This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

81145 

Vol. 75, No. 247 

Monday, December 27, 2010 

1See 12 U.S.C. 1423, 1432(a). 

2See 12 U.S.C. 1430(a)(2). 

3The Bank Act defines ‘‘insured depository 

institution’’ to include any bank or savings 

association the deposits of which are insured by the 

Federal Deposit Insurance Corporation (FDIC), as 

well as any credit union the member accounts of 

which are insured by the National Credit Union 

Administration (NCUA). 12 U.S.C. 1422(9). 

4 In the case of a CDFI applicant, the institution 

need only be certified as a CDFI by the United 

States Department of the Treasury, instead of being 

subject to inspection and regulation by a state or 

federal regulator. 

5 12 U.S.C. 1424(a)(1). 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1263 

RIN 2590–AA39 

Members of Federal Home Loan Banks 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Advance notice of proposed 

rulemaking; request for comments. 

SUMMARY: The Federal Housing Finance 

Agency (FHFA) is undertaking a review 

of its regulations governing Federal 

Home Loan Bank (Bank) membership to 

identify provisions that may need to be 

updated to ensure that they remain 

consistent with the statutory provisions 

that require a nexus between Bank 

membership and the housing and 

community development mission of the 

Banks. This Advance Notice reviews the 

statutory provisions governing Bank 

membership and the regulatory 

provisions that implement those 

statutory requirements, suggests various 

ways that the regulations might be 

amended within this statutory 

framework, and invites comments on 

each of the possible alternatives. 

DATES: Written comments must be 

received on or before March 28, 2011. 

ADDRESSES: You may submit your 

comments, identified by regulatory 

information number (RIN) 2590–AA39, 

by any of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. If 

you submit your comment to the 

Federal eRulemaking Portal, please also 

send it by e-mail to FHFA at 

RegComments@fhfa.gov to ensure 

timely receipt by FHFA. Please include 

‘‘RIN 2590–AA39’’ in the subject line of 

the message. 

• E-mail: Comments to Alfred M. 

Pollard, General Counsel may be sent by 

e-mail to RegComments@fhfa.gov. 

Please include ‘‘RIN 2590–AA39’’ in the 

subject line of the message. 

• 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–AA39, 

Federal Housing Finance Agency, 

Fourth Floor, 1700 G Street, NW., 

Washington, DC 20552. 

• Hand Delivered/Courier: The hand 

delivery address is: Alfred M. Pollard, 

General Counsel, Attention: Comments/ 

RIN 2590–AA39, 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. 

FOR FURTHER INFORMATION CONTACT: Eric 

M. Raudenbush, Assistant General 

Counsel, eric.raudenbush@fhfa.gov, 

(202) 414–6421 or Amy Bogdon, 

Associate Director, Division of Bank 

Regulation, amy.bogdon@fhfa.gov, (202) 

408–2546 (not toll-free numbers), 

Federal Housing Finance Agency, 

Fourth Floor, 1700 G Street, NW., 

Washington, DC 20552. The telephone 

number for the Telecommunications 

Device for the Hearing Impaired is (800) 

877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Comments 

FHFA invites comments on all aspects 

of the Advanced Notice of Proposed 

Rulemaking (ANPR). Copies of all 

comments will be posted without 

change, including any personal 

information you provide, such as your 

name and address, on the FHFA Internet 

Web site at http://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) 414–3751. 

II. Background 

A. Overview of Membership 

Requirements 

The 12 Banks are instrumentalities of 

the United States that were organized in 

1932 under the Federal Home Loan 

Bank Act (Bank Act) to provide a 

reserve banking system for thrift 

institutions to support their residential 

mortgage lending activities.1 The Banks 

are financial cooperatives of which 

eligible financial institutions may 

become members by purchasing capital 

stock. Membership allows institutions 

to obtain access to secured loans, known 

as advances, for the purpose of funding 

residential housing finance and, in some 

cases, for funding small businesses, 

small farms, small agri-businesses, and 

community development activities.2

Bank membership has expanded since 

1932 but is still limited to the types of 

financial institutions listed in section 

4(a)(1) of the Bank Act, which are: 

Building and loan associations, savings 

and loan associations, cooperative 

banks, homestead associations, 

insurance companies, savings banks, 

community development financial 

institutions (CDFIs) and insured 

depository institutions.3 Because all 

state-chartered depository institutions 

are now federally-insured, there are 

essentially three categories of 

institutions that are eligible for Bank 

membership: federally insured 

depository institutions, insurance 

companies, and CDFIs. In order for any 

of these institutions to become a 

member of a Bank, it must comply with 

the criteria specified in section 4(a)(1) 

and, in the case of certain insured 

depository institutions, those specified 

in section 4(a)(2) of the Bank Act. 

Section 4(a)(1) imposes three general 

requirements that each eligible 

institution must satisfy in order to 

qualify for Bank membership. Under 

that provision an applicant for 

membership must: (A) Be duly 

organized under the laws of any state or 

the United States; (B) be subject to 

inspection and regulation under 

banking, or similar, laws of a state or the 

United States 4; and (C) make long-term 

home mortgage loans.5 An applicant 

that fails to satisfy any one of those 

requirements may not become a member 


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81146 Federal Register / Vol. 75, No. 247 / Monday, December 27, 2010 / Proposed Rules 

6 12 U.S.C. 1424(a)(2). 

7By statute, FHFA must annually adjust the $1 

billion CFI asset limit for inflation. The inflationadjusted CFI limit for 2010 is $1.011 billion. 

8 12 CFR 1263.6. 

9 12 CFR 1265.2. 

10 12 U.S.C. 4513(a)(1). 

11See 12 U.S.C. 1430(a)(2). 12 12 U.S.C. 1430(a)(3). 

of a Bank. Section 4(a)(2) imposes three 

additional requirements on applicants 

that are insured depository institutions 

that were not Bank members as of 

January 1, 1989. Such an institution 

may become a Bank member only if, in 

addition to meeting the general 

requirements of section 4(a)(1), the 

institution: (A) Has at least 10 percent 

of its total assets in residential mortgage 

loans; (B) is in a financial condition 

such that advances may be safely made 

to it; and (C) shows that the character of 

its management and its home-financing 

policy are consistent with sound and 

economical home financing.6 The 

statute exempts from the 10 percent 

requirement any ‘‘community financial 

institution’’ (CFI), which is defined as 

any depository institution the deposits 

of which are insured by the FDIC and 

that has less than $1 billion in average 

total assets over the preceding three 

years.7 By regulation, the Federal 

Housing Finance Board (Finance Board), 

and its successor FHFA, have applied 

the financial condition, character of 

management, and home financing 

policy requirements to all applicants for 

membership. Any applicant that does 

not meet any of these requirements also 

cannot become a Bank member. 

FHFA has adopted regulations that 

implement each of the above-described 

statutory requirements. The regulations 

list six general eligibility requirements, 

which are the same as the above-cited 

statutory requirements, and further 

require any non-CFI depository 

institution to have at least 10 percent of 

its assets in residential mortgage loans. 

The regulations also require any nondepository institution applicants, i.e., 

insurance companies and CDFIs, to have 

mortgage-related assets that reflect a 

commitment to housing finance.8 For 

each of the six general eligibility 

requirements, as well as for the 10 

percent requirement, the regulations 

include a separate provision that 

specifies how a Bank is to determine 

whether a particular applicant has 

satisfied the particular eligibility 

requirement. With respect to the 

requirements that an applicant ‘‘make 

long-term home mortgage loans’’ and 

that non-CFI depository institution 

applicants have 10 percent of their 

assets in ‘‘residential mortgage loans,’’ 

the regulations provide that compliance 

is to be determined based on the 

applicant’s most recent regulatory 

financial report that is available as of 

the date that the institution applies for 

membership. See 12 CFR 1263.9, 

1263.10. Thus, under the existing 

regulatory regime, compliance with 

those two requirements is determined 

only at that point in time. An institution 

is not required to remain in compliance 

with either of those requirements 

subsequent to becoming a member. 

B. Mission of the Banks 

FHFA regulations define the mission 

of the Banks as providing to their 

members and housing associates 

financial products and services that 

assist such members’ and housing 

associates’ financing of housing and 

community lending.9 Although this 

definition was adopted by the Finance 

Board, it remains consistent with both 

the Bank Act and the Federal Housing 

Enterprises Financial Safety and 

Soundness Act of 1992, under which 

FHFA is established. The latter Act 

confirms that point by including among 

the duties of the Director of FHFA a 

responsibility to ensure that the 

operations and activities of the Banks 

foster liquid, efficient, competitive, and 

resilient national housing finance 

markets and that they carry out their 

statutory mission through activities that 

are authorized under the Bank Act.10

Read together, these provisions clearly 

evidence a Congressional view that the 

Banks have a housing finance and 

community development mission and 

that it is the duty of the Director of 

FHFA to ensure that the Banks carry out 

that mission. In a similar fashion, the 

advances and membership provisions of 

the Bank Act make apparent that such 

a mission exists and indicate the scope 

of that mission, such as by stating that 

a Bank may make long-term advances to 

members only for the purposes of 

providing funds for residential housing 

finance and, in the case of advances to 

CFIs, providing funds for small 

businesses, small farms, small agribusinesses, and community 

development activities.11 In addition, 

the Banks’ mission is reflected in the 

statutory provisions that limit the types 

of collateral that they may accept for 

advances to members, which include, in 

addition to cash and government 

securities, first mortgage loans on 

residential property and securities 

representing a whole interest in such 

mortgage loans, as well as other real 

estate related collateral and, in the case 

of any CFI, secured loans for small 

business, agriculture, or community 

development activities or securities 

representing a whole interest in such 

secured loans.12

Finally, the Bank Act’s membership 

provisions reinforce the connection 

between eligibility for membership and 

the Banks’ housing finance and 

community development mission by 

requiring all eligible applicants to 

satisfy the ‘‘makes long-term home 

mortgage loans’’ requirement, by 

requiring all insured depository 

institution applicants to meet the ‘‘home 

financing policy’’ requirement, and by 

requiring all non-CFI depository 

institution applicants to meet the ‘‘10 

percent’’ requirement in order to become 

a member. 

C. FHFA Review of Membership 

Provisions 

Recently, FHFA has begun a review of 

its membership regulations in order to 

identify provisions that may need to be 

updated to ensure that they remain 

consistent with previously described 

statutory requirements and the housing 

finance mission underlying those 

requirements. One purpose of this 

review is to determine whether the 

existing regulatory standards and the 

manner in which they have been 

applied allow the Banks to admit to 

membership institutions that have 

insufficient involvement in supporting 

residential housing finance and, if so, 

whether it would be appropriate to 

revise the regulations to ensure that any 

institutions admitted to membership 

have and maintain a demonstrable 

involvement in residential mortgage 

lending and otherwise comply with the 

statutory requirements for membership. 

The intent of this ANPR is to solicit 

public comments on these issues as an 

aid to FHFA in determining how to 

amend the current membership rules to 

strengthen the ties between membership 

and the Bank System’s primary public 

purpose by helping to ensure that the 

focus of the Banks’ advances business 

supports the Banks’ housing finance and 

community development mission. 

At this stage in the review process, 

FHFA has identified three regulatory 

provisions, all of which link 

membership to housing finance, that 

could be amended in certain respects to 

reinforce that connection. Those 

provisions are the ‘‘10 percent’’ 

requirement, the ‘‘makes long-term 

home mortgage loans’’ requirement, and 

the ‘‘home financing policy’’ 

requirement, each of which is discussed 

in detail below. FHFA is considering 

whether it would be appropriate to 

amend those requirements so that they 

would apply to members on a 


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Federal Register / Vol. 75, No. 247 / Monday, December 27, 2010 / Proposed Rules 81147 

13 12 U.S.C. 1424(a)(2)(A); 12 CFR 1263.6(b), 

1263.10. The term ‘‘residential mortgage loans’’ 

includes: (1) Home mortgage loans; (2) funded 

residential construction loans; (3) loans secured by 

manufactured housing; (4) loans secured by junior 

liens on one-to-four family property or multifamily 

property; (5) certain mortgage pass-through 

securities; (6) certain mortgage debt securities; (7) 

home mortgage loans secured by a leasehold 

interest; and (8) loans that finance properties or 

activities that would satisfy the requirements for the 

Community Investment Program or a community 

investment cash advance program. 12 CFR 1263.1. 

14 12 CFR 1263.10. 

15 12 U.S.C. 1424(a)(4). 

16See 58 FR 43522, 43532 (1993). 

17 In addition, the Finance Board justified the 

universal application of these other section 4(a)(2) 

requirements by reference to its duty to ensure the 

safety and soundness of the Bank System. See 58 

FR 43522, 43532 (1993). 

continuing basis, rather than only at the 

time of admission to membership, and 

whether it would be appropriate to 

establish more objective and 

quantifiable standards for the ‘‘makes 

long-term home mortgage loans’’ and 

‘‘home financing policy’’ requirements. 

The following paragraphs discuss each 

of these regulatory provisions, their 

history, and how they might be revised 

to reinforce the connection between 

membership and support for residential 

housing finance. With respect to each of 

those issues, FHFA requests public 

comments on how well the existing 

regulations implement the underlying 

statutory requirements, whether there is 

a need to revise the regulations to 

reinforce the connection between 

membership and the housing finance 

mission, and the appropriateness of the 

alternatives being considered by FHFA. 

This notice also includes several other 

questions that are not derived from the 

three statutory requirements described 

above, but that have some implications 

for membership and the connection to 

housing finance, and FHFA requests 

comments on all aspects of those 

questions as well. 

1. The 10 Percent Requirement 

As mentioned above, section 

4(a)(2)(A) of the Bank Act and 

§ 1263.6(b) of the FHFA regulations 

provide that an insured depository 

institution that was not a Bank member 

as of January 1, 1989, may become a 

member only if it has at least 10 percent 

of its total assets in ‘‘residential 

mortgage loans.’’ 13 The existing 

regulations employ a ‘‘presumptive 

compliance’’ approach, under which an 

applicant that is subject to the 10 

percent requirement is deemed to be in 

compliance with that requirement if, 

based on the applicant’s most recent 

regulatory financial report, i.e., the 

report that the applicant files with its 

appropriate regulator, the applicant has 

at least 10 percent of its total assets in 

residential mortgage loans.14 Because 

the existing regulation requires a Bank 

to determine compliance with this 

requirement based solely on the 

applicant’s most recent financial report, 

institutions that are subject to the 10 

percent requirement need to 

demonstrate compliance only when 

applying for membership; there is no 

ongoing requirement to maintain 

residential mortgage loans at or above 

10 percent of total assets. The absence 

of an ongoing requirement means that 

the current regulations would allow an 

institution that has been admitted to 

membership to reduce, or even 

eliminate, its residential mortgage loan 

assets subsequent to becoming a 

member. Although FHFA has no 

evidence that significant numbers of 

members that were subject to the 10 

percent requirement when they became 

members have substantially reduced 

their holdings of residential mortgage 

loans after becoming members, it 

believes that as a matter of sound 

regulatory policy the membership 

regulations should not be structured in 

such a way as to permit or encourage 

that result. FHFA believes that 

amending the regulations to make 

compliance with the 10 percent 

requirement an ongoing requirement 

would eliminate the possibility of 

institutions substantially reducing their 

holdings of residential mortgage assets 

after becoming Bank members and 

would not pose an undue burden on a 

significant number of members. 

Nothing in the Bank Act would 

preclude FHFA from applying the 10 

percent requirement on an ongoing 

basis, although doing so would 

constitute a change in the policy 

established by the Finance Board. If 

FHFA were to apply the 10 percent 

requirement on an ongoing basis, it also 

would need to include new regulatory 

provisions that address how the Banks 

are to measure the ongoing compliance. 

Issues include whether compliance 

should be tested at specified points in 

time, such as annually or quarterly, and 

whether compliance should be based 

upon the actual amount of residential 

mortgage loans held as of those dates or 

the average amounts of residential 

mortgage loans held over a specified 

period, such as three years. 

In addition to making the 10 percent 

requirement ongoing, FHFA has 

considered whether it would be 

appropriate to extend the requirement to 

other categories of applicants that are 

not currently subject to this 

requirement, or to retain the current 

approach, under which certain 

institutions are subject to an alternative 

requirement that they have mortgagerelated assets that reflect a commitment 

to housing finance. At present, the 10 

percent requirement applies only to 

insured depository institution 

applicants that are not CFIs: FDICinsured banks and savings associations 

with average assets in excess of the 

$1,011,000,000 CFI asset cap, and all 

credit union applicants. The universe of 

additional institutions that could 

potentially be made subject to the 10 

percent requirement would include all 

of those institutions not currently 

subject to the requirement: insurance 

companies, CDFIs, and CFIs. FHFA is 

not considering extending the 10 

percent requirement to CFIs because 

that result appears to be precluded by 

the Bank Act, which states that CFIs 

may become members without regard to 

the percentage of their total assets that 

is represented by residential mortgage 

loans.15 Arguably, section 4(a)(2) of the 

Bank Act implicitly precludes the 

extension of the 10 percent requirement 

to insurance companies and CDFIs 

because that requirement is listed 

among those that apply to insured 

depository institutions. 

Notwithstanding that fact, the Finance 

Board considered applying the 10 

percent requirement to insurance 

companies (and believed it had the 

authority to do so) in 1993, when it 

adopted the original version of the 

membership regulations.16 In that case, 

the Finance Board cited its general 

regulatory and rulemaking authorities as 

its basis for doing so. The Finance Board 

also noted that the other requirements of 

section 4(a)(2), the financial condition, 

character of management, and home 

financing policy requirements, had 

applied to all applicants since the 

enactment of the Bank Act.17

Ultimately, the Finance Board declined 

to apply the 10 percent requirement to 

insurance company applicants and 

adopted the alternative requirement, 

now embodied in § 1263.6(c) of the 

regulations, that all applicants that are 

not insured depository institutions, 

such as insurance companies and 

CDFIs, have mortgage-related assets that 

reflect a commitment to housing 

finance. In adopting this alternative 

requirement, the Finance Board 

recognized that, although depository 

institutions and insurance companies 

are engaged in different lines of 

business, an insurance company 

applicant may have a significant 

absolute dollar volume of residential 


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81148 Federal Register / Vol. 75, No. 247 / Monday, December 27, 2010 / Proposed Rules 

18 58 FR 43522, 43532–33 (1993). At the time this 

requirement was first promulgated, the Finance 

Board itself reviewed and approved Bank 

membership applications. In 1996, this provision 

was revised to devolve the decision-making 

authority to the Banks. See 61 FR 42531, 42545 

(1996). 

19See 12 CFR 1263.1. 

20 12 U.S.C. 1422(4), (5); 12 CFR 1263.1. The term 

‘‘home mortgage loan’’ includes primarily the 

following: (1) First mortgage loans secured by oneto-four family property, multifamily property, or 

combination business or farm property where at 

least 50 percent of the total appraised value is 

attributable to the residential portion of the 

property; and (2) mortgage pass-through securities 

that represent an undivided ownership interest in 

the above types of loans or in securities that 

represent an undivided ownership interest in such 

loans. The regulations also define ‘‘long-term’’ to 

mean a term to maturity of five years or greater. 

mortgage assets, given the large asset 

size of many insurance companies.18

In light of the above, FHFA requests 

comment on the following three 

questions relating to the 10 percent 

requirement: 

Question One: Should FHFA revise 

§ 1263.10 of its regulations so that an 

insured depository institution that is 

subject to the 10 percent residential 

mortgage loans requirement when it is 

admitted for membership must also 

comply with that requirement for the 

duration of the time that it remains a 

member? 

Question Two: Should FHFA amend 

§§ 1263.6(b) and 1263.10 of its 

regulations to subject insurance 

company and CDFI applicants to the 10 

percent residential mortgage loans 

requirement? 

Question Three: If FHFA does not 

subject insurance company and CDFI 

applicants to the 10 percent 

requirement, should FHFA amend 

§ 1263.6(c) of its regulations, which 

currently requires all such applicants to 

have mortgage related assets that reflect 

a commitment to housing finance, to 

establish levels of mortgage-related 

assets that may be deemed to constitute 

a sufficient commitment to housing 

finance? 

2. The ‘‘Makes Long-Term Home 

Mortgage Loans’’ Requirement 

Section 4(a)(1)(C) of the Bank Act 

applies to all applicants for Bank 

membership and provides that an 

institution may become a member only 

if it makes such home mortgage loans as 

the Director determines to be long-term 

loans. Section 1263.9 of the membership 

regulations implements that provision 

through a ‘‘presumptive compliance’’ 

approach, under which an applicant is 

deemed to have satisfied the statutory 

requirement if its most recent regulatory 

financial report demonstrates that it 

originates or purchases long-term home 

mortgage loans. Because the regulation 

requires a Bank to look solely to an 

applicant’s most recent financial report, 

the Banks do not assess compliance 

with this provision at any subsequent 

date; there is no ongoing requirement 

that an institution that has been 

admitted to membership must continue 

to make long-term home mortgage loans 

after it has become a member. Thus, as 

is the case with respect to the 10 percent 

requirement, the absence of an ongoing 

requirement means that it is possible 

that an institution could reduce or cease 

making long-term home mortgage loans 

after becoming a member. As discussed 

previously, FHFA believes that as a 

matter of sound regulatory policy its 

membership regulations should not 

encourage such a result, and questions 

whether the existing provision is the 

most appropriate means of 

implementing the statutory ‘‘makes longterm home mortgage loans’’ requirement. 

Amending the membership regulations 

to make compliance with the ‘‘makes 

long-term home mortgage loans’’ 

requirement an ongoing requirement 

would eliminate that possibility, and 

should not pose an undue burden for 

Bank members. 

FHFA believes that amending the 

regulations in that manner would be 

permissible under the Bank Act, 

although it would represent a departure 

from the point-in-time policy 

established by the Finance Board. Also, 

if this provision were to be made an 

ongoing requirement, FHFA also would 

need to develop a new test through 

which the Banks could measure their 

members’ ongoing compliance with this 

requirement. Unlike the 10 percent 

requirement, the statutory language 

includes no quantifiable benchmarks for 

compliance with the ‘‘makes long-term 

home mortgage loans’’ requirement, and 

the only standard required by the 

regulations is that an applicant’s 

financial reports must show that it 

originates or purchases such loans. In 

theory, an applicant could satisfy this 

requirement by having made a single 

long-term mortgage loan in the reporting 

period immediately preceding its 

application for Bank membership. 

Although the current regulations do not 

require members to comply with this 

provision on an ongoing basis, a 

previous regulator of the Bank System 

interpreted this provision of the Bank 

Act as requiring that applicants be 

engaged in the business of making longterm home mortgage loans as an ongoing 

activity, and not just as an isolated 

instance. See Opinion of the General 

Counsel of the Federal Home Loan Bank 

Board, at 2 (Nov. 7, 1978). 

If FHFA were to amend the 

regulations to establish quantifiable 

benchmarks for this requirement, it 

necessarily would have to determine the 

content of those benchmarks. For 

example, FHFA could develop 

benchmarks based on a specified 

percentage of an institution’s assets or 

on a minimum dollar volume of the 

institution’s long-term home mortgage 

loan originations or loan purchases. If 

FHFA were to establish a benchmark 

based on a percentage of assets that an 

institution must have in long-term home 

mortgage loans, the percentage would 

likely need to be smaller than the 

percentage of assets that members must 

have under the 10 percent requirement, 

discussed above, because of the 

differences between the terms 

‘‘residential mortgage loans’’ and ‘‘longterm home mortgage loans.’’ The 

operative term for determining 

compliance with the 10 percent 

requirement is ‘‘residential mortgage 

loans,’’ which is considerably more 

expansive than the term ‘‘long-term 

home mortgage loans.’’ ‘‘Residential 

mortgage loans’’ is defined to include 

eight different categories of loans, one of 

which is ‘‘home mortgage loans.’’ 19

‘‘Home mortgage loans’’ is considerably 

more narrow and is defined by statute 

and by regulation to mean a loan (or an 

interest in a loan) that is secured by a 

first lien on one-to-four family property 

or multifamily property.20

If FHFA were to establish a standard 

with quantifiable benchmarks, it would 

also need to decide whether those 

benchmarks should apply equally to all 

applicants or members, or whether it 

should establish separate requirements 

for the different classes of institutions 

eligible for membership—insured 

depository institutions, insurance 

companies, and CDFIs—in recognition 

of the fact that each type of institution 

has a different primary business model 

and, thus, a different level of 

involvement in supporting residential 

mortgage finance. A single standard for 

all institutions would be easier for the 

Banks to apply. On the other hand, 

establishing separate standards that are 

tailored to the different classes of 

institutions that are eligible for 

membership would recognize the 

practical reality that each type of 

eligible institution, by the nature of its 

business, has a different level of 

involvement in mortgage lending. 

If FHFA were to establish separate 

standards for the three categories of 

institutions that are eligible for 

membership, it likely would have to 

consider and resolve certain ancillary 

issues related to the different types of 

institutions. For example, if FHFA were 


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21 12 U.S.C. 1424(a)(2)(C). 

22 12 CFR 1263.6(a)(6), 1263.13. 

23An applicant can rebut the presumption of 

noncompliance by providing either a confirmation 

from its appropriate regulator of its recent 

satisfactory CRA rating, or a written analysis 

acceptable to the Bank demonstrating that its CRA 

rating is unrelated to home financing, and 

providing substantial evidence of how and why its 

home financing credit policy and lending practices 

meet the credit needs of its community. 12 CFR 

1263.17(f)(2). 

24The use of an applicant’s CRA rating at a single 

point in time for purposes of the membership 

regulations differs from the use of a member’s CRA 

rating in assessing its compliance with the 

community support regulation under 12 CFR 

1290.3, which is an ongoing requirement. 

to develop a percentage-based standard 

for insurance companies, it would need 

to consider whether the percentage 

should be calculated based on the 

insurance company’s ‘‘total assets’’ or on 

its ‘‘invested assets,’’ the latter of which 

would typically exclude certain assets, 

such as premiums receivable and 

separate accounts. For the reasons 

mentioned above with regard to the 10 

percent requirement, FHFA might 

determine that it would be preferable to 

apply a volume-based standard to 

insurance companies, or perhaps a 

combination of the volume-based and 

percentage-based approaches. In a 

similar fashion, if FHFA were to 

establish a separate, quantifiable 

standard for insurance companies, it 

might also consider whether it would be 

appropriate to establish different 

standards for different types of 

insurance companies, recognizing that 

insurers engaged in underwriting 

different lines of insurance are apt to 

hold different types of investments and 

may include mortgage assets to differing 

degrees. For example, life insurance 

companies historically have held 

longer-term assets, including mortgage 

loans, because their liabilities on their 

policies tend to be of longer duration, 

while property and casualty insurers 

traditionally have had investment 

portfolios with more short-term assets 

and fewer bonds and mortgage loans, 

because their policy liabilities tend to be 

of shorter duration. 

In light of the above discussion, FHFA 

requests comment on the following five 

questions relating to the ‘‘makes longterm home mortgage loans’’ requirement: 

Question Four: Should FHFA revise 

§ 1263.9 of its regulations to require that 

an institution that is admitted to 

membership must comply with the 

‘‘makes long-term home mortgage loans’’ 

requirement both at the time that it is 

admitted for membership and for the 

duration of the time that it remains a 

member? 

Question Five: Should FHFA replace 

the existing standard, which requires 

only that an institution demonstrate that 

it originates or purchases home 

mortgage loans, with one or more 

quantifiable standards, such as by 

requiring applicants and members to 

have a specified portion of their assets 

invested in long-term home mortgage 

loans or by meeting a minimum dollar 

volume of originations and purchases of 

such loans? 

Question Six: If FHFA were to adopt 

a standard based on a minimum 

percentage of long-term home mortgage 

loans, what would be an appropriate 

level of long-term home mortgage loans 

or mortgage-backed securities to be held 

by depository institutions, insurance 

companies, or CDFIs, respectively? 

Question Seven: If FHFA were to 

replace the existing regulatory 

requirement with a quantifiable 

standard, should FHFA apply one 

standard to all eligible institutions and 

members, or separate standards for the 

three distinct categories of institutions 

that are eligible for membership? 

Question Eight: If FHFA were to 

establish separate quantifiable standards 

for the separate categories of eligible 

institutions, should it also establish 

separate sub-categories for different 

types of institutions within each 

category, such as for life insurance 

companies and property and casualty 

insurance companies? 

3. The Home Financing Policy 

Requirement 

Section 4(a)(2)(C) of the Bank Act 

provides that an insured depository 

institution that was not a Bank member 

as of January 1, 1989, may become a 

member only if the character of its 

management and its home financing 

policy are consistent with sound and 

economical home financing.21 Although 

the Bank Act does not require other 

applicants to comply with the home 

financing policy requirement, the FHFA 

regulations have retained the provisions 

adopted by the Finance Board that 

require all applicants for membership to 

demonstrate their compliance with this 

provision.22 Neither the Bank Act nor 

the membership regulations defines the 

term ‘‘home financing policy’’ or 

requires that a home financing policy be 

in the form of a written document. 

Section 1263.13 of the membership 

regulations implements the home 

financing policy requirement through a 

‘‘presumptive compliance’’ approach, 

under which an applicant that is subject 

to the Community Reinvestment Act 

(CRA) is deemed to be in compliance 

with the requirement if it has received 

a CRA rating of ‘‘Satisfactory’’ or better 

on its most recent CRA performance 

evaluation. An applicant that is not 

subject to the CRA is required to file, as 

part of its application for membership, 

a written justification acceptable to the 

Bank of how and why its home 

financing policy is consistent with the 

Bank System’s housing finance mission. 

An applicant that does not have a 

satisfactory CRA rating is presumed not 

to have complied with the home 

financing policy requirement, although 

it may attempt to rebut that 

presumption.23 As is the case with 

respect to the 10 percent requirement 

and the ‘‘makes long-term home 

mortgage loans’’ requirement, the Banks 

assess compliance with the home 

financing policy requirement only at the 

time that they consider an institution’s 

application for membership.24

As discussed previously, FHFA 

believes that the assessment of 

compliance with certain of the 

eligibility requirements on a one-time 

basis may not be the most appropriate 

means of implementing those 

provisions. Moreover, in the context of 

the home financing policy requirement, 

the absence of any qualitative standards 

as to the form or content of what 

constitutes an acceptable home 

financing policy compounds the 

problem of determining whether 

applicants comply with this provision. 

Accordingly, FHFA is considering 

whether it would be appropriate to 

amend its regulations relating to the 

home financing policy requirement by 

establishing more specific standards and 

by making compliance an ongoing 

requirement for all members. Amending 

the regulations in that manner would be 

permissible under the Bank Act, 

although doing so would represent a 

departure from the point-in-time policy 

established by the Finance Board and 

would require FHFA to develop new 

tests through which the Banks could 

assess their members’ ongoing 

compliance with this requirement. 

If FHFA were to develop a new 

standard for assessing compliance with 

the home financing policy requirement, 

an initial question would be the form of 

the new standard, i.e., whether it should 

be written, or whether some members 

could demonstrate compliance by other 

means. Requiring all applicants to have 

a written home financing policy that 

explains in narrative fashion the manner 

and degree to which the institution’s 

existing activities and investments 

support home financing might make it 

easier to assess compliance with the 

home financing policy requirement, 

although a revised rule likely would 

need to establish some minimum 


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81150 Federal Register / Vol. 75, No. 247 / Monday, December 27, 2010 / Proposed Rules 

25See The Anatomy of a Residential Mortgage 

Crisis: A Look Back to the 1930s, Kenneth A. 

Snowden (June 2009) (insurance company share of 

the residential mortgage market). 

benchmarks in order to ensure that the 

provision is applied uniformly 

throughout the Bank System. Because 

certain applicants will have a business 

model that focuses primarily on 

mortgage lending, it also would be 

possible to fashion an alternative home 

financing policy standard for those 

institutions that would deem them to 

have an acceptable home financing 

policy if they have a specified level of 

mortgage loan originations or mortgage 

related assets or otherwise demonstrate 

that mortgage lending is their principal 

line of business. 

Apart from the form of a new home 

financing policy standard, FHFA also 

would need to develop the content of 

the standard. At present, the regulations 

do not address the content of an 

acceptable home financing policy, but 

instead use an applicant’s CRA rating as 

a proxy for an acceptable policy. As 

mentioned above, one possible 

approach, which could be in lieu of or 

in addition to the CRA rating, would be 

to require an applicant or member to 

maintain a specified level of mortgage 

related assets or mortgage loan 

originations in order to be deemed to 

have an acceptable home financing 

policy. If FHFA were to adopt that 

approach, it would have to be consistent 

with the 10 percent requirement and the 

‘‘makes long-term home mortgage loans’’ 

requirement, and it is possible that 

compliance with the home financing 

policy requirement could be presumed 

by compliance with ongoing 

quantifiable standards for the other two 

requirements. If FHFA were to develop 

quantifiable standards for the home 

financing policy requirement, it also 

might consider whether the specifics of 

a ‘‘home financing policy’’ could vary 

based on the type of institution 

involved. Such an approach could be 

warranted based on the different levels 

of involvement in mortgage lending that 

might be typical among the different 

types of institutions that are eligible for 

Bank membership. For example, the 

home financing activities of a traditional 

savings and loan association (the core 

business of which is mortgage lending) 

are apt to be significantly greater than 

those of an insurance company or CDFI 

(the primary business of which is 

underwriting insurance and promoting 

community development, respectively). 

Given that the statutory requirement for 

a home financing policy is that it must 

be ‘‘consistent with sound and 

economical home financing,’’ a 

regulatory standard that recognizes the 

possibility of distinctions among the 

different types of institutions that are 

eligible for membership would appear 

to be consistent with the Bank Act. 

In light of the above discussion, FHFA 

requests comment on the following four 

questions relating to the ‘‘home 

financing policy’’ requirement: 

Question Nine: Should FHFA revise 

§ 1263.13 of its regulations to require 

that an institution that is admitted to 

membership must comply with the 

‘‘home financing policy’’ requirement 

both at the time that it is admitted for 

membership and for the duration of the 

time that it remains a member? 

Question Ten: Should FHFA define 

the term ‘‘home financing policy’’ and, if 

so, how should that term be defined? 

Should it be defined to include only a 

written policy that describes in 

narrative fashion the manner and extent 

to which an applicant’s past and current 

activities and investments support home 

financing, or should it also be defined 

to include certain business practices, 

such as having specified levels of 

mortgage related assets above which an 

acceptable housing finance policy could 

be presumed? 

Question Eleven: Should the 

regulations allow the specifics of a 

home financing policy to vary based on 

the type of institution? Should FHFA 

recognize that originating mortgage 

loans and investing in mortgage loans 

and mortgage related securities may 

constitute the core business of certain 

types of eligible institutions, such as 

thrift institutions, while those same 

activities may constitute only an 

incidental portion of the business of 

other eligible institutions, such as 

insurance companies? 

Question Twelve: Should FHFA 

continue to use an institution’s CRA 

rating as a proxy for compliance with 

the home financing policy requirement 

or should FHFA develop an alternative 

approach to assessing compliance with 

this requirement? One such alternative 

could be to develop a quantifiable 

standard, such as one based on a 

minimum level of housing related 

assets, which could be used either alone 

or in conjunction with the CRA rating, 

for determining whether an institution 

has an acceptable home financing 

policy. 

4. Other Provisions 

In addition to the foregoing, FHFA is 

also considering whether certain other 

provisions of its membership 

regulations should be revised to address 

concerns relating to other aspects of the 

membership regulations. Those issues 

relate to ‘‘shell’’ or ‘‘captive’’ insurance 

companies, consequences for failing to 

comply with the new requirements, and 

the structure of the current membership 

regulation, and are discussed below. 

5. Captive or Shell Insurance Companies 

When the Bank Act was enacted in 

1932, it included insurance companies 

among the types of institutions that 

were permitted to become Bank 

members because at that time life 

insurance companies were active 

residential mortgage lenders.25

Although insurance companies have 

been eligible for Bank membership since 

the inception of the Bank System, until 

recently comparatively few insurance 

companies have become members, and, 

as of December 31, 2009, insurance 

companies represented only 209 of the 

8,057 members of the Bank System. 

Those companies that have become 

members would have satisfied the 

statutory and regulatory requirements 

relating to home financing, as discussed 

above, as well as the requirements that 

they be ‘‘subject to inspection and 

regulation’’ under federal or state law 

and that their financial condition be 

such that advances could be safely made 

to the insurance company member. 

There have been some instances in 

which Banks have admitted to 

membership, or inquired about 

admitting to membership, institutions 

that are chartered as an insurance 

company but are inactive—‘‘shell’’ 

insurance companies—or do not 

underwrite insurance for third parties— 

‘‘captive’’ insurance companies. Such 

institutions raise at least two concerns 

relating to their eligibility to become 

Bank members, which are whether they 

are in fact subject to the degree of 

supervision and examination 

contemplated by section 4(a)(1)(B) of the 

Bank Act, and whether they have a 

bona fide involvement in supporting 

housing finance. A ‘‘shell’’ insurance 

company is apt to be inactive, i.e., not 

engaged in underwriting any types of 

insurance. A company that is not 

underwriting insurance also may not be 

actively supervised or examined by its 

state insurance commissioner, and thus 

may not file periodic financial reports 

with the state regulator. Moreover, an 

inactive insurance company without 

any insurance liabilities on its books is 

unlikely to maintain an investment 

portfolio, and in particular, investments 

in mortgage loans or mortgage-backed 

securities that provide the housing 

finance nexus contemplated by 

Congress. The absence of ongoing 

supervision and examination by the 


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Federal Register / Vol. 75, No. 247 / Monday, December 27, 2010 / Proposed Rules 81151 

26See 12 CFR 1263.17 (rebuttal provisions). 

state regulator and the absence of 

periodic financial reports calls into 

question the ability of a shell insurance 

company to satisfy the statutory 

requirement that it is ‘‘subject to 

inspection and regulation’’ by a state or 

federal regulator, and raises additional 

questions about whether a Bank could 

accurately assess the financial condition 

of such a company in order to determine 

whether the Bank could safely make 

advances to the insurance company. In 

a similar fashion, the absence of any 

underwriting of insurance, in the case of 

a shell company, and the limited nature 

of the self-insurance activities, in the 

case of a captive insurance company, 

call into question whether such 

institutions have any bona fide 

involvement in the lending or 

investment activities that support 

residential mortgage markets and that 

are typical of other insurance companies 

that underwrite insurance for third 

parties and maintain an investment 

portfolio, which may include mortgage 

related investments that correspond to 

the types of risks that the companies 

underwrite. Membership for shell 

insurance companies or captive 

insurance companies also raises other 

supervisory concerns, such as whether 

the insurance company member is 

simply acting as a conduit to provide 

advances to its parent company that 

which is ineligible for membership and 

thus cannot legally obtain advances in 

its own right. To address those 

concerns, FHFA is considering whether 

it should amend its regulations to 

preclude the possibility that shell or 

captive insurance companies, which 

may not be adequately supervised or 

may not be actively engaged in any 

meaningful housing finance activities, 

could be admitted to membership. 

Accordingly, FHFA requests comments 

on the following question: 

Question Thirteen: Should FHFA 

amend its membership regulations to 

require that insurance company 

applicants be actively engaged in 

underwriting insurance for third parties 

and be actively examined and 

supervised by their appropriate state 

insurance regulator, and that insurance 

company members remain so engaged 

and so examined and supervised as a 

condition to remaining Bank members? 

6. Sanctions for Noncompliance. If 

FHFA were to amend its regulations to 

make the ‘‘10 percent,’’ ‘‘makes long-term 

home mortgage loans,’’ or ‘‘home 

financing policy’’ requirements ongoing, 

it believes that it should also 

incorporate a transition period to allow 

members that are not in compliance 

with the new requirements a period of 

time within which to come into 

compliance if they wish to remain 

members. With respect to the 10 percent 

requirement, initial research indicates 

that, of the approximately 1,500 

members that were subject to that 

requirement when they became 

members, only 32 institutions would 

fail to comply with that requirement if 

it were applied to them as of December 

31, 2009. Of those 32 institutions, 11 

had residential mortgage loans of more 

than nine percent of their total assets 

and 12 had residential mortgage loans of 

between seven and nine percent of their 

total assets, which suggests that they 

should be able to comply with an 

ongoing ‘‘10 percent requirement’’ 

following a reasonable transition period. 

Only nine current members had 

residential mortgage loans of less than 

five percent of their total assets, with 

four of those members having ratios of 

less than one percent. This suggests that 

even with a transition period some of 

those institutions may not be able to 

comply with an ongoing 10 percent 

requirement. In a similar fashion, if the 

eligibility requirements are to become 

ongoing, it is also possible that some 

members that would initially comply 

with the new requirements may later 

fall out of compliance with those 

requirements. Both of those possibilities 

raise the question of how FHFA and the 

Banks should deal with institutions that 

either cannot comply with the new 

requirements or that subsequently fall 

out of compliance. 

Each of the regulatory provisions that 

FHFA is contemplating making an 

ongoing requirement is an eligibility 

requirement for membership, which 

suggests that failure to comply with any 

of them should make the institution 

ineligible for membership and thus 

could require the Bank to terminate its 

membership. Section 6(d)(2)(A)(i) of the 

Bank Act provides that the board of 

directors of a Bank may terminate the 

membership of any institution if the 

institution fails to comply with any 

provision of the Bank Act or FHFA 

regulations. 12 U.S.C. 1426(d)(2)(A)(i). 

The use of the language ‘‘may terminate’’ 

in that provision, however, indicates 

that the provision is not mandatory and 

would allow FHFA and the Bank to 

impose sanctions other than termination 

of membership, at least initially. For 

example, FHFA could allow the Banks 

to give a noncompliant member a 

specified period of time within which to 

cure the noncompliance before 

terminating its membership. During that 

time the Bank could be prohibited from 

entering into new transactions with the 

member, but would not be required to 

take any other adverse actions against 

the member. 

Accordingly, in order to help it 

determine how best to deal with the 

possibility of noncompliance with any 

new requirements, FHFA requests 

comment on the following questions 

relating to sanctions for failure to 

comply with any revised membership 

requirements: 

Question Fourteen: Should FHFA 

amend the membership regulations to 

address the possibility that a member 

might not comply with, or might later 

fall out of compliance with, one or more 

of the new ongoing membership 

requirements after a transition period 

has expired, and if so, should FHFA 

require the Banks to terminate that 

institution’s membership, either with or 

without a grace period, or should FHFA 

consider lesser sanctions, such as 

prohibiting further access to Bank 

services during a specified grace period, 

before requiring the Banks to terminate 

the membership of the noncompliant 

members? 

7. Regulatory Structure. The current 

membership regulations embody a 

‘‘presumptive compliance’’ approach, 

under which an eligible institution that 

satisfies the regulatory standards is 

presumed to comply with the 

corresponding statutory requirements, 

and an institution that fails to satisfy 

any of the regulatory standards may 

nonetheless attempt to rebut the 

presumption of noncompliance by 

submitting certain specified additional 

information to the Bank.26 The 

regulatory standards relating to the 

‘‘makes long-term home mortgage loans’’ 

and the ‘‘10 percent’’ requirements are 

not rebuttable, although the standards 

relating to the ‘‘home financing policy,’’ 

‘‘inspection and regulation,’’ ‘‘character 

of management,’’ and ‘‘financial 

condition’’ requirements are rebuttable. 

As part of its review of the membership 

regulations FHFA has also considered 

whether it should retain the 

‘‘presumptive compliance’’ and 

‘‘rebuttal’’ approaches of the current 

regulations, along with the existing 

regulatory standards, many of which are 

phrased in somewhat general terms, or 

whether it should adopt more objective 

and quantifiable regulatory standards 

that would be more of a ‘‘bright line’’ 

approach for evaluating eligibility for 

membership. In order to help it 

determine the appropriate approach for 

the regulatory standards, FHFA requests 

comment on the following question: 

Question Fifteen: Should FHFA retain 

the existing structure of its membership 

regulations, under which the regulations 


erowe on DSK5CLS3C1PROD with PROPOSALS-1
81152 Federal Register / Vol. 75, No. 247 / Monday, December 27, 2010 / Proposed Rules 

27 In January 2010, FHFA revised its membership 

regulations to implement statutory amendments 

authorizing CDFIs to become Bank members. As 

part of those revisions, FHFA allowed CDFI 

applicants that could not demonstrate compliance 

with certain of the specific standards relating to 

financial condition to provide alternative 

information demonstrating that they are in sound 

financial condition. By raising the larger issue of 

the appropriate regulatory structure for the 

membership regulations FHFA does not intend to 

change its policy, as evidenced by the recent 

revisions, that CDFI applicants are to be given 

latitude in demonstrating the soundness of their 

financial condition. 

1The Working Group is a subcommittee of the 

Regional Entity Management Group which consists 

of the executive management of the eight Regional 

Entities. 

establish certain standards of 

‘‘presumptive compliance’’ and allow an 

opportunity for institutions that do not 

meet those standards to rebut the 

presumption of noncompliance, or 

should FHFA devise an alternative 

structure, such as one that incorporates 

‘‘bright line’’ tests for each of the various 

eligibility requirements and does not 

create presumptions that an institution 

would be permitted to rebut? 27

Question Sixteen: Should FHFA play 

a role in resolving close membership 

issues, or leave them to the discretion of 

the Banks? 

III. Request for Comments 

FHFA invites comments on all of the 

issue discussed above, and will consider 

all comments in developing a proposed 

rule to amend its membership 

regulations. 

Dated: December 20, 2010. 

Edward J. DeMarco, 

Acting Director, Federal Housing Finance 

Agency. 

[FR Doc. 2010–32467 Filed 12–23–10; 8:45 am] 

BILLING CODE 8070–01–P 

DEPARTMENT OF COMMERCE 

Bureau of Industry and Security 

15 CFR Parts 732, 738, 740, 743, 758, 

and 774 

[Docket No. 100923470–0626–02] 

RIN 0694–AF03 

Export Control Modernization: 

Strategic Trade Authorization License 

Exception 

AGENCY: Bureau of Industry and 

Security, Commerce. 

ACTION: Proposed rule; correction. 

SUMMARY: This document corrects a 

typographical error in the address for 

submitting e-mail comments that 

appeared in a proposed rule, ‘‘Export 

Control Modernization: Strategic Trade 

Authorization License Exception,’’ 

published on December 9, 2010. 

DATES: Comments must be received by 

BIS no later than February 7, 2011. 

ADDRESSES: Comments on this 

correction may be submitted to the 

Federal rulemaking portal (http://www.

regulations.gov). The regulations.gov ID 

for this rule is: BIS–2010–0038. 

Comments may also be submitted via email to publiccomments@bis.doc.gov or 

on paper to Regulatory Policy Division, 

Bureau of Industry and Security, Room 

2705, U.S. Department of Commerce, 

Washington, DC 20230. Please refer to 

RIN 0694–AF03 in all comments and in 

the subject line of e-mail comments. 

FOR FURTHER INFORMATION CONTACT: 

William H. Arvin, Regulatory Policy 

Division, e-mail warvin@bis.doc.gov, 

telephone 202–482–2440. 

SUPPLEMENTARY INFORMATION: The 

address for submitting e-mail comments 

was incorrectly stated under the 

ADDRESSES caption of a proposed rule 

entitled ‘‘Export Control Modernization: 

Strategic Trade Authorization License 

Exception’’ (75 FR 76653, December 9, 

2010). This correction notice states the 

correct e-mail address in the ADDESSSES

caption, which is publiccomments@bis.

doc.gov. 

In proposed rule FR Doc. 2010–30968, 

beginning on page 76653 in the issue of 

December 9, 2010, make the following 

correction: On page 76654, in the 

ADDRESSES section, correct 

‘‘publiccomments.bis.doc.gov’’ to read 

‘‘publiccomments@bis.doc.gov’’. 

Bernard Kritzer, 

Director, Office of Exporter Services. 

[FR Doc. 2010–32441 Filed 12–23–10; 8:45 am] 

BILLING CODE 3510–33–P 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

18 CFR Part 40 

[Docket No. RM10–5–000] 

Interpretation of Protection System 

Reliability Standard 

December 16, 2010. 

AGENCY: Federal Energy Regulatory 

Commission, Energy. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The North American Electric 

Reliability Corporation (NERC) has 

submitted a petition (Petition) 

requesting approval of NERC’s 

interpretation of Requirement R1 of 

Commission-approved Reliability 

Standard PRC–005–1 (Transmission and 

Generation Protection System 

Maintenance and Testing). The 

Commission proposes to accept the 

NERC proposed interpretation of 

Requirement R1 of Reliability Standard 

PRC–005–1, and proposes to direct 

NERC to develop modifications to the 

PRC–005–1 Reliability Standard, as 

discussed below, through its Reliability 

Standards development process to 

address gaps in the Protection System 

maintenance and testing standard, 

highlighted by the proposed 

interpretation. 

DATES: Comments are due February 25, 

2011. 

ADDRESSES: You may submit comments, 

identified by docket number and in 

accordance with the requirements 

posted on the Commission’s Web site, 

http://www.ferc.gov. Comments may be 

submitted by any of the following 

methods: 

• Agency Web Site: Documents 

created electronically using word 

processing software should be filed in 

native applications or print-to-PDF 

format and not in a scanned format, at 

http://www.ferc.gov.doc-filing/ 

efiling.asp. 

• Mail/Hand Delivery: Commenters 

unable to file comments electronically 

must mail or hand deliver an original of 

their comments to: Federal Energy 

Regulatory Commission, Secretary of the 

Commission, 888 First Street, NE., 

Washington, DC 20426. 

FOR FURTHER INFORMATION CONTACT: Ron 

LeComte (Legal Information), Office of 

the General Counsel, 888 First Street, 

NE., Washington, DC 20426. 202–502– 

8405. Ron.lecomte@ferc.gov. 

Danny Johnson (Technical 

Information), Office of Electric 

Reliability, Division of Reliability 

Standards, 888 First Street, NE., 

Washington, DC 20426. 202–502–8892. 

Danny.johnson@ferc.gov. 

SUPPLEMENTARY INFORMATION: 

NERC submitted the Petition 

requesting approval of NERC’s 

interpretation of Requirement R1 of 

Commission-approved Reliability 

Standard PRC–005–1 (Transmission and 

Generation Protection System 

Maintenance and Testing). NERC 

developed the interpretation in response 

to a request for interpretation submitted 

to NERC by the Regional Entities 

Compliance Monitoring Processes 

Working Group (Working Group).1 The 

Commission proposes to accept the 

NERC proposed interpretation of 

Requirement R1 of Reliability Standard 


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