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Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules unsecured debt divided by the spread duration of its retained portfolio assets.
The short-term and intermediate-term requirements are cashflow based and will be discussed in this section II.A, while the two long-term liquidity and funding requirements are calculated based on defined ratios discussed in section II.B.

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A. Short-Term and Intermediate Term Liquidity Requirements The purpose of these cashflow-based requirements is to establish minimum short-term discussed throughout as the 30-day requirement and intermediateterm discussed throughout as the 365day requirement liquidity requirements for the Enterprises. These two requirements are determined based on cash flows under a series of stress assumptions including, among other things, that the Enterprises are unable to access the debt markets for an extended period and, as a result, must fund their enterprise-wide net cash needs, including funding mortgage operations, with an appropriately sized portfolio of high quality liquid assets, as defined below.
1. High Quality Liquid Assets Given the lack of Enterprise access to the discount window at any Federal Reserve Bank and the need to provide mortgage market liquidity in a crisis, FHFA proposes to significantly limit those assets that qualify as high quality liquid assets for the liquidity portfolio under this proposed rule. As a result, FHFA proposes that high quality liquid assets be limited to cash held in a Federal Reserve bank account, U.S.
Treasury securities, U.S. Treasury repurchase agreements where the Enterprise lends cash secured by U.S.
Treasury securities cleared through the FICC or as offered by the Federal Reserve Bank of New York, and a limited amount of unsecured overnight bank deposits with eligible U.S. banks.
To be included in high quality liquid assets, an asset would be required to be unencumbered as provided under the proposed rule. First, the asset must be free of legal, regulatory, contractual, or other restrictions on the ability of an Enterprise to monetize the asset. FHFA
believes that, as a general matter, high quality liquid assets should only include assets that could be converted easily into cash. Second, the asset cannot have been pledged, explicitly or implicitly, to secure or provide creditenhancement to any transaction.
a. Federal Reserve Bank Balances In the United States, Federal Reserve Banks are generally authorized under
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the Federal Reserve Act to maintain balances only for depository institutions and for other limited types of organizations, like the Enterprises.
Under the proposed rule, all balances the Enterprises maintain at a Federal Reserve Bank would be considered a high quality liquid asset.
b. U.S. Treasury Securities The proposed rule would include the fair market value of securities issued by, or unconditionally guaranteed as to the timely payment of principal and interest by, the U.S. Treasury. U.S. Treasury securities have exhibited high levels of liquidity even in times of extreme stress to the U.S. financial system, and typically are the securities that experience the most flight to quality when investors react in a crisis.
FHFA proposes that U.S. Treasury securities qualify as a high quality liquid asset because they are easily and immediately convertible into cash during times of market stress. U.S.
Treasury securities have active outright sale or repurchase agreement markets at all times with significant diversity in market participants as well as high volume. U.S. Treasury securities have exhibited this market-based liquidity characteristic historically, including evidence during the 2008 financial crisis and the more recent 2020 COVID
19-related financial market stress. Even during these recent crises, U.S. Treasury securities demonstrated low bid-ask spreads, high trading volumes, a large and diverse number of market participants, and other factors. Diversity of U.S. Treasury security market participants, on both the buy and sell sides, is particularly important because it tends to reduce market concentration and is a key indicator that a market will remain liquid. Also, the presence of multiple committed market makers in U.S. Treasury securities is another sign that a market is liquid.
c. U.S. Treasury Repurchase Agreements Cleared Through the FICC
The proposed rule would allow the Enterprises to treat certain secured loans backed by U.S. Treasury securities as highly liquid assets. Specifically, if the Enterprise lends cash secured by U.S.
Treasury securities in a repurchase agreement cleared through the FICC
FICC Treasury repurchase agreements then it may treat those assets as highly liquid. As the collateral backing investments in FICC Treasury repurchase agreements is legally allowed to be rehypothecated, the proposed rule assumes that the FICC
Treasury repurchase agreements are fungible with U.S. Treasury securities
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and would be counted as such. The proposed rule limits any such investment in FICC Treasury repurchase agreements to those with a remaining maturity term no longer than the greater of: i 15 days; or ii The number of days until the next agency Uniform Mortgage Backed Security UMBS
principal and interest payment date which is typically on, or the next business day after, the 25th day of the month.5
Under the proposed rule, for collateral received in FICC Treasury repurchase agreements where the Enterprise has rehypothecation rights to withdraw the asset without remuneration at any time during a 30 calendar-day stress period, such collateral if rehypothecated would be included in high quality liquid assets. If the collateral can be substituted with non-U.S. Treasury securities, then the Enterprises cannot count them as high quality liquid assets.
In addition, the Federal Reserve Bank of New York offers a program whereby the Enterprises are eligible to lend cash supported by repurchase agreements backed by U.S. Treasury securities. If an Enterprise lends cash in a secured transaction through this Federal Reserve Bank of New York reverse repurchase agreement program, the proposed rule would allow the Enterprise to treat these as high quality liquid assets. The proposed rule would similarly limit the maturity of secured lending transactions to the greater of 15 days or the number of days until the next agency UMBS
principal and interest payment date.
d. Overnight Unsecured Deposits in Eligible Banks The proposed rule would allow the Enterprises to include as high quality liquid assets a limited amount of unsecured overnight bank deposits provided they are held at a U.S. bank that is subject to quarterly reporting under the Federal Reserve Systems FR
Y15 reporting requirements and has at least $250 billion in assets. FHFA
believes these overnight deposits can be readily transferred to the Enterprises Federal Reserve bank accounts early the following morning, which can help the Enterprises better manage intra-day funding requirements. The proposed rule would limit such overnight deposits to a maximum of $10 billion and require that each Enterprise have adequate single-name counterparty credit risk limits in place.
5 Appropriate adjustment should be made for the number of days for non-UMBS MBS, such as MBS
backed by adjustable rate mortgages and nonexchanged Freddie Mac Participation Certificates PCs.

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