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Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules
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Enterprise, consistent with safety and soundness, to expend its liquidity position in order to support market liquidity to the secondary mortgage market. Such support may be necessary during periods of market stress to further an Enterprises statutory public purposes, and may require, for example, that an Enterprise be provided flexibility to meet a reduced 30-day liquidity minimum in order to fund severe stress liquidity needs and to continue to provide liquidity to the secondary mortgage markets.
Therefore, the proposed rule would provide for temporary reductions in minimum liquidity requirements to address economic, market, or other circumstances. Specifically, it would provide for FHFA consideration and determination that, due to economic or market conditions, temporary adjustments to reduce the minimum liquidity requirements are needed to address those conditions. FHFAs exercise of this authority is intended to further Enterprise public purposes in supporting secondary mortgage market liquidity during periods of severe economic or market stress.
Question 16. FHFA seeks comment on all aspects of the proposed process for FHFA temporarily to reduce minimum regulatory liquidity requirements to respond appropriately during periods of economic or market stress.
III. Liquidity Risk Management Reporting The proposed rule would require each Enterprise to report daily to FHFA its compliance with the minimum liquidity requirements. The Enterprises shall submit such reports at the close of each business day, which is treated as Day 0, reflecting the liquidity positions and other required information as of 6 p.m.
EST on Day 0. Such reports shall include, at a minimum, the key stress scenario assumptions discussed in the preamble, including a summary of the respective cash flows and other significant information and any other key 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 and the purchases of cash window and whole loan conduit loans. These supplemental reports could also include, but are not limited to, the composition of both the FICC-eligible and non-FICC eligible collateral and the components of the spread duration calculations.
The proposed rule would provide enhanced information about the shortterm, intermediate-term and long-term
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liquidity and funding profile of the Enterprises to managers, board directors, and supervisors. 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, to implement an orderly resolution of the Enterprise.
The proposed rules 30-day and 365day liquidity requirements would use Enterprise cash flow projections and certain assumptions based on stressed market conditions. While the short-term and intermediate-term liquidity requirements would use specific assumptions specified by FHFA
including by order for liquidity requirement calculation purposes, FHFA expects the Enterprises would maintain robust stress testing frameworks that incorporate additional scenarios, like lower rate environments that might trigger calling debt.
Enterprises should use these additional scenarios in conjunction with the proposed rules liquidity requirements to appropriately determine their board and management liquidity buffers.
FHFA notes that the four liquidity requirements are minimum requirements and organizations, like the Enterprises, that pose more systemic risk to the U.S. financial system or whose liquidity stress testing indicates a need for higher liquidity buffers may need to take additional steps beyond meeting the minimum ratio in order to meet supervisory expectations.
The proposed rule contemplates alignment between the Enterprises for the daily reporting of the liquidity and funding requirements and may, by order, require a common template that demonstrates the sources and uses of cash and the increased cash outflows or reduced cash inflows resulting from the seven stress scenarios. The objective is to ensure that management and supervisors have a transparent and readily comparable view into the key assumptions and resulting cash flows or metrics.
The proposed rule would require each Enterprise to report to the public its compliance with the four liquidity requirements monthly. Each Enterprise currently publishes a monthly volume summary that includes important information that the public consumes.
The proposed rule would require the Enterprises to amend their respective monthly volume summaries and provide the average and month-end metrics for each of the four liquidity and funding requirements. In addition to the
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liquidity metrics, the Enterprises should include key assumptions used to estimate these liquidity metrics. FHFA
may, by order, decide to include additional reporting requirements.
Question 17. FHFA invites public comment on all aspects of the proposed process and minimum elements for regulatory, management, and public reporting.
IV. Supervisory Framework A. Liquidity Requirement Shortfall 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. Specifically, if an Enterprises liquidity position is calculated to be less than any of the minimum liquidity requirements, the Enterprise must promptly submit to FHFA for approval a plan for achieving compliance, unless FHFA instructs otherwise. In addition, if FHFA determines that the Enterprise is otherwise non-compliant with the requirements of this part, FHFA may require the Enterprise to submit to FHFA for approval a plan to remediate the shortfall. The Enterprise plan must include, as applicable: 1 An assessment of the Enterprises liquidity profile and the reasons for the shortfall;
and 2 The actions that the Enterprise has taken and will take to achieve full compliance with this part, including: i A plan for adjusting the Enterprises risk profile, risk management, and funding sources in order to achieve full compliance with this part; ii A plan for remediating any operational or management issues that contributed to noncompliance with this part; iii Best estimate time frame for achieving full compliance with this part; and iv A
commitment to report to FHFA daily on Enterprise progress to achieve compliance in accordance with the plan until full compliance with this part is achieved. Finally, the Enterprise plan must include other considerations or actions as may be required for FHFA
approval.
FHFA engagement with the Enterprise on a remediation plan does not preclude exercise of other supervisory or enforcement authorities. FHFA may, at its sole discretion, take additional supervisory or enforcement actions to address non-compliance with the requirements of this part, including non-compliance with the minimum liquidity requirements or noncompliance with any requirement to submit a liquidity plan acceptable to FHFA. The liquidity remediation plan is intended to enable FHFA to monitor and respond appropriately to the unique
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