As of June 1, the Federal Housing Finance Agency [1] (FHFA) has published a final rule [2] that supplements the Enterprise Regulatory Capital Framework [3] (ERCF) by requiring Fannie Mae [4] and Freddie Mac [5] (the GSEs) to submit annual capital plans no the agency and provide prior notice for certain capital actions.
The final rule mandates that the GSEs’ capital plans include:
- An assessment of the expected sources and uses of capital over the planning horizon;
- Estimates of projected revenues, expenses, losses, reserves, and pro forma capital levels under a range of the Enterprise's internal scenarios, as well as under FHFA's scenarios;
- A description of all planned capital actions over the planning horizon;
- A discussion of how the Enterprise will, under expected and stressful conditions, maintain capital commensurate with the business risks and continue to serve the housing market; and
- A discussion of any expected changes to the GSE’s business plan that are likely to have a material impact on the Enterprise's capital adequacy or liquidity.
“The final rule provides the Enterprises with a stable regulatory framework that ensures the amount of capital held is commensurate with each of their risk profiles,” said FHFA Acting Director Sandra L. Thompson [6]. “This is an important step in securing the safety and soundness of the Enterprises by actively monitoring and maintaining proper levels of capital throughout the economic cycle.”
The requirements in the final rule are consistent with the regulatory framework for capital planning for large bank holding companies.
The final rule will be permanent 60 days after being published in the Federal Register.
The first set of capital plans are due May 20, 2023.