FHFA Issues Proposed Rulemaking for Enterprise Liquidity Requirements, Seeks Comments
The Federal Housing Finance Agency, Washington, D.C., on Thursday announced it would seek comments on a proposed rulemaking regarding Fannie Mae and Freddie Mac liquidity requirements.
The proposed rule builds on existing FHFA guidance. Among other things, the proposed rule seeks to implement minimum Enterprise liquidity and funding requirements, daily management reporting of the Enterprises’ liquidity positions, monthly public disclosure reporting requirements and other liquidity-related requirements.
“During the 2008 financial crisis, Fannie Mae and Freddie Mac did not have enough truly liquid assets nor did they have consistent access to the longer-term unsecured debt markets,” said FHFA Director Mark Calabria. “This liquidity and funding failure, along with their low capital levels, necessitated placing the Enterprises into conservatorship.”
Calabria said the proposed rule will better ensure the Enterprises are positioned to fulfill their countercyclical mission. “Requiring the Enterprises to have enough liquid assets to continue supporting the mortgage market during times of severe stress protects taxpayers and the housing market,” he said.
The proposed rule has four liquidity requirements. To protect taxpayers and support the mortgage market, it takes into account the Enterprises’ lack of access to the Federal Reserve Bank discount window, their unique structure and their public charter. Currently, the Enterprises would meet or exceed all requirements of the proposed rule.
The four liquidity requirements are:
Two cash-flow based requirements; and
A short-term 30-day requirement that, similar to the banking framework’s Liquidity Coverage Ratio rule, is based on a cumulative net cash outflow analysis, plus an additional $10 billion cushion requirement that must be met by highly liquid assets such as Treasury securities; and
A 365-day requirement extending the short-term cumulative cash outflow analysis to a full year. Over this intermediate term, the Enterprises may count borrowings against certain fixed-income instruments that the Fixed-Income Clearing Corporation deems eligible collateral (subject to a haircut), which they cannot count under the 30-day requirement. There is no separate excess cushion required under this metric.
Two long-term liquidity and funding requirements.
The ratio of long-term unsecured debt to less-liquid assets must be greater than 120 percent; and
The ratio of the spread duration of unsecured debt to the spread duration of retained portfolio assets must be greater than 60 percent.
FHFA said it invites interested parties to submit comments on the notice of proposed rulemaking within 60 days of its publication in the Federal Register via FHFA.gov or via mail.