12 U.S.C. § 2279bb–1 — Risk-based capital levels

(a) Risk-based capital test. The Director^* of the Office^* of Secondary Market Oversight must establish by regulation a risk-based capital test for the Corporation^*. The test must determine the amount of regulatory capital^* sufficient for the Corporation to maintain positive capital during a 10-year period in which both of these circumstances occur: (1) Credit^* risk. (A) In general. For securities representing an interest in, or obligations backed by, a pool of qualified loans owned or guaranteed by the Corporation, and for the Corporation’s other obligations, losses on the underlying qualified loans must occur throughout the United States at default and severity rates reasonably related to the rates and severity that occurred in contiguous areas of the United States containing, in total, at least 5 percent of the United States population. Those areas must have experienced, for at least 2 years as established by the Director, the highest rates of default and severity of agricultural-mortgage losses compared with those rates in other such areas for any period of that length. The measurements of default must be reasonably related to prevailing industry practices for determining capital adequacy. (B) Rural utility loans. For securities representing an interest in, or an obligation backed by, a pool of qualified loans described in section 2279aa(7)(C) owned or guaranteed by the Corporation, losses must occur at default and severity rates reasonably related to the risks in electric-facility and telephone-facility loans, as applicable, as the Director determines. (2) Interest-rate risk. During the first 12 months of the 10-year period, interest rates on Treasury obligations of different terms must increase or decrease by no more than the lesser of (A) 50 percent of the average interest rates on those obligations during the 12 months before the 10-year period, or (B) 600 basis points. The rates must then remain at that level for the rest of the period. This paragraph does not require the Director to determine interest-rate risk using an assumption that rates for all different long-term and short-term obligations increase or decrease at the same time. (b) Considerations. (1) Establishment of test. When establishing the test under subsection (a), (A) the Director must account for appropriate differences among types of agricultural-mortgage products, different Treasury-obligation terms, and other factors the Director considers appropriate; (B) the Director must make the loan data used to determine credit risk conform to the minimum geographic and commodity-diversification standards for pools of qualified loans eligible for guarantees; (C) the Director may consider retained subordinated participating interests under section 2279aa–6(b)(2), as that provision existed before February 10, 1996; (D) the Director may consider other credit-risk methods or tests that the Corporation developed before December 13, 1991; and (E) the Director must consider any other information the Corporation submits in writing during the 180-day period beginning December 13, 1991. (2) Revising test. When the 8-year period beginning December 13, 1991, ends, the Director must examine the test and may revise it. In doing so, the Director must consider that, before December 13, 1991, the Corporation had not issued guarantees for pools of qualified loans. If revising the test changes the Corporation’s classification within the enforcement levels established under section 2279bb–4, the Director must waive the additional enforcement actions that would otherwise be available because of that change for a reasonable period. That period must allow the Corporation to increase its regulatory capital accordingly. (c) Risk-based capital level. For this part, the Corporation’s risk-based capital level equals the sum of: (1) Credit and interest-rate risk. The regulatory capital amount determined by applying the test under subsection (a) to the Corporation, adjusted for foreign-exchange risk; and (2) Management and operations risk. Thirty percent of the regulatory capital amount determined by applying the test under subsection (a) to the Corporation. (d) Specified contents. (1) In general. Regulations establishing the test under this section must (A) be issued by the Director for public comment as a notice of proposed rulemaking, first published after the period referred to in subsection (a); and (B) contain the specific requirements, definitions, methods, variables, and parameters used in the test and in implementing it, such as loan-loss severity, float income, loan-to-value ratios, taxes, yield-curve slopes, default experience, prepayment rates, and the performance of pools of qualified loans. (2) Specificity. The regulations must be specific enough for someone other than the Director to apply the test in the same way as the Director. (e) Availability of model. The Director must make copies of the statistical model or models used to implement the test available for public acquisition and may charge a reasonable fee for the copies.