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Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules
Enterprises as operations that, if not performed, could cause disruption or instability in the secondary market for residential mortgages, FHFA expects there would be alignment between the Enterprises core business lines with their statutory purposes and mission, such that all core business lines would be considered critical operations.
As for critical services, the FDIC IDI
rule defines these as services and operations of the IDI that are necessary to continue its day-to-day operations, such as servicing, information technology support and operations, and human resources and personnel.36
When proposing its IDI rule, FDIC
explained that key decisions affecting the IDI, and key services or functions relating to the IDI, are often made . . .
by parent holding companies or affiliates of the IDI, 37 that reliance upon affiliates to provide critical services can establish an impediment to transferring its assets, liabilities and operations to an acquiring institution or bridge bank, 38 and that one purpose of the resolution planning rule was for IDIs to demonstrate how they could be separated from their affiliate structure and wound down in an orderly and timely manner in the event of receivership. 39 FHFA agrees that identification of critical services is important particularly so if services are being provided by an affiliate within a holding company, possibly without an arms-length contract, but believes that such services already would be covered by the proposed definition of core business lines that includes operations, services, functions, and supports associated with the business line and necessary for its continuation.
FHFA invites comment on its view that there would be sufficient alignment between the definition of core business lines those businesses line of the Enterprise that plausibly would continue to operate in an LLRE, considering the purposes, mission, and authorized activities of the Enterprise and the concept of critical operations operations that, if not performed, could cause disruption or instability in the secondary market for residential mortgages such that an Enterprise resolution planning rule would not need a separate process for identification of critical operations. Also, FHFA
requests comment on the conclusion that a definition of core business line that includes operations, services, functions, and supports associated with 36 12

CFR 360.10b5.
FR 27464, 27465 May 17, 2010.
38 Id., at 27467.
39 Id., at 27464.
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the business line and necessary for it to continue would capture the concept of critical services services and operations of the Enterprise that would be necessary to continue its day-to-day operations, such that an Enterprise resolution planning rule would not need to separately identify those associated operations and services that are critical.
Process for identifying core business lines; methodology. Procedurally, FHFA
proposes to require each Enterprise to review its business lines and provide FHFA notice of those business lines preliminarily determined to be core, subject to FHFA review. On review, FHFA may approve or disapprove of any business line identified by an Enterprise as core or of any operation, service, function, or support associated with any business line and may independently identify any other business line as core. Following its review, and generally within three months of receiving an Enterprises preliminary identification, FHFA will provide each Enterprise a notice of its core business lines for purposes of that Enterprises resolution planning. Notice by FHFA may not include all associated operations, services, functions, and supports, as these aspects of a core business line could vary by Enterprise and would be better identified by the Enterprise, considering its experience operating that particular business line.
The proposed rule would permit FHFA to provide an Enterprise notice of identification of a core business line at any time at FHFAs initiative. To give an Enterprise time to incorporate any core business line newly identified by FHFA
into its resolution planning, the Enterprise would not be required to incorporate a core business line identified by FHFA in its next required resolution plan, if that plan is required to be submitted within six months after the date the Enterprise receives notice of identification from FHFA.
The proposed approach to identification is intended to ensure that both the Enterprises and FHFA
separately consider the Enterprises statutory purposes, mission, and authorities when identifying core business lines, bringing both business and supervisory expertise and perspective to bear on identification.
The proposed approach leverages each Enterprises responsibility to meet the purposes of its statutory charter and its understanding of its own business operations, while recognizing FHFAs statutory duties as supervisor to ensure that each Enterprise complies with its charter act and operates in the public interest and FHFAs obligation as
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receiver to ensure that an LLRE is constituted in a manner to operate in accordance with the charter of the Enterprise for which it is successor.
To identify its core business lines, each Enterprise would be required to develop and implement an identification process, including a methodology to evaluate the Enterprises participation in activities and markets that are critical to fostering liquidity, efficiency, resilience, stability, and competition in the national housing finance markets or carrying out the statutory mission and purpose of the Enterprise. That methodology should take into account the markets and activities in which the Enterprise participates; the significance of those markets and activities with respect to the national housing finance markets or the Enterprises fulfillment of its statutory mission and purpose; and, the significance of the Enterprise as a provider or other participant in those markets and activities. An Enterprises process for identifying its core business lines could incorporate, for example, review and assessment of business activities toward meeting its statutory duty to serve and its statutory affordable housing goals.40
FHFA would not be required to utilize any particular methodology for identifying any core business line but believes that it would be appropriate to consider the factors set forth above in the methodology for Enterprise identification. FHFA would be able to consider any other factor it deemed appropriate.
Because FHFA proposes to require the Enterprises periodically to review their business lines to ensure that identification of core business lines is up-to-date, the proposed rule would require each Enterprise periodically to review its identification process and to revise it as necessary to ensure its continued effectiveness. Additional information regarding periodic reviews is set forth below.
Timing of initial and subsequent Enterprise identifications of core business lines. FHFA proposes to require each Enterprise to provide its initial notice preliminarily identifying core business lines to FHFA within three months after the effective date of a final rule, and requests comment on whether three months is sufficient time for such identification, considering that identification necessarily involves establishing and implementing the methodology described above to assess business lines and their associated operations, services, functions, and 40 See
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generally, 12 U.S.C. 4561 and 4565.

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