68534 Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules 

1The twelve Banks are located in: Boston, New 

York, Pittsburgh, Atlanta, Cincinnati, Indianapolis, 

Chicago, Des Moines, Dallas, Topeka, San 

Francisco, and Seattle. 

The comment period is scheduled to 

expire on November 5, 2010. In a letter 

dated October 20, 2010, the Farm Credit 

Council (FCC), on behalf of the System 

including the Federal Farm Credit 

Banks Funding Corporation, requested 

that the Agency extend the comment 

period until February 28, 2011. The FCC 

requested the extension in order to give 

the System the opportunity to study the 

rules developed by the Federal banking 

regulators. The Basel Committee on 

Banking Supervision is in the process of 

formulating a new regulatory capital 

framework, and the U.S. banking 

regulators are expected to revise their 

capital guidelines consistent with the 

new requirements. In view of the 

expected revisions in the near future, 

the FCA has decided to extend the 

comment period 180 days beyond the 

original expiration date and, therefore, 

the comment period will close on May 

4, 2011. The FCA supports public 

involvement and participation in its 

regulatory process and invites all 

interested parties to review and provide 

comments on our ANPRM. 

Dated: November 4, 2010. 

Roland E. Smith, 

Secretary, Farm Credit Administration Board. 

[FR Doc. 2010–28245 Filed 11–5–10; 8:45 am] 

BILLING CODE 6705–01–P 

FEDERAL HOUSING FINANCE BOARD 

12 CFR Parts 965, 966, 969, and 987 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1270 

RIN 2590–AA36 

Federal Home Loan Bank Liabilities 

AGENCY: Federal Housing Finance 

Board, Federal Housing Finance 

Agency. 

ACTION: Notice of proposed rulemaking; 

request for comment. 

SUMMARY: The Federal Housing Finance 

Agency (FHFA) is proposing to reorganize and re-adopt existing Federal 

Housing Finance Board (Finance Board) 

regulations dealing with consolidated 

obligations (COs), as well as related 

regulations addressing other authorized 

Federal Home Loan Bank (Bank) 

liabilities and book-entry procedures for 

COs, as new part 1270 of the FHFA 

regulations. The proposed rule would 

also make changes to the regulations 

governing COs to reflect recent statutory 

amendments which removed authority 

from FHFA to issue COs on which the 

Banks are jointly and severally liable 

and provided this authority to the Banks 

themselves. Otherwise, FHFA is 

proposing to re-adopt most of the 

regulatory provisions addressed in this 

rulemaking without substantive 

amendment. 

DATES: Comments on the proposed rule 

must be received on or before January 7, 

2011. For additional information, see 

SUPPLEMENTARY INFORMATION. 

ADDRESSES: You may submit your 

comments on the proposed rule, 

identified by regulatory information 

number (RIN) 2590–AA36 by any of the 

following methods: 

• E-mail: Comments to Alfred M. 

Pollard, General Counsel may be sent by 

e-mail to RegComments@FHFA.gov. 

Please include ‘‘RIN 2590–AA36’’ in the 

subject line of the message. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. If 

you submit your comments to the 

Federal eRulemaking Portal, please also 

send it by e-mail to FHFA at 

RegComments@FHFA.gov to ensure 

timely receipt by the agency. Please 

include ‘‘RIN 2590–AA36’’ in the subject 

line of the message. 

• Hand Delivery/Courier: The hand 

delivery address is: Alfred M. Pollard, 

General Counsel, Attention: Comments/ 

RIN 2590–AA36, Federal Housing 

Finance Agency, Fourth Floor, 1700 G 

Street, NW., Washington, DC 20552. The 

package should be logged at the Guard 

Desk, First Floor, on business days 

between 9 a.m. and 5 p.m. 

• U.S. Mail, United Parcel Service, 

Federal Express, or Other Mail Service: 

The mailing address for comments is: 

Alfred M. Pollard, General Counsel, 

Attention: Comments/RIN 2590–AA36, 

Federal Housing Finance Agency, 

Fourth Floor, 1700 G Street, NW., 

Washington, DC 20552. 

FOR FURTHER INFORMATION CONTACT: 

Joseph A. McKenzie, Chief Economist, 

Federal Home Loan Bank and System 

Analysis, 202–408–2845, Federal 

Housing Finance Agency, 1625 Eye 

Street, NW., Washington, DC 20006; or 

Thomas E. Joseph, Senior AttorneyAdvisor, 202–414–3095, Office of 

General Counsel, Federal Housing 

Finance Agency, Fourth Floor, 1700 G 

Street, NW., Washington, DC 20552. The 

telephone number for the 

Telecommunications Device for the Deaf 

is (800) 877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Comments 

FHFA invites comments on all aspects 

of the proposed rule, and will adopt a 

final regulation with appropriate 

changes after taking all comments into 

consideration. Copies of all comments 

will be posted on the Internet Web site 

at https://www.fhfa.gov. In addition, 

copies of all comments received will be 

available for examination by the public 

on business days between the hours of 

10 a.m. and 3 p.m., at the Federal 

Housing Finance Agency, Fourth Floor, 

1700 G Street, NW., Washington, DC 

20552. To make an appointment to 

inspect comments, please call the Office 

of General Counsel at (202) 414–6924. 

II. Background 

A. Creation of the Federal Housing 

Finance Agency and Recent Legislation 

Effective July 30, 2008, the Housing 

and Economic Recovery Act of 2008 

(HERA), Public Law 110–289, 122 Stat. 

2654, created FHFA as a new 

independent agency of the Federal 

Government, and transferred to FHFA 

the supervisory and oversight 

responsibilities of the Office of Federal 

Housing Enterprise Oversight (OFHEO) 

over the Federal National Mortgage 

Association, and the Federal Home Loan 

Mortgage Corporation (collectively, the 

Enterprises), the oversight 

responsibilities of the Finance Board 

over the Banks and the Office of Finance 

(OF) (which acts as the Banks’ fiscal 

agent) and certain functions of the 

Department of Housing and Urban 

Development. See id. at section 1101, 

122 Stat. 2661–62. FHFA is responsible 

for ensuring that the Enterprises and the 

Banks operate in a safe and sound 

manner, including that they maintain 

adequate capital and internal controls, 

that their activities foster liquid, 

efficient, competitive and resilient 

national housing finance markets, and 

that they carry out their public policy 

missions through authorized activities. 

See id. at section 1102, 122 Stat. 2663– 

64. The Enterprises, the Banks, and the 

OF continue to operate under 

regulations promulgated by OFHEO and 

the Finance Board until such 

regulations are superseded by 

regulations issued by FHFA. See id. at 

sections 1301, 1302, 1311, 1312, 122 

Stat. 2794–95, 2797–98. 

B. The Bank System Generally 

The twelve Banks are 

instrumentalities of the United States 

organized under the Federal Home Loan 

Bank Act (Bank Act).1 See 12 U.S.C. 

1423 and 1432(a). The Banks are 

cooperatives; only members of a Bank 

may purchase the capital stock of a 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules 68535 

2As amended by HERA, section 11(c) of the Bank 

Act provides, in relevant part, that ‘‘* * * the 

Office of Finance, as agent for the Banks, may issue 

consolidated * * * Bank bonds which shall be the 

joint and several obligations of all the * * * Banks, 

and shall be secured and be issued upon such terms 

and conditions as such Office may prescribe.’’ 12 

U.S.C. 1431(c). 

Bank, and only members or certain 

eligible housing associates (such as state 

housing finance agencies) may obtain 

access to secured loans, known as 

advances, or other products provided by 

a Bank. See 12 U.S.C. 1426(a)(4), 

1430(a), and 1430b. Each Bank is 

managed by its own board of directors 

and serves the public interest by 

enhancing the availability of residential 

mortgage and community lending credit 

through its member institutions. See 12 

U.S.C. 1427. Any eligible institution 

(generally a federally insured depository 

institution or state-regulated insurance 

company) may become a member of a 

Bank if it satisfies certain criteria and 

purchases a specified amount of the 

Bank’s capital stock. See 12 U.S.C. 1424; 

12 CFR part 1263. 

As government-sponsored enterprises 

(GSEs), the Banks are granted certain 

privileges under Federal law. In light of 

those privileges and their status as 

GSEs, the Banks typically can borrow 

funds at spreads over the rates on U.S. 

Treasury securities of comparable 

maturity lower than most other entities. 

The Banks pass along a portion of their 

GSE funding advantage to their 

members—and ultimately to 

consumers—by providing advances and 

other financial services at rates that 

would not otherwise be available to 

their members. 

C. Consolidated Obligations 

COs, consisting of bonds and discount 

notes, are the principal funding source 

for the Banks. Although each Bank is 

primarily liable for the portion of COs 

corresponding to the proceeds received 

by that Bank, each Bank is also jointly 

and severally liable with the other 

eleven Banks for the payment of 

principal and interest on all COs. See 12 

CFR 966.9. In addition to issuing COs, 

the Banks are authorized to raise funds 

and incur liabilities by accepting 

deposits from members, other Banks 

and instrumentalities of the United 

States, purchasing Federal funds and 

entering into repurchase agreements. 

See 12 CFR 965.2. 

Prior to June 2000, COs had for many 

years been issued on behalf of the Banks 

by the Finance Board, as the Banks’ 

regulator, under authority in section 

11(c) of the Bank Act. Until the passage 

of HERA, section 11(c) of the Bank Act 

authorized the Banks’ regulator to issue 

bonds which were the joint and several 

obligations of all the Banks. See 12 

U.S.C. 1431(c)(2007). 

In June 2000, the Finance Board 

published a final rule which altered 

how COs were issued and transferred 

authority for issuance of the Bank COs 

to the Banks themselves pursuant to 

authority under section 11(a) of the 

Bank Act. See 65 FR 36290 (June 7, 

2000) (adopting among other parts 12 

CFR parts 966 and 985). Section 11(a) of 

the Bank Act allows each Bank to issue 

debt subject to any conditions and 

requirements established by the Banks’ 

regulator. See 12 U.S.C. 1431(a). Under 

the rules published in June 2000, the 

Banks were allowed to issue debt 

subject to requirements that all such 

debt be the joint and several obligations 

of all twelve Banks and be issued 

through the OF as their agent. See 12 

CFR 966.2(b). The Finance Board 

retained the option to issue COs itself 

under section 11(c) of the Bank Act at 

any point, although it did not do so. See 

12 CFR 966.2(a). 

In 2008, HERA amended section 11 of 

the Bank Act to remove the authority of 

the regulator to issue COs and to allow 

the Banks to issue such debt through OF 

as the Banks’ agent. See section 1204(3), 

Public Law 110–289, 122 Stat. 2786. As 

a consequence, the Banks are now able 

to issue COs pursuant to section 11(c) of 

the Bank Act on which the Banks are 

jointly and severally liable by statute.2

To reflect this statutory change, FHFA is 

proposing to amend the regulations 

governing the issuance of COs, as well 

as make other changes to existing 

regulations. 

D. Considerations of Differences 

between the Banks and the Enterprises 

Section 1201 of HERA requires the 

Director, when promulgating regulations 

relating to the Banks, to consider the 

following differences between the Banks 

and the Enterprises: Cooperative 

ownership structure; mission of 

providing liquidity to members; 

affordable housing and community 

development mission; capital structure; 

and joint and several liability. See 

section 1201 Public Law 110–289, 122 

Stat. 2782–83 (amending 12 U.S.C. 

4513). The Director also may consider 

any other differences that are deemed 

appropriate. In preparing this proposed 

rule, FHFA considered the differences 

between the Banks and the Enterprises 

as they relate to the above factors. FHFA 

requests comments from the public 

about whether differences related to 

these factors should result in any 

revisions to the proposal. 

III. Analysis of the Proposed Rule 

FHFA is proposing to amend the 

existing regulations previously adopted 

by the Finance Board that address COs 

to reflect changes made by HERA to 

section 11 of the Bank Act. At the same 

time, FHFA is proposing to combine the 

CO regulations with related regulations 

addressing Banks’ authorized sources of 

funds, deposits from Bank members and 

book-entry procedures for COs into a 

single new part 1270 of the FHFA 

regulations. See 12 CFR parts 965, 966, 

969 and 987. Most of the existing 

provisions would be carried over to new 

part 1270 without change, other than for 

technical changes necessary to conform 

cross-references to other FHFA 

regulations and to reflect the fact that 

FHFA is now regulator for the Banks. 

Changes to the regulations that FHFA is 

proposing are discussed in more detail 

below. 

Proposed Subpart A of Part 1270 

FHFA is proposing to consolidate 

relevant definitions from parts 965, 966, 

969 and 987 of the Finance Board 

regulations into proposed subpart A of 

part 1270. To the extent necessary, 

FHFA is also proposing to include in 

this subpart, relevant definitions from 

part 900 of the Finance Board 

regulations. Definitions contained in 

part 900 apply to all Finance Board 

regulations but would not apply to 

proposed part 1270 of the FHFA 

regulations. See 12 CFR part 900. No 

substantive changes would be made to 

most of these definitions. 

FHFA is, however, proposing to adopt 

a new definition for ‘‘consolidated 

obligations’’ that varies slightly from the 

one that is currently set forth in part 

900. The proposed changes reflect the 

fact that HERA amended section 11 of 

the Bank Act so that the Banks, and not 

FHFA, are now authorized to issue COs 

while recognizing that some outstanding 

COs may have been issued by the 

Finance Board under the prior statutory 

provisions. The proposed definition is 

the same as one FHFA adopted in other 

regulations. See, e.g., 12 CFR 1229.1. 

FHFA is also proposing to amend 

slightly the definition for the ‘‘Office of 

Finance’’ that now appears in the part 

987 regulations concerning book-entry 

procedures for COs. The Finance Board 

first adopted the definition for OF in the 

book-entry procedure rules in 1998 to 

reflect the fact that OF would act as 

agent for the Finance Board in issuing 

COs, but at other times, would act as 

agent for the Banks in other functions 

such as payment on the COs. See 63 FR 

8057, 8058 (Feb. 18, 1998). In 2002, the 

Finance Board adopted a technical 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
68536 Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules 

3As already noted, relevant definitions now 

found in § 966.1 of the Finance Board regulations 

would be incorporated in subpart A of part 1270 

under this proposed rule. 12 CFR 966.1. 

4The proposed change would not affect the 

validity of the waiver of this requirement issued by 

the Finance Board in December 2005 to allow, 

subject to certain conditions, the direct placement 

of COs with a Bank when necessary to assure that 

the Federal Reserve Bank of New York has 

sufficient funds to pay all principal and interest 

that come due on a given day on COs or portion 

of COs. See Fed. Hsing, Fin. Brd. Res. 2005–22 (Dec. 

14, 2005). 

5As already noted, relevant definitions now 

found in § 987.1 of the Finance Board regulations 

would be incorporated in subpart A of part 1270 

under this proposed rule. 12 CFR 987.1. 

amendment to the part 987 definition to 

remove references to the OF acting as 

agent for the Finance Board in 

recognition of the fact that the Finance 

Board in 2000 had delegated authority 

to issue COs to the Banks themselves. 

See Final Rule: Technical Amendments 

to Federal Housing Finance Board 

Regulations, 67 FR 12841, 12855 (Mar. 

20, 2002). The definition proposed in 

this rulemaking would combine the 

definition of ‘‘OF’’ used in part 1273 of 

the FHFA regulations, which establishes 

OF, with the substance of the definition 

now in part 987. See 12 CFR 1273.1. 

The proposed changes to the definition 

would recognize that under proposed 

part 1270, a reference to ‘‘OF’’ could be 

made in circumstances, or to address 

duties, other than those related to bookentry procedures. 

Proposed Subpart B of Part 1270 

Proposed subpart B would combine 

provisions now found in the Finance 

Board regulations part 965, Sources of 

Funds, and part 969, Deposits. In this 

respect, § 965.2 of the Finance Board 

regulations would be relocated to 

proposed § 1270.2, and proposed 

§ 1270.3 would combine in a single 

section the authorizations and 

requirements now set forth in § 965.3 

and § 969.2 of the Finance Board 

regulations. 12 CFR 965.2, 965.3 and 

969.2. No substantive changes are being 

proposed to any of the provisions which 

would be relocated to subpart B of part 

1270 by this proposed rule. 

Proposed Subpart C of Part 1270 

Under the proposed rule, § 966.2 

through § 966.10 of the Finance Board 

regulations, addressing COs, would be 

incorporated into subpart C of part 1270 

as proposed §§ 1270.4 through 1270.11.3

12 CFR 966.2 through 966.10. FHFA is 

not proposing to amend most of these 

provisions in any substantive fashion. 

FHFA is proposing amendments in 

§ 1270.4 which would address issuance 

of COs, however. First, the provision 

now found in § 966.2(a) which reserves 

to the Banks’ regulator the right to issue 

COs under section 11(c) of the Bank Act, 

would be deleted to conform the rule to 

the HERA amendments, which removed 

this authority for FHFA and provided 

the authority to the Banks instead. 

Similarly, proposed § 1270.4(a) would 

provide that the Banks shall issue COs 

pursuant to authority in section 11(c) of 

the Bank Act, rather than under section 

11(a) of the Bank Act, as is stated in 

current § 966.2(b). New language in 

proposed § 1270.4(a) would also reflect 

other changes made by HERA to the 

Bank Act and update references to 

reflect FHFA’s role as regulator and the 

fact that the FHFA Director’s principal 

duties and authority for oversight of the 

Bank System are found in sections 1311, 

1312, and 1313 of the Federal Housing 

Enterprises Financial Safety and 

Soundness Act, as amended. 12 U.S.C. 

4511, 4512 and 4513. 

Proposed § 1270.4(a) would continue 

to require the Banks to issue COs subject 

to the provisions of part 1270 and any 

other relevant rules, regulations, terms, 

and conditions as the FHFA Director 

may prescribe. The proposed provision 

also would continue to make clear that 

the Banks are jointly and severally liable 

on all COs issued under the rule. The 

negative pledge requirement now found 

in § 966.2(c) of the Finance Board 

regulations would also be carried over 

without substantive change under the 

proposed rule as new § 1270.4(b). 

The proposed rule would also 

remove, as unnecessary, the current 

provision found in § 966.4(b) that refers 

to consolidated notes. See 12 CFR 

966.4(b). This change has no effect on 

the Banks’ authority to issue COs. 

Current § 966.4(a), which provides that 

all COs shall be issued in pari passu, 

would be carried over as new 

§ 1270.4(a)(3). See 12 CFR 966.4(a). 

Finally, FHFA is proposing to amend 

language in § 1270.9(c) which would 

carry over the current prohibition on the 

direct placement of COs found in 

§ 966.8(c). 12 CFR 966.8(c). The 

proposed language would incorporate 

into the rule the regulatory 

interpretation issued in 2005 by the 

Finance Board which clarified that the 

prohibition on the direct placement of 

COs meant that the Banks cannot 

purchase COs as part of an initial 

issuance of COs regardless of whether 

the purchase was directly from the OF 

or indirectly from one of the firms that 

form OF’s approved underwriter 

network. See Regulatory Interpretation 

2005–RI–01 (Mar. 30, 2005). As 

explained in the RI, the Finance Board 

did not believe that such purchases 

would further the mission of the Banks. 

The proposed change in language is to 

make clear that FHFA agrees with this 

view and intends this interpretation of 

the prohibition in existing § 966.8(c) to 

be incorporated into the new provision.4

Proposed Subpart D of Part 1270 

FHFA is proposing to move 

regulations governing book-entry 

procedures for COs now found in 

§ 987.2 through § 987.10 to subpart D of 

part 1270 as proposed §§ 1270.12 

through 1270.20.5 Any changes being 

proposed to these provisions are 

technical and conforming in nature, 

such as amendments to remove and 

update references to the Finance Board 

and to make other changes made 

necessary by the transfer and 

combination of these regulations into 

new part 1270. No substantive changes 

are being proposed to these provisions. 

Requirements Referencing Credit 

Ratings 

The recently enacted Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act provides Federal 

agencies with one year to review 

regulations that require the use of an 

assessment of the credit-worthiness of a 

security or money market instrument 

and any references to, or requirements 

in, such regulations regarding credit 

ratings, and to remove such references 

or requirements. See § 939A, Public Law 

111–203, 124 Stat. 1376 (July 21, 2010). 

In place of such credit-rating based 

requirements, an agency is instructed to 

substitute appropriate standards for 

determining credit-worthiness. The new 

law further provides that, to the extent 

feasible, an agency should adopt a 

uniform standard of credit-worthiness 

for use in its regulations, taking into 

account the entities regulated by it and 

the purposes for which such regulated 

entities would rely on the creditworthiness standard. 

As proposed, the rule would carry 

over without change a number of 

existing provisions which reference 

credit ratings or otherwise impose 

specific credit rating requirements. 

Rather than use this rulemaking to 

suggest specific changes to these 

provisions, FHFA has determined 

instead to begin soliciting comments on 

what alternative standards of creditworthiness could appropriately be 

adopted more generally to replace the 

requirements in its regulations that are 

based on credit ratings. Therefore, 

FHFA is requesting comments on 

potential credit-worthiness standards 

that could be applied across regulations 

governing the Bank System that could 

be used to replace the credit-ratings 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules 68537 

requirements discussed below, as well 

as to replace similar requirements in 

other applicable rules. Further, with 

regard to the specific provisions 

described below, FHFA is also seeking 

comments on whether the provisions 

could be deleted from a final rule 

without compromising safety or 

soundness or whether other specific 

safeguards or requirements (but ones 

which are not necessarily based on 

credit-worthiness standards) could 

provide similar protections as those 

afforded under the proposed provisions. 

First, proposed § 1270.4(b)(6) 

references assets that have been 

assigned a rating or assessment by a 

credit rating organization registered 

with the Securities and Exchange 

Commission as a nationally recognized 

statistical rating organization (NRSRO) 

that is equivalent to or higher than the 

rating or assessment assigned by the 

NRSRO to outstanding COs. This 

provision would be carried over as part 

of the ‘‘negative pledge requirement’’ 

which states that a Bank must maintain 

certain specific assets free of any lien or 

pledge in an amount equal to the Bank’s 

pro rata share of total outstanding COs. 

See 12 CFR 966.2(c). The negative 

pledge requirement was first adopted in 

1946. It has been amended only once to 

any significant degree, in 1992, at which 

time the Finance Board expanded 

slightly the list of qualifying assets to 

account for certain conservative 

investment opportunities that arose 

subsequent to 1946. See Proposed Rule: 

Leverage Ratio on Consolidated Federal 

Home Loan Bank Debt, 57 FR 20061, 

20062 (May 11, 1992); Final Rule: 

Leverage Ratio on Consolidated Federal 

Home Loan Bank Debt, 57 FR 62183, 

62185 (Dec. 30, 1992). The specific 

provision at issue here was added as 

part of the 1992 amendments. As the 

Finance Board noted in proposing the 

change, the provision was meant to 

assure that ‘‘the investments [used to 

meet the negative pledge] have a 

relatively conservative risk profile [by 

requiring] * * * a rating or assessment 

at least equal to senior [Bank] bonds 

***’’ 57 FR at 20062. 

Proposed § 1270.5(a)(2)(xi), (xii), and 

(xiii) contain references to mortgage and 

community development related 

investments that carry either the highest 

or the second highest investment grade 

ratings from an NRSRO. These 

provisions are included in the 

transitional leverage limit which applies 

until a Bank converts to the capital 

structure required under the GrammLeach-Bliley Act (GLB Act) and 

complies with the GLB Act capital 

requirements in 12 CFR part 932. See 

Final Rule: Federal Home Loan Bank 

Consolidated Obligations—Definition of 

the Term ‘‘Non-Mortgage Assets’’, 67 FR 

35713 (May 21, 2002). This proposed 

leverage requirement currently would 

apply to only one Bank. The specific 

provisions at issue identify assets that 

would be considered related to the 

Bank’s core mission activities and 

therefore would not be included in 

calculations of the Bank’s non-mortgage 

assets. Id. at 35713–14. The calculation 

of ‘‘non-mortgage assets’’ is relevant 

because, under the current and 

proposed regulations, the leverage limit 

applicable to a Bank would become 

more restrictive if the Bank’s nonmortgage assets exceed 11 percent of the 

Bank’s total assets. 

FHFA is also proposing to carry over 

as new § 1270.5(b) and § 1270.5(c) 

current requirements concerning 

specific credit ratings that Banks 

collectively must maintain for COs and 

that each Bank must maintain 

individually. These requirements were 

adopted as a means of enhancing 

protections afforded holders of COs by 

requiring Banks either collectively or 

individually to take actions to maintain 

the required ratings. See Final Rule: 

Office of Finance; Authority of Federal 

Home Loan Banks to Issue Consolidated 

Obligations, 65 FR 36290, 36294 (June 7, 

2000). The Finance Board believed that 

these requirements provided more 

effective on-going protections to bond 

holders than the provision that they 

replaced, which had required a written 

statement from a rating agency or an 

investment bank that a change in the 

leverage limit applicable to the Banks 

would not adversely affect the ratings or 

creditworthiness of COs, prior to the 

change becoming effective. Id. 

IV. Paperwork Reduction Act 

The proposed rule does not contain 

any collections of information pursuant 

to the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501 et seq.). Therefore, 

FHFA has not submitted any 

information to the Office of 

Management and Budget for review. 

V. Regulatory Flexibility Act 

The proposed rule applies only to the 

Banks, which do not come within the 

meaning of small entities as defined in 

the Regulatory Flexibility Act (RFA). 

See 5 U.S.C. 601(6). Therefore in 

accordance with section 605(b) of the 

RFA, FHFA certifies that this proposed 

rule, if promulgated as a final rule, will 

not have significant economic impact on 

a substantial number of small entities. 

List of Subjects 

12 CFR Parts 965, 969 

Federal home loan banks. 

12 CFR Part 966 

Federal home loan banks, 

Government securities. 

12 CFR Part 987 

Accounting, Government securities. 

12 CFR Part 1270 

Accounting, Federal home loan banks, 

Government securities. 

Accordingly, for reasons stated in the 

preamble and under the authority of 12 

U.S.C. 1431, 1432, 1435, 4511, 4512, 

4513, and 4526, FHFA proposes to 

amend subchapters H and K of chapter 

IX and subchapter D of chapter XII of 

title 12 of the Code of Federal 

Regulations as follows: 

CHAPTER IX—FEDERAL HOUSING 

FINANCE BOARD 

SUBCHAPTER H—FEDERAL HOME LOAN 

BANK LIABILITIES 

PART 965—[REMOVED] 

1. Remove part 965. 

PART 966—[REMOVED] 

2. Remove part 966. 

PART 969—[REMOVED] 

3. Remove part 969. 

SUBCHAPTER K—OFFICE OF FINANCE 

PART 987—[REMOVED] 

4. Remove part 987. 

CHAPTER XII—FEDERAL HOUSING 

FINANCE AGENCY 

SUBCHAPTER D—FEDERAL HOME LOAN 

BANKS 

5. Add part 1270 to subchapter D to 

read as follows: 

PART 1270—LIABILITIES 

Subpart A—Definitions 

Sec. 

1270.1 Definitions. 

Subpart B—Sources of Funds 

1270.2 Authorized liabilities. 

1270.3 Deposits from members. 

Subpart C—Consolidated Obligations 

1270.4 Issuance of consolidated obligations. 

1270.5 Leverage limit and credit rating 

requirements. 

1270.6 Transactions in consolidated 

obligations. 

1270.7 Lost, stolen, destroyed, mutilated or 

defaced consolidated obligations. 

1270.8 Administrative provision. 

1270.9 Conditions for issuance of 

consolidated obligations. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
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1270.10 Joint and several liability. 

1270.11 Savings clause. 

Subpart D—Book-Entry Procedure for 

Consolidated Obligations 

1270.12 Law governing rights and 

obligations of Banks, FHFA, Office of 

Finance, United States and Federal 

Reserve Banks; rights of any Person 

against Banks, FHFA, Office of Finance, 

United States and Federal Reserve 

Banks. 

1270.13 Law governing other interests. 

1270.14 Creation of Participant’s Security 

Entitlement; security interests. 

1270.15 Obligations of the Banks and the 

Office of Finance; no Adverse Claims. 

1270.16 Authority of Federal Reserve 

Banks. 

1270.17 Liability of Banks, FHFA, Office of 

Finance and Federal Reserve Banks. 

1270.18 Additional requirements; notice of 

attachment for Book-entry consolidated 

obligations. 

1270.19 Reference to certain Department of 

Treasury commentary and 

determinations. 

1270.20 Obligations of United States with 

respect to consolidated obligations. 

Authority: 12 U.S.C. 1431, 1432, 1435, 

4511, 4512, 4513, and 4526. 

Subpart A—Definitions 

§ 1270.1 Definitions. 

As used in this part, unless the 

context otherwise requires or indicates: 

Adverse Claim means a claim that a 

claimant has a property interest in a 

Book-entry consolidated obligation and 

that it is a violation of the rights of the 

claimant for another Person to hold, 

transfer, or deal with the Security. 

Bank, written in title case, means a 

Federal Home Loan Bank established 

under section 12 of the Bank Act. 

Bank Act means the Federal Home 

Loan Bank Act, as amended (12 U.S.C. 

1421 through 1449). 

Book-entry consolidated obligation 

means a consolidated obligation 

maintained in the book-entry system of 

the Federal Reserve Banks. 

Consolidated obligation means any 

bond, debenture or note on which the 

Banks are jointly and severally liable 

and which was issued under section 11 

of the Bank Act (12 U.S.C. 1431) and in 

accordance with any implementing 

regulations, whether or not such 

instrument was originally issued jointly 

by the Banks or by the Federal Housing 

Finance Board on behalf of the Banks. 

Deposits in banks or trust companies 

means: 

(1) A deposit in another Bank; 

(2) A demand account in a Federal 

Reserve Bank; 

(3) A deposit in, or a sale of Federal 

funds to: 

(i) An insured depository institution, 

as defined in section 2(9)(A) of the Bank 

Act (12 U.S.C. 1422(9)(A)), that is 

designated by a Bank’s board of 

directors; 

(ii) A trust company that is a member 

of the Federal Reserve System or 

insured by the FDIC, and is designated 

by a Bank’s board of directors; or 

(iii) A U.S. branch or agency of a 

foreign bank, as defined in the 

International Banking Act of 1978, as 

amended (12 U.S.C. 3101 et seq.), that is 

subject to the supervision of the FRB, 

and is designated by a Bank’s board of 

directors. 

Director, written in title case, means 

the Director of FHFA or his or her 

designee. 

Entitlement Holder means a Person or 

a Bank to whose account an interest in 

a Book-entry consolidated obligation is 

credited on the records of a Securities 

Intermediary. 

Federal Reserve Bank means a Federal 

Reserve Bank or branch, acting as fiscal 

agent for the Office of Finance, unless 

otherwise indicated. 

Federal Reserve Bank Operating 

Circular means the publication issued 

by each Federal Reserve Bank that sets 

forth the terms and conditions under 

which the Federal Reserve Bank 

maintains Book-entry Securities 

accounts and transfers Book-entry 

Securities. 

FHFA means the Federal Housing 

Finance Agency. 

FRB means the Board of Governors of 

the Federal Reserve System. 

Funds account means a reserve and/ 

or clearing account at a Federal Reserve 

Bank to which debits or credits are 

posted for transfers against payment, 

Book-entry Securities transaction fees, 

or principal and interest payments. 

Non-complying Bank means a Bank 

that has failed to provide the liquidity 

certification as required under 

§ 1270.10(b)(1). 

NRSRO means a credit rating 

organization registered with the 

Securities and Exchange Commission as 

a nationally recognized statistical rating 

organization. 

Office of Finance or OF means the 

Office of Finance, a joint office of the 

Banks established under part 1273 of 

this title and referenced in the Bank Act 

and the Safety and Soundness Act, 

including OF acting as agent of the 

Banks in all matters relating to the 

issuance of Book-entry consolidated 

obligations and in the performance of all 

other necessary and proper functions 

relating to Book-entry consolidated 

obligations, including the payment of 

principal and interest due thereon. 

Participant means a Person or a Bank 

that maintains a Participant’s Securities 

Account with a Federal Reserve Bank. 

Participant’s Securities Account 

means an account in the name of a 

Participant at a Federal Reserve Bank to 

which Book-entry consolidated 

obligations held for a Participant are or 

may be credited. 

Person means and includes an 

individual, corporation, company, 

governmental entity, association, firm, 

partnership, trust, estate, representative, 

and any other similar organization, but 

does not mean or include a Bank, the 

Director, FHFA, the Office of Finance, 

the United States, or a Federal Reserve 

Bank. 

Repurchase agreement means an 

agreement in which a Bank sells 

securities and simultaneously agrees to 

repurchase those securities or similar 

securities at an agreed upon price, with 

or without a stated time for repurchase. 

Revised Article 8 means Uniform 

Commercial Code, Revised Article 8, 

Investment Securities (with Conforming 

and Miscellaneous Amendments to 

Articles 1, 3, 4, 5, 9, and 10) 1994 

Official Text. Copies of this publication 

are available from the Executive Office 

of the American Law Institute, 4025 

Chestnut Street, Philadelphia, PA 

19104, and the National Conference of 

Commissioners on Uniform State Laws, 

676 North St. Clair Street, Suite 1700, 

Chicago, IL 60611. 

Safety and Soundness Act means the 

Federal Housing Enterprises Financial 

Safety and Soundness Act of 1992 (12 

U.S.C. 4501 et seq.) as amended. 

Securities Intermediary means: 

(1) A Person that is registered as a 

‘‘clearing agency’’ under the Federal 

securities laws; a Federal Reserve Bank; 

any other person that provides clearance 

or settlement services with respect to a 

Book-entry consolidated obligation that 

would require it to register as a clearing 

agency under the Federal securities laws 

but for an exclusion or exemption from 

the registration requirement, its 

activities as a clearing corporation, 

including promulgation of rules, are 

subject to regulation by a Federal or 

State governmental authority; or 

(2) A Person (other than an 

individual, unless such individual is 

registered as a broker or dealer under 

the Federal securities laws) including a 

bank or broker, that in the ordinary 

course of its business maintains 

securities accounts for others and is 

acting in that capacity. 

Security Entitlement means the rights 

and property interest of an Entitlement 

Holder with respect to a Book-entry 

consolidated obligation. 

Transfer Message means an 

instruction of a Participant to a Federal 

Reserve Bank to effect a transfer of a 

Book-entry consolidated obligation, as 


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set forth in Federal Reserve Bank 

Operating Circulars. 

Subpart B—Sources of Funds 

§ 1270.2 Authorized liabilities. 

As a source of funds for business 

operations, each Bank is authorized to 

incur liabilities by: 

(a) Accepting proceeds from the 

issuance of consolidated obligations 

issued in accordance with this part; 

(b) Accepting time or demand 

deposits from members, other Banks or 

instrumentalities of the United States, 

and cash accounts from members or 

associates pursuant to 

§ 950.17(b)(2)(i)(B) and 950.17(d) of this 

title, § 1269.4(a)(1) of this chapter, or 

§ 1270.3 of this part, or from other 

institutions for which the Bank is 

providing correspondent services 

pursuant to section 11(e) of the Bank 

Act (12 U.S.C. 1431(e)); 

(c) Purchasing Federal funds; and 

(d) Entering into repurchase 

agreements. 

§ 1270.3 Deposits from members. 

(a) Banks may accept demand and 

time deposits from members, reserving 

the right to require notice of intention 

to withdraw any part of time deposits. 

Rates of interest paid on all deposits 

shall be set by the Bank’s board of 

directors (or, between regular meetings 

thereof, by a committee of directors 

selected by the board) or by the Bank 

President, if so authorized by the board. 

Unless otherwise specified by the board, 

a Bank President may delegate to any 

officer or employee of the Bank any 

authority he possesses under this 

section. 

(b) Each Bank shall at all times have 

at least an amount equal to the current 

deposits received from its members 

invested in: 

(1) Obligations of the United States; 

(2) Deposits in banks or trust 

companies; or 

(3) Advances with a remaining 

maturity not to exceed five years that 

are made to members in conformity 

with part 950 of this title. 

Subpart C—Consolidated Obligations 

§ 1270.4 Issuance of consolidated 

obligations. 

(a) Consolidated obligations issued by 

the Banks—(1) Pursuant to the duties 

and authority of the Director set forth in 

sections 1311, 1312, and 1313 of the 

Safety and Soundness Act (12 U.S.C. 

4511, 4512 and 4513), and subject to the 

provisions of this part and such other 

rules, regulations, terms, and conditions 

as the Director may prescribe, the Banks 

may issue joint debt under section 11(c) 

of the Bank Act (12 U.S.C. 1431(c)), 

which shall be consolidated obligations, 

on which the Banks shall be jointly and 

severally liable in accordance with 

§ 1270.10 of this part. 

(2) Consolidated obligations shall be 

issued only through the Office of 

Finance, as agent of the Banks pursuant 

to this part and part 1273 of this 

chapter. 

(3) All consolidated obligations shall 

be issued in pari passu. 

(b) Negative pledge requirement. Each 

Bank shall at all times maintain assets 

described in paragraphs (b)(1) through 

(b)(6) of this section free from any lien 

or pledge, in an amount at least equal 

to a pro rata share of the total amount 

of currently outstanding consolidated 

obligations and equal to such Bank’s 

participation in all such consolidated 

obligations outstanding, provided that 

any assets that are subject to a lien or 

pledge for the benefit of the holders of 

any issue of consolidated obligations 

shall be treated as if they were assets 

free from any lien or pledge for 

purposes of compliance with this 

paragraph (b). Eligible assets are: 

(1) Cash; 

(2) Obligations of or fully guaranteed 

by the United States; 

(3) Secured advances; 

(4) Mortgages as to which one or more 

Banks have any guaranty or insurance, 

or commitment therefor, by the United 

States or any agency thereof; 

(5) Investments described in section 

16(a) of the Bank Act (12 U.S.C. 

1436(a)); and 

(6) Other securities that have been 

assigned a rating or assessment by an 

NRSRO that is equivalent to or higher 

than the rating or assessment assigned 

by that NRSRO to consolidated 

obligations outstanding. 

§ 1270.5 Leverage limit and credit rating 

requirements. 

(a) Bank leverage—(1) Except as 

provided in paragraph (a)(2) of this 

section, the total assets of any Bank that 

is not subject to the capital requirements 

set forth in part 932 of this title shall not 

exceed 21 times the total of paid-in 

capital stock, retained earnings, and 

reserves (excluding loss reserves and 

liquidity reserves for deposits pursuant 

to section 11(g) of the Bank Act (12 

U.S.C. 1431(g)) of that Bank. 

(2) The aggregate amount of assets of 

any Bank that is not subject to the 

capital requirements set forth in part 

932 of this title may be up to 25 times 

the total paid-in capital stock, retained 

earnings, and reserves of that Bank, 

provided that non-mortgage assets, after 

deducting the amount of deposits and 

capital, do not exceed 11 percent of 

such total assets. For the purposes of 

this section, the amount of nonmortgage assets equals total assets after 

deduction of: 

(i) Advances; 

(ii) Acquired member assets, 

including all United States governmentinsured or guaranteed whole singlefamily or multi-family residential 

mortgage loans; 

(iii) Standby letters of credit; 

(iv) Intermediary derivative contracts; 

(v) Debt or equity investments: 

(A) That primarily benefit households 

having a targeted income level, a 

significant proportion of which must 

benefit households with incomes at or 

below 80 percent of area median 

income, or areas targeted for 

redevelopment by local, state, tribal or 

Federal government (including Federal 

Empowerment Zones and Enterprise 

and Champion Communities), by 

providing or supporting one or more of 

the following activities: 

(1) Housing; 

(2) Economic development; 

(3) Community services; 

(4) Permanent jobs; or 

(5) Area revitalization or stabilization; 

(B) In the case of mortgage-or assetbacked securities, the acquisition of 

which would expand liquidity for loans 

that are not otherwise adequately 

provided by the private sector and do 

not have a readily available or well 

established secondary market; and 

(C) That involve one or more members 

or housing associates in a manner, 

financial or otherwise, and to a degree 

to be determined by the Bank; 

(vi) Investments in SBICs, where one 

or more members or housing associates 

of the Bank also make a material 

investment in the same activity; 

(vii) SBIC debentures, the short term 

tranche of SBIC securities, or other 

debentures that are guaranteed by the 

Small Business Administration under 

title III of the Small Business Investment 

Act of 1958, as amended (15 U.S.C. 681 

et seq.); 

(viii) Section 108 Interim Notes and 

Participation Certificates guaranteed by 

the Department of Housing and Urban 

Development under section 108 of the 

Housing and Community Development 

Act of 1974, as amended (42 U.S.C. 

5308); 

(ix) Investments and obligations 

issued or guaranteed under the Native 

American Housing Assistance and SelfDetermination Act of 1996 (25 U.S.C. 

4101 et seq.). 

(x) Securities representing an interest 

in pools of mortgages (MBS) issued, 

guaranteed, or fully insured by the 

Government National Mortgage 

Association (Ginnie Mae), the Federal 


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Home Loan Mortgage Corporation 

(Freddie Mac), or the Federal National 

Mortgage Association (Fannie Mae), or 

Collateralized Mortgage Obligations 

(CMOs), including Real Estate Mortgage 

Investment Conduits (REMICs), backed 

by such securities; 

(xi) Other MBS, CMOs, and REMICs 

rated in the highest rating category by 

an NRSRO; 

(xii) Asset-backed securities 

collateralized by manufactured housing 

loans or home equity loans and rated in 

the highest rating category by an 

NRSRO; and 

(xiii) Marketable direct obligations of 

state or local government units or 

agencies, rated in one of the two highest 

rating categories by an NRSRO, where 

the purchase of such obligations by a 

Bank provides to the issuer the 

customized terms, necessary liquidity, 

or favorable pricing required to generate 

needed funding for housing or 

community development. 

(b) Credit ratings—(1) The Banks, 

collectively, shall obtain from an 

NRSRO and, at all times, maintain a 

current credit rating on the Banks’ 

consolidated obligations. 

(2) Each Bank shall operate in such a 

manner and take any actions necessary, 

including without limitation reducing 

Bank leverage, to ensure that the Banks’ 

consolidated obligations receive and 

continue to receive the highest credit 

rating from any NRSRO by which the 

consolidated obligations have then been 

rated. 

(c) Individual Bank credit rating. Each 

Bank shall operate in such a manner 

and take any actions necessary to ensure 

that the Bank has and maintains an 

individual issuer credit rating of at least 

the second highest credit rating from 

any NRSRO providing a rating, where 

such rating is a meaningful measure of 

the individual Bank’s financial strength 

and stability, and is updated at least 

annually by an NRSRO, or more 

frequently as required by FHFA, to 

reflect any material changes in the 

condition of the Bank. 

§ 1270.6 Transactions in consolidated 

obligations. 

The general regulations of the 

Department of the Treasury now or 

hereafter in force governing transactions 

in United States securities, except 31 

CFR part 357 regarding book-entry 

procedure, are hereby incorporated into 

this subpart C of this part, so far as 

applicable and as necessarily modified 

to relate to consolidated obligations, as 

the regulations of FHFA for similar 

transactions on consolidated 

obligations. The book-entry procedure 

for consolidated obligations is contained 

in subpart D of this part. 

§ 1270.7 Lost, stolen, destroyed, mutilated 

or defaced consolidated obligations. 

United States statutes and regulations 

of the Department of the Treasury now 

or hereafter in force governing relief on 

account of the loss, theft, destruction, 

mutilation or defacement of United 

States securities, so far as applicable 

and as necessarily modified to relate to 

consolidated obligations, are hereby 

adopted as the regulations of FHFA for 

the issuance of substitute consolidated 

obligations or the payment of lost, 

stolen, destroyed, mutilated or defaced 

consolidated obligations. 

§ 1270.8 Administrative provision. 

The Secretary of the Treasury or the 

Acting Secretary of the Treasury is 

hereby authorized and empowered, as 

the agent of FHFA and the Banks, to 

administer §§ 1270.6 and 1270.7, and to 

delegate such authority at their 

discretion to other officers, employees, 

and agents of the Department of the 

Treasury. Any such regulations may be 

waived on behalf of FHFA and the 

Banks by the Secretary of the Treasury, 

the Acting Secretary of the Treasury, or 

by an officer of the Department of the 

Treasury authorized to waive similar 

regulations with respect to United States 

securities, but only in any particular 

case in which a similar regulation with 

respect to United States securities 

would be waived. The terms ‘‘securities’’ 

and ‘‘bonds’’ as used in this section 

shall, unless the context otherwise 

requires, include and apply to coupons 

and interim certificates. 

§ 1270.9 Conditions for issuance of 

consolidated obligations. 

(a) The Office of Finance board of 

directors shall authorize the offering for 

current and forward settlement (up to 

12 months) or the reopening of 

consolidated obligations, as necessary, 

and authorize the maturities, rates of 

interest, terms and conditions thereof, 

subject to the provisions of 31 U.S.C. 

9108. 

(b) Consolidated obligations may be 

offered for sale only to the extent that 

Banks are committed to take the 

proceeds. 

(c) Consolidated obligations shall not 

be purchased by any Bank as part of an 

initial issuance whether such 

consolidated obligation is purchased 

directly from the Office of Finance or 

indirectly from an underwriter. 

(d) If the Banks issue consolidated 

obligations denominated in a currency 

other than U.S. Dollars or linked to 

equity or commodity prices, then any 

Bank accepting proceeds from those 

consolidated obligations shall meet the 

following requirements with regard to 

such consolidated obligations: 

(1) The relevant foreign exchange, 

equity price or commodity price risks 

associated with the consolidated 

obligation must be hedged in 

accordance with § 956.6 of this title; 

(2) If there is a default on the part of 

a counterparty to a contract hedging the 

foreign exchange, equity or commodity 

price risk associated with a consolidated 

obligation, the Bank shall enter into a 

replacement contract in a timely manner 

and as soon as market conditions 

permit. 

§ 1270.10 Joint and several liability. 

(a) In general—(1) Each and every 

Bank, individually and collectively, has 

an obligation to make full and timely 

payment of all principal and interest on 

consolidated obligations when due. 

(2) Each and every Bank, individually 

and collectively, shall ensure that the 

timely payment of principal and interest 

on all consolidated obligations is given 

priority over, and is paid in full in 

advance of, any payment to or 

redemption of shares from any 

shareholder. 

(3) The provisions of this part shall 

not limit, restrict or otherwise diminish, 

in any manner, the joint and several 

liability of all of the Banks on any 

consolidated obligation. 

(b) Certification and reporting—(1) 

Before the end of each calendar quarter, 

and before declaring or paying any 

dividend for that quarter, the President 

of each Bank shall certify in writing to 

FHFA that, based on known current 

facts and financial information, the 

Bank will remain in compliance with 

the liquidity requirements set forth in 

section 11(g) of the Act (12 U.S.C. 

1431(g)), and any regulations (as the 

same may be amended, modified or 

replaced), and will remain capable of 

making full and timely payment of all 

of its current obligations, including 

direct obligations, coming due during 

the next quarter. 

(2) A Bank shall immediately provide 

written notice to FHFA if at any time 

the Bank: 

(i) Is unable to provide the 

certification required by paragraph 

(b)(1) of this section; 

(ii) Projects at any time that it will fail 

to comply with statutory or regulatory 

liquidity requirements, or will be unable 

to timely and fully meet all of its current 

obligations, including direct obligations, 

due during the quarter; 

(iii) Actually fails to comply with 

statutory or regulatory liquidity 

requirements or to timely and fully meet 


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all of its current obligations, including 

direct obligations, due during the 

quarter; or 

(iv) Negotiates to enter or enters into 

an agreement with one or more other 

Banks to obtain financial assistance to 

meet its current obligations, including 

direct obligations, due during the 

quarter; the notice of which shall be 

accompanied by a copy of the 

agreement, which shall be subject to the 

approval of FHFA. 

(c) Consolidated obligation payment 

plans—(1) A Bank promptly shall file a 

consolidated obligation payment plan 

for FHFA approval: 

(i) If the Bank becomes a noncomplying Bank as a result of failing to 

provide the certification required in 

paragraph (b)(1) of this section; 

(ii) If the Bank becomes a noncomplying Bank as a result of being 

required to provide the notice required 

pursuant to paragraph (b)(2) of this 

section, except in the event that a failure 

to make a principal or interest payment 

on a consolidated obligation when due 

was caused solely by a temporary 

interruption in the Bank’s debt servicing 

operations resulting from an external 

event such as a natural disaster or a 

power failure; or 

(iii) If FHFA determines that the Bank 

will cease to be in compliance with the 

statutory or regulatory liquidity 

requirements, or will lack the capacity 

to timely and fully meet all of its current 

obligations, including direct obligations, 

due during the quarter. 

(2) A consolidated obligation payment 

plan shall specify the measures the noncomplying Bank will undertake to make 

full and timely payments of all of its 

current obligations, including direct 

obligations, due during the applicable 

quarter. 

(3) A non-complying Bank may 

continue to incur and pay normal 

operating expenses incurred in the 

regular course of business (including 

salaries, benefits, or costs of office 

space, equipment and related expenses), 

but shall not incur or pay any 

extraordinary expenses, or declare, or 

pay dividends, or redeem any capital 

stock, until such time as FHFA has 

approved the Bank’s consolidated 

obligation payment plan or inter-Bank 

assistance agreement, or ordered 

another remedy, and all of the noncomplying Bank’s direct obligations 

have been paid. 

(d) FHFA payment orders; Obligation 

to reimburse—(1) FHFA, in its 

discretion and notwithstanding any 

other provision in this section, may at 

any time order any Bank to make any 

principal or interest payment due on 

any consolidated obligation. 

(2) To the extent that a Bank makes 

any payment on any consolidated 

obligation on behalf of another Bank, 

the paying Bank shall be entitled to 

reimbursement from the non-complying 

Bank, which shall have a corresponding 

obligation to reimburse the Bank 

providing assistance, to the extent of 

such payment and other associated costs 

(including interest to be determined by 

FHFA). 

(e) Adjustment of equities—(1) Any 

non-complying Bank shall apply its 

assets to fulfill its direct obligations. 

(2) If a Bank is required to meet, or 

otherwise meets, the direct obligations 

of another Bank due to a temporary 

interruption in the latter Bank’s debt 

servicing operations (e.g., in the event of 

a natural disaster or power failure), the 

assisting Bank shall have the same right 

to reimbursement set forth in paragraph 

(d)(2) of this section. 

(3) If FHFA determines that the assets 

of a non-complying Bank are 

insufficient to satisfy all of its direct 

obligations as set forth in paragraph 

(e)(1) of this section, then FHFA may 

allocate the outstanding liability among 

the remaining Banks on a pro rata basis 

in proportion to each Bank’s 

participation in all consolidated 

obligations outstanding as of the end of 

the most recent month for which FHFA 

has data, or otherwise as FHFA may 

prescribe. 

(f) Reservation of authority. Nothing 

in this section shall affect the Director’s 

authority to adjust equities between the 

Banks in a manner different than the 

manner described in paragraph (e) of 

this section, or to take enforcement or 

other action against any Bank pursuant 

to the Director’s authority under the 

Safety and Soundness Act or the Bank 

Act, or otherwise to supervise the Banks 

and ensure that they are operated in a 

safe and sound manner. 

(g) No rights created—(1) Nothing in 

this part shall create or be deemed to 

create any rights in any third party. 

(2) Payments made by a Bank toward 

the direct obligations of another Bank 

are made for the sole purpose of 

discharging the joint and several 

liability of the Banks on consolidated 

obligations. 

(3) Compliance, or the failure to 

comply, with any provision in this 

section shall not be deemed a default 

under the terms and conditions of the 

consolidated obligations. 

§ 1270.11 Savings clause. 

Any agreements or other instruments 

entered into in connection with the 

issuance of consolidated obligations 

prior to the amendments made to this 

part shall continue in effect with respect 

to all consolidated obligations issued 

under the authority of section 11 of the 

Bank Act (12 U.S.C. 1431) and pursuant 

to this part. References to consolidated 

obligations in such agreements and 

instruments shall be deemed to refer to 

all joint and several obligations of the 

Banks. 

Subpart D—Book-Entry Procedure for 

Consolidated Obligations 

§ 1270.12 Law governing rights and 

obligations of Banks, FHFA, Office of 

Finance, United States and Federal Reserve 

Banks; rights of any Person against Banks, 

FHFA, Office of Finance, United States and 

Federal Reserve Banks. 

(a) Except as provided in paragraph 

(b) of this section, the rights and 

obligations of the Banks, FHFA, the 

Director, the Office of Finance, the 

United States and the Federal Reserve 

Banks with respect to: A Book-entry 

consolidated obligation or Security 

Entitlement and the operation of the 

Book-entry system, as it applies to 

consolidated obligations; and the rights 

of any Person, including a Participant, 

against the Banks, FHFA, the Director, 

the Office of Finance, the United States 

and the Federal Reserve Banks with 

respect to: A Book-entry consolidated 

obligation or Security Entitlement and 

the operation of the Book-entry system, 

as it applies to consolidated obligations; 

are governed solely by regulations of 

FHFA, including the regulations of this 

part 1270, the applicable offering notice, 

applicable procedures established by 

the Office of Finance, and Federal 

Reserve Bank Operating Circulars. 

(b) A security interest in a Security 

Entitlement that is in favor of a Federal 

Reserve Bank from a Participant and 

that is not recorded on the books of a 

Federal Reserve Bank pursuant to 

§ 1270.14(c)(1), is governed by the law 

(not including the conflict-of-law rules) 

of the jurisdiction where the head office 

of the Federal Reserve Bank maintaining 

the Participant’s Securities Account is 

located. A security interest in a Security 

Entitlement that is in favor of a Federal 

Reserve Bank from a Person that is not 

a Participant, and that is not recorded 

on the books of a Federal Reserve Bank 

pursuant to § 1270.14(c)(1), is governed 

by the law determined in the manner 

specified in § 1270.13. 

(c) If the jurisdiction specified in the 

first sentence of paragraph (b) of this 

section is a State that has not adopted 

Revised Article 8, then the law specified 

in the first sentence of paragraph (b) of 

this section shall be the law of that State 

as though Revised Article 8 had been 

adopted by that State. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
68542 Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules 

§ 1270.13 Law governing other interests. 

(a) To the extent not inconsistent with 

this part 1270, the law (not including 

the conflict-of-law rules) of a Securities 

Intermediary’s jurisdiction governs: 

(1) The acquisition of a Security 

Entitlement from the Securities 

Intermediary; 

(2) The rights and duties of the 

Securities Intermediary and Entitlement 

Holder arising out of a Security 

Entitlement; 

(3) Whether the Securities 

Intermediary owes any duties to an 

adverse claimant to a Security 

Entitlement; 

(4) Whether an Adverse Claim can be 

asserted against a Person who acquires 

a Security Entitlement from the 

Securities Intermediary or a Person who 

purchases a Security Entitlement or 

interest therein from an Entitlement 

Holder; and 

(5) Except as otherwise provided in 

paragraph (c) of this section, the 

perfection, effect of perfection or nonperfection, and priority of a security 

interest in a Security Entitlement. 

(b) The following rules determine a 

‘‘Securities Intermediary’s jurisdiction’’ 

for purposes of this section: 

(1) If an agreement between the 

Securities Intermediary and its 

Entitlement Holder specifies that it is 

governed by the law of a particular 

jurisdiction, that jurisdiction is the 

Securities Intermediary’s jurisdiction. 

(2) If an agreement between the 

Securities Intermediary and its 

Entitlement Holder does not specify the 

governing law as provided in paragraph 

(b)(1) of this section, but expressly 

specifies that the securities account is 

maintained at an office in a particular 

jurisdiction, that jurisdiction is the 

Securities Intermediary’s jurisdiction. 

(3) If an agreement between the 

Securities Intermediary and its 

Entitlement Holder does not specify a 

jurisdiction as provided in paragraphs 

(b)(1) or (b)(2) of this section, the 

Securities Intermediary’s jurisdiction is 

the jurisdiction in which is located the 

office identified in an account statement 

as the office serving the Entitlement 

Holder’s account. 

(4) If an agreement between the 

Securities Intermediary and its 

Entitlement Holder does not specify a 

jurisdiction as provided in paragraphs 

(b)(1) or (b)(2) of this section and an 

account statement does not identify an 

office serving the Entitlement Holder’s 

account as provided in paragraph (b)(3) 

of this section, the Securities 

Intermediary’s jurisdiction is the 

jurisdiction in which is located the chief 

executive office of the Securities 

Intermediary. 

(c) Notwithstanding the general rule 

in paragraph (a)(5) of this section, the 

law (but not the conflict-of-law rules) of 

the jurisdiction in which the Person 

creating a security interest is located 

governs whether and how the security 

interest may be perfected automatically 

or by filing a financing statement. 

(d) If the jurisdiction specified in 

paragraph (b) of this section is a State 

that has not adopted Revised Article 8, 

then the law for the matters specified in 

paragraph (a) of this section shall be the 

law of that State as though Revised 

Article 8 had been adopted by that 

State. For purposes of the application of 

the matters specified in paragraph (a) of 

this section, the Federal Reserve Bank 

maintaining the Securities Account is a 

clearing corporation, and the 

Participant’s interest in a Bank Bookentry Security is a Security Entitlement. 

§ 1270.14 Creation of Participant’s 

Security Entitlement; security interests. 

(a) A Participant’s Security 

Entitlement is created when a Federal 

Reserve Bank indicates by book entry 

that a Book-entry consolidated 

obligation has been credited to a 

Participant’s Securities Account. 

(b) A security interest in a Security 

Entitlement of a Participant in favor of 

the United States to secure deposits of 

public money, including, without 

limitation, deposits to the Treasury tax 

and loan accounts, or other security 

interest in favor of the United States that 

is required by Federal statute, 

regulation, or agreement, and that is 

marked on the books of a Federal 

Reserve Bank is thereby effected and 

perfected, and has priority over any 

other interest in the Securities. Where a 

security interest in favor of the United 

States in a Security Entitlement of a 

Participant is marked on the books of a 

Federal Reserve Bank, such Federal 

Reserve Bank may rely, and is protected 

in relying, exclusively on the order of an 

authorized representative of the United 

States directing the transfer of the 

Security. For purposes of this paragraph 

(b), an ‘‘authorized representative of the 

United States’’ is the official designated 

in the applicable regulations or 

agreement to which a Federal Reserve 

Bank is a party, governing the security 

interest. 

(c)(1) The Banks, FHFA, the Director, 

the Office of Finance, the United States 

and the Federal Reserve Banks have no 

obligation to agree to act on behalf of 

any Person or to recognize the interest 

of any transferee of a security interest or 

other limited interest in a Security 

Entitlement in favor of any Person 

except to the extent of any specific 

requirement of Federal law or regulation 

or to the extent set forth in any specific 

agreement with the Federal Reserve 

Bank on whose books the interest of the 

Participant is recorded. To the extent 

required by such law or regulation or set 

forth in an agreement with a Federal 

Reserve Bank, or the Federal Reserve 

Bank Operating Circular, a security 

interest in a Security Entitlement that is 

in favor of a Federal Reserve Bank or a 

Person may be created and perfected by 

a Federal Reserve Bank marking its 

books to record the security interest. 

Except as provided in paragraph (b) of 

this section, a security interest in a 

Security Entitlement marked on the 

books of a Federal Reserve Bank shall 

have priority over any other interest in 

the Securities. 

(2) In addition to the method 

provided in paragraph (c)(1) of this 

section, a security interest in a Security 

Entitlement, including a security 

interest in favor of a Federal Reserve 

Bank, may be perfected by any method 

by which a security interest may be 

perfected under applicable law as 

described in § 1270.12(b) or § 1270.13. 

The perfection, effect of perfection or 

non-perfection, and priority of a 

security interest are governed by that 

applicable law. A security interest in 

favor of a Federal Reserve Bank shall be 

treated as a security interest in favor of 

a clearing corporation in all respects 

under that law, including with respect 

to the effect of perfection and priority of 

the security interest. A Federal Reserve 

Bank Operating Circular shall be treated 

as a rule adopted by a clearing 

corporation for such purposes. 

§ 1270.15 Obligations of the Banks and the 

Office of Finance; no Adverse Claims. 

(a) Except in the case of a security 

interest in favor of the United States or 

a Federal Reserve Bank or otherwise as 

provided in § 1270.14(c)(1), for the 

purposes of this part 1270, the Banks, 

the Office of Finance and the Federal 

Reserve Banks shall treat the Participant 

to whose Securities Account an interest 

in a Book-entry consolidated obligation 

has been credited as the person 

exclusively entitled to issue a Transfer 

Message, to receive interest and other 

payments with respect thereof and 

otherwise to exercise all the rights and 

powers with respect to the Security, 

notwithstanding any information or 

notice to the contrary. Neither the 

Banks, FHFA, the Director, the Office of 

Finance, the United States, nor the 

Federal Reserve Banks are liable to a 

Person asserting or having an Adverse 

Claim to a Security Entitlement or to 

Book-entry consolidated obligation in a 

Participant’s Securities Account, 

including any such claim arising as a 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 215 / Monday, November 8, 2010 / Proposed Rules 68543 

result of the transfer or disposition by a 

Federal Reserve Bank pursuant to a 

Transfer Message that the Federal 

Reserve Bank reasonably believes to be 

genuine. 

(b) The obligation of the Banks and 

the Office of Finance to make payments 

of interest and principal with respect to 

Book-entry consolidated obligations is 

discharged at the time payment in the 

appropriate amount is made as follows: 

(1) Interest on Book-entry 

consolidated obligations is either 

credited by a Federal Reserve Bank to a 

Funds Account maintained at the 

Federal Reserve Bank or otherwise paid 

as directed by the Participant. 

(2) Book-entry consolidated 

obligations are paid, either at maturity 

or upon redemption, in accordance with 

their terms by a Federal Reserve Bank 

withdrawing the securities from the 

Participant’s Securities Account in 

which they are maintained and by either 

crediting the amount of the proceeds, 

including both principal and interest, 

where applicable, to a Funds Account at 

the Federal Reserve Bank or otherwise 

paying such principal and interest as 

directed by the Participant. No action by 

the Participant is required in connection 

with the payment of a Book-entry 

consolidated obligation, unless 

otherwise expressly required. 

§ 1270.16 Authority of Federal Reserve 

Banks. 

(a) Each Federal Reserve Bank is 

hereby authorized as fiscal agent of the 

Office of Finance: To perform functions 

with respect to the issuance of Bookentry consolidated obligations, in 

accordance with the terms of the 

applicable offering notice and with 

procedures established by the Office of 

Finance; to service and maintain Bookentry consolidated obligations in 

accounts established for such purposes; 

to make payments of principal, interest 

and redemption premium (if any), as 

directed by the Office of Finance; to 

effect transfer of Book-entry 

consolidated obligations between 

Participants’ Securities Accounts as 

directed by the Participants; and to 

perform such other duties as fiscal agent 

as may be requested by the Office of 

Finance. 

(b) Each Federal Reserve Bank may 

issue Operating Circulars not 

inconsistent with this part 1270, 

governing the details of its handling of 

Book-entry consolidated obligations, 

Security Entitlements, and the operation 

of the Book-entry system under this part 

1270. 

§ 1270.17 Liability of Banks, FHFA, Office 

of Finance and Federal Reserve Banks. 

The Banks, the Finance Board, the 

Office of Finance and the Federal 

Reserve Banks may rely on the 

information provided in a tender, 

transaction request form, other 

transaction documentation, or Transfer 

Message, and are not required to verify 

the information. Neither the Banks, 

FHFA, the Director, the Office of 

Finance, the United States, nor the 

Federal Reserve Banks shall be liable for 

any action taken in accordance with the 

information set out in a tender, 

transaction request form, other 

transaction documentation, or Transfer 

Message, or evidence submitted in 

support thereof. 

§ 1270.18 Additional requirements; notice 

of attachment for Book-entry consolidated 

obligations. 

(a) Additional requirements. In any 

case or any class of cases arising under 

the regulations in this part 1270, the 

Office of Finance may require such 

additional evidence and a bond of 

indemnity, with or without surety, as 

may in its judgment, or in the judgment 

of the Banks or FHFA, be necessary for 

the protection of the interests of the 

Banks, FHFA, the Office of Finance or 

the United States. 

(b) Notice of attachment. The interest 

of a debtor in a Security Entitlement 

may be reached by a creditor only by 

legal process upon the Securities 

Intermediary with whom the debtor’s 

securities account is maintained, except 

where a Security Entitlement is 

maintained in the name of a secured 

party, in which case the debtor’s interest 

may be reached by legal process upon 

the secured party. The regulations in 

this part 1270 do not purport to 

establish whether a Federal Reserve 

Bank is required to honor an order or 

other notice of attachment in any 

particular case or class of cases. 

§ 1270.19 Reference to certain Department 

of Treasury commentary and 

determinations. 

Notwithstanding provisions in 

§ 1270.6 regarding Department of 

Treasury regulations set forth in 31 CFR 

part 357: 

(a) The Department of Treasury 

TRADES Commentary (31 CFR part 357, 

appendix B) addressing the Department 

of Treasury regulations governing bookentry procedure for Treasury Securities 

is hereby referenced, so far as applicable 

and as necessarily modified to relate to 

Book-entry consolidated obligations, as 

an interpretive aid to this subpart D of 

this part. 

(b) Determinations of the Department 

of Treasury regarding whether a State 

shall be considered to have adopted 

Revised Article 8 for purposes of 31 CFR 

part 357, as published in the Federal 

Register or otherwise, shall also apply 

to this subpart D of this part. 

§ 1270.20 Obligations of United States with 

respect to consolidated obligations. 

Consolidated obligations are not 

obligations of the United States and are 

not guaranteed by the United States. 

Dated: November 3, 2010. 

Edward J. DeMarco, 

Acting Director, Federal Housing Finance 

Agency. 

[FR Doc. 2010–28178 Filed 11–5–10; 8:45 am] 

BILLING CODE 8070–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2010–1101; Directorate 

Identifier 2009–CE–013–AD] 

RIN 2120–AA64 

Airworthiness Directives; Cessna 

Aircraft Company Models 150, 152, 

170, 172, 175, 177, 180, 182, 185, 188, 

190, 195, 206, 207, 210, T303, 336, and 

337 Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), Department of 

Transportation (DOT). 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: We propose to supersede 

Airworthiness Directive (AD) 87–20–03 

R2, which applies to certain Cessna 

Aircraft Company (Cessna) 150, 152, 

170, 172, 175, 177, 180, 182, 185, 188, 

190, 195, 206, 207, 210, T303, 336, and 

337 series airplanes. AD 87–20–03 R2 

currently requires repetitive inspections 

and replacement of parts, if necessary, 

of the seat rail and seat rail holes; seat 

pin engagement; seat rollers, washers, 

and axle bolts or bushings; wall 

thickness of roller housing and the tang; 

and lock pin springs. Since we issued 

AD 87–20–03 R2, we have added steps 

to the inspection procedures, added 

revised figures, and clarified some of the 

existing steps. Consequently, this 

proposed AD would retain all of the 

actions from the previous AD and add 

steps to the inspection procedures in the 

previous AD. We are proposing this AD 

to prevent seat slippage or the seat roller 

housing from departing the seat rail, 

which may consequently cause the 

pilot/copilot to be unable to reach all 

the controls. This failure could lead to 


emcdonald on DSK2BSOYB1PROD with PROPOSALS