Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Rules and Regulations 76617 

1FHFA also relocated the part 925 regulations to 

part 1263 of the FHFA’s regulations. 75 FR 678. 

Qualifying life event * * * 

(13) An employee or eligible family 

member becomes eligible for premium 

assistance under Medicaid or a State 

Children’s Health Insurance Program 

(CHIP). An eligible employee may enroll 

and an enrolled employee may change 

his or her enrollment from self only to 

self and family, from one plan or option 

to another, or make any combination of 

these changes when the employee or an 

eligible family member of the employee 

becomes eligible for premium assistance 

under a Medicaid plan or a State 

Children’s Health Insurance Program. 

An employee must enroll or change his 

or her enrollment within 60 days after 

the date the employee or family member 

is determined to be eligible for 

assistance. 

[FR Doc. 2010–30962 Filed 12–8–10; 8:45 am] 

BILLING CODE 6325–39–P 

FEDERAL HOUSING FINANCE BOARD 

12 CFR Parts 950 and 980 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Parts 1264, 1266, 1269, and 

1272 

RIN 2590–AA24 

Use of Community Development Loans 

by Community Financial Institutions 

To Secure Advances; Secured Lending 

by Federal Home Loan Banks to 

Members and Their Affiliates; Transfer 

of Advances and New Business 

Activity Regulations 

AGENCY: Federal Housing Finance 

Board, Federal Housing Finance 

Agency. 

ACTION: Final rule. 

SUMMARY: Section 1211 of the Housing 

and Economic Recovery Act of 2008 

(HERA) amended the Federal Home 

Loan Bank Act (Bank Act) to expand the 

types of eligible collateral that 

community financial institution (CFI) 

members may pledge to secure Federal 

Home Loan Bank (Bank) advances to 

include secured loans for community 

development activities and to allow 

Banks to make long term advances to 

CFI members for purposes of financing 

community development activities. 

Section 1211 further provides that the 

Federal Housing Finance Agency 

(FHFA) shall define the term 

‘‘community development activities’’ by 

regulation. To implement these 

provisions, FHFA is amending the 

advances regulation to allow CFI 

members to pledge community 

development loans as collateral for 

advances and is adopting a definition of 

‘‘community development’’ as proposed. 

The final rule also will transfer the 

advances and new business activities 

rules from parts 950 and 980 of the 

Federal Housing Finance Board (FHFB) 

regulations, to new parts 1266 and 1272 

of the FHFA regulations, respectively, 

and make other conforming 

amendments. Finally, the final rule will 

make a change to the advances 

regulation to incorporate a longstanding policy previously established 

by the FHFB that secured lending to a 

member of any Bank is an advance that 

must meet the requirements of the 

advances regulation. The final rule 

language has been clarified to assure 

that certain types of transactions, such 

as derivatives, will not be considered 

secured lending for the purposes of this 

provision. The new provision 

addressing secured lending does not 

include a prohibition on secured 

transactions with affiliates of members, 

as was initially proposed. 

DATES: The final rule is effective on 

January 10, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Thomas E. Joseph, Senior Attorney 

Advisor, thomas.joseph@fhfa.gov, (202) 

414–3095 (not a toll-free number); 

Office of General Counsel, Federal 

Housing Finance Agency, Fourth Floor, 

1700 G Street, NW., Washington, DC 

20552; or Julie Paller, Senior Financial 

Analyst, julie.paller@fhfa.gov, 202–408– 

2842 (not a toll-free number); Division 

of Federal Home Loan Bank Regulation, 

Federal Housing Finance Agency, 1625 

Eye Street, NW., Washington, DC 20006. 

The telephone number for the 

Telecommunications Device for the 

Hearing Impaired is (800) 877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Establishment of FHFA 

Effective July 30, 2008, Division A of 

HERA, Public Law 110–289, 122 Stat. 

2654 (2008), created FHFA as an 

independent agency of the Federal 

government. HERA transferred the 

supervisory and oversight 

responsibilities over the Federal 

National Mortgage Association (Fannie 

Mae), the Federal Home Loan Mortgage 

Corporation (Freddie Mac) (collectively, 

Enterprises), the Banks, and the Bank 

System’s Office of Finance, from the 

Office of Federal Housing Enterprise 

Oversight (OFHEO) and the FHFB to 

FHFA. FHFA is responsible for ensuring 

that the Enterprises and the Banks 

operate in a safe and sound manner, 

including being capitalized adequately, 

and that they carry out their public 

policy missions, including fostering 

liquid, efficient, competitive, and 

resilient national housing finance 

markets. The Enterprises and the Banks 

continue to operate under regulations 

promulgated by OFHEO and FHFB until 

FHFA issues its own regulations. See 

section 1302 Public Law 110–289, 122 

Stat. 2795. 

B. Statutory and Regulatory Background 

Each Bank is a cooperative institution 

that is owned by its members. Any 

eligible institution (generally a federally 

insured depository institution or stateregulated 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. 12 U.S.C. 1424, 1426; 12 CFR part 

1263. 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. 12 U.S.C. 1426(a)(4), 1430(a), 

1430b. 

Prior to HERA, CFIs were defined 

under the Bank Act as depository 

institutions insured under the Federal 

Deposit Insurance Act (12 U.S.C. 1811 et 

seq.) with average total assets of less 

than $500 million, as adjusted annually 

for inflation thereafter. 12 U.S.C. 

1422(13) (2008). Section 1211 of HERA 

raised the $500 million average total 

assets cap to $1 billion. See section 1211 

Public Law No. 110–289, 122 Stat. 2790 

(amending 12 U.S.C. 1422(10)). By 

Notice published in the Federal 

Register in February 2009, FHFA 

adjusted the $1 billion figure for 

inflation to $1.011 billion. 74 FR 7438 

(Feb. 17, 2009). As part of FHFA’s 

separate rulemaking addressing Bank 

membership for community 

development financial institutions, 

FHFA included a technical amendment 

to the definition of ‘‘CFI’’ to implement 

the average total asset cap increase to $1 

billion made by HERA.1 See 74 FR 

22848, 22857 (May 15, 2009); 75 FR 678, 

691 (Jan. 5, 2010). 

Under the Bank Act, any member, 

including a CFI, that wishes to borrow 

from its Bank must pledge certain types 

of collateral to secure its repayment 

obligation on advances, and must 

otherwise demonstrate to the Bank that 

it is creditworthy. 12 U.S.C. 1430(a). 

Each Bank sets its own lending and 

collateral policies, which may vary from 

Bank to Bank and will apply to all 

borrowing members of that Bank. Prior 

to HERA, section 10(a)(3) of the Bank 


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2 In addition, the Banks under their Community 

Investment Cash Advance Programs (CICA) may 

provide advances to support economic 

development that benefit persons based on defined 

targeted income levels or targeted geographic areas. 

12 CFR part 952. 

3Applicable regulations define a long-term 

advance as one ‘‘with an original term to maturity 

of greater than five years.’’ 

Act specified that a member may pledge 

the following types of collateral to 

secure an advance: (i) Fully disbursed, 

whole first mortgages on improved 

residential property not more than 90 

days delinquent, or securities 

representing a whole interest in such 

mortgages; (ii) securities issued, insured 

or guaranteed by the U.S. Government 

or any agency thereof; (iii) cash or 

deposits of a Bank; (iv) other real estate 

related collateral acceptable to the Bank, 

provided the value of such collateral is 

readily ascertainable and the Bank can 

perfect its security interest in the 

collateral; and (v) for institutions that 

qualify as CFIs, secured loans for small 

business or agriculture, or securities 

representing a whole interest in such 

secured loans.2 See 12 U.S.C. 1430(a)(3). 

Section 1211 of HERA amended section 

10(a)(3)(E) of the Bank Act to broaden 

the collateral that may be pledged by 

CFI members to include secured loans 

for community development activities. 

Section 1211 Public Law 110–289, 122 

Stat. 2790 (amending 12 U.S.C. 

1430(a)(3)(E)). 

In addition, prior to HERA, section 

10(a)(2) of the Bank Act provided that 

a Bank could make a long-term advance 

to a member only for the purposes of 

providing funds to the member for 

residential housing finance, except that 

it also allowed long-term advances to 

CFI members for purposes of funding 

small business, small farm, and small 

agri-business lending.3 12 U.S.C. 

1430(a)(2). Section 1211 of HERA 

amended section 10(a)(2)(B) of the Bank 

Act so that a Bank also may make longterm advances to a CFI member to fund 

community development activities. 

Section 1211, Public Law 110–289, 122 

Stat. 2790 (amending 12 U.S.C. 

1430(a)(2)(B)). 

Section 1211 of HERA also amended 

section 10(a)(6) of the Bank Act to 

provide that the term ‘‘community 

development activities’’ shall have the 

meaning given such term by regulation 

by the Director of FHFA. Id. (amending 

12 U.S.C. 1430(a)(6)). The legislative 

history of HERA does not further 

illuminate Congress’ intent in making 

these amendments. 

C. 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 final 

regulation, FHFA considered the 

differences between the Banks and the 

Enterprises as they relate to the above 

factors. As part of its proposed 

rulemaking, FHFA also requested 

comments from the public about 

whether differences related to these 

factors should result in any revisions to 

the proposal, but received no comments 

on this point in response. 

II. The Final Regulation 

A. The Proposed Rule and Comments 

Received 

FHFA published a proposed rule in 

the Federal Register on February 23, 

2010 to implement the provisions in 

HERA allowing CFIs to pledge 

‘‘community development loans’’ as 

collateral for advances and the Banks to 

make long term advances to a CFI 

member to fund community 

development activities. 75 FR 7990 

(Feb. 23, 2010). As part of its 

implementation of these provisions, 

FHFA proposed defining ‘‘community 

development’’ as having: 

the same meaning as under the definition set 

forth in the Community Reinvestment rule 

for the Federal Reserve System (12 CFR part 

228), Federal Deposit Insurance Corporation 

(12 CFR part 345), the Office of Thrift 

Supervision (12 CFR part 563e) or the Office 

of the Comptroller of the Currency (12 CFR 

part 25), whichever is the CFI member’s 

primary federal regulator. 

Id. at 7994. 

FHFA also proposed defining 

‘‘community development loan’’ as: 

A loan that has as its primary purpose 

community development, but such loans 

shall not include: (1) Any loan or instrument 

that qualifies as eligible security for an 

advance under § 1266.7(a) of this part; or (2) 

Consumer loans or credit extended to one or 

more individuals for household, family or 

other personal expenditures. 

Id. 

The proposed rule also would have 

amended the advances regulation to 

incorporate a long-standing Finance 

Board policy that deemed any form of 

secured lending by a Bank to a Bank 

System member an advance subject to 

the rules governing advances. The 

proposal would have extended this 

policy to cover affiliates of any 

members, and, as a consequence, would 

have prohibited a Bank from entering 

into secured lending transactions with 

member affiliates. Finally, the proposed 

rule would have transferred the 

advances and the new business activity 

regulation, respectively, from parts 950 

and 980 of the Finance Board 

regulations to parts 1266 and 1272 of 

the FHFA regulations. 

FHFA received eleven comment 

letters on the proposed rule. Eleven of 

the twelve Banks commented, including 

a joint letter which was signed by three 

Banks. One letter came from an 

association representing municipal 

governments and one letter came from 

a private citizen. All the Bank comment 

letters addressed proposed § 1266.2(e) of 

the rule, which would have required 

secured transactions with the member of 

any Bank to meet the requirements of an 

advance and would have prohibited 

secured transactions between a Bank 

and an affiliate of a member of any 

Bank. As is discussed below, these 

letters generally suggested clarification 

to the proposed rule language so that 

any restriction did not carry unintended 

consequences and limit transactions 

beyond borrowings by members. These 

letters also stated that the proposed 

restrictions on secured transactions with 

affiliates of members would eliminate 

an important and safe liquidity 

investment for the Banks and urged that 

the provision be substantially revised in 

this respect or not be adopted. 

Two comment letters, including the 

joint Bank letter, addressed the 

proposed provisions allowing 

‘‘community development loans’’ to be 

pledged as collateral by CFIs. Both 

letters made similar comments and 

generally urged FHFA to expand the 

definitions of ‘‘community 

development’’ and ‘‘community 

development loan’’ and not tie the 

definition to criteria based on income 

targeting. These comments are also 

addressed more fully below. No 

comments were made on other aspects 

of the proposed rule. All comment 

letters are posted on the FHFA Internet 

Web site at http://www.fhfa.gov. 

B. Final Rule Provisions 

Definitions—§ 1266.1 

FHFA proposed adding definitions for 

‘‘community development’’ and 

‘‘community development loan’’ to the 

advances regulation to help implement 


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4See 12 CFR 25.12, 228.12, 345.12, and 563e.12. 

Under this definition, ‘‘community development’’ 

would have encompassed affordable housing, 

community services targeted to low- and moderateincome individuals, economic development 

activities through financing of businesses and farms 

that meet size eligibility standards of the Small 

Business Administration’s Development Company 

or Small Business Investment Company Programs 

or have gross annual revenues of $1 million or less, 

and activities that revitalize or stabilize low- or 

moderate-income geographies, designated disaster 

areas, or certain designated, distressed, or 

underserved non-metropolitan middle-income 

geographies. 

5As part of the transfer of the advances regulation 

to part 1266, this provision will be redesignated as 

§ 1266.7(a). This provision identifies collateral that 

can be pledged by all Bank members to secure 

advances. 

6See 12 CFR 952.1. 

7As part of the proposed transfer of the advances 

regulation to part 1266, this provision would be 

redesignated as § 1266.7(a). 

8When proposing the definition of ‘‘community 

development loan,’’ FHFA noted that because small 

agri-business, small business and small farm loans 

can be pledged only by CFI members, there was no 

need to exclude them from the definition of 

community development loan, despite likely 

overlap in these existing categories of collateral and 

community development loans. See 75 FR at 7992. 

Upon reconsideration, such overlap may 

nonetheless cause some confusion, especially when 

determining whether the new business activity 

requirements applied to a loan that may fall both 

within the definition of community development 

loan and the definition of one of the other 

categories of CFI member only collateral. Moreover, 

because small agri-business, small business, and 

small farm loans are defined as loans that are 

within legal lending limits of the CFI member and 

reported on specific regulatory financial reports of 

that member, these loans are easy to identify, and 

it will be straightforward to determine whether 

loans fall into one of the existing categories of 

eligible CFI collateral or whether the loans may 

qualify only as a ‘‘community development loan’’ to 

be pledged as collateral for an advance. 

the HERA provision allowing CFI 

members to pledge community 

development loans to secure advances. 

In the proposed rule, ‘‘community 

development’’ was defined with 

reference to the definition for this term 

adopted by CFI members’ primary 

federal regulators under Community 

Reinvestment Act (CRA) regulations.4 In 

turn, FHFA proposed to define 

‘‘community development loan’’ as a 

loan that has community development 

as its primary purpose. Because FHFA 

did not intend the proposed definition 

to call into question the validity of any 

collateral allowed under the advances 

regulation to be pledged by all members, 

the proposed definition of ‘‘community 

development loan’’ excluded categories 

of eligible collateral identified in 

§ 950.7(a) of the advances rule 5 from its 

scope. FHFA specifically requested 

comments on whether, and how, these 

proposed definitions might be altered to 

better help CFI members fund 

community development activities 

while continuing to assure that 

advances be secured only by high 

quality collateral. 75 FR at 7992. 

FHFA received two comments on 

these definitions. Both comments urged 

FHFA to adopt a broader definition for 

‘‘community development’’ that would 

not include the income targeting criteria 

inherent in the proposed definition. 

They argued (albeit for different 

reasons) that the proposed definition of 

‘‘community lending’’ was contrary to 

Congressional intent in adopting section 

1211 and that a broader definition 

would better meet Congress’ reasons for 

including this provision in HERA. 

Instead of the proposed definition, the 

commenters suggested developing a 

definition based on the one used for 

‘‘economic development projects’’ in 

FHFA’s current Community Investment 

Cash Advance Programs (CICA) 

regulations.6 One commenter proposed 

a specific definition for ‘‘community 

development’’ that included criteria that 

would limit the definition to projects or 

activities that were the recipient of any 

form of federal, state or local 

government support. The commenter 

believed such criteria would help 

identify the activity or project as one 

viewed by federal, state or local 

governments as important for the 

community in question. 

FHFA has considered these 

comments, but generally does not find 

them persuasive. As noted when FHFA 

proposed its definition of ‘‘community 

development,’’ the legislative history of 

HERA does not clearly illuminate 

Congressional intent in allowing 

secured loans for community 

development to be pledged as collateral 

by CFI members to support advances. 

Instead, section 1211(b) of HERA 

provided FHFA with broad flexibility to 

define the term ‘‘community 

development activities.’’ More 

importantly, although HERA did not 

specify income targeting criteria in the 

provision concerning ‘‘community 

development,’’ the concept of 

community development lending is not 

new in banking law and is a welldeveloped concept as evidenced by the 

Community Reinvestment Act, and the 

regulations adopted by federal banking 

regulators to implement that statute. As 

it noted in proposing this definition, 

FHFA is relying on this long-standing 

regulatory history in defining the term. 

Moreover, by linking the definition of 

‘‘community development’’ to the 

Community Reinvestment Act rules of 

the banking regulators, FHFA will 

ensure that future changes and 

developments in this area will be 

captured in FHFA’s definition of 

‘‘community development’’. 

FHFA believes that this approach will 

help CFI members to use advances to 

provide financing for their 

communities’ development needs, as 

those needs are embodied by those 

members’ CRA obligations. 75 FR at 

7992. FHFA, therefore, is adopting the 

definition of ‘‘community development’’ 

as proposed. 

FHFA also is adopting the definition 

of ‘‘community development loan’’ 

generally as proposed. In this respect, a 

community development loan is a loan 

that has community development as its 

primary purpose. The final rule, as 

adopted, also clarifies that the term 

‘‘community development loan’’ 

includes a participation interest in a 

community development loan. 

FHFA recognizes that many loans that 

are extended to support community 

development already will be acceptable 

collateral for advances under existing 

Bank Act provisions and FHFA 

regulations. As a consequence, the 

definition excludes from the meaning of 

‘‘community development loan,’’ any 

loan that qualifies as acceptable 

collateral under other provisions of the 

Bank Act and FHFA regulations. As 

explained when FHFA initially 

proposed this definition, FHFA does not 

intend to call into question the validity 

of any security pledged (or to be 

pledged) under the existing categories of 

eligible collateral. Thus, the definition 

of ‘‘community development loan’’ 

excludes from its scope, categories of 

eligible collateral now identified in 

§ 950.7(a) of the advances rule,7 which 

can be pledged by any member to secure 

an advance, as well as small agribusiness loan, small business loan, or 

small farm loan, which currently are 

forms of acceptable collateral for CFI 

members.8 The definition of 

‘‘community development loan’’ also 

specifically excludes consumer loans or 

credit extended to one or more 

individuals for household, family, or 

other personal expenditures. This 

exclusion does not change the status of 

any loan that qualifies as eligible 

collateral for advances under existing 

categories of collateral in the Bank Act 

or current regulations. For example, the 

new language does not affect the status 

of home equity loans as other real 

estate-related collateral eligible to 

secure advances. 

Commenters also urged that FHFA 

include municipal bonds within the 

definition of community development 

loans so that municipal bonds could be 

accepted as collateral from CFIs to 

secure advances. They noted that FHFA 

regulations already allow members to 

use municipal bonds as collateral to 

secure letters of credit where the letter 

of credit helps facilitate residential 


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9The comparison made by commenters to the 

provision in the letter of credit regulation is 

somewhat misplaced. Prior to adopting the letter of 

credit regulation, the Finance Board determined 

that, as a matter of law, the Bank Act did not 

require that letters of credit be collateralized. It did, 

however, conclude that such a requirement was 

advisable as a matter of safe and sound banking 

practice and provided for the acceptance of certain 

types of collateral for letters of credit that the 

Banks, by law, were not permitted to accept to 

secure advances. See Final Rule: Standby Letters of 

Credit, 63 FR 65693 (Nov. 30, 1998); and Office of 

General Counsel Opinion, 1998–GC–14 (Oct. 28, 

1998). The HERA amendments that will be 

implemented by this rule, however, limit eligible 

advance collateral for a CFI member to secured 

community development loans or securities 

representing a whole interest in such secured loans. 

10The definition of ‘‘residential housing finance 

assets’’ in § 950.1 of the Finance Board’s advances 

regulations incorrectly states that ‘‘community 

lending’’ is defined in § 900.1 rather than in § 900.2. 

11The definitions in part 900 of the FHFB rules 

apply only to regulations contained in chapter 9 of 

Title 12 of the Code of Federal Regulations. Thus, 

definitions in part 900 are no longer applicable to 

the advances and the new business activities 

regulations once they are transferred to new parts 

1266 and 1272. 

housing finance or community lending. 

12 CFR 1269.2(c)(2). 

Section 1266.7(b)(1) as amended by 

this rulemaking, however, already 

allows the Banks to accept from CFI 

members, as collateral for advances, any 

security to the extent that the security 

represents a whole interest in a secured, 

small agri-business, small business, 

small farm or community development 

loan. This restriction limiting the type 

of securities that can be pledged under 

the special CFI collateral provision is 

statutory, and the wording of 

§ 1266.7(b)(1) closely follows that of the 

Bank Act. See 12 U.S.C. 1430(a)(3)(E). 

Extending the definition of community 

development loans to include all 

municipal securities would go beyond 

what is authorized in the Bank Act and 

would not be consistent with the 

statutory limitation.9 FHFA, therefore, is 

not altering the final definition of 

community development loan as 

requested. CFI members, of course, can 

still pledge as collateral for advances 

any municipal bond to the extent 

allowed by § 1266.7(b)(1), as that 

provision is being amended by this 

rulemaking. 

To implement the HERA provisions 

which allow CFIs to rely on long-term 

advances to fund ‘‘community 

development loans,’’ FHFA proposed 

amending the definition of ‘‘residential 

housing finance assets’’ to incorporate 

‘‘community development loans’’ into 

the definition. See 75 FR at 7993. To 

avoid confusion, FHFA also proposed 

removing the reference to ‘‘community 

lending’’ from the ‘‘residential housing 

finance assets’’ definition and 

incorporating each element of 

‘‘community lending,’’ as defined in 

§ 900.2,10 into the definition. Thus, the 

proposed definition specifically referred 

to ‘‘loans or investments providing 

financing for economic development 

projects for targeted beneficiaries’’ and 

for CFI members, to the extent not 

already included, ‘‘small business loans, 

small farm loans, small agri-business 

loans, or community development 

loans.’’ Other than adding ‘‘community 

development loans,’’ the proposed 

changes were editorial in nature and did 

not alter the scope of the definition for 

‘‘residential housing finance assets.’’ No 

comments were received on these 

changes and the definition of 

‘‘residential housing finance assets’’ is 

being adopted as proposed. 

FHFA also proposed adding to newly 

designated § 1266.1 definitions for 

‘‘Bank Act,’’ ‘‘advances,’’ ‘‘Bank,’’ and 

‘‘targeted beneficiaries.’’ These 

definitions were contained in § 900.1 or 

§ 900.2 of the FHFB rules, and FHFA 

proposed to carry them over to newly 

designated part 1266 without 

substantive change.11 No comments 

were received on these definitions and 

FHFA is adopting them as proposed. 

Secured Lending—§ 1266.2(e) 

FHFA proposed amending newly 

designated § 1266.2 of the advances 

regulation to incorporate a longstanding position that any secured 

lending by a Bank to members is 

deemed an advance subject to all 

requirements related to advances. This 

position was first taken by the FHFB in 

1995 by resolution; this resolution has 

not been rescinded and is still in effect. 

Fin. Brd. Res. No. 95–13 (Aug. 9, 1995). 

FHFA proposed incorporating this 

position into the regulation to prevent 

Banks from using forms of secured 

lending to members, such as reverse 

repurchase transactions, to avoid 

specific requirements and obligations 

associated with making advances to 

members, including stock purchase 

requirements. To assure that the 

proposed provision could not be 

circumvented by a Bank extending 

secured credit to an affiliate of a 

member, the proposed provision also 

prohibited secured lending to any nonmember, affiliate of a member, given 

that such non-member affiliates would 

not be eligible to receive an advance 

under the regulations. 

Almost all the comment letters 

addressed proposed § 1266.2(e). Most of 

these commenters noted that the broad 

wording in the proposed amendment 

could prevent derivative transactions or 

similar transactions in which 

counterparties would be required to 

post collateral. Commenters suggested 

that the rule language should refer to 

secured transactions for ‘‘money 

borrowed’’ to distinguish reverse 

repurchase agreements and similar 

transaction from other types of 

transactions that may create credit 

exposures. FHFA agrees that the 

proposed provision is overly broad. It 

was not FHFA’s intent to prevent the 

Banks from entering into derivative 

transactions or prohibit the Banks from 

requiring members that may be a 

derivative counterparty from posting 

collateral. Nor was it FHFA’s intent to 

prevent Banks from accepting collateral 

to secure other types of member 

obligations to the Bank such as those 

arising under the members’ credit 

enhancement obligations for mortgages 

sold to Banks under their AMA 

programs. See 12 CFR 955.3(b)(2). 

FHFA is therefore adopting as part of 

the final rule language similar to that 

proposed in commenters’ letters. The 

rule now refers to ‘‘all secured 

transactions, regardless of the form of 

the transaction, for money borrowed 

from a Bank by a member of any Bank,’’ 

so that reverse repurchase type lending 

transactions will be covered, but not 

other member transactions or 

obligations that may create a credit 

exposure to a Bank but do not arise from 

the Bank lending cash funds to the 

member. As with the proposed rule, the 

final rule continues to cover these types 

of transactions if undertaken between a 

Bank and a member of any Bank, and 

does not apply only to transactions 

between a Bank and one of its own 

members. 

Commenters also pointed out that 

most acceptable reverse repurchase 

agreement counterparties would be 

affiliates of a Bank System member, 

since most major financial institutions 

in the United States have at least one 

affiliate that is a member of some Bank. 

They also noted that reverse repurchase 

agreements were an important short 

term liquid investment for the Banks, 

especially in times of economic stress 

when unsecured money-market 

investments may be a less desirable 

option on a risk-adjusted basis. These 

commenters therefore urged that the 

rule exclude from the prohibition on 

secured transactions with affiliates of 

members: (i) Primary dealers in 

government securities and (ii) other 

counterparties meeting the credit and 

other risk management requirements 

established by a Bank. One commenter 

stated that the rule should exclude 

broker-dealer affiliates of members from 

the prohibition of the rule. A number of 

commenters also pointed out that the 

provision prohibiting a Bank from 


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Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Rules and Regulations 76621 

making a secured extension of credit to 

‘‘an affiliate of any member’’ could 

technically prevent the Bank from 

making advances to members that were 

affiliates of other members and urged 

that the language prohibiting secured 

lending to affiliates of members be 

refined in this respect. 

After consideration of the comments, 

FHFA has determined not to adopt, as 

part of the final rule, the proposed 

prohibition on reverse repurchase 

agreements and similar secured lending 

transactions with affiliates of members. 

While FHFA had an indication that 

certain Banks were considering entering 

into reverse repurchase agreements, 

each Bank with members of the other 

Bank, to help these members avoid 

additional stock purchases, FHFA has 

no indication that these transactions 

were being considered with affiliates of 

members as a way to avoid stock 

purchase requirements. FHFA decided 

that it should not prevent Banks from 

entering into important liquidity 

investments at this time on the 

possibility that Banks may use reverse 

repurchase agreements with affiliates of 

members as a way to effectively make 

secured extensions of credit to members 

without requiring member stock 

purchases. If FHFA becomes aware that 

the Banks are entering into reverse 

repurchase agreements with member 

affiliates, not for purposes of making 

liquidity investments, but as a means of 

facilitating member avoidance of 

additional stock purchase requirements, 

it may reconsider this position. 

Long Term Advances—§ 1266.3 

FHFA proposed to redesignate § 950.3 

of the Finance Board’s advances 

regulation as § 1266.3, and to make 

certain conforming changes to the 

provision. No comments were received 

on these changes, and FHFA is adopting 

§ 1266.3 as proposed. See 75 FR at 7993. 

Section 1266.3 implements section 

10(a)(2) of the Bank Act, as amended by 

HERA, and provides that a Bank shall 

make long-term advances only for the 

purpose of enabling a member to 

purchase or fund new or existing 

residential housing finance assets, a 

term defined in § 1266.1 to include, for 

CFI members, small business loans, 

small farm loans, small agri-business 

loans, and community development 

loans. Thus, the only change being 

made in § 1266.3 is to remove, as 

redundant, references to small business 

loans, small farm loans, and small agribusiness loans that were contained in 

former § 950.3. 

Community Development Loans as 

Collateral—§ 1266.7(b)(1) 

FHFA proposed to implement the 

HERA provision allowing CFI members 

to pledge loans for community 

development activities as collateral for 

advances by adding ‘‘community 

development loans’’ to the list of CFIspecific collateral set forth in the 

redesignated § 1266.7(b)(1). No other 

changes were proposed to this 

provision. No comments were received 

on this provision and it is being adopted 

as proposed. 

A Bank’s acceptance of ‘‘community 

development loans’’ will need to meet 

the same requirements as its acceptance 

of other types of CFI collateral. Thus, 

community development loans pledged 

by CFI members to secure advances will 

need to be fully secured by collateral 

other than real estate. In addition, any 

eligible community development loan 

will have to have a readily ascertainable 

value, be able to be reliably discounted 

to account for liquidation or other risk, 

and be able to be liquidated in due 

course, and the Bank would have to be 

able to perfect a security interest in such 

loan. A Bank’s acceptance of specific 

types of ‘‘community development 

loans’’ to secure an advance will also be 

subject to its first meeting the 

requirements of the new business 

activities rule, which will be 

redesignated as 12 CFR part 1272 by this 

rulemaking, and any other applicable 

FHFA regulations, guidance or policies. 

As already noted, the amendments 

being adopted here also will allow a 

Bank to accept, as collateral for 

advances, a security representing a 

whole interest in secured community 

development loans, subject to the 

Bank’s first fulfilling any obligations 

under the new business activities rule. 

Clarification of Provision—§ 1266.11 

FHFA is also adopting language in 

newly designated § 1266.11 to make 

clear that the provision only applies to 

the one Bank that has not yet 

implemented the capital structure plan 

required under the Gramm-Leach-Bliley 

Act (GLB Act). The requirements in 

newly designated § 1266.11 were all 

adopted prior to the passage of the GLB 

Act in November 1999 and have not 

been amended since the passage of the 

GLB Act. See 64 FR 16788 (Apr. 6, 1999) 

and 58 FR 29456 (May 20, 1993). The 

provision addresses stock purchase and 

redemption requirements. The GLB Act 

changed these requirements for a Bank, 

once the Bank implemented its capital 

plan and converted to the capital 

structure required under the GLB Act. 

See 12 U.S.C. §§ 1426(a)(6) and (c). 

Banks that have converted to the GLB 

Act structure are required to set forth in 

their capital plans the requirements 

governing member stock purchases and 

member rights with regard to the 

redemption and repurchase of Bank 

stock, consistent with the regulations in 

12 CFR parts 931 and 933. To avoid any 

confusion as to the application of 

§ 1266.11, FHFA is amending this 

provision to clarify that it only applies 

to a Bank that has not converted to the 

GLB Act capital structure. 

New Business Activities Regulation— 

Part 1272 

As proposed, FHFA is transferring the 

new business activities rule from part 

980 of the FHFB regulations to part 1272 

of FHFA regulations, making only 

technical and conforming changes to the 

rule. See 75 FR at 7993–94. 

Housing Associates and Letter of Credit 

Regulation—Parts 1264 and 1269 

FHFA is also making conforming 

changes to part 1264 and part 1269 to 

change any cross references to former 

part 950 to correspond to the correct, 

newly designated sections in part 1266. 

III. Paperwork Reduction Act 

The information collection contained 

in the current Bank housing associates 

and advances regulations, entitled 

‘‘Advances to Housing Associates,’’ has 

been assigned control number 2590– 

0001 by the Office of Management and 

Budget (OMB). The amendments to 

those regulations made by this final rule 

do not substantively or materially 

modify the approved information 

collection. Further, the changes to the 

new business activity regulation do 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 OMB for review. 

IV. Regulatory Flexibility Act 

The final 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 final rule 

will not have significant economic 

impact on a substantial number of small 

entities. 

List of Subjects in 12 CFR Parts 950, 

980, 1264, 1266, 1269 and 1272 

Community development, Credit, 

Federal home loan banks, Housing, 

Reporting and recordkeeping 

requirements. 


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76622 Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Rules and Regulations 

■ For the reasons stated in the preamble, 

the Federal Housing Finance Agency is 

amending chapters IX and XII of title 12 

of the Code of Federal Regulations as 

follows: 

CHAPTER IX—FEDERAL HOUSING 

FINANCE BOARD 

CHAPTER XII—FEDERAL HOUSING 

FINANCE AGENCY 

PART 950—[REDESIGNATED AS PART 

1266] 

■ 1. Redesignate 12 CFR part 950 as 12 

CFR part 1266. 

PART 980—[REDESIGNATED AS PART 

1272] 

■ 2. Redesignate 12 CFR part 980 as 12 

CFR part 1272. 

PART 1264—FEDERAL HOME LOAN 

BANK HOUSING ASSOCIATES 

■ 3. The authority citation for part 1264 

continues to read as follows: 

Authority: 12 U.S.C. 1430b, 4511, 4513, 

and 4526. 

§ 1264.3 Housing associate eligibility 

requirements. 

■ 4. Amend § 1264.3(b) by removing the 

reference to ‘‘§ 950.17(b)(2) of this title’’ 

and adding in its place ‘‘§ 1266.17(b)(2) 

of this chapter’’. 

PART 1266—ADVANCES 

■ 5. The authority citation for newly 

redesignated part 1266 is revised to read 

as follows: 

Authority: 12 U.S.C. 1426, 1429, 1430, 

1430b, 1431, 4511(b), 4513, 4526(a). 

■ 6. Amend the newly redesignated part 

1266 as indicated in the table below: 

Amend: By removing the reference to: And adding in its place: 

§ 1266.1, Definition of CFI member .......................... § 925.1, each place that it appears .......................... § 1263.1. 

§ 1266.1, Definition of State housing finance agency § 926.1 ....................................................................... § 1264.1. 

§ 1266.4(g)(2)(i) ......................................................... § 950.2(b)(2) .............................................................. § 1266.2(b)(2). 

§ 1266.4(g)(2)(ii) ........................................................ § 950.2(a) .................................................................. § 1266.2(a). 

§ 1266.5(b)(2)(ii) ........................................................ § 917.4 of this chapter .............................................. § 917.4 of this title. 

§ 1266.6(a) ................................................................. § 917.4 of this chapter .............................................. § 917.4 of this title. 

§ 1266.9(a)(1) ............................................................ § 950.2(c) .................................................................. § 1266.2(c). 

§ 1266.10(a) ............................................................... § 917.4 of this chapter .............................................. § 917.4 of this title. 

§ 1266.16 ................................................................... §§ 950.14 and 950.17 ............................................... §§ 1266.14 and 1266.17. 

§ 1266.17(a) ............................................................... part 925 ..................................................................... part 1263. 

§ 1266.17(b)(2)(i) introductory text ............................ § 926.3(b) .................................................................. § 1264.3(b). 

§ 1266.17(b)(2)(i)(A) .................................................. § 950.7(a)(1) or (2) .................................................... § 1266.7(a)(1) or (2). 

§ 1266.17(b)(2)(i)(B) .................................................. § 950.7(a)(3) .............................................................. § 1266.7(a)(3). 

§ 1266.17(b)(2)(i)(B) .................................................. § 926.3(b) .................................................................. § 1264.3(b). 

§ 1266.17(b)(2)(i)(C) .................................................. § 950.7(a)(4) .............................................................. § 1266.7(a)(4). 

§ 1266.17(c)(2)(i) ....................................................... § 950.3(b), each time it appears ............................... § 1266.3(b). 

§ 1266.17(c)(2)(ii) ....................................................... § 950.5(b)(2) .............................................................. § 1266.5(b)(2). 

§ 1266.17(e)(2) .......................................................... part 926 ..................................................................... part 1264. 

§ 1266.17(e)(3) .......................................................... part 926 ..................................................................... part 1264. 

■ 7. In newly redesignated part 1266, 

revise all references to ‘‘Finance Board’’ 

to read ‘‘FHFA’’ and revise all references 

to ‘‘the Act’’ to read ‘‘the Bank Act’’. 

■ 8. In newly redesignated § 1266.1, add 

in correct alphabetical order definitions 

for ‘‘Advance’’, ‘‘Bank’’, ‘‘Bank Act’’, 

‘‘Community development’’, 

‘‘Community development loan’’, 

‘‘FHFA’’, and ‘‘Targeted beneficiaries’’, 

and revise the definition of ‘‘Residential 

housing finance assets’’ to read as 

follows: 

§ 1266.1 Definitions. 

* * * * * 

Advance means a loan from a Bank 

that is: 

(1) Provided pursuant to a written 

agreement; 

(2) Supported by a note or other 

written evidence of the borrower’s 

obligation; and 

(3) Fully secured by collateral in 

accordance with the Bank Act and this 

part. 

* * * * * 

Bank, written in title case, means a 

Federal Home Loan Bank established 

under section 12 of the Bank Act, as 

amended (12 U.S.C. 1432). 

Bank Act means the Federal Home 

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

1421 through 1449). 

* * * * * 

Community development has the 

same meaning as under the definition 

set forth in the Community 

Reinvestment rule for the Federal 

Reserve System (12 CFR part 228), 

Federal Deposit Insurance Corporation 

(12 CFR part 345), the Office of Thrift 

Supervision (12 CFR part 563e) or the 

Office of the Comptroller of the 

Currency (12 CFR part 25), whichever is 

the CFI member’s primary Federal 

regulator. 

Community development loan means 

a loan, or a participation interest in such 

loan, that has as its primary purpose 

community development, but such 

loans shall not include: 

(1) Any loan or instrument that 

qualifies as eligible security for an 

advance under § 1266.7(a) of this part; 

(2) Any loan that qualifies as a small 

agri-business loan, small business loan 

or small farm loan, under definitions set 

forth in this section; or 

(3) Consumer loans or credit extended 

to one or more individuals for 

household, family or other personal 

expenditures. 

* * * * * 

FHFA means the Federal Housing 

Finance Agency. 

* * * * * 

Residential housing finance assets 

means any of the following: 

(1) Loans secured by residential real 

property; 

(2) Mortgage-backed securities; 

(3) Participations in loans secured by 

residential real property; 

(4) Loans or investments providing 

financing for economic development 

projects for targeted beneficiaries; 

(5) Loans secured by manufactured 

housing, regardless of whether such 

housing qualifies as residential real 

property; 

(6) Any loans or investments which 

FHFA, in its discretion, otherwise 

determines to be residential housing 

finance assets; and 

(7) For CFI members, and to the extent 

not already included in categories (1) 


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Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Rules and Regulations 76623 

through (6), small business loans, small 

farm loans, small agri-business loans, or 

community development loans. 

* * * * * 

Targeted beneficiaries has the 

meaning set forth in § 952.1 of this title. 

■ 9. Amend newly redesignated 

§ 1266.2 by adding new paragraph (e) to 

read as follows: 

§ 1266.2 Authorization and application for 

advances; obligation to repay advances. 

* * * * * 

(e) Status of secured lending. All 

secured transactions, regardless of the 

form of the transaction, for money 

borrowed from a Bank by a member of 

any Bank shall be considered an 

advance subject to the requirements of 

this part. 

■ 10. Revise newly redesignated 

§ 1266.3 to read as follows: 

§ 1266.3 Purpose of long-term advances; 

Proxy test. 

(a) A Bank shall make long-term 

advances only for the purpose of 

enabling any member to purchase or 

fund new or existing residential housing 

finance assets. 

(b)(1) Prior to approving an 

application for a long-term advance, a 

Bank shall determine that the principal 

amount of all long-term advances 

currently held by the member does not 

exceed the total book value of 

residential housing finance assets held 

by such member. The Bank shall 

determine the total book value of such 

residential housing finance assets, using 

the most recent Thrift Financial Report, 

Report of Condition and Income, 

financial statement or other reliable 

documentation made available by the 

member. 

(2) Applications for CICA advances 

are exempt from the requirements of 

paragraph (b)(1) of this section. 

■ 11. Amend newly redesignated 

§ 1266.7 by revising paragraph (b)(1) to 

read as follows: 

§ 1266.7 Collateral. 

* * * * * 

(b) * * * 

(1) General. Subject to the 

requirements set forth in part 1272 of 

this chapter, a Bank is authorized to 

accept from CFI members or their 

affiliates as security for advances small 

business loans, small farm loans, small 

agri-business loans, or community 

development loans, in each case fully 

secured by collateral other than real 

estate, or securities representing a whole 

interest in such secured loans, provided 

that: 

(i) Such collateral has a readily 

ascertainable value, can be reliably 

discounted to account for liquidation 

and other risks, and can be liquidated in 

due course; and 

(ii) The Bank can perfect a security 

interest in such collateral. 

* * * * * 

■ 12. Revise newly redesignated 

§ 1266.11 to read as follows: 

§ 1266.11 Capital stock requirements; 

redemption of excess stock. 

(a) Capital stock requirement for 

advances. For a Bank that has not 

converted to the capital structure 

authorized by the Gramm-Leach-Bliley 

Act, the aggregate amount of 

outstanding advance made by the Bank 

to a member shall not exceed 20 times 

the amount paid in by such member for 

capital stock in the Bank. 

(b) Unilateral Redemption of excess 

stock. A Bank that has not converted to 

the capital structure authorized by the 

Gramm-Leach-Bliley Act: 

(1) May, after providing 15 calendar 

days advance written notice to a 

member, require the redemption of that 

amount of the member’s Bank capital 

stock that exceeds the applicable capital 

stock requirements in paragraph (a) of 

this section, provided that the member 

continues to comply with the minimum 

stock purchase requirement set forth in 

§ 1263.20(a) of this chapter; and 

(2) May not impose on, or accept 

from, a member a fee in lieu of 

redeeming a member’s excess stock. 

PART 1269—STANDBY LETTERS OF 

CREDIT 

■ 13. The authority citation for part 

1269 continues to read as follows: 

Authority: 12 U.S.C. 1429, 1430, 1430b, 

1431, 4511, 4513 and 4526. 

■ 14. Amend part 1269 as indicated in 

the table below: 

Amend: By removing the reference to: And adding in its place: 

§ 1269.1, Definition of community lending ................ § 950.1 of this title ..................................................... § 1266.1 of this chapter. 

§ 1269.1, Definition of Residential housing finance .. § 950.1 ....................................................................... § 1266.1. 

§ 1269.1, Definition of SHFA associate ..................... § 1269.1 ..................................................................... § 1264.1. 

§ 1269.2(c) ................................................................. § 950.7 of this title ..................................................... § 1266.7 of this chapter. 

§ 1269.3(a) introductory text ...................................... §§ 950.17(b)(1)(i) or (ii) of this title ........................... § 1266.17(b)(1)(i) or (ii) of this chapter. 

§ 1269.3(b) ................................................................. § 950.17(b)(2)(i)(A),(B) or (C) of this title .................. § 1266.17(b)(2)(i)(A),(B) or (C) of 

this chapter. 

§ 1269.4(a)(1) ............................................................ § 950.17(b)(2)(i)(B) .................................................... § 1266.17(b)(2)(i)(B). 

§ 1269.4(a)(1) ............................................................ § 950.17(d) ................................................................ § 1266.17(d). 

§ 1269.4(c) ................................................................. part 950 ..................................................................... part 1266. 

§ 1269.5(b)(1) ............................................................ § 960.3 ....................................................................... § 1269.3. 

§ 1269.5(b)(2) ............................................................ §§ 950.7(d), 950.7(e), 950.8, 950.9 and 950.10 of 

this title.

§§ 1266.7(d), 1266.7(e), 1266.8, 

1266.9 and 1266.10 of this chapter. 

PART 1272—NEW BUSINESS 

ACTIVITIES 

■ 15. The authority citation for newly 

redesignated part 1272 is revised to read 

as follows: 

Authority: 12 U.S.C. 1431(a), 1432(a), 

4511(b), 4513, 4526(a). 

■ 16. Amend the references in the newly 

redesignated part 1272 as indicated in 

the table below: 

Amend: By removing the reference to: And adding in its place: 

§ 1272.1, Definition of new business activity ............ § 950.7(a)(4) .............................................................. § 1266.7(a)(4). 

§ 1272.1, Definition of new business activity ............ § 950.7(b) .................................................................. § 1266.7(b). 


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76624 Federal Register / Vol. 75, No. 236 / Thursday, December 9, 2010 / Rules and Regulations 

Amend: By removing the reference to: And adding in its place: 

§ 1272.3 introductory text .......................................... § 980.4(b) .................................................................. § 1272.4(b). 

§ 1272.3(b) introductory text ...................................... § 950.7 ....................................................................... § 1266.7. 

§ 1272.3(b)(2) ............................................................ § 917.4 of this chapter .............................................. § 917.4 of this title. 

§ 1272.3(b)(3) ............................................................ § 950.10 ..................................................................... § 1266.10. 

§ 1272.4(a) ................................................................. § 980.3 ....................................................................... § 1272.3. 

§ 1272.4(a) ................................................................. § 980.5(a)(1) through (4) ........................................... § 1272.5(a)(1) through (4). 

§ 1272.4(b) ................................................................. § 950.7(a)(4) .............................................................. § 1266.7(a)(4). 

§ 1272.4(b) ................................................................. § 980.3 ....................................................................... § 1272.3. 

§ 1272.4(c) ................................................................. § 980.6 ....................................................................... § 1272.6. 

§ 1272.5(a) introductory text ...................................... § 980.3 ....................................................................... § 1272.3. 

§ 1272.5(a)(4) ............................................................ § 980.7 ....................................................................... § 1272.7. 

§ 1272.5(a)(5) ............................................................ § 980.7 ....................................................................... § 1272.7. 

§ 1272.5(b) ................................................................. § 980.6 ....................................................................... § 1272.6. 

■ 17. Amend newly redesignated part 

1272 by revising all references to 

‘‘Finance Board’’ to read ‘‘FHFA’’. 

■ 18. Amend newly redesignated 

§ 1272.1 by adding in correct 

alphabetical order definitions for 

‘‘Bank,’’ ‘‘Bank Act’’ and ‘‘FHFA’’ to read 

as follows: 

§ 1272.1 Definitions. 

* * * * * 

Bank, written in title case, means a 

Federal Home Loan Bank established 

under section 12 of the Bank Act, as 

amended (12 U.S.C. 1432). 

Bank Act means the Federal Home 

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

1421 through 1449). 

FHFA means the Federal Housing 

Finance Agency. 

* * * * * 

■ 19. In newly redesignated § 1272.5, 

amend paragraphs (a)(5) and (b) by 

revising the words ‘‘Finance Board’s’’ to 

read ‘‘FHFA’s’’. 

Dated: November 30, 2010. 

Edward J. DeMarco, 

Acting Director, Federal Housing Finance 

Agency. 

[FR Doc. 2010–30519 Filed 12–8–10; 8:45 am] 

BILLING CODE 8070–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2010–0614; Directorate 

Identifier 2010–NE–24–AD; Amendment 39– 

16538; AD 2010–25–05] 

RIN 2120–AA64 

Airworthiness Directives; Rolls-Royce 

Deutschland Ltd & Co KG Models 

BR700–710A1–10; BR700–710A2–20; 

and BR700–710C4–11 Turbofan 

Engines 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule. 

SUMMARY: We are adopting a new 

airworthiness directive (AD) for the 

products listed above. This AD results 

from mandatory continuing 

airworthiness information (MCAI) 

issued by an aviation authority of 

another country to identify and correct 

an unsafe condition on an aviation 

product. The MCAI describes the unsafe 

condition as: 

Due to manufacturing problems of BR700– 

710 HP stage 1 and 2 turbine discs it was 

necessary to re-calculate the Declared Safe 

Cyclic Life (DSCL) for all BR700–710 HP 

turbine discs. The analysis concluded that it 

is required to reduce the approved life limits 

for the HP turbine disc part numbers that are 

listed in Table 1 and Table 2 of this AD 

(MCAI). Exceeding the revised approved life 

limits could potentially result in noncontained disc failure. 

We are issuing this AD to preventfailure of the high-pressure turbine 

(HPT) stage 1 and stage 2 discs, 

uncontained engine failure, and damage 

to the airplane. 

DATES: This AD becomes effective 

January 13, 2011. 

ADDRESSES: The Docket Operations 

office is located at Docket Management 

Facility, U.S. Department of 

Transportation, 1200 New Jersey 

Avenue, SE., West Building Ground 

Floor, Room W12–140, Washington, DC 

20590–0001. 

FOR FURTHER INFORMATION CONTACT: 

Mark Riley, Aerospace Engineer, Engine 

Certification Office, FAA, Engine & 

Propeller Directorate, 12 New England 

Executive Park, Burlington, MA 01803; 

e-mail: mark.riley@faa.gov; telephone 

(781) 238–7758; fax (781) 238–7199. 

SUPPLEMENTARY INFORMATION: 

Discussion 

We issued a notice of proposed 

rulemaking (NPRM) to amend 14 CFR 

part 39 to include an AD that would 

apply to the specified products. That 

NPRM was published in the Federal 

Register on August 23, 2010 (75 FR 

51693). That NPRM proposed to correct 

an unsafe condition for the specified 

products. The MCAI states that: 

Due to manufacturing problems of BR700– 

710 HP stage 1 and 2 turbine discs it was 

necessary to re-calculate the Declared Safe 

Cyclic Life (DSCL) for all BR700–710 HP 

turbine discs. The analysis concluded that it 

is required to reduce the approved life limits 

for the HP turbine disc part numbers that are 

listed in Table 1 and Table 2 of this AD 

(MCAI). Exceeding the revised approved life 

limits could potentially result in noncontained disc failure. 

Comments 

We gave the public the opportunity to 

participate in developing this AD. We 

received no comments on the NPRM or 

on the determination of the cost to the 

public. 

Conclusion 

We reviewed the available data and 

determined that air safety and the 

public interest require adopting the AD 

as proposed. 

Costs of Compliance 

Based on the service information, we 

estimate that this AD will affect about 

1,026 BR700–710 engines of U.S. 

registry. We also estimate that no 

additional labor cost will be incurred to 

replace the discs. The average labor rate 

is $85 per work-hour. Required parts 

will cost about $6,000 per disc. Based 

on these figures, we estimate the cost of 

the AD on U.S. operators to be 

$6,156,000. Our cost estimate is 

exclusive of possible warranty coverage. 

Authority for This Rulemaking 

Title 49 of the United States Code 

specifies the FAA’s authority to issue 

rules on aviation safety. Subtitle I, 

section 106, describes the authority of 

the FAA Administrator. ‘‘Subtitle VII: 

Aviation Programs,’’ describes in more 

detail the scope of the Agency’s 

authority. 

We are issuing this rulemaking under 

the authority described in ‘‘Subtitle VII, 


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