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Federal Register / Vol. 86, No. 84 / Tuesday, May 4, 2021 / Rules and Regulations
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Stability Oversight Council for enhanced supervision by the FRB.
While there would be significant differences among FDIC resolution of an IDI, resolution of a bank holding company in a bankruptcy proceeding, and FHFA resolution of an Enterprise, the FDICs IDI rule and the DFA section 165 rule provided valuable context for FHFAs consideration of the goals and requirements of an appropriate Enterprise resolution planning framework in view of FHFAs statutory authorities and mandates.
B. Overview of the Proposed Rule In the proposed rule, FHFA addressed the substantive and procedural requirements for credible Enterprise resolution plans that would be developed to facilitate their rapid and orderly resolution by FHFA as receiver. Because FHFA is statutorily required to create an LLRE for an Enterprise in receivership, and because the LLRE immediately succeeds to the Enterprises federal charter and thereafter operates subject to the Enterprises authorities and duties, FHFA proposed to define rapid and orderly resolution for an Enterprise as the process for establishing its successor LLRE, including transferring Enterprise assets and liabilities to the LLRE, such that succession can be accomplished promptly 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.
The Enterprise resolution planning process would begin with identification of an Enterprises core business lines CBLsthose business lines of the Enterprise that plausibly would continue to operate in the LLRE, considering the Enterprises statutory purposes, mission, and authorized activities. Identification of CBLs would include identification of associated operations, services, functions, and supports necessary for each CBL to be continued. Understanding CBLs will enable FHFA and the Enterprise to determine the operations of the LLRE, and what assets and liabilities must be transferred from the Enterprise to carry out those operations. FHFA proposed a two-step process for identifying CBLs, in which FHFA would determine Enterprise CBLs after reviewing the Enterprises preliminary identification.
That process is intended to balance FHFAs statutory responsibilities as supervisor of the Enterprises with the Enterprises greater awareness of their own business operations.
Other proposed substantive requirements addressed the content of
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Enterprise resolution plans. FHFA
proposed to require each resolution plan to contain strategic analysis and information important to understanding an Enterprises CBLs and facilitating their continuation in an LLRE
established by FHFA as receiver. Each resolution plan would also be required to reflect required and prohibited assumptions.
Specifically, each Enterprise would be required to consider that resolution may occur under the severely adverse economic conditions provided to the Enterprise by FHFA in conjunction with any stress testing required pursuant to FHFAs regulation on stress testing of the regulated entities, 12 CFR part 1238, or another scenario provided by FHFA, possibly more idiosyncratic to an Enterprise. Similar to the DFA section 165 rule, 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.19 For the Enterprises, this includes support obtained or negotiated on behalf of the Enterprises by FHFA in its capacity as conservator of each Enterprise through the PSPAs with the Treasury Department. Each Enterprises resolution plan would also 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. 20
Each Enterprises strategic analysis would 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 CBLs. Among other elements, this analysis would address: 1 Actions that the Enterprise could take to facilitate its rapid and orderly resolution, including those actions it plans to take and the time period for successfully executing them;
2 funding, liquidity, support functions, and other resources, mapped to the Enterprises CBLs, including 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, mapped to associated assets;
3 the Enterprises strategy for 19 Compare,
12 CFR 243.4h2.
20 12 U.S.C. 1455h2 and 1719d.

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maintaining and funding its CBLs when the Enterprise is becoming in danger of default or in default; 4 capital support that will be needed by an LLRE, both during its life and when its status as a limited-life regulated entity ends, to maintain market confidence; 5 the Enterprises strategy in the event of a failure or discontinuation of a CBL
including an associated operation, service, function, or support that is critical to a CBL and actions that could be taken to prevent or mitigate any adverse effects of such failure or discontinuation on the national housing finance markets; 6 how and the extent to which claims against the Enterprise by the Enterprises creditors and counterparties would be satisfied in accordance with FHFAs regulation setting forth the priority of expenses and unsecured claims set forth at 12 CFR
1237.9, consistent with continuation of the Enterprises CBLs by an LLRE; and 7 the Enterprises strategy for transferring or unwinding qualified financial contracts, consistent with applicable statutory requirements.21
Each Enterprises strategic plan would also be required to identify and describe potential material weaknesses or impediments to rapid and orderly resolution as conceived in its plan, and any actions or steps the Enterprise has taken or proposes to take, or actions or steps that other market participants could take, to address the identified weaknesses or impediments. The Enterprise would be required to include a timeline for such remedial or other mitigating actions that are under its control.
In addition to strategic analysis, the proposed rule set forth other information requirements for Enterprise resolution plans, including key information about the Enterprises structure, governance, operations, business practices, financial responsibilities, and risk exposures. The proposed rule also addressed 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 21 Qualified financial contracts are defined and the requirements for their transfer or unwinding are set forth at 12 U.S.C. 4617d8 through 11.

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