The Federal Housing Finance Agency (FHFA) has announced that it is seeking comment on a notice of proposed rulemaking that would introduce additional public disclosure requirements for the Enterprise Regulatory Capital Framework (ERCF) for the government-sponsored enterprises (Fannie Mae and Freddie Mac).
The proposed rule would implement quarterly quantitative and qualitative disclosure requirements for the GSEs related to regulatory capital instruments, risk-weighted assets calculated under the ERCF’s standardized approach, and risk management policies and procedures.
“These additional public disclosure requirements are intended to promote market discipline and prudent risk management practices at the Enterprises,” said FHFA Acting Director Sandra L. Thompson. “These changes also will provide market participants with more information to assess an Enterprise’s risks and capital adequacy. In addition, the proposed changes increase the transparency of the safety and soundness of the Enterprises while decreasing risk to the U.S. taxpayers.”
The deadline for the GSEs to comply with the disclosure requirements outlined in the proposed rule is six months from publication of the final rule in the Federal Register. FHFA invites comments on the proposed rule within 60 days of its publication in the Federal Register.
“By allowing market participants to assess key information about an Enterprise’s risk profile and its associated levels of capital, FHFA believes the proposed rule would encourage sound risk management practices and foster financial stability both during and after conservatorship,” stated the proposed rule. “However, enhanced public disclosures would necessarily be somewhat costly for the Enterprises. With the proposed rule, FHFA aims to strike an appropriate balance between the market benefits of disclosure and the additional financial burden to an Enterprise that provides the disclosures.”
The proposed rule includes market risk disclosure requirements for covered positions under the standardized approach. These requirements include a formal disclosure policy approved by the board of directors that addresses the GSE’s approach for determining its market risk disclosures. The policy would address the associated internal controls and disclosure controls and procedures and would contain requirements related to the verification and attestation of disclosures and the ongoing maintaining of effective controls and procedures. The requirements would also include quarterly quantitative disclosures for each material portfolio of covered positions related to exposure and risk-weighted asset amounts as well as the aggregate amount of on-balance sheet and off-balance sheet securitization positions by exposure type.