AGENCY:

Federal Housing Finance Agency.

ACTION:

Notice of proposed rulemaking with request for comment.

SUMMARY:

The Federal Housing Finance Agency (FHFA) is requesting comment on a proposed rule that would amend its stress testing rule, consistent with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). Specifically, the proposed rule would revise the minimum threshold for the regulated entities to conduct stress tests from $10 billion to $250 billion, remove the requirements for Federal Home Loan Banks (Banks) subject to stress testing, and remove the adverse scenario from the list of required scenarios. These amendments align FHFA's rule with rules adopted by other financial institution regulators that implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) stress testing requirements, as amended by EGRRCPA. The proposed rule also makes certain conforming and technical changes.

DATES:

Comments on the proposed amendments must be received on or before January 15, 2020.

ADDRESSES:

You may submit your comments, identified by regulatory identification number (RIN) 2590-AB05, by any of the following methods:

• Agency Website: www.fhfa.gov/​open-for-comment-or-input.
• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. If you submit your comment to the Federal eRulemaking Portal, please also send it by email to FHFA at RegComments@fhfa.gov to ensure timely receipt by the agency. Please include “RIN 2590-AB05” in the subject line of the message.
• Hand Delivered/Courier: The hand delivery address is: Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AB05, Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW, Washington, DC 20219. Deliver the package to the Seventh Street entrance Guard's Desk, First Floor, on business days between 9 a.m. and 5 p.m.
• U.S. Mail, United Parcel Service, Federal Express, or Other Mail Service: The mailing address for comments is: Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AB05, Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW, Washington, DC 20219. Please note that all mail sent to FHFA via U.S. Mail is routed through a national irradiation facility, a process that may delay delivery by approximately two weeks.

See SUPPLEMENTARY INFORMATION for additional information on submission and posting of comments.

FOR FURTHER INFORMATION CONTACT:

Naa Awaa Tagoe, Senior Associate Director, Office of Financial Analysis, Modeling and Simulations, (202) 649-3140, naaawaa.tagoe@fhfa.gov; Karen Heidel, Assistant General Counsel, Office of General Counsel, (202) 649-3073, karen.heidel@fhfa.gov; or Mark D. Laponsky, Deputy General Counsel, Office of General Counsel, (202) 649-3054, mark.laponsky@fhfa.gov. The telephone number for the Telecommunications Device for the Deaf is (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Comments

FHFA invites comment on all aspects of the proposed amendments and will take all comments into consideration before adopting amendments through a final rule. Copies of all comments received will be posted without change on the FHFA website at http://www.fhfa.gov, and will include any personal information you provide, such as your name, address, email address, and telephone number. In addition, copies of all comments received will be available for examination by the public through the electronic rulemaking docket for this proposed rule also located on the FHFA website.

II. Background

Section 401 of the EGRRCPA, (Pub. L. 115-174, section 401) amended the Dodd-Frank Act requirements to implement stress testing. Prior to the passage of the EGRRCPA,^[1] section 165(i) of the Dodd-Frank Act ^[2] required each financial company with total consolidated assets of more than $10 billion to conduct annual stress tests. In addition, section 165 required FHFA to issue regulations for regulated entities to conduct their stress tests, which were required to include at least three different stress testing scenarios: “baseline,” “adverse,” and “severely adverse.” ^[3] In September 2013, FHFA published in the Federal Register a final rule implementing the Dodd-Frank Act stress testing requirements. FHFA's regulation, located at 12 CFR part 1238, requires each regulated entity to conduct an annual stress test based on scenarios provided by FHFA and consistent with FHFA prescribed methodologies and practices. The regulation also requires that the agency issue to the regulated entities stress test scenarios that are generally consistent with and comparable to those developed by the FRB not later than 30 days after the FRB publishes its scenarios.^[4]

Section 401 of EGRRCPA amended certain aspects of the stress testing requirements applicable to financial companies in section 165(i) of the Dodd-Frank Act.^[5] Specifically, after 18 months, section 401 of EGRRCPA raises the minimum asset threshold for application of the stress testing requirement from $10 billion to $250 billion in total consolidated assets, revises the requirement for financial companies to conduct stress tests “annually,” and instead requires them to conduct stress tests “periodically”, and no longer requires the stress test to include an “adverse” scenario, thus reducing the number of required stress test scenarios from three to two.

III. Analysis of Proposed Rule

The purpose of this proposed rule is to revise FHFA's stress testing rules applicable to its regulated entities, consistent with amendments made by section 401 of EGRRCPA. The proposed rule would also make additional technical changes to the stress testing rule. In sum, the proposed rule would discontinue the Dodd-Frank Act stress testing of the Banks and reduce the number of scenarios mandated for Enterprise Dodd-Frank Act stress testing.

A. Minimum Asset Threshold

As described above, section 401 of EGRRCPA amended section 165 of the Dodd-Frank Act by raising the minimum threshold for financial companies required to conduct stress tests from $10 billion to $250 billion. As there are no Banks with total consolidated assets of over $250 billion, the Banks will no longer be subject to the stress testing requirements of this rule. Though each of the Banks has total consolidated assets of less than $250 billion, the rule expressly maintains the Director's discretion to require any regulated entity with assets below the $250 billion threshold to conduct the stress test. As the total consolidated assets for each Enterprise exceed the $250 billion threshold, the Enterprises remain subject to stress testing under this rule.

B. Frequency of Stress Testing

Section 401 of EGRRCPA also revised the requirement under section 165 of the Dodd-Frank Act for financial companies to conduct stress tests, changing the required frequency from “annual” to “periodic.” The term “periodic” is not defined in EGRRCPA. Because of the Enterprises' total consolidated asset amounts, their function in the mortgage market, size of their retained portfolios, and their share of the mortgage securitization market, FHFA proposes to require the Enterprises to conduct stress tests on an annual basis. This is consistent with FHFA's regulatory mission to ensure each of the regulated entities “operates in a safe and sound manner.” ^[6]

C. Removal of the “Adverse” Scenario

As discussed above, section 401 of EGRRCPA amended section 165(i) of the Dodd-Frank Act to no longer require the Board to include an “adverse” stress-testing scenario, reducing the number of stress test scenarios from three to two. The “baseline” scenario is a set of conditions that affect the U.S. economy or the financial condition of the regulated entities, and that reflect the consensus views of the economic and financial outlook, and the “severely adverse” scenario is a more severe set of conditions and the most stringent of the former three scenarios. Although the “adverse” scenario has provided some additional value in limited circumstances, the “baseline” and “severely adverse” scenarios largely cover the full range of expected and stressful conditions. Therefore FHFA does not consider it necessary, for its supervisory purposes, to require the additional burden of analyzing an “adverse” scenario.

VI. Coordination With the FRB and the Federal Insurance Office

In accordance with section 165(i)(2)(C), FHFA has coordinated with both the FRB and the Federal Insurance Office (FIO). On November 29, 2018, the FRB published a proposed rule which revised “the minimum threshold for state member banks to conduct stress tests from $10 billion to $250 billion,” and revised “the frequency with which state member banks with assets greater than $250 billion would be required to conduct stress tests,” in addition to removing the adverse scenario from the list of required scenarios.^[7] The FDIC adopted its final rule; ^[8] and the OCC its final rule.^[9] Although FHFA's amended proposed rule would not be identical to those of the FRB, the FDIC, and the OCC, it is consistent and comparable with them. FHFA consulted with the FRB and FIO before proposing these amendments.

V. Paperwork Reduction Act

The proposed rule does not contain any collections of information pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et seq.). Therefore, FHFA has not submitted any information to the Office of Management and Budget for review.

VI. Regulatory Flexibility Act

The proposed rule applies only to the regulated entities, which do not come within the meaning of small entities as defined in the Regulatory Flexibility Act (see 5 U.S.C. 601(6)). Therefore, in accordance with section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 605(b)), the General Counsel of FHFA certifies that this proposed rule, if promulgated as a final rule, will not have a significant economic impact on a substantial number of small entities.

List of Subjects in 12 CFR Part 1238

• Administrative practice and procedure
• Capital
• Federal Home Loan Banks
• Government-sponsored enterprises
• Regulated entities
• Reporting and recordkeeping requirements
• Stress test

Authority and Issuance

For the reasons stated in the SUPPLEMENTARY INFORMATION section, and under the authority of 12 U.S.C. 5365(i), FHFA proposes to amend part 1238 of Title 12 of the Code of Federal Regulations to read as follows:

PART 1238—STRESS TESTING OF REGULATED ENTITIES

1. The authority citation for part 1238 continues to read as follows:

Authority: 12 U.S.C. 1426; 4513; 4526; 4612; 5365(i).

2. Amend § 1238.1 to read as follows:

3. Amend § 1238.2 to read as follows:

4. Amend § 1238.3 to read as follows:

5. Amend § 1238.4 to read as follows:

6. Amend § 1238.5 to read as follows:

7. Amend § 1238.6 to read as follows:

8. Amend § 1238.7 to read as follows:

Footnotes