SFA Response to FHFA on Enterprise Regulatory Capital Framework
SFA responds to the FHFA’s Proposed Enterprise Regulatory Capital Framework. The newly proposed Rule form FHFA takes into account SFA’s comments submitted in response to the previous rules, including commentary on the regulatory capital treatment of Credit Risk Transfer (CRT).
article by Structured Finance Association
On November 22, 2021 SFA responded to the FHFA’s 2021 Proposed Enterprise Regulatory Capital Framework (ERCF) .
Key Takeaways:
- We express our support for how the FHFA’s newly proposed rule was in line with SFA’s comments submitted in response to the previous capital rule, which we found to be unnecessarily punitive toward Credit Risk Transactions (CRT). Positively, the 2021 ERCF more closely aligns the regulatory capital treatment of CRT with the economic benefits of CRT, incentivizing the GSEs to engage in these transactions, which helps ensure distribution of credit risk to private investors, and enables the GSEs to fulfill their mission to provide liquidity.
- We also propose areas for further discussion on how best to tailor regulatory capital rules for the GSEs so that they can fill their statutory purpose of providing liquidity to the market while operating in a safe and sound manner, including on the FHFA’s proposed risk weight floor calculation and the creation of consistent regulatory capital framework across FHFA and all other financial regulators.
- To that end, the letter recommends prudential regulators consider a holistic treatment of CRT across financial institutions so that it can be an appropriately regulated, cost-effective means of risk distribution throughout the financial system.