FHFA proposal would exempt Federal Home Loan banks from stress tests

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WASHINGTON — The Federal Housing Finance Agency has proposed a plan that would exempt the Federal Home Loan banks from conducting stress tests.

The FHFA's proposal would increase the stress test threshold for companies supervised by the agency from $10 billion to $250 billion of total consolidated assets. No Home Loan bank currently meets the new threshold. The proposal still requires the government-sponsored enterprises Fannie Mae and Freddie Mac to conduct stress tests.

The plan would implement a provision of last year's financial regulatory relief law, and mirrors steps taken by the federal bank regulators for their institutions.

The FHFA is also proposing to remove a requirement that stress tests include an “adverse scenario” from its stress testing regime. The new regulatory relief law amended the Dodd-Frank Act to no longer require such a scenario in stress tests.

“Although the ‘adverse’ scenario has provided some additional value in limited circumstances, the ‘baseline’ and ‘severely adverse’ scenarios largely cover the full range of expected and stressful conditions,” the proposed rule says. “Therefore, FHFA does not consider it necessary, for its supervisory purposes, to require the additional burden of analyzing an ‘adverse’ scenario.”

Although the Home Loan banks would no longer be required to participate in stress tests, the FHFA’s proposal suggests that the agency's director should be able to compel any institution it regulates with assets of less than $250 billion to participate in stress tests if it is warranted.

The FHFA will accept comments on the proposal until Jan. 15.

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GSEs Regulatory relief Stress tests Dodd-Frank Federal Home Loan Banks FHFA Fannie Mae Freddie Mac