Featured Product

    FHFA Proposes New Capital Framework for Fannie Mae and Freddie Mac

    June 30, 2020

    FHFA and the Office of Federal Housing Enterprise Oversight (OFHEO) proposed a new regulatory capital framework for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac)—collectively known as the Enterprises. The proposed rule would make certain conforming amendments to definitions in the FHFA regulations for assessments and minimum capital. It would also remove the OFHEO Regulation on capital for the Enterprises. Comments must be received on or before August 31, 2020.

    This proposed rule is a re-proposal of the regulatory capital framework set forth in the notice of proposed rulemaking published in the Federal Register on July 17, 2018. The 2018 proposal, which remains the foundation of this proposed rule, contemplated risk-based capital requirements based on a granular assessment of credit risk specific to different mortgage loan categories as well as two alternatives for an updated leverage ratio requirement. The proposed rule contemplates a number of key enhancements to the 2018 proposal, including:

    • Simplifications and refinements of the grids and risk multipliers for the credit risk capital requirements for single-family mortgage exposures, including removal of the single-family risk multipliers for loan balance and the number of borrowers
    • A countercyclical adjustment to the credit risk capital requirements for single-family mortgage exposures
    • A prudential floor on the credit risk capital requirement for mortgage exposures
    • Refinements to the capital treatment of credit risk transfers structures, including a minimum capital requirement on senior tranches of credit risk transfers retained by an Enterprise and an adjustment to reflect that credit risk transfers does not have the same loss-absorbing capacity as equity capital
    • The addition of a credit risk capital requirement for Enterprise cross-holdings of mortgage-backed securities
    • Risk-based capital requirements for a number of other exposures not explicitly addressed by the 2018 proposal
    • Supplemental capital requirements based on the Basel framework's definitions of total capital, tier 1 capital, and CET1 capital
    • Capital buffers that would subject an Enterprise to increasing limits on capital distributions and discretionary bonus payments to the extent that its regulatory capital falls below the prescribed buffer amounts
    • A stability capital buffer tailored to the risk that an Enterprise's default or other financial distress could have on the liquidity, efficiency, competitiveness, and resiliency of national housing finance markets
    • A revised method for determining operational risk capital requirements, as well as a higher floor
    • A requirement that each Enterprise maintain internal models for determining its own estimates of risk-based capital requirements

    The regulatory capital framework contemplated by the proposed rule would require each Enterprise to maintain total capital of not less than 8.0% of risk-weighted assets, adjusted total capital of not less than 8.0% of risk-weighted assets, tier 1 capital of not less than 6.0% of risk-weighted assets, and common equity tier 1 (CET1) capital of not less than 4.5% of the risk-weighted assets. Each Enterprise would be also required to satisfy the following leverage ratios—core capital of not less than 2.5% of adjusted total assets and tier 1 capital of not less than 2.5% of the adjusted total assets. 


    Related Link: Federal Register Notice

    Comment Due Date: August 31, 2020

    Keywords: Americas, US, Banking, Regulatory Capital, CET 1, Basel, Credit Risk, Market Risk, Operational Risk, Leverage Ratio, Fannie Mae, Fannie Mac, FHFA

    Featured Experts
    Related Articles
    News

    Regulators Fine Goldman Sachs for Risk Management Failures

    FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).

    October 23, 2020 WebPage Regulatory News
    News

    Canada Hosts International Conference of Banking Supervisors

    BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.

    October 22, 2020 WebPage Regulatory News
    News

    FCA Proposes More Measures to Help Insurance Customers Amid Crisis

    FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.

    October 21, 2020 WebPage Regulatory News
    News

    EBA Issues Opinion to Address Risk Stemming from Legacy Instruments

    EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.

    October 21, 2020 WebPage Regulatory News
    News

    ESRB Publishes Non-Bank Financial Intermediation Risk Monitor for 2020

    ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).

    October 21, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Policy Statement Amending Benchmarks Regulation

    HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.

    October 21, 2020 WebPage Regulatory News
    News

    APRA Initiates Action Against a Bank for Liquidity Compliance Breach

    APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.

    October 21, 2020 WebPage Regulatory News
    News

    PRA Consults on Implementation of Certain Provisions of CRD5 and CRR2

    PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule to Reduce Impact of Large Bank Failures

    US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule on Net Stable Funding Ratio Requirements

    US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.

    October 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6004