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Federal Register / Vol. 86, No. 84 / Tuesday, May 4, 2021 / Rules and Regulations
weaknesses or impediments identified.
The Enterprises would also be required to provide a timeline for planned remedial or mitigating actions.35 As FHFA noted in the preamble to the proposed rule, FHFA did not anticipate that it would identify as deficiencies those impediments that an Enterprise would be reasonably unable to address or that it would be impracticable to change.36 Moreover, a resolution plan could be deemed credible even if it identified impediments to rapid and orderly resolution.37
Commenters raised questions about the identification of impediments and remedial or mitigating actions. One commenter, for example, requested that FHFA clarify in the rule that examples of existing impediments listed in its comment letter and others similarly identified in the course of preparing the early resolution plan submissions would not be grounds for rejecting the Enterprises resolution plans under FHFAs credibility standard. Existing impediments included: 1 An inability to satisfy current and future regulatory capital needs, including a projected resolution capital execution need, without relying on the PSPA or other government capital support; 2 an inability to impose losses on long-term debt without imposing them pro rata on their short-term creditors, counterparties of qualified financial contracts, and mortgage guarantee beneficiaries, given the unsubordinated nature of such long-term debt; 3
insufficient high-quality liquid assets to satisfy existing and future regulatory liquidity requirements and the projected resolution liquidity execution needs of an LLRE; and 4 PSPA restrictions on raising additional debt or equity, issuing subordinated debt, or transferring assets without U.S. Treasury consent.
FHFA believes furnishing a list of potential impediments in the rule is unnecessary to clarify that FHFA would not, solely on the basis of identifying such impediments in a resolution plan, deem the resolution plan to not be credible. The rule provides discretion to the Enterprises in identifying impediments. Provisions of the proposed rule on identification of impediments did not impose any requirements or constraints on the types of impediments an Enterprise could identify within a credible resolution plan. To the extent that existing impediments listed by the commenter could relate to or implicate provisions of the PSPAs, FHFA has expressly 35 12
36 86

CFR 1242.5d3, 86 FR at 1345.
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affirmed that such provisions could be identified as impediments in a resolution plan and would not cause the plan not to be credible, if appropriate in the context of the specific resolution plan.
One commenter requested that FHFA
clarify that identification of impediments to rapid and orderly resolution in a resolution plan would not cause that plan not to be credible, if the Enterprise also identified actions that could be taken to remediate the impediment, explained why such actions are feasible and who is responsible for taking them, and provided a timeline for completing remedial actions the Enterprise planned to take. Three important result of resolution planning will be the identification of impediments, actions that can be taken to remediate them, and timelines for taking planned remedial actions. Taking such actions should improve the resolvability of the Enterprise in a manner that furthers the objectives of the rule. On the other hand, FHFA is not prepared to say that it will always be necessary to have a corresponding remedial action in order for identification of an impediment not to cause a plan to be not credible. Stated another way, FHFA does not believe that identification of an impediment without identifying a remedial action would always cause a plan not to be credible. If FHFAs view changes after gaining experience with Enterprise resolution planning, FHFA will consider whether the rule should be clarified as the commenter suggested.
In general, FHFA anticipates that, where an Enterprise can act to remediate an impediment, the Enterprises resolution plan may provide relatively more specificity about planned remedial actions and timing for taking them. Where remediating an impediment may require action by others, less within the control of an Enterprise, relatively less detail may be appropriate and less detail would not, in itself, cause the plan not to be credible.
FHFA Identification of a Resolution Strategy. FHFA did not suggest or establish any resolution strategy in the proposed rule. Instead, the proposed rule reflected provisions of the Safety and Soundness Act that require FHFA, as receiver for an Enterprise, to establish an LLRE that by operation of law and immediately upon its organization . . .
succeeds to the charter of the Enterprise and thereafter operates in accordance with, and subject to, such charter, the Safety and Soundness Act, and any other provision of law to which the Enterprise is subject except as
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otherwise provided in the Safety and Soundness Act.38 One commenter suggested that FHFA establish a preferred resolution strategy or strategies to guide FHFAs actions in resolution and receivership . . . to provide clarity to the Enterprises, the market, and the public. That commenter also asked FHFA to confirm certain resolution mechanics: That the LLRE will be created at the outset of the receivership process; that the LLRE
will be permitted to raise capital and debt financing; and that FHFA will proactively assist in identifying business areas that can be sold to an acquirer.
After consideration, FHFA has not set forth a preferred resolution strategy in the rule. FHFA has refrained from doing so, in part, to encourage the Enterprises to consider any reasonable approaches to resolution, rather than preemptively focusing their efforts on a single resolution strategy that may not be appropriate to an Enterprises particular circumstances. In addition, FHFA
believes that the iterative process of reviewing the Enterprises resolution plans could reveal benefits from one strategy over another, or demonstrate that one strategy is preferable to others in certain circumstances. In the future, if FHFA develops a preferred resolution strategy, FHFA may amend the resolution planning rule if FHFA
determines it would be appropriate to include such a strategy.
FHFA also does not believe it is necessary to include the described mechanics in a resolution planning rule. In general, however, FHFA
observes that, because the purpose of the LLRE is to continue CBLs of the Enterprise, it would be important to establish the LLRE at the outset of the receivership process. How an Enterprises CBLs as continued in the LLRE would be funded is an issue each Enterprise is required to address in its resolution plan, and identification of business areas that could be sold to an acquirer will emerge through an understanding of areas that are not CBLs.
38 12 U.S.C. 4617i2A; see also 12 CFR
1242.1a1 and 1242.2, 86 FR at 13421343, requiring Enterprise plans for their rapid and orderly resolution by FHFA as receiver and defining rapid and orderly resolution as a process for establishing a limited-life regulated entity as successor to the Enterprise under section 1367 of the Safety and Soundness Act 12 U.S.C. 4617, including transferring Enterprise assets and liabilities to the limited-life regulated entity, such that succession by the limited-life regulated entity 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.

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