38564 Federal Register / Vol. 74, No. 148 / Tuesday, August 4, 2009 / Proposed Rules 

(c) Access to and retrieval of records 

during a record hold. The record 

retention program of each regulated 

entity or the Office of Finance shall 

ensure access to and retrieval of records 

by the regulated entity or the Office of 

Finance and access, upon request, by 

FHFA, during a record hold. Such 

access shall be by reasonable means, 

consistent with the nature and 

availability of the records and existing 

information technology. 

§ 1235.6 Access to records. 

(a) Access to records. Each regulated 

entity or the Office of Finance shall 

make its records readily available for 

inspection and other supervisory 

purposes within a reasonable period 

upon request by FHFA, at a location 

acceptable to FHFA and by reasonable 

means, consistent with the nature and 

availability of the records and existing 

information technology. 

(b) Reasonable period. For requests 

for documents made during the course 

of an on-site examination and pursuant 

to the examination’s scope, a reasonable 

period is presumed to be no longer than 

one business day. For requests for 

documents made outside of an on-site 

examination, a reasonable period is 

presumed to be three business days. 

§ 1235.7 Supervisory action. 

(a) Supervisory action. Failure by a 

regulated entity or the Office of Finance 

to comply with this part may subject the 

regulated entity or the Office of Finance 

or the board members, officers, or 

employees thereof to supervisory action 

by FHFA under the Safety and 

Soundness Act, including but not 

limited to cease-and-desist proceedings, 

temporary cease-and-desist proceedings, 

and civil money penalties. 

(b) No limitation of authority. This 

part does not limit or restrict the 

authority of FHFA to act under its safety 

and soundness mandate, in accordance 

with the Safety and Soundness Act. 

Such authority includes, but is not 

limited to, conducting examinations, 

requiring reports and disclosures, and 

enforcing compliance with applicable 

laws, rules, and regulations. 

CHAPTER XVII—OFFICE OF FEDERAL 

HOUSING ENTERPRISE OVERSIGHT, 

DEPARTMENT OF HOUSING AND URBAN 

DEVELOPMENT 

PART 1732—[REMOVED] 

4. Remove part 1732. 

Dated: July 28, 2009. 

James B. Lockhart III, 

Director, Federal Housing Finance Agency. 

[FR Doc. E9–18489 Filed 8–3–09; 8:45 am] 

BILLING CODE P 

FEDERAL HOUSING FINANCE BOARD 

12 CFR Parts 985, 989 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Parts 1273, 1274 

RIN 2590–AA30 

Board of Directors of Federal Home 

Loan Bank System Office of Finance 

AGENCY: Federal Housing Finance 

Agency; Federal Housing Finance 

Board. 

ACTION: Notice of proposed rulemaking; 

request for comment. 

SUMMARY: Governed by the Federal 

Housing Finance Agency’s (FHFA) 

regulations, the Federal Home Loan 

Bank System’s (System) Office of 

Finance, issues debt (‘‘consolidated 

obligations’’) on which the Federal 

Home Loan Banks (Banks) are jointly 

and severally liable and publishes 

combined financial reports on the Banks 

so that investors in the consolidated 

obligations can assess the strength of the 

System that stands behind them. The 

Office of Finance (OF) is governed by a 

board of directors, the composition and 

functions of which are determined by 

FHFA’s regulations. The FHFA’s 

experience with the System and with 

the OF’s combined financial reports 

during the recent period of market stress 

suggests that the OF and the System 

could benefit from a reconstituted and 

strengthened board. This proposed 

regulation is intended to achieve that. 

DATES: Comments on the proposed 

regulation must be received on or before 

October 5, 2009. For additional 

information, see SUPPLEMENTARY

INFORMATION. 

ADDRESSES: You may submit your 

comments on the proposed regulation, 

identified by regulatory information 

number (RIN) 2590–AA30 by any of the 

following methods: 

• 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–AA30, 

Federal Housing Finance Agency, 

Fourth Floor, 1700 G Street, NW., 

Washington, DC 20552. 

• Hand Delivery/Courier: The hand 

delivery address is: Alfred M. Pollard, 

General Counsel, Attention: Comments/ 

RIN 2590–AA30, 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. 

• E-mail: Comments to Alfred M. 

Pollard, General Counsel may be sent by 

e-mail at RegComments@FHFA.gov. 

Please include ‘‘RIN 2590–AA30’’ in the 

subject line of the message. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

FOR FURTHER INFORMATION CONTACT: 

Joseph A. McKenzie, 202–408–2845, 

Division of Federal Home Loan Bank 

Regulation, Federal Housing Finance 

Agency, 1625 Eye Street, NW., 

Washington, DC 20006; or Neil Crowley, 

Deputy General Counsel, 202–343–1316, 

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

General Counsel, Federal Housing 

Finance Agency, Fourth Floor, 1700 G 

Street, NW., Washington, DC 20552. The 

telephone number for the 

Telecommunications Device for the Deaf 

is (800) 877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Comments 

The FHFA invites comments on all 

aspects of the proposed regulation, and 

will adopt a final regulation with 

appropriate changes after taking all 

comments into consideration. Copies of 

all comments will be posted on the 

Internet Web site at https:// 

www.fhfa.gov. In addition, copies of all 

comments received will be available for 

examination by the public on business 

days between the hours of 10 a.m. and 

3 p.m., at the Federal Housing Finance 

Agency, Fourth Floor, 1700 G Street, 

NW., Washington, DC 20552. To make 

an appointment to inspect comments, 

please call the Office of General Counsel 

at (202) 414–6924. 

II. Background 

A. Creation of the Federal Housing 

Finance Agency and Recent Legislation 

Effective July 30, 2008, the Housing 

and Economic Recovery Act of 2008 

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

2654, transferred the supervisory and 

oversight responsibilities of the Office of 

Federal Housing Enterprise Oversight 

(OFHEO) over the Federal National 

Mortgage Association (Fannie Mae), and 

the Federal Home Loan Mortgage 

Corporation (Freddie Mac) (collectively, 

the Enterprises), the oversight 

responsibilities of the Federal Housing 

Finance Board (FHFB or Finance Board) 

over the Banks and the Office of Finance 

(OF) (which acts as the Banks’ fiscal 

agent) and certain functions of the 

Department of Housing and Urban 

Development to a new independent 

executive branch agency, the FHFA. See 

id. at § 1101, 122 Stat. 2661–62 

(amending 12 U.S.C. 4511). The FHFA 


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1Each Bank is generally referred to by the name 

of the city in which it is located. The twelve Banks 

are located in: Boston, New York, Pittsburgh, 

Atlanta, Cincinnati, Indianapolis, Chicago, Des 

Moines, Dallas, Topeka, San Francisco, and Seattle. 

2Public Law 101–73, 103 Stat. 183 (Aug. 9, 1989). 

3As it existed in 1992, section 11(c) of the Bank 

Act provided the Finance Board authority to issue 

the debt on which the Banks were jointly and 

severally liable. 12 U.S.C. 1431(c)(1992). HERA 

recently amended this provision and removed 

authority from the regulator to issue such debt on 

behalf of the Banks and provided the OF as agent 

for the Banks with authority to issue the COs. See 

§ 1204(3)(B), Public Law 110–289, 122 Stat. 2786. 

4Public Law 106–102, 113 Stat. 1338 (Nov. 12, 

1999). 

is responsible for ensuring that the 

Enterprises and the Banks operate in a 

safe and sound manner, including that 

they maintain adequate capital and 

internal controls, that their activities 

foster liquid, efficient, competitive and 

resilient national housing finance 

markets, and that they carry out their 

public policy missions through 

authorized activities. See id. at § 1102, 

122 Stat. 2663–64. The Enterprises, the 

Banks, and the OF continue to operate 

under regulations promulgated by 

OFHEO and the FHFB until the FHFA 

issues its own regulations. See id. at 

§§ 1302, 1313, 122 Stat. 2795, 2798. 

B. The Bank System Generally 

The twelve Banks are 

instrumentalities of the United States 

organized under the Federal Home Loan 

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

1423, 1432(a). The Banks are 

cooperatives; only members of a Bank 

may purchase the capital stock of a 

Bank, and only members or certain 

eligible housing associates (such as 

State housing finance agencies) may 

obtain access to secured loans, known 

as advances or other products provided 

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

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

by its own board of directors and serves 

the public interest by enhancing the 

availability of residential mortgage and 

community lending credit through its 

member institutions. See 12 U.S.C. 

1427. Any eligible institution (generally 

a Federally insured depository 

institution or State-regulated insurance 

company) may become a member of a 

Bank if it satisfies certain criteria and 

purchases a specified amount of the 

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

12 CFR part 925. 

As government-sponsored enterprises 

(GSEs), the Banks are granted certain 

privileges under Federal law. In light of 

those privileges and their status as 

GSEs, the Banks typically can borrow 

funds at spreads over the rates on U.S. 

Treasury securities of comparable 

maturity lower than most other entities. 

The Banks pass along a portion of their 

GSE funding advantage to their 

members—and ultimately to 

consumers—by providing advances and 

other financial services at rates that 

would not otherwise be available to 

their members. Consolidated obligations 

(COs), consisting of bonds and discount 

notes, are the principal funding source 

for the Banks. The OF issues all COs on 

behalf of the twelve Banks. Although 

each Bank is primarily liable for the 

portion of consolidated obligations 

corresponding to the proceeds received 

by that Bank, each Bank is also jointly 

and severally liable with the other 

eleven Banks for the payment of 

principal and interest on all COs. See 12 

CFR 966.9. 

C. The OF 

The OF was one of a number of joint 

Bank offices established by regulation 

by the former Federal Home Loan Bank 

Board (FHLBB), a predecessor agency to 

the FHFA. See 65 FR 324, 326 (Jan. 4, 

2000). The OF was originally formed 

from two other joint Bank Offices, the 

Office of System Finance and the Office 

of Fiscal Agent. Among other things, OF 

was assigned the duties previously 

vested in the Fiscal Agent which 

included facilitating the issuance of 

COs. Id. 

In 1989, as part of the amendments 

made to the Bank Act by the Financial 

Institutions Reform, Recovery and 

Enforcement Act (FIRREA),2 all joint 

offices of the Bank System other than 

the OF were abolished. The FHLBB was 

also abolished and its regulatory 

authority over the Bank System, 

including OF, was transferred to the 

Finance Board. The FHLBB’s 

regulations were also transferred to the 

Finance Board. Id. In 1992, the Finance 

Board reorganized the OF as fiscal agent 

of the Finance Board for issuing COs 

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

set forth other duties for OF.3 See 57 FR 

11429 (Apr. 3, 1992) (adopting 12 CFR 

part 941). The regulation also instituted 

a three-member board of directors for 

the oversight and management of the 

OF, made up of two Bank presidents 

and a private United States citizen with 

demonstrated expertise in financial 

markets. Id. 

In January 2000, the Finance Board 

proposed changes to its regulations to 

alter how COs were issued under 

section 11of the Bank Act, reorganize 

the OF and its board of directors, and 

expand the duties of the OF, including 

assigning OF the duty to prepare the 

Bank System combined annual and 

quarterly financial reports. See 65 FR 

324. As proposed, the January 2000 

regulation transferred authority for 

issuance of the Bank COs from the 

Finance Board, which had been issuing 

debt pursuant to then-existing authority 

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

the Banks themselves pursuant to 

authority under section 11(a) of the 

Bank Act and subject to the 

requirement, among other things, that 

all such debt issued by the Banks be the 

joint and several obligations of all 

twelve Banks and be issued through OF 

as their agent. Id. Under the proposed 

regulation, the Finance Board retained 

the option to issue COs itself under 

section 11(c) of the Bank Act at any 

point in the future. 

The Finance Board also believed that 

‘‘[a]s a natural and necessary adjunct to 

the issuance of COs, the Banks also 

should be responsible for the 

preparation of the disclosure documents 

that facilitate CO issuance and for the 

periodic combined financial statements 

for the Bank System.’’ Id. at 325. The 

Finance Board therefore proposed that 

OF, as the only joint Bank System office 

and existing agent for CO issuance, be 

assigned the duty of preparing the Bank 

System’s combined financial reports. Id. 

The Finance Board also proposed to 

codify disclosure standards in the 

regulation, many of which had been set 

forth in a Finance Board policy 

statement. Other duties related to debt 

issuance and management were also 

proposed to be assigned to OF. 

In light of the expanded duties 

assigned to OF as well as amendments 

to the Bank Act that had recently been 

made by the Gramm-Leach-Bliley Act 

(GLB Act),4 the Finance Board also 

thought it was appropriate to alter both 

the size and composition of the OF 

board. Id. at 326. The Finance Board 

had two main goals in proposing its 

changes. First, it wanted to build on the 

governance structure in the Bank Act by 

which the Banks should be provided 

greater autonomy to manage their 

affairs. Second, it wanted to assure each 

Bank had representation on the OF 

board to help achieve operational goals 

and wanted to assure that the OF board 

itself had directors with experience and 

qualification to help OF meet the 

evolving needs of the Bank System. 

Under the 2000 proposal, the OF 

board of directors would have been 

expanded to 24 members, 12 of whom 

would have been appointed by the 

Banks, 6 of whom would have been 

elected by Bank members and 6 of 

whom would have been appointed by 

the Finance Board. The Finance Board 

also proposed that the chair and vice 

chair of the board be appointed by the 

Finance Board. The proposal would 

have required the OF board of directors 


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to establish an audit committee with 

duties similar to those established under 

the regulations for the Banks’ audit 

committees, an executive committee, 

and a committee to coordinate the 

issuance and servicing of COs. 

After consideration of the comments 

on the proposed regulation, the Finance 

Board adopted many of the changes 

including those authorizing the Banks to 

issue COs under section 11(a) of the 

Bank Act and assigning to OF the 

function of preparing the Bank System’s 

combined financial reports, along with 

additional duties. See 65 FR 36290 (June 

7, 2000) (adopting among other parts 12 

CFR parts 966 and 985). The Finance 

Board did not, however, adopt the 

proposed changes to the OF board 

structure or composition. Instead, the 

new regulation incorporated the prior 

three-person board structure. The 

Finance Board also specified some 

additional duties for the OF board 

consistent with the additional functions 

that had been assigned to OF over the 

years. Since the 2000 rulemaking, no 

significant changes to the regulations 

governing the OF have been proposed. 

D. Considerations of Differences 

Between the Banks and the Enterprises 

Section 1201 of HERA requires the 

Director, when promulgating regulations 

relating to the Banks, to consider the 

following differences between the Banks 

and the Enterprises: Cooperative 

ownership structure; Mission of 

providing liquidity to members; 

Affordable housing and community 

development mission; capital structure; 

and Joint and several liability. See 

§ 1201 Public Law 110–289, 122 Stat. 

2782–83 (amending 12 U.S.C. 4513). 

The Director also may consider any 

other differences that are deemed 

appropriate. In preparing this proposed 

regulation, the FHFA considered the 

differences between the Banks and the 

Enterprises as they relate to the above 

factors. The FHFA requests comments 

from the public about whether 

differences related to these factors 

should result in any revisions to the 

proposal. 

III. The Proposed Regulation 

A. Reasons for the Proposed Regulation 

Changes 

As discussed in detail below, the 

FHFA is proposing a number of changes 

to the size and structure of the OF board 

of directors and how the OF board 

exercises oversight over the process for 

preparing the Bank System’s combined 

financial reports. The FHFA believes 

that these changes will assist the Banks 

in coordinating among themselves the 

process of providing OF the necessary 

information to prepare the System 

combined financial reports, and that 

these changes will facilitate accurate 

and meaningful disclosure in the 

combined reports and, thereby, garner 

market confidence. 

Because the Bank System’s main 

source of funding is COs on which the 

Banks are jointly and severely liable, the 

combined financial reports prepared by 

OF remain an important source of 

information about the financial state of 

the Bank System as a whole and are an 

important tool in marketing System debt 

and in assuring the Banks’ access to 

domestic and international financial 

markets. For these purposes, the 

combined financial reports provide a 

single source of information about the 

Bank System. Assuring that this 

information is consistent and can 

readily be compared across all Banks is 

important to market acceptance of Bank 

debt and hence to the continued 

financial health of the Banks. 

The proposed regulation would 

achieve these purposes with two 

principal elements: first, by expanding 

the OF’s board to include all of the 

Federal Home Loan Bank presidents 

plus an audit committee comprising 

three to five independent directors; and 

second; by empowering the audit 

committee to ensure that the combined 

financial reports are compiled using 

common accounting policies and 

procedures across the twelve Banks. The 

FHFA’s authority to adopt this 

regulation is grounded in its general 

supervisory authority over the OF and 

the Banks, 12 U.S.C. 1311(b)(2), 

1313(a)(1), 1319G, 1431. 

B. Overview of the Proposed Regulation 

The proposed regulation would readopt many of the provisions in current 

12 CFR part 985, which established the 

OF and governs the duties and function 

of OF and its board of directors, and in 

12 CFR part 989, which address audit 

requirements and financial statements 

for the Banks. It would, however, make 

a number of amendments to the current 

regulations, most significantly with 

regard to the structure and duties of 

both the OF board of directors and its 

audit committee. The proposed 

regulation also would make some 

changes with regard to the standards 

governing the Bank System’s combined 

financial reports and would amend 

some of the current part 985 provisions 

to conform the regulatory language to 

statutory changes made by HERA. 

Under the proposed regulation, the 

regulations that had been set forth in the 

parts 985 and 989 of the former Finance 

Board regulations, would be removed 

and adopted by the FHFA, respectively, 

as 12 CFR parts 1273 and 1274. 

Proposed part 1273 would provide 

regulations which re-establish the OF 

and set forth its duties, and functions. 

Under part 1273 as proposed, the 

specification of the OF’s authority and 

functions would remain substantially 

unchanged, although the language in the 

regulations would be altered to reflect 

the fact that the FHFA is no longer 

authorized to issue debt on behalf of the 

Banks and the OF would thus be acting 

only as a agent for the Banks with 

respect to its debt issuance duties. See 

n.3 supra. The Banks would also remain 

responsible for jointly funding the OF, 

and the process and requirements for 

providing such funding would not 

change to any great degree. Under 

proposed § 1273.5, however, the 

formula for calculating each Bank’s pro 

rata share of the reimbursement owed 

the OF would no longer be based on a 

formula set forth in the regulation. 

Instead, the OF board of directors would 

be allowed to establish any reasonable 

formula, subject to the right of the FHFA 

to review such formula and require 

changes to it. 

The debt management functions and 

duties assigned to OF also would also 

remain much the same under the 

proposed regulation as currently, 

although, as discussed more fully 

below, the FHFA is proposing some 

changes to the standards governing the 

preparation of the combined financial 

reports. Under the proposed regulation, 

the OF would also still be required to 

monitor the unsecured credit exposure 

of the Banks and would be required to 

compile relevant data on such 

exposures. 

As proposed, the specific 

requirements now set forth in 12 CFR 

part 989 would be readopted in part 12 

CFR part 1274 almost in their entirety. 

The proposed regulation would make 

some conforming changes in § 1274.2 to 

reflect the fact that the FHFA is 

proposing an audit committee to be 

established for OF which would have a 

composition that is different from that 

of the OF board of directors as a whole. 

In addition, current section 989.4 of this 

title, which relates to voluntary Bank 

disclosure of financials, would not be 

re-adopted as part of the proposed part 

1274 regulations. This particular 

provision pre-dated the Banks’ 

registration of their stock with the 

Securities and Exchange Commission 

(SEC). Given that an individual Bank’s 

disclosure of financial information is 

now subject to the SEC’s regulations and 

oversight, the FHFA does not see a need 

to maintain this provision going 

forward. 


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C. Proposed Changes in OF Board 

Structure and Process for Selecting 

Directors 

The new structure being proposed for 

the OF board of directors is set forth in 

proposed § 1273.7. Under this 

provision, the OF board of directors 

would be composed of 15 to17 part-time 

members—the twelve Bank presidents 

and three to five independent directors. 

The independent directors would be 

required to be citizens of the United 

States and none could be an officer, 

employee, or director of any Bank or 

Bank System member, nor could the 

independent director have any 

substantial financial interest in a Bank 

System member. Persons affiliated with 

or having substantial financial interests 

in any CO seller or dealer group member 

under contract with OF would not 

qualify to be an independent director. 

The proposed regulation would also 

require the independent directors, as a 

group, to have substantial experience in 

financial and accounting matters. 

Under the proposed regulation, the 

FHFA would appoint the first 

independent directors that serve on the 

board after the effective date of the 

regulation from candidates nominated 

by the Banks. Thereafter, the 

independent directors would be elected 

by majority vote of the OF board of 

directors. If the FHFA objected to the 

election of any individual independent 

director, the FHFA would retain the 

ability to appoint a more qualified 

director. As a practical matter, the 

FHFA would expect the OF board of 

directors to provide the names of, and 

background information on, nominees 

for board positions in sufficient time for 

the FHFA to raise any concerns prior to 

the actual election. 

Terms for independent directors 

would be set at five years, although the 

proposal would require staggering of the 

seats to assure that no more than one 

seat would be scheduled to become 

vacant in any one year, so the initial 

terms could range from one to five 

years. If an independent director’s seat 

became vacant for any reason before the 

end of a scheduled term, the proposed 

regulation would allow that seat to be 

filled by majority vote of the OF board, 

but only for the remainder of the 

original term. 

The proposed regulation would also 

allow the FHFA to appoint the initial 

chair and vice chair of the OF board. 

The chair would be one of the 

independent directors while the vice 

chair could be appointed from among 

any of the directors. After the term of 

the initial chair or vice chair expired or 

became vacant for any other reason, the 

proposal would allow subsequent chairs 

and vice chairs to be elected by majority 

vote of the OF board. The chair would 

be elected from among the independent 

directors while the vice chair could be 

elected from among any of the directors. 

Under the proposal, the FHFA would 

retain the authority to object to the 

election of any chair or vice chair by 

providing the OF board of directors 

written notice within 20 calendar-days, 

upon FHFA receipt of notification of the 

election, and the board of OF would 

then be required to promptly elect a 

new chair or vice chair as appropriate. 

The OF board of directors would be 

authorized to create committees, such as 

an executive committee, and to delegate 

authority to such committees, although 

the regulation would specifically 

require that an audit committee be 

established and would specify the 

duties of that committee. The functions 

and duties of any committee (including 

the scope of any delegation) would be 

specified in the board’s bylaws or in 

specific committee charters. The bylaws 

and charters would be subject to review 

and approval by the FHFA. The OF 

board, or any committee thereof 

including the audit committee, would 

be authorized to hire outside counsel, 

independent accountants, or other 

outside experts at the expense of the OF 

to help it carry out its duties. 

As under the current regulations, the 

proposed regulation would specify that 

Bank presidents would serve without 

additional compensation. The 

compensation for the independent 

directors would be set in accordance 

with 12 CFR part 918, which currently 

governs compensation for directors and 

chairs of the Banks’ boards of directors. 

The current indemnification provision 

would also be carried over to the new 

regulation as now proposed. 

The proposed duties of the OF board 

of directors are set forth in proposed 

§ 1273.8. These duties closely 

correspond to those in the current 

regulations. Duties and functions related 

to the preparation of the combined 

financial reports and oversight of the 

internal and external audit function for 

OF and the combined reports, which are 

currently among the duties of the OF 

board of directors, would be specifically 

transferred to the audit committee, as is 

discussed in the next section. 

D. Proposed Changes for Audit 

Committee 

Under the proposed regulation, the 

audit committee, constituted as 

described above, would assume the 

board’s responsibilities for overseeing 

the audit function of the OF and the 

OF’s preparation of accurate combined 

financial reports, including selection 

and appointment of the OF’s internal 

and external auditors. As part of its 

responsibilities, the audit committee 

would be specifically authorized to 

ensure that the Banks adopt consistent 

accounting policies and procedures so 

that the combined financial reports will 

continue to be accurate and meaningful. 

If the Banks are not able to agree on 

such consistent accounting policies and 

procedures, the audit committee, in 

consultation with the FHFA, may 

prescribe them. 

E. Proposed Changes in Disclosure 

Standards 

Consistent with the responsibility of 

the audit committee to ensure 

consistency of accounting policies and 

procedures across the Bank System, the 

regulations governing the content of the 

combined financial reports would be 

amended to include a requirement that 

information about the Banks be 

presented using consistent accounting 

policies and procedures (proposed 

§ 1273.6(b)(2)). In addition, in 

acknowledgement of the increasingly 

national business models of major 

holding companies who can access 

multiple Banks through subsidiaries in 

different Bank districts, the regulations 

would be amended to include 

requirements that the combined 

financial reports include lists of the top 

ten holders of advances and of stock in 

the Bank System by holding company 

(proposed Part 1273 Appendix A, 

paragraphs A and G). 

IV. Paperwork Reduction Act 

The proposed regulation does not 

contain any collections of information 

pursuant to the Paperwork Reduction 

Act of 1995 (44 U.S.C. 3501 et seq.). 

Therefore, the FHFA has not submitted 

any information to the Office of 

Management and Budget for review. 

V. Regulatory Flexibility Act 

The proposed regulation 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, the FHFA certifies that this 

proposed regulation, if promulgated as a 

final regulation, will not have 

significant economic impact on a 

substantial number of small entities. 

List of Subjects 

12 CFR Part 985 

Federal home loan bank, Securities. 


rmajette on DSK29S0YB1PROD with PROPOSALS
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12 CFR Part 989 

Accounting, Federal home loan banks, 

financial disclosure. 

12 CFR Part 1273 

Federal home loan banks, securities. 

12 CFR Part 1274 

Accounting, Federal home loan banks, 

financial disclosure. 

Accordingly, for reasons stated in the 

the preamble, under the authority of 12 

U.S.C. 1311(b)(2), 1313(a)(1), 1319G and 

1431, the FHFA proposes to amend 

chapters IX and XII of title 12 of the 

Code of Federal Regulations as follows: 

CHAPTER IX—FEDERAL HOUSING 

FINANCE BOARD 

Subchapter K—Office of Finance 

PART 985—THE OFFICE OF FINANCE 

1. Remove 12 CFR part 985. 

PART 989—FINANCIAL STATEMENT 

OF THE BANKS 

2. Remove 12 CFR part 989. 

CHAPTER XII—FEDERAL HOUSING 

FINANCE AGENCY 

Subchapter D—Federal Home Loan Banks 

3. Add part 1273 to subchapter D to 

read as follows: 

PART 1273—OFFICE OF FINANCE 

Sec. 

1273.1 Definitions. 

1273.2 Authority of the OF. 

1273.3 Functions of the OF. 

1273.4 FHFA oversight. 

1273.5 Funding of the OF. 

1273.6 Debt management duties of the OF. 

1273.7 Structure of the OF board of 

directors. 

1273.8 General duties of the OF board of 

directors. 

1273.9 Audit committee. 

Appendix A to Part 1273—Exceptions to the 

General Disclosure Standards 

Authority: 12 U.S.C. 1431(a) and (c), 1440, 

4511(b), 4513, 4514(a), 4526(a). 

§ 1273.1 Definitions. 

For purposes of this part: 

Audit Committee means the OF 

Independent Directors acting as the 

committee established in accordance 

with § 1273.9 of this part. 

Bank written in title case, means a 

Federal Home Loan Bank established 

under section 12 of the Bank Act (12 

U.S.C. 1432). 

Bank Act means the Federal Home 

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

1421 through 1449). 

Bank System means the Federal Home 

Loan Bank System, consisting of the 

twelve Banks and the Office of Finance. 

Chair means the chairperson of the 

board of directors of the Office of 

Finance. 

Chief Executive Officer or CEO means 

the chief executive officer of the Office 

of Finance. 

Consolidated obligations means any 

bond, debenture or note on which the 

Banks are jointly and severally liable 

and which was issued under section 11 

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

any implementing regulations, whether 

or not such instrument was originally 

issued jointly by the Banks or by the 

Federal Housing Finance Board on 

behalf of the Banks. 

FHFA means the Federal Housing 

Finance Agency. 

Financing Corporation or FICO means 

the Financing Corporation established 

and supervised by the FHFA under 

section 21 of the Bank Act (12 U.S.C. 

1441). 

Generally accepted accounting 

principles or GAAP means accounting 

principles generally accepted in the 

United States. 

Independent Director means a 

member of the OF board of directors 

who meets the qualifications set forth in 

§ 1273.7(a)(2) of this part. 

NRSRO means a credit rating 

organization registered as a Nationally 

Recognized Statistical Rating 

Organization with the Securities and 

Exchange Commission. 

Office of Finance or OF means the 

Office of Finance, a joint office of the 

Banks established under this part 1273 

and referenced in the Bank Act and the 

Safety and Soundness Act. 

Resolution Funding Corporation or 

REFCORP means the Resolution 

Funding Corporation established by 

section 21B of the Bank Act (12 U.S.C. 

1441b). 

Safety and Soundness Act means the 

Federal Housing Enterprises Financial 

Safety and Soundness Act of 1992 (12 

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

§ 1273.2 Authority of the OF. 

(a) General. The OF shall enjoy such 

incidental powers under section 12(a) of 

the Bank Act (12 U.S.C. 1432(a)), as are 

necessary, convenient and proper to 

accomplish the efficient execution of its 

duties and functions pursuant to this 

part, including the authority to contract 

with a Bank or Banks for the use of Bank 

facilities or personnel in order to 

perform its functions or duties. 

(b) Agent. The OF, in the performance 

of its duties, shall have the power to act 

on behalf of the Banks in issuing 

consolidated obligations and in paying 

principal and interest due on the 

consolidated obligations, or other 

obligations of the Banks. 

(c) Assessments. The OF shall have 

authority to assess the Banks for the 

funding of its operations in accordance 

with § 1273.5 of this part. 

§ 1273.3 Functions of the OF. 

(a) Joint debt issuance. Subject to 

parts 965 and 966 of this title, and this 

part, the OF as agent shall offer, issue 

and service (including making timely 

payments on principal and interest due) 

consolidated obligations. 

(b) Preparation of combined financial 

reports. The OF shall prepare and issue 

the combined annual and quarterly 

financial reports for the Bank System in 

accordance with the requirements of 

§ 1273.6(b) and Appendix A of this part, 

using consistent accounting policies and 

procedures as established under 

§ 1273.9 of this part. 

(c) Fiscal agent. The OF shall function 

as the fiscal agent of the Banks. 

(d) Financing Corporation and 

Resolution Funding Corporation. The 

OF shall perform such duties and 

responsibilities for FICO as may be 

required under part 995 of this title, or 

for REFCORP as may be required under 

part 996 of this title or authorized by the 

FHFA pursuant to section 21B(c)(6)(B) 

of the Bank Act (12 U.S.C. 

1441b(c)(6)(B)). 

§ 1273.4 FHFA oversight. 

(a) Oversight and enforcement 

actions. The FHFA shall have the same 

regulatory oversight authority over the 

OF, the OF board of directors, the 

officers, employees, agents, attorneys, 

accountants, or other OF staff, as it has 

over a Bank and its respective directors, 

officers, employees, agents, attorneys, 

accountants, or other staff. 

(b) Examinations. Pursuant to section 

20 of the Bank Act (12 U.S.C. 1440), the 

FHFA shall examine the OF, all funds 

and accounts that may be established 

pursuant to this part 1273, and the 

operations and activities of the OF, as 

provided for in the Bank Act, the Safety 

and Soundness Act, or any regulations 

promulgated pursuant thereto. 

(c) Combined financial reports. The 

FHFA shall determine whether a 

combined Bank System annual or 

quarterly financial report complies with 

the standards of this part. 

§ 1273.5 Funding of the OF. 

(a) Generally. The Banks are 

responsible for jointly funding all the 

expenses of the Office of Finance, 

including the costs of indemnifying the 

members of the OF board of directors, 

the Chief Executive Officer, and other 

officers and employees of the OF, as 

provided for in this part. 

(b) Funding policies. (1) At the 

direction of and pursuant to policies 


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and procedures adopted by the OF 

board of directors, the Banks shall 

periodically reimburse the OF in order 

to maintain sufficient operating funds 

under the budget approved by the OF 

board of directors. The OF operating 

funds shall be: 

(i) Available for expenses of the OF 

and the OF board of directors, according 

to their approved budgets; and 

(ii) Subject to withdrawal by check, 

wire transfer or draft signed by the Chief 

Executive Officer or other persons 

designated by the OF board of directors. 

(2) Each Bank’s respective pro rata 

share of the reimbursement described in 

paragraph (b)(1) of this section shall be 

based on a reasonable formula approved 

by the OF board of directors. Such 

formula shall be subject to the review of 

the FHFA, and the OF board of directors 

shall make any changes to the formula 

as may be ordered by the FHFA from 

time to time. 

(c) Alternative funding method. With 

the prior approval of the FHFA, the OF 

board of directors may, by contract with 

a Bank or Banks, choose to be 

reimbursed through a fee structure, in 

lieu of or in addition to assessment, for 

services provided to the Bank or Banks. 

(d) Prompt reimbursement. Each Bank 

from time to time shall promptly 

forward funds to the OF in an amount 

representing its share of the 

reimbursement described in paragraph 

(b) of this section when directed to do 

so by the Chief Executive Officer 

pursuant to the procedures of the OF 

board of directors. 

(e) Indemnification expenses. All 

expenses incident to indemnification of 

the members of the OF board of 

directors, the Chief Executive Officer, 

and other officers and employees of the 

OF shall be treated as an expense of the 

OF to be reimbursed by the Banks under 

the provisions of this part. 

(f) Operating funds segregated. Any 

funds received by the OF from the 

Banks pursuant to this section for OF 

operating expenses promptly shall be 

deposited into one or more accounts 

and shall not be commingled with any 

proceeds from the sale of consolidated 

obligations in any manner. 

§ 1273.6 Debt management duties of the 

OF. 

(a) Issuing and servicing of 

consolidated obligations. The OF shall 

issue and service (including making 

timely payments on principal and 

interest due, subject to §§ 966.8 and 

966.9 of this title) consolidated 

obligations pursuant to and in 

accordance with the policies and 

procedures established by the OF board 

of directors under this part. 

(b) Combined financial reports 

requirements. The OF, under the 

oversight of the Audit Committee, shall 

prepare and distribute the combined 

annual and quarterly financial reports 

for the Bank System in accordance with 

the following requirements: 

(1) The scope, form and content of the 

disclosure generally shall be consistent 

with the requirements of the Securities 

and Exchange Commission Regulations 

S–K and S–X (17 CFR parts 229 and 

210). 

(2) Information about each Bank shall 

be presented as a segment of the Bank 

System as if generally accepted 

accounting principles regarding 

business segment disclosure applied to 

the combined annual and quarterly 

financial reports of the Bank System, 

and shall be presented using consistent 

accounting policies and procedures. 

(3) The standards set forth in 

paragraphs (b)(1) and (b)(2) of this 

section are subject to the exceptions set 

forth in Appendix A to this part. 

(4) The combined Bank System 

annual financial reports shall be filed 

with the FHFA and distributed to each 

Bank and Bank member within 90 days 

after the end of the fiscal year. The 

combined Bank System quarterly 

financial reports shall be filed with the 

FHFA and distributed to each Bank and 

Bank member within 45 days after the 

end of the of the first three fiscal 

quarters of each year. 

(5) The Audit Committee shall ensure 

that the combined Bank System annual 

or quarterly financial reports comply 

with the standards of this part. 

(6) The OF and the OF board of 

directors, including the Audit 

Committee, shall comply promptly with 

any directive of the FHFA regarding the 

preparation, filing, amendment, or 

distribution of the combined Bank 

System annual or quarterly financial 

reports. 

(7) Nothing in this section shall create 

or be deemed to create any rights in any 

third party. 

(c) Capital markets data. The OF shall 

provide capital markets information 

concerning debt to the Banks. 

(d) NRSROs. The OF shall manage the 

relationships with NRSROs in 

connection with their rating of 

consolidated obligations. 

(e) Research. The OF shall conduct 

research reasonably related to the 

issuance or servicing of consolidated 

obligations. 

(f) Monitor Banks’ credit exposure. 

The OF shall timely monitor, and 

compile relevant data on, each Bank’s 

and the Bank System’s unsecured credit 

exposure to individual counterparties. 

§ 1273.7 Structure of the OF board of 

directors. 

(a) Membership. The OF board of 

directors shall consist of fifteen to 

seventeen part-time members as follows: 

(1) The twelve Bank presidents, ex 

officio, provided that if the presidency 

of any Bank becomes vacant, the person 

temporarily fulfilling the duties of 

president of that Bank may sit on the OF 

board of directors until the presidency 

is filled permanently; and 

(2)(i) Three to five Independent 

Directors who each shall be a citizen of 

the United States and who, as a group, 

shall have substantial experience in 

financial and accounting matters. Such 

Independent Directors may not be 

officers, directors, or employees of any 

Bank or Bank System member, be 

affiliated with any consolidatedobligations selling or dealer group 

member under contract with OF, or hold 

shares or any other financial interest in 

any member of a Bank or in any such 

dealer group member in an amount 

greater than the lesser of— 

(A) $250,000 or 

(B) 0.01% of the market capitalization 

of the member or dealer. 

(ii) For purposes of this paragraph 

(a)(2), a holding company of a member 

of a Bank or a dealer group member 

shall be deemed to be a member if the 

assets of the holding company’s member 

subsidiaries constitute 35% or more of 

the consolidated assets of the holding 

company. 

(b) Terms. (1) Except as provided in 

paragraphs (b)(2) and (c)(1) of this 

section, each Independent Director shall 

serve for five-year terms (which shall be 

staggered so that no more than one 

Independent Director seat would be 

scheduled to become vacant in any one 

year), and shall be subject to removal or 

suspension or other enforcement action 

in accordance with § 1273.4(a) of this 

section. An Independent Director may 

not serve more than two full, 

consecutive terms. Time served by a 

private citizen member of the OF Board 

pursuant to an appointment made prior 

to the effective date of this part shall not 

count as a term for purposes of this 

restriction. 

(2) The OF board of directors shall fill 

any vacancy among the Independent 

Directors occurring prior to the 

scheduled end of a term by majority 

vote, subject to the FHFA’s review of, 

and non-objection to, the new 

Independent Director. The OF board of 

directors shall provide the FHFA with 

relevant biographic and background 

information, including information 

demonstrating that the new 

Independent Director meets the 

requirements of paragraph (a)(2) of this 


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section, at least 20 business days before 

the person assumes any duties as a 

member of the OF board of directors. A 

person elected under this paragraph to 

fill a vacancy on the OF board of 

directors shall serve only for the 

remainder of the term associated with 

the vacant directorship. 

(c) Initial selection of Independent 

Directors. (1) As soon as practicable 

after the effective date of this regulation, 

the FHFA shall fill the initial 

Independent Director positions by 

appointment. The Independent 

Directors shall be appointed for such 

periods of time, not to exceed five years, 

to assure the terms are staggered in 

accordance with paragraph (b)(1) of this 

section. 

(2) Each Bank shall have the right to 

nominate one person for consideration 

for appointment as an Independent 

Director by the FHFA under this 

paragraph (c). The nominations will be 

made according to any procedures 

established by the FHFA. The FHFA 

may appoint persons nominated by the 

Banks, or other persons meeting the 

requirements of paragraph (a)(2) of this 

section, or some combination. 

(d) Election of Independent Directors 

after the initial terms. Once the terms of 

the Independent Directors initially 

appointed by the FHFA expire or the 

positions otherwise become vacant, the 

Independent Directors subsequently 

shall elected by majority vote of the OF 

board of directors, subject to FHFA’s 

review of, and non-objection to, each 

new Independent Director. The OF 

board of directors shall provide the 

FHFA with relevant biographic and 

background information, including 

information demonstrating that the new 

Independent Director meets the 

requirements of paragraph (a)(2) of this 

section, at least 20 business days before 

the person assumes any duties as a 

member of the OF board of directors. If 

the OF board of directors, in the FHFA’s 

judgment, fails to elect a suitably 

qualified person, the FHFA may appoint 

some other person who meets the 

requirements of paragraph (a)(2) of this 

section. 

(e) Initial Selection of Chair and Vice 

Chair. The first Chair and Vice Chair of 

the OF board of directors after the 

effective date of this regulation shall be 

appointed by the FHFA. The Chair shall 

be selected from among the Independent 

Directors appointed under paragraph 

(c)(1) of this section. The Vice-chair 

shall be selected from among all OF 

board directors. 

(f) Subsequent Election of Chair and 

Vice-Chair. After the terms of the 

persons selected under paragraph (e) of 

this section expire or the positions 

otherwise become vacant: 

(1) Subsequent Chairs shall be elected 

by majority vote of the OF board of 

directors from among the Independent 

Directors then serving on the OF board 

of directors; and 

(2) Subsequent Vice Chairs shall be 

elected by majority vote of the OF board 

of directors from among all directors. 

(3) The OF board of directors shall 

promptly inform the FHFA of the 

election of a Chair or Vice Chair. If the 

FHFA objects to any Chair or Vice Chair 

elected by the OF board of directors, the 

FHFA shall provide written notice of its 

objection within 20 business days of the 

date that the FHFA first receives the 

notice of the election of the Chair and 

or Vice Chair, and the OF board of 

directors must then promptly elect a 

new Chair or Vice Chair, as appropriate. 

(g) Committees. In addition to the 

Audit Committee required under 

§ 1273.9 of this part, the OF board of 

directors may establish other 

committees, including an Executive 

Committee. The duties and powers of 

such committee, including any powers 

delegated by the OF board of directors, 

shall be specified in the by-laws of the 

board of directors or the charter of the 

committee, which shall be subject to 

review and approval by the FHFA. 

(h) Compensation. (1) The Bank 

presidents shall not receive any 

additional compensation or 

reimbursement as a result of their 

service as a director of the OF board. 

(2) The OF shall pay compensation 

and expenses to the Independent 

Directors in accordance with the 

requirements for payment of 

compensation and expenses to Bank 

chairs and directors as set forth in part 

918 of this title. 

(i) Indemnification. The OF shall 

indemnify its directors, the CEO, and 

other officers and employees of the OF 

under such terms and conditions as 

shall be determined by the OF board of 

directors, provided that such terms and 

conditions are consistent with the terms 

and conditions of indemnification of 

directors, officers, and employees of the 

Bank System generally. 

(j) Delegation. In addition to any 

delegation to a committee allowed 

under paragraph (g) of this section, the 

OF board of directors may delegate any 

of its authority or duties to any 

employee of the OF in order to enable 

OF to carry out its functions, provided 

that such delegation remains subject to 

the review of the FHFA, and the FHFA 

reserves the right in its sole discretion 

to require the OF board of directors to 

withdraw or change the scope of the 

delegation. 

(k) Outside staff and consultants. In 

carrying out its duties and 

responsibilities, the OF board of 

directors, or any committee thereof, 

shall have authority to retain staff and 

outside counsel, independent 

accountants, or other outside 

consultants at the expense of the OF. 

§ 1273.8 General duties of the OF board of 

directors. 

(a) General. (1) Conduct of business. 

Each director shall have the duties 

described in § 917.2(b) of this title, as 

appropriate. 

(2) Bylaws. The OF board of directors 

shall adopt bylaws in accordance with 

the provisions of § 917.10 of this title. 

(b) Meetings and quorum. The OF 

board of directors shall conduct its 

business by majority vote of its members 

at meetings convened in accordance 

with its bylaws, and shall hold no fewer 

than six in-person meetings annually. 

Due notice shall be given to the FHFA 

by the Chair prior to each meeting. A 

quorum, for purposes of meetings of the 

OF board of directors, shall not be less 

than ten members. 

(c) Duties regarding COs. The OF 

board of directors shall oversee the 

establishment of policies regarding COs 

that shall: 

(1) Govern the frequency and timing 

of issuance, issue size, minimum 

denomination, CO concessions, 

underwriter qualifications, currency of 

issuance, interest-rate change or 

conversion features, call features, 

principal indexing features, selection 

and retention of outside counsel, 

selection of clearing organizations, and 

the selection and compensation of 

underwriters for consolidated 

obligations, which shall be in 

accordance with the requirements and 

limitations set forth in paragraph (c)(4) 

of this section; 

(2) Prohibit the issuance of COs 

intended to be privately placed with or 

sold without the participation of an 

underwriter to retail investors, or issued 

with a concession structure designed to 

facilitate the placement of the COs in 

retail accounts, unless the OF has given 

notice to the board of directors of each 

Bank describing a policy permitting 

such issuances, soliciting comments 

from each Bank’s board of directors, and 

considering the comments received 

before adopting a policy permitting such 

issuance activities; 

(3) Require all broker-dealers or 

underwriters under contract to the OF to 

have and maintain adequate suitability 

sales practices and policies, which shall 

be acceptable to, and subject to review 

by, the OF; 


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(4) Require that COs shall be issued 

efficiently and at the lowest all-in 

funding costs over time, consistent 

with— 

(i) Prudent risk-management 

practices, prudential debt parameters, 

short and long-term market conditions, 

and the Banks’ role as GSEs; 

(ii) Maintaining reliable access to the 

short-term and long-term capital 

markets; and 

(iii) Positioning the issuance of debt 

to take advantage of current and future 

capital market opportunities. 

(d) Other duties. The OF board of 

directors shall: 

(1) Set policies for management and 

operation of the OF; 

(2) Approve a strategic business plan 

for the OF in accordance with the 

provisions of § 917.5 of this title, as 

appropriate; 

(3) Review, adopt and monitor annual 

operating and capital budgets of the OF 

in accordance with the provisions of 

§ 917.8 of this title, as appropriate; 

(4) Select, employ, determine the 

compensation for, and assign the duties 

and functions of a Chief Executive 

Officer of the OF who shallƒ 

(i) Be head of the OF and direct the 

implementation of the OF board of 

directors’ policies; 

(ii) Serve as a member of the 

Directorate of the FICO, pursuant to 

section 21(b)(1)(A) of the Bank Act (12 

U.S.C. 1441(b)(1)(A)); and 

(iii) Serve as a member of the 

Directorate of the REFCORP, pursuant to 

section 21B(c)(1)(A) of the Bank Act (12 

U.S.C. 1441b(c)(1)(A)). 

(5) Review and approve all contracts 

of the OF; and 

(6) Assume any other responsibilities 

that may from time to time be assigned 

to it by the FHFA. 

(e) No rights created. Nothing in this 

part shall create or be deemed to create 

any rights in any third party. 

§ 1273.9 Audit committee. 

(a) Composition. The Independent 

Directors shall serve as the Audit 

Committee. 

(b) Responsibilities. (1) The Audit 

Committee shall be responsible for 

overseeing the audit function of the OF 

and the preparation and accuracy of the 

Bank System’s combined financial 

reports. 

(2) For purposes of the combined 

financial reports, the Audit Committee 

shall ensure that the Banks adopt 

consistent accounting policies and 

procedures such that the information 

submitted by the Banks to OF may be 

combined to create accurate and 

meaningful combined financial reports. 

(3) The Audit Committee, in 

consultation with the FHFA, may 

establish common accounting policies 

and procedures for the information 

submitted by the Banks to the OF for the 

combined financial reports where the 

Committee determines such information 

provided by the several Banks is 

inconsistent and that consistent policies 

and procedures regarding that 

information are necessary to create 

accurate and meaningful combined 

financial reports. 

(4) To the extent possible the Audit 

Committee shall operate consistent 

with— 

(i) The requirements of § 917.7 of this 

title; and 

(ii) The requirements pertaining to 

audit committee reports set forth in Item 

306 of Regulation S–K promulgated by 

the Securities and Exchange 

Commission. 

(5) The Audit Committee shall 

oversee internal audit activities, 

including the selection, evaluation, 

compensation and, where appropriate, 

replacement of the internal auditor. The 

internal auditor shall report directly to 

the Audit Committee and 

administratively to executive 

management. 

(6) The Audit Committee shall have 

the exclusive authority to employ and 

contract for the services of an 

independent, external auditor for the 

Banks’ annual and quarterly combined 

financial statements. 

(c) No delegation. The Audit 

Committee may not delegate the 

responsibilities assigned to it under this 

section to any person, or to any other 

committee or sub-committee of the OF 

board of directors. 

Appendix A to Part 1273—Exceptions 

to the General Disclosure Standards 

A. Related-party transactions. Item 404 of 

Regulation S–K, 17 CFR 229.404, requires the 

disclosure of certain relationships and 

related party transactions. In light of the 

cooperative nature of the Bank System, 

related-party transactions are to be expected, 

and a disclosure of all related-party 

transactions that meet the threshold would 

not be meaningful. Instead, the combined 

annual report will disclose the percent of 

advances to members an officer of which 

serves as a Bank director, and list the top ten 

holders of advances in the Bank System and 

the top five holders of advances by Bank, 

with a further disclosure indicating which of 

these members had an officer that served as 

a Bank director. The combined financial 

report will also disclose the top ten holders 

of advances in the Bank System by holding 

company, where the advances of all affiliates 

within a holding company are aggregated. 

B. Biographical information. The 

biographical information required by Items 

401 and 405 of Regulation S–K, 17 CFR 

229.401 and 405, will be provided only for 

members of the OF board of directors, 

including the Bank presidents, the chair and 

vice chair of the board of directors of each 

Bank, and the Chief Executive Officer of OF. 

C. Compensation. The information on 

compensation required by Item 402 of 

Regulation S–K, 17 CFR 229.402, will be 

provided only for Bank presidents and the 

CEO of the OF. Since stock in each Bank 

trades at par, the OF will not include the 

performance graph specified in Item 402(1) of 

Regulation S–K, 17 CFR 229.402(1). 

D. Submission of matters to a vote of 

stockholders. No information will be 

presented on matters submitted to 

shareholders for a vote, as otherwise required 

by Item 4 of the SEC’s form 10–K, 17 CFR 

249.310. The only item shareholders vote 

upon is the annual election of directors. 

E. Exhibits. The exhibits required by Item 

601 of Regulation S–K, 17 CFR 229.601, are 

not applicable and will not be provided. 

F. Per share information. The statement of 

financial information required by Items 301 

and 302 of Rule S–K, 17 CFR 229.301 and 

302, is inapplicable because the shares of the 

Banks are subscription capital that trades at 

par, and the shares expand or contract with 

changes in member assets or advance levels. 

G. Beneficial ownership. Item 403 of Rule 

S–K, 17 CFR 229.403, requires the disclosure 

of security ownership of certain beneficial 

owners and management. The combined 

financial report will provide a listing of the 

ten largest holders of capital stock in the 

Bank System and a listing of the five largest 

holders of capital stock by Bank. This listing 

will also indicate which members had an 

officer that served as a director of a Bank. 

The combined financial report will also 

disclose the top ten holders of Bank stock in 

the Bank System by holding company, where 

the Bank stock of all affiliates within a 

holding company is aggregated. 

4. Add part 1274 to subchapter D to 

read as follows: 

PART 1274—FINANCIAL STATEMENTS 

OF THE BANKS 

Sec. 

1274.1 Definitions. 

1274.2 Audit requirements. 

1274.3 Requirements to provide financial 

and other information to the FHFA and 

the OF. 

Authority: 12 U.S.C. 1426, 1431, 4511(b), 

4513, 4526(a). 

§ 1274.1 Definitions. 

For purposes of this part: 

Audit means an examination of the 

financial statements by an independent 

accountant in accordance with generally 

accepted auditing standards for the 

purpose of expressing an opinion 

thereon. 

Audit report means a document in 

which an independent accountant 

indicates the scope the audit made and 

sets forth an opinion regarding the 

financial statement taken as a whole, or 

an assertion to the effect that an overall 

opinion cannot be expressed. When an 


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overall opinion cannot be expressed, the 

reasons therefor shall be stated. 

Bank written in title case, means a 

Federal Home Loan Bank established 

under section 12 of the Bank Act (12 

U.S.C. 1432). 

Bank System means the Federal Home 

Loan Bank System, consisting of the 

twelve Banks and the Office of Finance. 

FHFA means the Federal Housing 

Finance Agency. 

Financing Corporation or FICO means 

the Financing Corporation established 

and supervised by the FHFA under 

section 21 of the Bank Act (12 U.S.C. 

1441). 

Office of Finance or OF has the same 

meaning as set forth in § 1273.1 of this 

chapter. 

§ 1274.2 Audit requirements. 

(a) Each Bank, the OF and the FICO 

shall obtain annually an independent 

external audit of and an audit report on 

its individual financial statement. 

(b) The OF audit committee shall 

obtain an audit and an audit report on 

the combined annual financial 

statements for the Bank System. 

(c) All audits must be conducted in 

accordance with generally accepted 

auditing standards and in accordance 

with the most current government 

auditing standards issued by the Office 

of the Comptroller General of the United 

States. 

(d) An independent, external auditor 

must meet at least twice each year with 

the audit committee of each Bank, the 

audit committee of OF, and the FICO 

Directorate. 

(e) FHFA examiners shall have 

unrestricted access to all auditors’ work 

papers and to the auditors to address 

substantive accounting issues that may 

arise during the course of any audit. 

§ 1274.3 Requirement to provide financial 

and other information to the FHFA and the 

OF. 

In order to facilitate the preparation 

by the OF of combined Bank System 

annual and quarterly reports, each Bank 

shall provide to the OF in such form 

and within such timeframes as the 

FHFA or the OF shall specify, all 

financial and other information and 

assistance that the OF shall request for 

that purpose. Nothing in this section 

shall contravene or be deemed to 

circumscribe in any manner the 

authority of the FHFA to obtain any 

information from any Bank related to 

the preparation or review of any 

financial report. 

Dated: July 29, 2009. 

James B. Lockhart III, 

Director, Federal Housing Finance Agency. 

[FR Doc. E9–18567 Filed 8–3–09; 8:45 am] 

BILLING CODE P 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1282 

RIN 2590–AA27 

Duty To Serve Underserved Markets 

for Enterprises 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Advance notice of proposed 

rulemaking and request for comment. 

SUMMARY: Section 1129 of the Housing 

and Economic Recovery Act of 2008 

(HERA) amended the Federal Housing 

Enterprises Financial Safety and 

Soundness Act of 1992 (Safety and 

Soundness Act) to establish a duty for 

the Federal National Mortgage 

Association (Fannie Mae) and the 

Federal Home Loan Mortgage 

Corporation (Freddie Mac) (collectively, 

Enterprises) to serve three underserved 

markets—manufactured housing, 

affordable housing preservation, and 

rural areas—in order to increase the 

liquidity of mortgage investments and 

improve the distribution of investment 

capital available for mortgage financing 

in those markets. Section 1335 of the 

Safety and Soundness Act, as amended, 

requires the Federal Housing Finance 

Agency (FHFA), beginning in 2010, to 

establish a manner for: evaluating 

whether and to what extent the 

Enterprises have complied with the 

duty to serve underserved markets; and 

rating the extent of compliance. To 

assist FHFA in rulemaking to 

implement the duty to serve 

underserved markets, FHFA seeks 

comment on the characteristics and 

types of Enterprise transactions and 

activities that should be considered and 

how such transactions and activities 

should be evaluated and rated, for 

purposes of determining the Enterprises’ 

performance of the duty to serve 

underserved markets. 

DATES: Written comments must be 

received on or before: September 18, 

2009. 

ADDRESSES: You may submit your 

comments, identified by regulatory 

information number (RIN) 2590–AA27, 

by any of the following methods: 

• U.S. Mail, United Parcel Post, 

Federal Express, or Other Mail Service: 

The mailing address for comments is: 

Alfred M. Pollard, General Counsel, 

Attention: Comments/RIN 2590–AA27, 

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–AA27, 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. 

• E-mail: Comments to Alfred M. 

Pollard, General Counsel, may be sent 

by e-mail to RegComments@fhfa.gov. 

Please include ‘‘RIN 2590–AA27’’ in the 

subject line of the message. 

• 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–AA27’’ in the subject line of 

the message. 

FOR FURTHER INFORMATION CONTACT: 

Nelson Hernandez, Senior Associate 

Director, Housing Mission and Goals, 

(202) 408–2819, Brian Doherty, Acting 

Manager, Housing Mission and Goals– 

Policy, (202) 408–2991, or Paul 

Manchester, Acting Manager, Housing 

Mission and Goals–Quantitative 

Analysis, (202) 408–2946 (these are not 

toll-free numbers); Lyn Abrams, 

Attorney-Advisor, (202) 414–8951, 

Kevin Sheehan, Attorney-Advisor, (202) 

414–8952, or Sharon Like, Associate 

General Counsel, (202) 414–8950 (these 

are not toll-free numbers), Office of 

General Counsel, Federal Housing 

Finance Agency, Fourth Floor, 1700 G 

Street, NW., Washington, DC 20552. The 

telephone number for the 

Telecommunications Device for the 

Hearing Impaired is (800) 877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Comments 

FHFA invites comments on all aspects 

of the Advance Notice of Proposed 

Rulemaking. Copies of all comments 

will be posted without change, 

including any personal information you 

provide, such as your name and 

address, on the FHFA 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 


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