§ 4611. — Riskbased capital levels.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 12USC4611]
TITLE 12--BANKS AND BANKING
CHAPTER 46--GOVERNMENT SPONSORED ENTERPRISES
SUBCHAPTER II--REQUIRED CAPITAL LEVELS FOR ENTERPRISES AND SPECIAL
ENFORCEMENT POWERS
Sec. 4611. Risk-based capital levels
(a) Risk-based capital test
The Director shall, by regulation, establish a risk-based capital
test under this section for the enterprises. When applied to an
enterprise, the risk-based capital test shall determine the amount of
total capital for the enterprise that is sufficient for the enterprise
to maintain positive capital during a 10-year period in which the
following circumstances occur (in this section referred to as the
``stress period''):
(1) Credit risk
With respect to mortgages owned or guaranteed by the enterprise
and other obligations of the enterprise, losses occur throughout the
United States at a rate of default and severity (based on any
measurements of default reasonably related to prevailing practice
for that industry in determining capital adequacy) reasonably
related to the rate and severity that occurred in contiguous areas
of the United States containing an aggregate of not less than 5
percent of the total population of the United States that, for a
period of not less than 2 years, experienced the highest rates of
default and severity of mortgage losses, in comparison with such
rates of default and severity of mortgage losses in other such areas
for any period of such duration.
(2) Interest rate risk
(A) In general
Interest rates decrease as described in subparagraph (B) or
increase as described in subparagraph (C), whichever would
require more capital for the enterprise.
(B) Decreases
The 10-year constant maturity Treasury yield decreases
during the first year of the stress period and will remain at
the new level for the remainder of the stress period. The yield
decreases to the lesser of--
(i) 600 basis points below the average yield during the
preceding 9 months, or
(ii) 60 percent of the average yield during the
preceding 3 years,
but in no case to a yield less than 50 percent of the average
yield during the preceding 9 months.
(C) Increases
The 10-year constant maturity Treasury yield increases
during the first year of the stress period and will remain at
the new level for the remainder of the stress period. The yield
increases to the greater of--
(i) 600 basis points above the average yield during the
preceding 9 months, or
(ii) 160 percent of the average yield during the
preceding 3 years,
but in no case to a yield greater than 175 percent of the
average yield during the preceding 9 months.
(D) Different terms to maturity
Yields of Treasury instruments with other terms to maturity
will change relative to the 10-year constant maturity Treasury
yield in patterns and for durations that are reasonably related
to historical experience and are judged reasonable by the
Director.
(E) Large increases in yields
If the 10-year constant maturity Treasury yield is assumed
to increase by more than 50 percent over the average yield
during the preceding 9 months, the Director shall adjust the
losses in paragraphs (1) and (3) to reflect a correspondingly
higher rate of general price inflation.
(3) New business
(A) In general
Any contractual commitments of the enterprise to purchase
mortgages or issue securities will be fulfilled. The
characteristics of resulting mortgage purchases, securities
issued, and other financing will be consistent with the
contractual terms of such commitments, recent experience, and
the economic characteristics of the stress period. No other
purchases of mortgages shall be assumed, except as provided in
subparagraph (B).
(B) Additional new business
The Director may, after consideration of each of the studies
required by subparagraph (C), assume that the enterprise
conducts additional new business during the stress period
consistent with the following--
(i) Amount and product types
The amount and types of mortgages purchased and their
financing will be reasonably related to recent experience
and the economic characteristics of the stress period.
(ii) Losses
Default and loss severity characteristics of mortgages
purchased will be reasonably related to historical
experience.
(iii) Pricing
Prices charged by the enterprise in purchasing new
mortgages will be reasonably related to recent experience
and the economic characteristics of the stress period. The
Director may assume that a reasonable period of time would
lapse before the enterprise would recognize and react to the
characteristics of the stress period.
(iv) Interest rate risk
Interest rate risk on new mortgages purchased will occur
to an extent reasonably related to historical experience.
(v) Reserves
The enterprise must maintain reserves during and at the
end of the stress period on new business conducted during
the first 5 years of the stress period reasonably related to
the expected future losses on such business, consistent with
generally accepted accounting principles and industry
accounting practice.
(C) Studies
Within 1 year after regulations are first issued under
subsection (e) of this section, the Director of the
Congressional Budget Office, and the Comptroller General of the
United States shall each submit to the Committee on Banking,
Housing, and Urban Affairs of the Senate and the Committee on
Banking, Finance and Urban Affairs of the House of
Representatives a study of the advisability and appropriate form
of any new business assumptions under subparagraph (B).
(D) Effective date
The provisions of subparagraph (B) shall become effective 4
years after regulations are first issued under subsection (e) of
this section.
(4) Other activities
Losses or gains on other activities, including interest rate and
foreign exchange hedging activities, shall be determined by the
Director, on the basis of available information, to be consistent
with the stress period.
(b) Considerations
(1) In general
In establishing the risk-based capital test under subsection (a)
of this section, the Director shall take into account appropriate
distinctions among types of mortgage products, differences in
seasoning of mortgages, and any other factors the Director considers
appropriate.
(2) Consistency
Characteristics of the stress period other than those
specifically set forth in subsection (a) of this section, such as
prepayment experience and dividend policies, will be those
determined by the Director, on the basis of available information,
to be most consistent with the stress period.
(c) Risk-based capital level
For purposes of this subchapter, the risk-based capital level for an
enterprise shall be equal to the sum of the following amounts:
(1) Credit and interest rate risk
The amount of total capital determined by applying the risk-
based capital test under subsection (a) of this section to the
enterprise.
(2) Management and operations risk
To provide for management and operations risk, 30 percent of the
amount of total capital determined by applying the risk-based
capital test under subsection (a) of this section to the enterprise.
(d) Definitions
For purposes of this section:
(1) Seasoning
The term ``seasoning'' means the change over time in the ratio
of the unpaid principal balance of a mortgage to the value of the
property by which such mortgage loan is secured, determined on an
annual basis by region, in accordance with the Constant Quality Home
Price Index published by the Secretary of Commerce (or any index of
similar quality, authority, and public availability that is
regularly used by the Federal Government).
(2) Type of mortgage product
The term ``type of mortgage product'' means a classification of
one or more mortgage products, as established by the Director, which
have similar characteristics from each set of characteristics under
the following subparagraphs:
(A) The property securing the mortgage is--
(i) a residential property consisting of 1 to 4 dwelling
units; or
(ii) a residential property consisting of more than 4
dwelling units.
(B) The interest rate on the mortgage is--
(i) fixed; or
(ii) adjustable.
(C) The priority of the lien securing the mortgage is--
(i) first; or
(ii) second or other.
(D) The term of the mortgage is--
(i) 1 to 15 years;
(ii) 16 to 30 years; or
(iii) more than 30 years.
(E) The owner of the property is--
(i) an owner-occupant; or
(ii) an investor.
(F) The unpaid principal balance of the mortgage--
(i) will amortize completely over the term of the
mortgage and will not increase significantly at any time
during the term of the mortgage;
(ii) will not amortize completely over the term of the
mortgage and will not increase significantly at any time
during the term of the mortgage; or
(iii) may increase significantly at some time during the
term of the mortgage.
(G) Any other characteristics of the mortgage, as the
Director may determine.
(e) Regulations
(1) Issuance
The Director shall issue final regulations establishing the
risk-based capital test under this section not later than the
expiration of the 18-month period beginning on the date of the
appointment of the Director. Such regulations shall be issued after
notice and opportunity for public comment pursuant to the provisions
of section 553 of title 5 and shall take effect upon issuance.
(2) Contents
The regulations under this subsection shall contain specific
requirements, definitions, methods, variables, and parameters used
under the risk-based capital test and in implementing the test (such
as loan loss severity, float income, loan-to-value ratios, taxes,
yield curve slopes, default experience, and prepayment rates). The
regulations shall be sufficiently specific to permit an individual
other than the Director to apply the test in the same manner as the
Director.
(3) Confidentiality of information
Any person that receives any book, record, or information from
the Director or an enterprise to enable the risk-based capital test
to be applied shall--
(A) maintain the confidentiality of the book, record, or
information in a manner that is generally consistent with the
level of confidentiality established for the material by the
Director or the enterprise; and
(B) be exempt from section 552 of title 5 with respect to
the book, record, or information.
(f) Availability of model
The Director shall provide copies of the statistical model or models
used to implement the risk-based capital test under this section to the
Secretary, the Board of Governors of the Federal Reserve System, the
Director of the Office of Management and Budget, the Comptroller General
of the United States, and the Director of the Congressional Budget
Office. The Director shall make copies of such model or models available
for public acquisition and may charge a reasonable fee for such copies.
(Pub. L. 102-550, title XIII, Sec. 1361, Oct. 28, 1992, 106 Stat. 3972.)
Change of Name
Committee on Banking, Finance and Urban Affairs of House of
Representatives treated as referring to Committee on Banking and
Financial Services of House of Representatives by section 1(a) of Pub.
L. 104-14, set out as a note preceding section 21 of Title 2, The
Congress. Committee on Banking and Financial Services of House of
Representatives abolished and replaced by Committee on Financial
Services of House of Representatives, and jurisdiction over matters
relating to securities and exchanges and insurance generally transferred
from Committee on Energy and Commerce of House of Representatives by
House Resolution No. 5, One Hundred Seventh Congress, Jan. 3, 2001.
Section Referred to in Other Sections
This section is referred to in sections 1426, 1452, 1718, 4542,
4614, 4615 of this title.