffers,'' would require an
Enterprise to disclose the prescribed capital conservation buffer
amount, the prescribed leverage buffer amount, eligible retained
income, and any limitations on capital distributions and certain
discretionary bonus payments, as applicable.
Tables 4, 5, and 6 disclosures, related to credit risk,
counterparty credit risk, and credit risk mitigation, respectively,
would provide market participants with insight into different types and
concentrations of credit risk to which an Enterprise is exposed and the
techniques it uses to measure, monitor, and mitigate those risks. These
disclosures are intended to enable market participants to assess the
credit risk exposures of the Enterprise without revealing proprietary
information.
Table 7 disclosures, ``CRT and Securitization,'' would provide
information to market participants on the amount of credit risk
transferred and retained by an Enterprise through CRT and
securitization transactions, the types of products securitized by the
Enterprise, the risks inherent in the Enterprise's securitized assets,
the Enterprise's policies regarding credit risk mitigation, and the
names of any entities that provide external credit assessments of a
securitization. These disclosures would provide a better understanding
of how securitization transactions impact the credit risk of an
Enterprise. For purposes of these disclosures, ``exposures
securitized'' include underlying exposures originated by an Enterprise,
whether generated by
[[Page 60593]]
the Enterprise or purchased from third parties, and third-party
exposures included in sponsored programs. Securitization transactions
in which the originating Enterprise does not retain any securitization
exposure would be shown separately and would only be reported for the
year of inception.
Table 8 disclosures, ``Equities,'' would provide market
participants with an understanding of the types of equity securities
held by the Enterprise and how they are valued. The table would also
provide information on the capital allocated to different equity
products and the amount of unrealized gains and losses. (In comparison
with bank holding companies subject to the Federal Reserve Board's
Regulation Q, on which this proposed regulation is based, the types of
equity securities that may be held by the Enterprises are limited.
Their capital treatment is governed by 12 CFR 1240.51 and 1240.52.)
Table 9 disclosures, ``Interest Rate Risk for Non-trading
Activities,'' would require an Enterprise to provide certain
quantitative and qualitative disclosures regarding the Enterprise's
management of interest rate risks.
Table 10 disclosures, ``Operational Risk,'' would require an
Enterprise to provide certain qualitative disclosures regarding the
advanced measurement approach, when applicable, and a description of
the use of insurance for the purpose of mitigating operational risk.
These disclosures would include a description of the AMA, as well as a
discussion of relevant internal and external factors considered in the
Enterprise's measurement approach.
Table 11 disclosures, ``Tier 1 Leverage Ratio,'' would provide
information related to an Enterprise's adjusted total assets, including
adjustments for fiduciary assets, derivative exposures, repo-style
transactions, and off-balance sheet exposures. The table would also
include an Enterprise's tier 1 leverage ratio. These disclosures are
intended to enable market participants to assess the aggregate exposure
to risk at an Enterprise and to consider that risk against the
Enterprise's capital backstop.
The market risk disclosures would provide quantitative and
qualitative information related to an Enterprise's market risk profile,
market risk valuation strategies, internal controls, and disclosure
controls and procedures. The quantitative disclosures would detail
exposure amounts and risk-weighted assets for material portfolios of
covered positions, as well as on-balance sheet and off-balance sheet
securitization positions by exposure type.
Question 3: Should FHFA consider any additional specific public
disclosure requirements?
Question 4: Should FHFA consider requiring additional disclosures
pertaining to the single-family countercyclical adjustment?
VIII. 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.
IX. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that
a regulation that has a significant economic impact on a substantial
number of small entities, small businesses, or small organizations must
include an initial regulatory flexibility analysis describing the
regulation's impact on small entities. FHFA need not undertake such an
analysis if the agency has certified that the regulation will not have
a significant economic impact on a substantial number of small
entities. 5 U.S.C. 605(b). FHFA has considered the impact of the
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.
Proposed Rule
List of Subjects for 12 CFR Part 1240
Capital, Credit, Enterprise, Investments, Reporting and
recordkeeping requirements.
Authority and Issuance
For the reasons stated in the Preamble, under the authority of 12
U.S.C. 4511, 4513, 4513b, 4514, 4515-17, 4526, 4611-4612, 4631-36, FHFA
proposes to amend part 1240 of title 12 of the Code of Federal
Regulation as follows:
CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY
SUBCHAPTER C--ENTERPRISES
PART 1240--CAPITAL ADEQUACY OF ENTERPRISES
0
1. The authority citation for part 1240 is revised to read as follows:
Authority: 12 U.S.C. 4511, 4513, 4513b, 4514, 4515, 4517, 4526,
4611-4612, 4631-36.
0
2. Amend Sec. 1240.4 by revising paragraph (b) to read as follows:
Sec. 1240.4 Transition.
* * * * *
(b) Reporting Requirements. (1) For any reporting requirement under
Sec. 1240.1(f) or 1240.41, the compliance date will be January 1,
2022.
(2) For any reporting requirement under Sec. Sec. 1240.61 through
1240.63, the compliance date will be six months from the date of
publication of the final rule for Sec. Sec. 1240.61 through 1240.63 in
the Federal Register.
(3) For any reporting requirement under Sec. 1240.205, the
compliance date will be six months from the date of publication of the
final rule for Sec. 1240.205 in the Federal Register.
* * * * *
0
3. Add Sec. Sec. 1240.61 through 1240.63 to Subpart D to read as
follows:
Subpart D--Risk-Weighted Assets--Standardized Approach
* * * * *
Risk-Weighted Assets for Standardized Approach Disclosures
Sec. 1240.61 Purpose and scope.
Sections 1240.61 through 1240.63 of this subpart establish public
disclosure requirements related to the capital requirements described
in subpart B.
Sec. 1240.62 Disclosure requirements.
(a) An Enterprise must provide timely public disclosures each
calendar quarter of the information in the applicable tables in Sec.
1240.63. If a significant change occurs, such that the most recent
reported amounts are no longer reflective of the Enterprise's capital
adequacy and risk profile, then a brief discussion of this change and
its likely impact must be disclosed as soon as practicable thereafter,
and no later than the end of the next calendar quarter. Qualitative
disclosures that have not changed from the prior quarter (for example,
a general summary of the Enterprise's risk management objectives and
policies, reporting system, and definitions) may be omitted from the
next quarterly disclosure, but must be disclosed at least annually
after the end
[[Page 60594]]
of the fourth calendar quarter. Unless otherwise directed by FHFA, the
Enterprise's management may provide all of the disclosures required by
Sec. Sec. 1240.61 through 1240.63 in one place on the Enterprise's
public website or may provide the disclosures in more than one public
financial report or other regulatory reports, provided that the
Enterprise publicly provides a summary table specifically indicating
the location(s) of all such disclosures.
(b) An Enterprise must have a formal disclosure policy approved by
the board of directors that addresses its approach for determining the
disclosures it makes. The policy must address the associated internal
controls and disclosure controls and procedures. The board of directors
and senior management are responsible for establishing and maintaining
an effective internal control structure over financial reporting,
including the disclosures required by this subpart, and must ensure
that appropriate review of the disclosures takes place. The Chief Risk
Officer and the Chief Financial Officer of the Enterprise must attest
that the disclosures meet the requirements of this subpart.
(c) If an Enterprise concludes that specific commercial or
financial information that it would otherwise be required to disclose
under this section would be exempt from disclosure by FHFA under the
Freedom of Information Act (5 U.S.C. 552), then the Enterprise is not
required to disclose that specific information pursuant to this
section, unless otherwise directed by FHFA to amend the disclosure, but
must disclose more general information about the subject matter of the
requirement, together with the fact that, and the reason why, the
specific items of information have not been disclosed.
(d) An Enterprise must publicly disclose each quarter its tier 1
leverage ratio and the components thereof (that is, tier 1 capital and
adjusted total assets) as calculated under subpart B of this part
beginning with the calendar quarter immediately following the quarter
in which this Sec. 1240.62 becomes effective, if adopted as a final
rule.
Sec. 1240.63 Disclosures.
(a) Except as provided in Sec. 1240.62, an Enterprise must make
the disclosures described in Tables 1 through 11 of this section
publicly available for each of the last three years (that is, twelve
quarters) or such shorter period until an Enterprise has made twelve
quarterly disclosures pursuant to this part beginning on Month Day
Year.
(b) An Enterprise must publicly disclose each quarter the
following:
(1) Regulatory capital ratios for common equity tier 1 capital,
additional tier 1 capital, tier 1 capital, tier 2 capital, total
capital, core capital, and adjusted total capital, including the
regulatory capital elements and all the regulatory adjustments and
deductions needed to calculate the numerator of such ratios;
(2) Total risk-weighted assets, including the different regulatory
adjustments and deductions needed to calculate total risk-weighted
assets; and
(3) A reconciliation of regulatory capital elements as they relate
to its balance sheet in any audited consolidated financial statements.
Table 1 to Paragraph (b)(3): Capital Structure
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative Disclosures (a) Summary information on the terms
and conditions of the main features
of all regulatory capital
instruments.
Quantitative Disclosures (b) The amount of common equity tier
1 capital, with separate disclosure
of:
(1) Common stock and related
surplus;
(2) Retained earnings;
(3) AOCI (net of tax) and other
reserves; and
(4) Regulatory adjustments and
deductions made to common equity
tier 1 capital.
(c) The amount of core capital, with
separate disclosure of:
(1) The par or stated value of
outstanding common stock;
(2) The par or stated value of
outstanding perpetual,
noncumulative preferred stock;
(3) Paid-in capital; and
(4) Retained earnings.
(d) The amount of tier 1 capital,
with separate disclosure of:
(1) Additional tier 1 capital
elements, including additional
tier 1 capital instruments and
tier 1 minority interest not
included in common equity tier 1
capital; and
(2) Regulatory adjustments and
deductions made to tier 1
capital.
(e) The amount of total capital,
with separate disclosure of:
(1) The general allowance for
foreclosure losses; and
(2) Other amounts from sources
of funds available to absorb
losses incurred by the
Enterprise that the Director by
regulation determines are
appropriate to include in
determining total capital.
(f) The amount of adjusted total
capital, with separate disclosure
of:
(1) Tier 2 capital elements,
including tier 2 capital
instruments; and
(2) Regulatory adjustments and
deductions made to adjusted
total capital.
------------------------------------------------------------------------
Table 2 to Paragraph (b)(3): Capital Adequacy
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures (a) A summary discussion of the
Enterprise's approach to assessing
the adequacy of its capital to
support current and future
activities.
Quantitative disclosures (b) Risk-weighted assets for:
(1) Exposures to sovereign
entities;
(2) Exposures to certain
supranational entities and MDBs;
(3) Exposures to GSEs;
(4) Exposures to depository
institutions and credit unions;
(5) Exposures to PSEs;
(6) Corporate exposures;
(7) Aggregate single-family
mortgage exposures categorized
by:
(i) Performing loans;
(ii) Non-modified re-performing
loans;
(iii) Modified re-performing
loans;
[[Page 60595]]
(iv) Non-performing loans;
(8) Aggregate multifamily
mortgage exposures categorized
by:
(i) Multifamily fixed-rate
exposures;
(ii) Multifamily adjustable-
rate exposures;
(9) Past due loans;
(10) Other assets;
(11) Insurance assets;
(12) Off-balance sheet exposures;
(13) Cleared transactions;
(14) Default fund contributions;
(15) Unsettled transactions;
(16) CRT and other securitization
exposures; and
(17) Equity exposures.
(c) Standardized market risk-
weighted assets as calculated under
subpart F of this part.
(d) Risk-weighted assets for
operational risk.
(e) Common equity tier 1, tier 1,
and adjusted total risk-based
capital ratios.
(f) Total standardized risk-weighted
assets.
------------------------------------------------------------------------
Table 3 to Paragraph (b)(3): Capital Buffers
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures (a) A summary discussion of the
Enterprise's capital buffers and
the differential effects, if any,
the buffers have on an Enterprise's
business by geographic
breakdown.\1\
Quantitative Disclosures (b) At least quarterly, the
Enterprise must calculate and
publicly disclose the prescribed
capital conservation buffer amount
and all its components as described
under Sec. 1240.11.
(c) At least quarterly, the
Enterprise must calculate and
publicly disclose the prescribed
leverage buffer amount as described
under Sec. 1240.11.
(d) At least quarterly, the
Enterprise must calculate and
publicly disclose the eligible
retained income of the Enterprise,
as described under Sec. 1240.11.
(e) At least quarterly, the
Enterprise must calculate and
publicly disclose any limitations
it has on distributions and
discretionary bonus payments
resulting from the capital buffer
framework described under Sec.
1240.11, including the maximum
payout amount for the quarter.
------------------------------------------------------------------------
\1\ The geographic breakdown must consist of areas within the United
States and territories.
(c) For each separate risk area described in Tables 4 through 9,
the Enterprise must, as a general qualitative disclosure requirement,
describe its risk management objectives and policies, including:
Strategies and processes; the structure and organization of the
relevant risk management function; the scope and nature of risk
reporting and/or measurement systems; policies for hedging and/or
mitigating risk and strategies and processes for monitoring the
continuing effectiveness of hedges/mitigants.
Table 4 to Paragraph (c): \1\ Credit Risk: General Disclosures
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative Disclosures (a) The general qualitative
disclosure requirement with respect
to credit risk (excluding
counterparty credit risk disclosed
in accordance with Table 5 of this
section), including the:
(1) Policy for determining past
due or delinquency status;
(2) Policy for placing loans on
nonaccrual;
(3) Policy for returning loans to
accrual status;
(4) Description of the
methodology that the Enterprise
uses to estimate its adjusted
allowance for credit losses,
including statistical methods
used where applicable;
(5) Policy for charging-off
uncollectible amounts; and
(6) Discussion of the
Enterprise's credit risk
management policy.
Quantitative Disclosures (b) Total credit risk exposures and
average credit risk exposures,
after accounting offsets in
accordance with GAAP, without
taking into account the effects of
credit risk mitigation techniques
(for example, collateral and
netting not permitted under GAAP),
over the period categorized by
major types of credit exposure. For
example, the Enterprises could use
categories similar to that used for
financial statement purposes. Such
categories might include, for
instance.
(1) Loans, off-balance sheet
commitments, and other non-
derivative off-balance sheet
exposures;
(2) Debt securities; and
(3) OTC derivatives.
(c) Geographic distribution of
exposures, categorized in
significant areas by major types of
credit exposure.\2\
(d) Industry or counterparty type
distribution of exposures,
categorized by major types of
credit exposure.
(e) By major industry or
counterparty type:
(1) Amount of loans not past due
or past due less than 30 days;
(2) Amount of loans past due 30
days but less than 90 days;
(3) Amount of loans past due 90
days and on nonaccrual;
(4) Amount of loans past due 90
days and still accruing; \3\
(5) The balance in the adjusted
allowance for credit losses at
the end of each period,
disaggregated on the basis of
loans not past due or past due
less than 30 days, loans past
due 30 days but less than 90
days, loans past due 90 days and
on nonaccrual, and loans past
due 90 days and still accruing;
and
[[Page 60596]]
(6) Charge-offs during the
period.
(f) Amount of past due loans
categorized by significant
geographic areas including, if
practical, the amounts of
allowances related to each
geographical area,\4\ further
categorized as required by GAAP.
(g) Reconciliation of changes in the
adjusted allowance for credit
losses.\5\
(h) Remaining contractual maturity
delineation (for example, one year
or less) of the whole portfolio,
categorized by credit exposure.
------------------------------------------------------------------------
\1\ Table 4 does not cover equity exposures, which should be reported in
Table 8 of this section.
\2\ Geographical areas consist of areas within the United States and
territories. An Enterprise might choose to define the geographical
areas based on the way the Enterprise's portfolio is geographically
managed. The criteria used to allocate the loans to geographical areas
must be specified.
\3\ An Enterprise is encouraged also to provide an analysis of the aging
of past-due loans.
\4\ The portion of the general allowance that is not allocated to a
geographical area should be disclosed separately.
\5\ The reconciliation should include the following: A description of
the allowance; the opening balance of the allowance; charge-offs taken
against the allowance during the period; amounts provided (or
reversed) for estimated expected credit losses during the period; any
other adjustments (for example, exchange rate differences, business
combinations, acquisitions and disposals of subsidiaries), including
transfers between allowances; and the closing balance of the
allowance. Charge-offs and recoveries that have been recorded directly
to the income statement should be disclosed separately.
Table 5 to Paragraph (c): General Disclosure for Counterparty Credit
Risk-Related Exposures
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative Disclosures (a) The general qualitative
disclosure requirement with respect
to OTC derivatives, eligible margin
loans, and repo-style transactions,
including a discussion of:
(1) The methodology used to
assign credit limits for
counterparty credit exposures;
(2) Policies for securing
collateral, valuing and managing
collateral, and establishing
credit reserves;
(3) The primary types of
collateral taken; and
(4) The impact of the amount of
collateral the Enterprise would
have to provide given a
deterioration in the
Enterprise's own
creditworthiness.
Quantitative Disclosures.......... (b) Gross positive fair value of
contracts, collateral held
(including type, for example, cash,
government securities), and net
unsecured credit exposure.\1\ An
Enterprise also must disclose the
notional value of credit derivative
hedges purchased for counterparty
credit risk protection and the
distribution of current credit
exposure by exposure type.\2\
(c) Notional amount of purchased and
sold credit derivatives, segregated
between use for the Enterprise's
own credit portfolio and in its
intermediation activities,
including the distribution of the
credit derivative products used,
categorized further by protection
bought and sold within each product
group.
------------------------------------------------------------------------
\1\ Net unsecured credit exposure is the credit exposure after
considering both the benefits from legally enforceable netting
agreements and collateral arrangements without taking into account
haircuts for price volatility, liquidity, etc.
\2\ This may include interest rate derivative contracts, foreign
exchange derivative contracts, equity derivative contracts, credit
derivatives, commodity or other derivative contracts, repo-style
transactions, and eligible margin loans.
Table 6 to Paragraph (c): Credit Risk Mitigation \1\ \2\
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative Disclosures (a) The general qualitative
disclosure requirement with respect
to credit risk mitigation,
including:
(1) Policies and processes for
collateral valuation and
management;
(2) A description of the main
types of collateral taken by the
Enterprise;
(3) The main types of guarantors/
credit derivative counterparties
and their creditworthiness; and
(4) Information about (market or
credit) risk concentrations with
respect to credit risk
mitigation.
Quantitative Disclosures (b) For each separately disclosed
credit risk portfolio, the total
exposure that is covered by
eligible financial collateral, and
after the application of haircuts.
(c) For each separately disclosed
portfolio, the total exposure that
is covered by guarantees/credit
derivatives and the risk-weighted
asset amount associated with that
exposure.
------------------------------------------------------------------------
\1\ At a minimum, an Enterprise must provide the disclosures in Table 6
in relation to credit risk mitigation that has been recognized for the
purposes of reducing capital requirements under this subpart. Where
relevant, the Enterprises are encouraged to give further information
about mitigants that have not been recognized for that purpose.
\2\ Credit derivatives that are treated, for the purposes of this
subpart, as synthetic securitization exposures should be excluded from
the credit risk mitigation disclosures and included within those
relating to securitization (Table 7 of this section).
Table 7 to Paragraph (c): CRT and Securitization
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative Disclosures (a) The general qualitative
disclosure requirement with respect
to a securitization (including
synthetic securitizations),
including a discussion of:
(1) The Enterprise's objectives
for securitizing assets,
including the extent to which
these activities transfer credit
risk of the underlying exposures
away from the Enterprise to
other entities and including the
type of risks assumed and
retained with resecuritization
activity; \1\
(2) The nature of the risks
(e.g., liquidity risk) inherent
in the securitized assets;
(3) The roles played by the
Enterprise in the securitization
process\2\ and an indication of
the extent of the Enterprise's
involvement in each of them;
(4) The processes in place to
monitor changes in the credit
and market risk of
securitization exposures
including how those processes
differ for resecuritization
exposures;
(5) The Enterprise's policy for
mitigating the credit risk
retained through securitization
and resecuritization exposures;
and
(6) The risk-based capital
approaches that the Enterprise
follows for its securitization
exposures including the type of
securitization exposure to which
each approach applies.
(b) A list of:
[[Page 60597]]
(1) The type of securitization
SPEs that the Enterprise, as
sponsor, uses to securitize
third-party exposures. The
Enterprise must indicate whether
it has exposure to these SPEs,
either on- or off-balance sheet;
and
(2) Affiliated entities:
(i) That the Enterprise manages
or advises; and
(ii) That invest either in the
securitization exposures that
the Enterprise has securitized
or in securitization SPEs that
the Enterprise sponsors.\3\
(c) Summary of the Enterprise's
accounting policies for CRT and
securitization activities,
including:
(1) Whether the transactions are
treated as sales (i.e., sale
accounting has been obtained) or
financings;
(2) Recognition of gain-on-sale;
(3) Methods and key assumptions
applied in valuing retained or
purchased interests;
(4) Changes in methods and key
assumptions from the previous
period for valuing retained
interests and impact of the
changes;
(5) Treatment of synthetic
securitizations;
(6) How exposures intended to be
securitized are valued and
whether they are recorded under
subpart D of this part; and
(7) Policies for recognizing
liabilities on the balance sheet
for arrangements that could
require the Enterprise to
provide financial support for
securitized assets.
(d) An explanation of significant
changes to any quantitative
information since the last
reporting period.
Quantitative Disclosures.......... (e) The total outstanding exposures
securitized by the Enterprise in
securitizations that meet the
operational criteria provided in
Sec. 1240.41 (categorized into
traditional and synthetic
securitizations), by exposure type,
separately for securitizations of
third-party exposures for which the
bank acts only as sponsor.\4\
(f) For exposures securitized by the
Enterprise in securitizations that
meet the operational criteria in
Sec. 1240.41:
(1) Amount of securitized assets
that are past due categorized by
exposure type; and
(2) Losses recognized by the
Enterprise during the current
period categorized by exposure
type.\5\
(g) The total amount of outstanding
exposures intended to be
securitized categorized by exposure
type.
(h) Aggregate amount of:
(1) On-balance sheet
securitization exposures
retained or purchased
categorized by exposure type;
and
(2) Off-balance sheet
securitization exposures
categorized by exposure type.
(i)(1) Aggregate amount of
securitization exposures retained
or purchased and the associated
capital requirements for these
exposures, categorized between
securitization and resecuritization
exposures, further categorized into
a meaningful number of risk weight
bands and by risk-based capital
approach (e.g., CRTA, SSFA); and
(2) Aggregate amount disclosed
separately by type of underlying
exposure in the pool of any:
(i) After-tax gain-on-sale on a
securitization that has been
deducted from common equity
tier 1 capital; and
(ii) Credit-enhancing interest-
only strip that is assigned a
1,250 percent risk weight.
(j) Summary of current year's
securitization activity, including
the amount of exposures securitized
(by exposure type), and recognized
gain or loss onsale by exposure
type.
(k) Aggregate amount of
resecuritization exposures retained
or purchased categorized according
to:
(1) Exposures to which credit
risk mitigation is applied and
those not applied; and
(2) Exposures to guarantors
categorized according to
guarantor creditworthiness
categories or guarantor name.
------------------------------------------------------------------------
\1\ The Enterprise should describe the structure of resecuritizations in
which it participates; this description should be provided for the
main categories of resecuritization products in which the Enterprise
is active.
\2\ For example, these roles may include originator, investor, servicer,
provider of credit enhancement, sponsor, liquidity provider, or swap
provider.
\3\ Such affiliated entities may include, for example, money market
funds, to be listed individually, and personal and private trusts, to
be noted collectively.
\4\ ``Exposures securitized'' include underlying exposures originated by
the Enterprise, whether generated by them or purchased, and recognized
in the balance sheet, from third parties, and third-party exposures
included in sponsored transactions. Securitization transactions
(including underlying exposures originally on the Enterprise's balance
sheet and underlying exposures acquired by the Enterprise from third-
party entities) in which the originating Enterprise does not retain
any securitization exposure should be shown separately but need only
be reported for the year of inception. Enterprises are required to
disclose exposures regardless of whether there is a capital charge
under this part.
\5\ For example, charge-offs/allowances (if the assets remain on the
Enterprise's balance sheet) or credit-related write-off of interest-
only strips and other retained residual interests, as well as
recognition of liabilities for probable future financial support
required of the bank with respect to securitized assets.
[[Page 60598]]
Table 8 to Paragraph (c): Equities
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative Disclosures (a) The general qualitative
disclosure requirement with respect
to equity risk for equities,
including:
(1) Differentiation between
holdings on which capital gains
are expected and those taken
under other objectives including
for relationship and strategic
reasons; and
(2) Discussion of important
policies covering the valuation
of and accounting for equity
holdings. This includes the
accounting techniques and
valuation methodologies used,
including key assumptions and
practices affecting valuation as
well as significant changes in
these practices.
Quantitative Disclosures.......... (b) Carrying value disclosed on the
balance sheet of investments, as
well as the fair value of those
investments; for securities that
are publicly traded, a comparison
to publicly-quoted share values
where the share price is materially
different from fair value.
(c) The types and nature of
investments, including the amount
that is:
(1) Publicly traded; and
(2) Non publicly traded.
(d) The cumulative realized gains
(losses) arising from sales and
liquidations in the reporting
period.
(e)(1) Total unrealized gains
(losses) recognized on the balance
sheet but not through earnings.
(2) Total unrealized gains
(losses) not recognized either
on the balance sheet or through
earnings.
(3) Any amounts of the above
included in tier 1 or tier 2
capital.
(f) Capital requirements categorized
by appropriate equity groupings,
consistent with the Enterprise's
methodology, as well as the
aggregate amounts and the type of
equity investments subject to any
supervisory transition regarding
regulatory capital requirements.\1\
------------------------------------------------------------------------
\1\ This disclosure must include a breakdown of equities that are
subject to the 0 percent, 20 percent, 100 percent, 300 percent, 400
percent, and 600 percent risk weights, as applicable.
Table 9 to Paragraph (c): Interest Rate Risk for Non-Trading Activities
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Qualitative disclosures (a) The general qualitative disclosure requirement, including the
nature of interest rate risk for non-trading activities and key
assumptions, including assumptions regarding loan prepayments and
frequency of measurement of interest rate risk for non-trading
activities
Quantitative disclosures (b) The increase (decline) in earnings or economic value (or relevant
measure used by management) for upward and downward rate shocks
according to management's method for measuring interest rate risk for
non-trading activities, categorized by currency (as appropriate)
----------------------------------------------------------------------------------------------------------------
Table 10 to Paragraph (c): Operational Risk
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures (a) The general qualitative disclosure
requirement for operational risk.
(b) Description of the AMA, when
applicable, including a discussion of
relevant internal and external factors
considered in the Enterprise's
measurement approach.
(c) A description of the use of insurance
for the purpose of mitigating
operational risk.
------------------------------------------------------------------------
Table 11 to Paragraph (c): Tier 1 Leverage Ratio
------------------------------------------------------------------------
Dollar amounts in thousands
-----------------------------
Tril Bil Mil Thou
------------------------------------------------------------------------
Part 1: Summary comparison of accounting assets and adjusted total
assets
------------------------------------------------------------------------
1 Total consolidated assets as reported in ...... ..... ..... ......
published financial statements
2 Adjustment for fiduciary assets ...... ..... ..... ......
recognized on balance sheet but excluded
from total leverage exposure
3 Adjustment for derivative exposures ...... ..... ..... ......
4 Adjustment for repo-style transactions ...... ..... ..... ......
5 Adjustment for off-balance sheet ...... ..... ..... ......
exposures (that is, conversion to credit
equivalent amounts of off-balance sheet
exposures)
6 Other adjustments ...... ..... ..... ......
7 Adjusted total assets (sum of lines 1 to ...... ..... ..... ......
6)
------------------------------------------------------------------------
Part 2: Tier 1 leverage ratio
------------------------------------------------------------------------
On-balance sheet exposures
------------------------------------------------------------------------
1 On-balance sheet assets (excluding on- ...... ..... ..... ......
balance sheet assets for repo-style
transactions and derivative exposures,
but including cash collateral received in
derivative transactions)
2 LESS: Amounts deducted from tier 1 ...... ..... ..... ......
capital
3 Total on-balance sheet exposures ...... ..... ..... ......
(excluding on-balance sheet assets for
repo-style transactions and derivative
exposures, but including cash collateral
received in derivative transactions) (sum
of lines 1 and 2)
------------------------------------------------------------------------
[[Page 60599]]
Table 11 to Paragraph (c): Tier 1 Leverage Ratio--Continued
------------------------------------------------------------------------
Dollar amounts in thousands
-----------------------------
Tril Bil Mil Thou
------------------------------------------------------------------------
Derivative exposures
------------------------------------------------------------------------
4 Current exposure for derivative ...... ..... ..... ......
exposures (that is, net of cash variation
margin)
5 Add-on amounts for potential future ...... ..... ..... ......
exposure (PFE) for derivative exposures
6 Gross-up for cash collateral posted if ...... ..... ..... ......
deducted from the on-balance sheet
assets, except for cash variation margin
7 LESS: Deductions of receivable assets ...... ..... ..... ......
for cash variation margin posted in
derivative transactions, if included in
on-balance sheet assets
8 LESS: Exempted CCP leg of client-cleared ...... ..... ..... ......
transactions
9 Effective notional principal amount of ...... ..... ..... ......
sold credit protection
10 LESS: Effective notional principal ...... ..... ..... ......
amount offsets and PFE adjustments for
sold credit protection
11 Total derivative exposures (sum of ...... ..... ..... ......
lines 4 to 10)
------------------------------------------------------------------------
Repo-style transactions
------------------------------------------------------------------------
12 On-balance sheet assets for repo-style ...... ..... ..... ......
transactions, except include the gross
value of receivables for reverse
repurchase transactions. Exclude from
this item the value of securities
received in a security-for-security repo-
style transaction where the securities
lender has not sold or re-hypothecated
the securities received. Include in this
item the value of securities that
qualified for sales treatment that must
be reversed
13 LESS: Reduction of the gross value of ...... ..... ..... ......
receivables in reverse repurchase
transactions by cash payables in
repurchase transactions under netting
agreements
14 Counterparty credit risk for all repo- ...... ..... ..... ......
style transactions
15 Exposure for repo-style transactions ...... ..... ..... ......
where a banking organization acts as an
agent
16 Total exposures for repo-style ...... ..... ..... ......
transactions (sum of lines 12 to 15)
------------------------------------------------------------------------
Other off-balance sheet exposures
------------------------------------------------------------------------
17 Off-balance sheet exposures at gross ...... ..... ..... ......
notional amounts
18 LESS: Adjustments for conversion to ...... ..... ..... ......
credit equivalent amounts
19 Off-balance sheet exposures (sum of ...... ..... ..... ......
lines 17 and 18)
------------------------------------------------------------------------
Capital and adjusted total assets
------------------------------------------------------------------------
20 Tier 1 capital ...... ..... ..... ......
21 Adjusted total assets (sum of lines 3, ...... ..... ..... ......
11, 16 and 19)
------------------------------------------------------------------------
Tier 1 leverage ratio
------------------------------------------------------------------------
22 Tier 1 leverage ratio (in percent)
------------------------------------------------------------------------
0
4. Add Sec. 1240.205 to Subpart F to read as follows:
Subpart F--Risk-weighted Assets--Market Risk
* * * * *
Sec. 1240.205 Market risk disclosures.
(a) Scope. An Enterprise must make timely public disclosures each
calendar quarter. If a significant change occurs, such that the most
recent reporting amounts are no longer reflective of the Enterprise's
capital adequacy and risk profile, then a brief discussion of this
change and its likely impact must be provided as soon as practicable
thereafter. Qualitative disclosures that typically do not change each
quarter may be disclosed annually, provided any significant changes are
disclosed in the interim. If an Enterprise believes that disclosure of
specific commercial or financial information would prejudice seriously
its position by making public certain information that is either
proprietary or confidential in nature, the Enterprise is not required
to disclose these specific items, but must disclose more general
information about the subject matter of the requirement, together with
the fact that, and the reason why, the specific items of information
have not been disclosed. The Enterprise's management may provide all of
the disclosures required by this section in one place on the
Enterprise's public website or may provide the disclosures in more than
one public financial report or other regulatory reports, provided that
the Enterprise publicly provides a summary table specifically
indicating the location(s) of all such disclosures.
(b) Disclosure policy. The Enterprise must have a formal disclosure
policy approved by the board of directors that addresses the
Enterprise's approach for determining its market risk disclosures. The
policy must address the associated internal controls and disclosure
controls and procedures. The board of directors and senior management
must ensure that appropriate verification of the disclosures takes
place and that effective internal controls and disclosure controls and
procedures are maintained. The Chief Risk Officer and the Chief
Financial Officer of the Enterprise must attest that the disclosures
meet the requirements of this subpart, and the board of directors and
senior management are responsible for establishing and maintaining an
effective internal control structure over financial reporting,
including the disclosures required by this section.
(c) Quantitative disclosures. (1) For each material portfolio of
covered positions, the Enterprise must provide timely public
disclosures of the following information at least quarterly:
(i) Exposure amounts for each product type included in covered
positions as described in Sec. 1240.202;
(ii) Risk-weighted assets for each product type included in covered
positions as described in Sec. 1240.202.
[[Page 60600]]
(2) In addition, the Enterprise must disclose publicly the
aggregate amount of on-balance sheet and off-balance sheet
securitization positions by exposure type at least quarterly.
(d) Qualitative disclosures. For each material portfolio of covered
positions as identified using the definitions in Sec. 1240.202, the
Enterprise must provide timely public disclosures of the following
information at least annually after the end of the fourth calendar
quarter, or more frequently in the event of material changes for each
portfolio:
(1) The composition of material portfolios of covered positions;
(2) The Enterprise's valuation policies, procedures, and
methodologies for covered positions including, for securitization
positions, the methods and key assumptions used for valuing such
positions, any significant changes since the last reporting period, and
the impact of such change;
(3) The characteristics of the internal models used for purposes of
this subpart;
(4) A description of the approaches used for validating and
evaluating the accuracy of internal models and modeling processes for
purposes of this subpart;
(5) For each market risk category (that is, interest rate risk,
credit spread risk, equity price risk, foreign exchange risk, and
commodity price risk), a description of the stress tests applied to the
positions subject to the factor;
(6) The results of the comparison of the Enterprise's internal
estimates for purposes of this subpart with actual outcomes during a
sample period not used in model development;
(7) A description of the Enterprise's processes for monitoring
changes in the credit and market risk of securitization positions,
including how those processes differ for resecuritization positions;
and
(8) A description of the Enterprise's policy governing the use of
credit risk mitigation to mitigate the risks of securitization and
resecuritization positions.
Sandra L. Thompson,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2021-23780 Filed 11-2-21; 8:45 am]
BILLING CODE 8070-01-P