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Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules
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the Enterprises when considering their current businesses and the proposed Enterprise methodology for determining core business lines. One possible benefit of core business line identification across the Enterprises is that there would be a process to assure that each Enterprises resolution planning and plan addresses the same core business lines. At the same time, in the unlikely event the Enterprises core business lines did not align based on their individual application of the proposed rules identification methodology, each Enterprise could be required to address business lines that are not, in fact, core as to that Enterprise in its resolution planning.
C. Content and Form of an Enterprise Resolution Plan After identifying its core business lines, the proposed rule would require an Enterprise to develop a resolution plan. Each resolution plan would contain strategic analysis and information important to understanding an Enterprises core business lines and facilitating their continuation, possibly with appropriate changes, in an LLRE
established by FHFA as receiver.
Under the proposed rule, a resolution plan would be required to include both strategic analysis and information components, including a description of the Enterprises corporate governance structure for resolution planning; how the LLRE will be funded throughout its existence and be well capitalized within the timeline provided by statute;
information regarding the Enterprises overall organizational structure;
information regarding the Enterprises management information systems; a description of interconnections and interdependencies among the Enterprises core business lines, including with CSS and other thirdparty providers; and, a clear identification of any potential impediments to the strategies developed and Enterprise plans for addressing such obstacles where practicable. An executive summary would also be required. In proposing these components, FHFA reviewed both the FDIC IDI resolution planning rule and the DFA section 165 rule and has incorporated concepts from each framework, and tailored those concepts to reflect Enterprise and FHFA
authorities and duties.
Required and prohibited assumptions.
Similar to the DFA section 165 rule, FHFA is proposing to establish required and prohibited assumptions which must underpin an Enterprises resolution plan. An Enterprise would be required to consider that resolution may occur
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under the severely adverse economic conditions provided to the Enterprise by FHFA in conjunction with any stress testing required pursuant to FHFAs rule on stress testing of the regulated entities, 12 CFR part 1238. On occasion FHFA may identify or provide other stress scenarios, possibly more idiosyncratic to an Enterprise, which the Enterprises would be required to consider in preparing the next periodic resolution plan.
Importantly, each Enterprise would be prohibited from assuming that any extraordinary support from the United States government would be continued or provided to the Enterprise to prevent either its becoming in danger of default or in default, including support obtained or negotiated on behalf of the Enterprise by FHFA in its capacity as regulator, conservator, or receiver of the Enterprise through the PSPAs with the Treasury Department. Likewise, each Enterprises resolution plan would be required to reflect statutory provisions that the Enterprises obligations and securities, together with interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or any agency or instrumentality thereof other than the Enterprise. 41 The proposed rule seeks to ensure that resolution plans accurately reflect the statutory construct of the Enterprises they are not supported by the full faith and credit of the United States and their securities including securities that an Enterprise guarantees and debt are not guaranteed by the United States.
Strategic analysis. Similar to the DFA
section 165 rule, FHFA proposes to require a strategic analysis describing the Enterprises plan to facilitate its rapid and orderly resolution. As a practical matter, there may be two components to this analysisthose strategies and actions that are feasible for an Enterprise to implement or take prior to receivership, and those strategies and actions that the Enterprise believes FHFA could take in conjunction with receivership and resolution. By statute, moving to receivership is solely FHFAs authority, and the proposed rule makes clear that FHFA is not bound by any resolution plan of an Enterprise. Nonetheless, each Enterprise understands its business operations in greater detail than does FHFA. An Enterprises assessment of how the value of its assets and franchise could be preserved, how assets and liabilities could be divided between the LLRE and a receivership estate, and how losses and costs could be minimized, 41 12

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would be important considerations for FHFA. These actions are the basis for a resolution and receivership that minimize disruption in the national housing finance markets. They will be particularly important given that the Enterprises are not supported by the United States government, and FHFA
does not have access to funding for resolution, such as the DIF.
Each Enterprises strategic analysis should therefore detail how, in practice, the Enterprise could be resolved through FHFAs receivership authority by liquidating assets or by transferring them to an LLRE, which would continue to operate the Enterprises core business lines. The strategic analysis should include the analytical support for the resolution plan and its key assumptions, including any assumptions made concerning the economic or financial conditions that would be present at the time a plan is implemented.
An important element proposed in the strategic analysis is the Enterprises description of actions or a range actions that the Enterprise could take to facilitate its rapid and orderly resolution, including with respect to its core business lines, in the event of its becoming in danger of default or in default. For example, an Enterprise could review service level agreements to assess likelihood of service continuation after transfer to an LLRE, including whether contracts have resolutionfavorable terms. The Enterprise should specify those actions that it plans to take and set forth the time period the Enterprise expects would be needed to successfully execute each such action.
The Enterprise should also describe any impediments to actions that could be taken, including impediments to actions that it plans to take.
The strategic analysis should identify and address funding, liquidity, support functions, and other resources, mapped to the Enterprises core business lines.
This element would require the Enterprise to identify the amount of capital and capital-like instruments such as subordinated debt, convertible debt, other contingent capital, mortgage insurance, and CRT transactions available to absorb losses before imposing losses on creditors or investors and, where applicable, map this loss absorbing capacity to associated assets. The Enterprises strategy for maintaining and funding its core business lines in an environment when it faces becoming in danger of default or in default should be provided and mapped to its core business lines, and its strategic analysis should demonstrate how such resources would be utilized to facilitate an orderly
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