Freddie Mac 2011 Annual Report Download - page 286

NOTE 15: REGULATORY CAPITAL
On October 9, 2008, FHFA announced that it was suspending capital classification of us during conservatorship in
light of the Purchase Agreement. FHFA continues to closely monitor our capital levels, but the existing statutory and
FHFA-directed regulatory capital requirements are not binding during conservatorship. We continue to provide our
submission to FHFA on minimum capital, however we no longer provide our submission of risk-based capital to FHFA.
Our regulatory minimum capital is a leverage-based measure that is generally calculated based on GAAP and reflects
a 2.50% capital requirement for on-balance sheet assets and 0.45% capital requirement for off-balance sheet obligations.
Based upon our adoption of amendments to the accounting guidance for transfers of financial assets and consolidation of
VIEs, we determined that, under the new consolidation guidance, we are the primary beneficiary of trusts that issue our
single-family PCs and certain Other Guarantee Transactions and, therefore, effective January 1, 2010, we consolidated on
our balance sheet the assets and liabilities of these trusts. Pursuant to regulatory guidance from FHFA, our minimum
capital requirement was not automatically affected by adoption of these amendments. Specifically, upon adoption of these
amendments, FHFA directed us, for purposes of minimum capital, to continue reporting single-family PCs and certain
Other Guarantee Transactions held by third parties using a 0.45% capital requirement. FHFA reserves the authority under
the GSE Act to raise the minimum capital requirement for any of our assets or activities. On March 3, 2011, FHFA issued
a final rule setting forth procedures and standards in the event FHFA were to make such a temporary increase in minimum
capital levels.
Regulatory Capital Standards
The GSE Act established minimum, critical, and risk-based capital standards for us, however per guidance received
from FHFA we no longer are required to submit risk-based capital reports to FHFA.
Prior to our entry into conservatorship, those standards determined the amounts of core capital that we were to
maintain to meet regulatory capital requirements. Core capital consisted of the par value of outstanding common stock
(common stock issued less common stock held in treasury), the par value of outstanding non-cumulative, perpetual
preferred stock, additional paid-in capital and retained earnings (accumulated deficit), as determined in accordance with
GAAP.
Minimum Capital
The minimum capital standard required us to hold an amount of core capital that was generally equal to the sum of
2.50% of aggregate on-balance sheet assets and approximately 0.45% of the sum of our PCs held by third parties and
other aggregate off-balance sheet obligations.
Critical Capital
The critical capital standard required us to hold an amount of core capital that was generally equal to the sum of
1.25% of aggregate on-balance sheet assets and approximately 0.25% of the sum of our PCs held by third parties and
other aggregate off-balance sheet obligations.
Performance Against Regulatory Capital Standards
The table below summarizes our minimum capital requirements and deficits and net worth.
Table 15.1 — Net Worth and Minimum Capital
December 31, 2011 December 31, 2010
(in millions)
GAAP net worth
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (146) $ (401)
Core capital (deficit)
(2)(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(64,322) $(52,570)
Less: Minimum capital requirement
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,405 25,987
Minimum capital surplus (deficit)
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(88,727) $(78,557)
(1) Net worth (deficit) represents the difference between our assets and liabilities under GAAP.
(2) Core capital and minimum capital figures for December 31, 2011 are estimates. FHFA is the authoritative source for our regulatory capital.
(3) Core capital excludes certain components of GAAP total equity (deficit) (i.e., AOCI, liquidation preference of the senior preferred stock) as these
items do not meet the statutory definition of core capital.
Following our entry into conservatorship, we have focused our risk and capital management, consistent with the
objectives of conservatorship, on, among other things, maintaining a positive balance of GAAP equity in order to reduce
the likelihood that we will need to make additional draws on the Purchase Agreement with Treasury. The Purchase
Agreement provides that, if FHFA determines as of quarter end that our liabilities have exceeded our assets under GAAP,
Treasury will contribute funds to us in an amount equal to the difference between such liabilities and assets.
281 Freddie Mac