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Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules
scenario assumptions discussed below, including a summary of the respective cash flows and other significant information and any other assumptions used to calculate the four liquidity requirements. In some cases, this may require supplemental reports to explain individual key stress cash flows, like the purchases of delinquent loans out of pools, the purchases of cash window and whole loan conduit loans and the reduced cash flows arising from increased numbers of delinquent borrowers not making scheduled principal, interest, tax, and insurance payments.
The proposed rule would require daily minimum liquidity reporting about the short-term, intermediate-term and long-term liquidity and funding profile of the Enterprises to management, and to FHFA supervisory personnel. FHFA, by order, may require supplemental reporting. With this information, the Enterprises management and supervisors would be better able to assess the Enterprises ability to meet its projected liquidity needs during periods of liquidity stress;
take appropriate actions to address liquidity needs; and, in situations of failure, implement an orderly resolution of the Enterprise.
As noted above, for the 30-day requirement the proposed rule would require the Enterprises to maintain a high quality liquid asset portfolio sufficient in size to meet the highest cumulative net cash need, plus an additional $10 billion excess amount.
FHFA recognizes that certain market circumstances, for example, may require that an Enterprise be provided flexibility to meet a reduced 30-day liquidity minimum in order to fund severe stress liquidity needs and to support continued liquidity in the secondary mortgage markets. Therefore, the proposed rule would provide for temporary reductions in minimum liquidity requirements to address economic or market stress conditions.
Specifically, it would provide for FHFA
to make a determination that, due to economic or market conditions, temporary adjustments to reduce the minimum liquidity requirements are appropriate to address those conditions.
FHFAs exercise of this authority would further Enterprise public purposes in supporting secondary mortgage market liquidity consistent with safety and soundness.
The proposed rule would also, as described below, establish a supervisory framework to address Enterprise liquidity shortfalls and non-compliance with the minimum liquidity requirements when an Enterprises 30-

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day liquidity coverage metric falls below the $10 billion excess requirement or any of the other three liquidity and funding requirements.
Under the proposed rule, an Enterprise would be required to notify FHFA on any business day that any of the four liquidity requirements is not met, triggering a requirement for the Enterprise to submit a plan for approval to FHFA to achieve compliance, unless FHFA instructs otherwise.
Alternatively, if FHFA determines that the Enterprise is otherwise noncompliant with the requirements of this part, FHFA may also require the Enterprise to submit a plan to achieve compliance. FHFA may take additional supervisory or enforcement action at its discretion to address Enterprise noncompliance.
In addition, if FHFA determines that, due to economic, market, or Enterprisespecific circumstances, temporary modified Enterprise liquidity and funding requirements above those established under this part are necessary or appropriate for an Enterprise, a process would be available to modify the minimum requirements. In such an instance, FHFA will notify the Enterprise in writing of the proposed modified Enterprise liquidity and funding requirements and provide the Enterprise with an opportunity to respond before making a determination as set forth in proposed 1241.31.
These procedures, which are described in further detail in this preamble, are intended to enable FHFA
to monitor and respond appropriately to the particular economic, market, or Enterprise-specific circumstances requiring an adjustment to the minimum liquidity requirements. FHFA
invites public comment on all aspects of the proposed procedures for FHFA to respond timely and appropriately to address economic, market, Enterprisespecific, or other circumstances affecting Enterprise liquidity, safety and soundness, and ability to meet their public purposes.
The proposed rules four liquidity requirements would use Enterprise projections based on stressed market assumptions. While the short-term and intermediate-term liquidity requirements would impose specific stress assumptions, FHFA expects the Enterprises to maintain robust stress testing frameworks that incorporate additional scenarios, like lower rate environments that might trigger calling debt. The Enterprises should use these additional scenarios in conjunction with the proposed rules liquidity requirements to appropriately determine their board and management liquidity
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and funding buffers. FHFA notes that the four proposed liquidity requirements are minimum requirements, and that organizations like the Enterprises that pose systemic risk to the U.S. financial system, or whose liquidity stress testing indicates a need for higher liquidity and funding buffers, may need to take additional steps beyond meeting the proposed rules minimum requirements in order to meet supervisory expectations for safe and sound operation. Moreover, nothing in the proposed rule would limit the authority of FHFA under any other provision of law or regulation to take supervisory or enforcement actions, including actions to address unsafe or unsound practices or conditions, deficient liquidity levels, or violations of law.
The proposed rule, once finalized, would be effective as of September 2021. FHFA requests comment on all aspects of the proposed rule, including comment on the specific issues raised throughout this preamble. FHFA
requests that commenters provide detailed qualitative or quantitative analysis, as appropriate, as well as any relevant data and impact analysis to support their positions.
II. Liquidity and Funding Requirements As discussed above, the proposed rule would establish four quantitative liquidity requirements for the Enterprises, as well as certain qualitative requirements for risk management practices. The four quantitative liquidity requirements would be measured daily and supported by detailed management reporting:
A short-term 30-day liquidity requirement based on: i The Enterprises highest cumulative daily net cash outflows over 30 calendar days under certain specified stressed market assumptions, including a complete inability to issue debt; and ii An excess requirement in the amount of $10
billion;
An intermediate 365-day liquidity requirement based on the Enterprises highest cumulative daily net cash outflows over 365 calendar days under certain specified stressed market assumptions, including a complete inability of the Enterprises to issue debt;
A simple long-term liquidity and funding requirement based on the amount of an Enterprises long-term unsecured debt divided by the amount of its less-liquid assets, as defined below; and A second, model-based long-term liquidity and funding requirement based on an Enterprises spread duration of its
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