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Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules
multi-faceted, iterative Enterprise resolution planning process that provides FHFA an Enterprise resolution plan containing i key information about an Enterprises structure, governance, operations, business practices, financial responsibilities, and risk exposures and ii advance strategic thinking and analysis, including the identification of impediments to rapid and orderly resolution as well as actions that could facilitate resolution if taken before receivership or in establishing the LLRE. The proposed resolution planning process also includes Enterprise development and maintenance of resolution-related capabilities to be assessed or verified periodically by FHFA that could generate, on a timely basis, critical information e.g., identification of key personnel that FHFA would need as receiver to fulfill its statutory duties.
Together, these components would help inform the immediate establishment of the LLRE to continue Enterprise business functions, including an informed division of assets and liabilities between the Enterprise receivership estate and a newly established LLRE.
Advance information, strategic analysis, and action, where appropriate, would also support other important goals of a rapid and orderly Enterprise resolutionto minimize disruption in the national housing finance markets, preserve Enterprise franchise and asset value, and ensure creditors bear losses in the order of their priority.29 These goals work in concert, since a disruption of national housing finance markets also could increase costs to FHFA as receiver to the detriment of claimants on an Enterprises receivership estate.
As well, the proposed rule would support transparency in the Enterprises resolution planning process by requiring each Enterprise resolution plan to include a public section that FHFA
would publish. FHFA may publish its own high-level assessment of Enterprise resolution plans as the planning process matures. FHFA believes that such transparency would further another important policy goalfostering market discipline. Despite statutory provisions clarifying that neither the Enterprises themselves nor their securities or obligations are backed by the United States, investors, creditors and others doing business with the Enterprises may perceive that the Enterprises have implicit United States government 29 Advance
action could include, for example, ensuring that certain arrangements master netting agreements related to qualified financial contracts, for example are resilient to the creation of and transfer of assets to an LLRE.

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support. Financial support from the Treasury Department provided through the PSPAs, which continues today, could encourage that perception. To clarify the status of the Enterprises as privately owned corporations, FHFA
seeks to make explicit in this resolution planning rule that no extraordinary government support will be available to prevent an Enterprise receivership, indemnify investors against losses, or fund the resolution of an Enterprise.
Each Enterprise must incorporate that assumption into its resolution plan, and this assumption must be apparent in the plans public section.
II. The Proposed Rule A. Overview of the Resolution Planning Framework Rapid and orderly resolution of an Enterprise. The proposed rule would establish the procedural and substantive requirements for Enterprise resolution plans developed to facilitate their rapid and orderly resolution by FHFA as receiver. The term rapid and orderly resolution is used in the DFA section 165 and its implementing rule.30 FHFA
has carefully considered whether an Enterprise resolution planning rule should include a similar standard.
A similar standard, reflecting FHFAs authorities as receiver and the Enterprises statutory authorities and obligations, would help the Enterprises, market participants, and the public understand that the proposed rule seeks to achieve a similar, but appropriately tailored, goalresolution, if necessary, of a large financial intermediary that performs functions other market participants rely on for their efficient operation, and which would be difficult to transfer or for which there are not available substitutes. FHFA views an Enterprise resolution planning rule as similar to the DFA section 165 rule, one purpose of which is to promote U.S.
financial stability, and to efforts of other U.S. financial safety and soundness supervisors to align with common goals of the Financial Stability Board, such as improving the capacity of national authorities to implement orderly 30 12 CFR 243.2; see also 12 U.S.C. 5365d1, requiring certain bank holding companies to report to the FRB on their plans for rapid and orderly resolution. The DFA section 165 rule defines rapid and orderly resolution as a reorganization or liquidation of the bank holding company . . .
that can be accomplished within a reasonable period of time in a manner that substantially mitigates the risk that the failure of the bank holding company would have serious adverse effects on the financial stability of the United States.

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resolutions of large and interconnected financial firms. 31
FHFA recognizes, however, that statutory provisions creating the Enterprises and authorizing their resolution by FHFA answer some questions that are not determined in advance for other receivers or administrators in bankruptcythe Safety and Soundness Act directs that the Enterprises functions as set forth in their charter acts will continue and establishes the framework for the continuation of these functions in a successor LLRE. FHFAs approach to rapid and orderly resolution is necessarily formed against that statutory backdrop.32
For the foregoing reasons, FHFA
proposes to establish rapid and orderly resolution as a standard for Enterprise resolution, but to define it in a manner tailored to resolution of an Enterprise contemplated by the Safety and Soundness Act. Thus, FHFA proposes to define rapid and orderly resolution as a process for establishing an LLRE as successor to an Enterprise, including transferring Enterprise assets and liabilities to the LLRE, such that succession by LLRE can be accomplished within a reasonable amount of time and in a manner that substantially mitigates the risk that the failure of the Enterprise would have serious adverse effects on national housing finance markets. FHFA
requests comment on the use of rapid and orderly resolution, as defined in the proposed rule, as the standard for an Enterprise resolution.
Procedural overview of the proposed Enterprise resolution planning framework. Procedurally, development of an Enterprise resolution plan would begin with the identification of Enterprise core business lines. Core business lines and the operations, services, functions, and supports associated with core business lines are important focal points of resolution planning, as FHFA expects core Enterprise business lines would be conducted in an LLRE established to continue the business operations of an Enterprise in receivership.
After core business lines and associated operations, services, functions, and supports are identified, each Enterprise would be required to develop and submit to FHFA a resolution plan that provides strategic analysis and information to facilitate 31 75 FR 27464, 27466 May 17, 2010. In general, FDIC Federal Register notices on its IDI rule provide high level background on U.S. participation in international efforts toward resolution of large, interconnected financial firms.
32 See generally, 12 U.S.C. 4617i.

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