Federal Housing Finance Agency Pt. 1237

8. A regulated entity should have the risk of related counterparties that are appro- management systems to generate, at an ap- priate to its business model. propriate frequency, the information needed 6. A regulated entity should have policies, to manage risk. Such systems should include procedures, and systems for evaluating cred- systems for market, credit, operational, and it risk that will enable it to make informed liquidity risk analysis, asset and liability credit decisions. management, regulatory reporting, and per- 7. A regulated entity should have policies, formance measurement. procedures, and systems for evaluating cred- 9. A regulated entity should have a com- it risk that will enable it to ensure that prehensive set of risk limits and monitoring claims are legally enforceable. procedures to ensure that risk exposures re- 8. A regulated entity should have policies main within established risk limits, and a and procedures for addressing problem cred- mechanism for reporting violations and its. breaches of risk limits to senior manage- 9. A regulated entity should have an ongo- ment and the board of directors. ing credit review program that includes 10. A regulated entity should ensure that it stress testing and scenario analysis. has sufficient controls around risk measure- ment models to ensure the completeness, ac- Applicable Laws, Regulations, and Policies curacy, and timeliness of risk information. 10. A regulated entity should manage cred- 11. A regulated entity should have ade- it and counterparty risk in a way that com- quate and well-tested disaster recovery and plies with applicable laws, regulations, and business resumption plans for all major sys- supervisory guidance (e.g., advisory bul- tems and have remote facilitates to limit the letins). impact of disruptive events. STANDARD 10—MAINTENANCE OF ADEQUATE Applicable Laws, Regulations, and Policies RECORDS 12. A regulated entity should comply with 1. A regulated entity should maintain fi- all applicable laws, regulations, and super- nancial records in compliance with Gen- visory guidance (e.g., advisory bulletins) gov- erally Accepted Accounting Principles erning the management of risk. (GAAP), FHFA guidelines, and applicable STANDARD 9—MANAGEMENT OF CREDIT AND laws and regulations. COUNTERPARTY RISK 2. A regulated entity should ensure that as- sets are safeguarded and financial and oper- Responsibilities of the Board of Directors and ational information is timely and reliable. Senior Management 3. A regulated entity should have a records retention program consistent with laws and 1. Regarding the management of credit and corporate policies, including accounting counterparty risk, the board of directors and policies, as well as personnel that are appro- senior management are responsible for en- priately trained and competent to oversee suring that the regulated entity has appro- and implement the records management priate policies, procedures, and systems that plan. cover all aspects of credit , 4. A regulated entity, with oversight from including credit pricing, underwriting, credit the board of directors, should conduct a re- limits, collateral standards, and collateral view and approval of the records retention valuation procedures. This should also in- program and records retention schedule for clude derivatives and the use of clearing all types of records at least once every two houses. They are also responsible for ensur- years. ing personnel are appropriately trained, competent, and equipped with the necessary 5. A regulated entity should ensure that re- tools, procedures and systems to assess risk. porting errors are detected and corrected in a timely manner. 2. Senior management should provide the board of directors with regular briefings and 6. A regulated entity should comply with reports on credit exposures. all applicable laws, regulations, and super- visory guidance (e.g., advisory bulletins) gov- Policies, Procedures, Controls, and Systems erning the maintenance of adequate records. 3. A regulated entity should have policies [77 FR 33959, June 8, 2012, as amended at 80 that limit concentrations of credit risk and FR 72336, Nov. 19, 2015] systems to identify concentrations of credit risk. PART 1237—CONSERVATORSHIP 4. A regulated entity should establish pru- dential limits to restrict exposures to a sin- AND gle counterparty that are appropriate to its business model. Sec. 5. A regulated entity should establish pru- 1237.1 Purpose and applicability. dential limits to restrict exposures to groups 1237.2 Definitions.

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Subpart A—Powers (3) The Federal Home Loan Bank Act. 1237.3 Powers of the Agency as conservator or receiver. Capital distribution has, with respect 1237.4 Receivership following conservator- to a Bank, the definition stated in ship; administrative expenses. § 1229.1 of this chapter, and with respect 1237.5 Contracts entered into before ap- to an Enterprise, the definition stated pointment of a conservator or receiver. in § 1229.13 of this chapter. 1237.6 Authority to enforce contracts. Compensation means any payment of Subpart B—Claims money or the provision of any other thing of current or potential value in 1237.7 Period for determination of claims. connection with employment. 1237.8 Alternate procedures for determina- Conservator means the Agency as ap- tion of claims. pointed by the Director as conservator 1237.9 Priority of expenses and unsecured claims. for a regulated entity. ; in danger of default: Subpart C—Limited-Life Regulated Entities (1) Default means, with respect to a regulated entity, any official deter- 1237.10 Limited-life regulated entities. 1237.11 Authority of limited-life regulated mination by the Director, pursuant to entities to obtain credit. which a conservator or receiver is ap- pointed for a regulated entity. Subpart D—Other (2) In danger of default means, with 1237.12 Capital distributions while in con- respect to a regulated entity, the defi- servatorship. nition under section 1303(8)(B) of the 1237.13 Payment of Securities Litigation Safety and Soundness Act or applicable Claims while in conservatorship. FHFA regulations. 1237.14 Golden parachute payments [Re- Entity-affiliated party means any served] party meeting the definition of an enti- AUTHORITY: 12 U.S.C. 4513b, 4526, 4617. ty-affiliated party under section SOURCE: 76 FR 35733, June 20, 2011, unless 1303(11) of the Safety and Soundness otherwise noted. Act or applicable FHFA regulations. Equity security of any person shall § 1237.1 Purpose and applicability. mean any and all shares, interests, The provisions of this part shall rights to purchase or otherwise ac- apply to the appointment and oper- quire, warrants, options, participations ations of the Federal Housing Finance or other equivalents of or interests Agency (‘‘Agency’’) as conservator or (however designated) in equity, owner- receiver of a regulated entity. These ship or profits of such person, including provisions implement and supplement any preferred stock, any limited or the procedures and process set forth in general partnership interest and any the Federal Housing Enterprises Finan- limited liability company membership cial Safety and Soundness Act of 1992, interest, and any securities or other as amended, by the Housing and Eco- rights or interests convertible into or nomic Recovery Act of 2008 (HERA), exchangeable for any of the foregoing. Public Law 110–289 for conduct of a Executive officer means, with respect conservatorship or receivership of such to an Enterprise, any person meeting entity. the definition of executive officer under section 1303(12) of the Safety and § 1237.2 Definitions. Soundness Act and applicable FHFA For the purposes of this part the fol- regulations under that section, and, lowing definitions shall apply: with respect to a Bank, an executive Agency means the Federal Housing officer as defined in applicable FHFA Finance Agency (‘‘FHFA’’) established regulations. under 12 U.S.C. 4511, as amended. Golden parachute payment means, Authorizing statutes mean— with respect to a regulated entity, the (1) The Federal National Mortgage definition under 12 CFR part 1231 or Association Charter Act, other applicable FHFA regulations. (2) The Federal Home Loan Mortgage Limited-life regulated entity means an Corporation Act, and entity established by the Agency under

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section 1367(i) of the Safety and Sound- (6) Perform all functions of the regu- ness Act with respect to a Federal lated entity in the name of the regu- Home Loan Bank in default or in dan- lated entity that are consistent with ger of default, or with respect to an En- the appointment as conservator or re- terprise in default or in danger of de- ceiver; fault. (7) Preserve and conserve the assets Receiver means the Agency as ap- and property of the regulated entity pointed by the Director to act as re- (including the exclusive authority to ceiver for a regulated entity. investigate and prosecute claims of any Securities litigation claim means any type on behalf of the regulated entity, claim, whether or not reduced to judg- or to delegate to management of the ment, liquidated or unliquidated, fixed, contingent, matured or unmatured, regulated entity the authority to in- disputed or undisputed, legal, equi- vestigate and prosecute claims); and table, secured or unsecured, arising (8) Provide by contract for assistance from rescission of a purchase or sale of in fulfilling any function, activity, ac- an equity security of a regulated entity tion, or duty of the Agency as conser- or for damages arising from the pur- vator or receiver. chase, sale, or retention of such a secu- (b) Agency as receiver. The Agency, as rity. receiver, shall place the regulated enti- Transfer means every mode, direct or ty in , employing the addi- indirect, absolute or conditional, vol- tional powers expressed in 12 U.S.C. untary or involuntary, of disposing of 4617(b)(2)(E). or parting with property or with an in- (c) Powers as conservator or receiver. terest in property, including retention The Agency, as conservator or receiver, of title as a and fore- shall have all powers and authorities closure of the equity of redemption of specifically provided by section 1367 of the regulated entity. the Safety and Soundness Act and [76 FR 35733, June 20, 2011, as amended at 78 paragraph (a) of this section, including FR 2324, Jan. 11, 2013; 80 FR 72336, Oct. 22, incidental powers, which include the 2015] authority to suspend capital classifica- tions under section 1364(e)(1) of the Subpart A—Powers Safety and Soundness Act during the duration of the conservatorship or re- § 1237.3 Powers of the Agency as con- ceivership of that regulated entity. servator or receiver. (d) Transfer or sale of assets and liabil- (a) Operation of the regulated entity. ities. The Agency may, as conservator The Agency, as it determines appro- or receiver, transfer or sell any asset or priate to its operations as either con- liability of the regulated entity in de- servator or receiver, may: fault, and may do so without any ap- (1) Take over the assets of and oper- proval, assignment, or consent with re- ate the regulated entity with all the spect to such transfer or sale. Exercise powers of the shareholders (including the authority to vote shares of any and of this authority by the Agency as con- all classes of voting stock), the direc- servator will nullify any restraints on tors, and the officers of the regulated sales or transfers in any agreement not entity and conduct all business of the entered into by the Agency as conser- regulated entity; vator. Exercise of this authority by the (2) Continue the missions of the regu- Agency as receiver will nullify any re- lated entity; straints on sales or transfers in any (3) Ensure that the operations and agreement not entered into by the activities of each regulated entity fos- Agency as receiver. ter liquid, efficient, competitive, and resilient national housing finance mar- § 1237.4 Receivership following con- kets; servatorship; administrative ex- (4) Ensure that each regulated entity penses. operates in a safe and sound manner; If a receivership immediately suc- (5) Collect all obligations and money ceeds a conservatorship, the adminis- due the regulated entity; trative expenses of the conservatorship

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shall also be deemed to be administra- § 1237.9 Priority of expenses and unse- tive expenses of the subsequent receiv- cured claims. ership. (a) General. The receiver will grant priority to unsecured claims against a § 1237.5 Contracts entered into before regulated entity or the receiver for appointment of a conservator or re- that regulated entity that are proven ceiver. to the satisfaction of the receiver in (a) The conservator or receiver for the following order: any regulated entity may disaffirm or (1) Administrative expenses of the re- repudiate any contract or lease to ceiver (or an immediately preceding which such regulated entity is a party conservator). pursuant to section 1367(d) of the Safe- (2) Any other general or senior liabil- ty and Soundness Act. ity of the regulated entity (that is not (b) For purposes of section 1367(d)(2) a liability described under paragraph of the Safety and Soundness Act, a rea- (a)(3) or (a)(4) of this section). sonable period shall be defined as a pe- (3) Any obligation subordinated to riod of 18 months following the ap- general (that is not an obliga- pointment of a conservator or receiver. tion described under paragraph (a)(4) of this section). § 1237.6 Authority to enforce con- (4) Any claim by current or former tracts. shareholders or members arising as a The conservator or receiver may en- result of their current or former status force any contract entered into by the as shareholders or members, including, regulated entity pursuant to the provi- without limitation, any securities liti- sions and subject to the restrictions of gation claim. Within this priority section 1367(d)(13) of the Safety and level, the receiver shall recognize the Soundness Act. priorities of shareholder claims inter se, such as that preferred shareholder claims are prior to common share- Subpart B—Claims holder claims. This subparagraph (a)(4) shall not apply to any claim by a cur- § 1237.7 Period for determination of rent or former member of a Federal claims. Home Loan Bank that arises from Before the end of the 180-day period transactions or relationships distinct beginning on the date on which any from the current or former member’s claim against a regulated entity is ownership, purchase, sale, or retention filed with the Agency as receiver, the of an equity security of the Federal Agency shall determine whether to Home Loan Bank. allow or disallow the claim and shall (b) Similarly situated creditors. All notify the claimant of any determina- claimants that are similarly situated tion with respect to such claim. This shall be treated in a similar manner, period may be extended by a written except that the receiver may take any agreement between the claimant and action (including making payments) the Agency as receiver, which may in- that does not comply with this section, clude an agreement to toll any applica- if: ble statute of limitations. (1) The Director determines that such action is necessary to maximize the § 1237.8 Alternate procedures for de- value of the assets of the regulated en- termination of claims. tity, to maximize the present value re- turn from the sale or other disposition Claimants seeking a review of the de- of the assets of the regulated entity, or termination of claims may seek alter- to minimize the amount of any loss re- native dispute resolution from the alized upon the sale or other disposi- Agency as receiver in lieu of a judicial tion of the assets of the regulated enti- determination. The Director may by ty; and order, policy statement, or directive (2) All claimants that are similarly establish alternative dispute resolution situated under paragraph (a) of this procedures for this purpose. section receive not less than the

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amount such claimants would have re- credit or issue debt that is secured by ceived if the receiver liquidated the as- a senior or equal on property of sets and liabilities of the regulated en- the limited-life regulated entity that is tity in receivership and such action already subject to a lien (other than had not been taken. mortgages that collateralize the mort- (c) Priority determined at default. The gage-backed securities issued or guar- receiver will determine priority based anteed by an Enterprise) only if the on a claim’s status at the time of de- limited-life regulated entity is unable fault, such default having occurred at to obtain such credit or issue such debt the time of entry into the receivership, otherwise on commercially reasonable or if a conservatorship immediately terms and there is adequate protection preceded the receivership, at the time of the interest of the holder of the ear- of entry into the conservatorship pro- lier lien on the property with respect vided the claim then existed. to which such senior or equal lien is proposed to be granted. Subpart C—Limited-Life Regulated (d) Adequate protection. The adequate Entities protection referred to in paragraph (c) of this section may be provided by: § 1237.10 Limited-life regulated enti- (1) Requiring the limited-life regu- ties. lated entity to make a cash payment (a) Status. The United States Govern- or periodic cash payments to the hold- ment shall be considered a person for er of the earlier lien, to the extent that purposes of section 1367(i)(6)(C)(i) of the there is likely to be a decrease in the Safety and Soundness Act. value of such holder’s interest in the (b) Investment authority. The require- property subject to the lien; ments of section 1367(i)(4) shall apply (2) Providing to the holder of the ear- only to the liquidity portfolio of a lim- lier lien an additional or replacement ited-life regulated entity. lien to the extent that there is likely (c) Policies and procedures. The Agen- to be a decrease in the value of such cy may draft such policies and proce- holder’s interest in the property sub- dures with respect to limited-life regu- ject to the lien; or lated entities as it determines to be (3) Granting the holder of the earlier necessary and appropriate, including lien such other relief, other than enti- policies and procedures regarding the tling such holder to compensation al- timing of the creation of limited-life lowable as an administrative expense regulated entities. under section 1367(c) of the Safety and Soundness Act, as will result in the re- § 1237.11 Authority of limited-life regu- alization by such holder of the equiva- lated entities to obtain credit. lent of such holder’s interest in such (a) Ability to obtain credit. A limited- property. life regulated entity may obtain unse- cured credit and issue unsecured debt. Subpart D—Other (b) Inability to obtain credit. If a lim- ited-life regulated entity is unable to § 1237.12 Capital distributions while in obtain unsecured credit or issue unse- conservatorship. cured debt, the Director may authorize (a) Except as provided in paragraph the obtaining of credit or the issuance (b) of this section, a regulated entity of debt by the limited-life regulated en- shall make no capital distribution tity with priority over any and all of while in conservatorship. the obligations of the limited-life regu- (b) The Director may authorize, or lated entity, secured by a lien on prop- may delegate the authority to author- erty of the limited-life regulated entity ize, a capital distribution that would that is not otherwise subject to a lien, otherwise be prohibited by paragraph or secured by a junior lien on property (a) of this section if he or she deter- of the limited-life regulated entity mines that such capital distribution: that is subject to a lien. (1) Will enhance the ability of the (c) Limitations. The Director, after regulated entity to meet the risk-based notice and a hearing, may authorize a capital level and the minimum capital limited-life regulated entity to obtain level for the regulated entity;

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(2) Will contribute to the long-term 1238.8 Additional implementing action. financial safety and soundness of the AUTHORITY: 12 U.S.C. 1426; 4513; 4526; 4612; regulated entity; 5365(i). (3) Is otherwise in the interest of the regulated entity; or SOURCE: 78 FR 59222, Sept. 26, 2013, unless (4) Is otherwise in the public interest. otherwise noted. (c) This section is intended to supple- ment and shall not replace or affect § 1238.1 Authority and purpose. any other restriction on capital dis- (a) Authority. This part is issued by tributions imposed by statute or regu- the Federal Housing Finance Agency lation. (FHFA) under section 165(i) of the Dodd-Frank Wall Street Reform and § 1237.13 Payment of Securities Litiga- Consumer Protection Act (Dodd-Frank tion Claims while in conservator- Act), Public Law 111–203, 124 Stat. 1376, ship. 1423–32 (2010), 12 U.S.C. 5365(i), as (a) Payment of Securities Litigation amended by section 401 of the Eco- Claims while in conservatorship. The nomic Growth, Regulatory Relief, and Agency, as conservator, will not pay a Consumer Protection Act (EGRRCPA), Securities Litigation Claim against a Public Law 115–174, 132 Stat. 1296 (2018), regulated entity, except to the extent 12 U.S.C. 5365(i); and the Safety and the Director determines is in the inter- Soundness Act (12 U.S.C. 4513, 4526, est of the conservatorship. 4612). (b) Claims against limited-life regulated (b) Purpose. (1) This part implements entities. A limited-life regulated entity section 165(i)(2) of the Dodd-Frank Act, shall not assume, acquire, or succeed as amended by section 401 of the to any obligation that a regulated enti- EGRRCPA, which requires all large fi- ty for which a receiver has been ap- nancial companies that have total con- pointed may have to any shareholder of solidated assets of more than $250 bil- the regulated entity that arises as a re- lion, and are regulated by a primary sult of the status of that person as a federal financial , to shareholder of the regulated entity, in- conduct periodic stress tests. cluding any Securities Litigation (2) This part establishes require- Claim. No of the regulated en- ments that apply to each Enterprise’s tity shall have a claim against a lim- performance of periodic stress tests. ited-life regulated entity unless the re- ceiver has transferred that liability to The purpose of the periodic stress test the limited-life regulated entity. The is to provide the Enterprises, FHFA, charter of the regulated entity, or of and the FRB with additional, forward- the limited-life regulated entity, is not looking information that will help an asset against which any claim can them to assess capital adequacy at the be made by any creditor or shareholder Enterprises under various scenarios; to of the regulated entity. review the Enterprises’ stress test re- sults; and to increase public disclosure § 1237.14 Golden parachute payments of the Enterprises’ capital condition by [Reserved] requiring broad dissemination of the stress test scenarios and results. PART 1238—STRESS TESTING OF [85 FR 16529, Mar. 24, 2020] REGULATED ENTITIES § 1238.2 Definitions. Sec. For purposes of this part, the fol- 1238.1 Authority and purpose. 1238.2 Definitions. lowing definitions apply: 1238.3 Annual stress test. Planning horizon means the period of 1238.4 Methodologies and practices. time over which the stress projections 1238.5 Required report to FHFA and the must extend. The planning horizon FRB of stress test results and related in- cannot be less than nine quarters. formation. 1238.6 Post-assessment actions by the En- Scenarios are sets of economic and fi- terprises. nancial conditions used in the Enter- 1238.7 Publication of results by regulated prises’ stress tests, including baseline entities. and severely adverse.

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