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contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

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Rules and Regulations Federal Register

5595 

Vol. 74, No. 19 

Friday, January 30, 2009 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1229 

RIN 2590–AA21 

Capital Classifications and Critical 

Capital Levels for the Federal Home 

Loan Banks 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Interim final rule; request for 

comments. 

SUMMARY: The Federal Housing 

Regulatory Reform Act, Division A of 

the Housing and Economic Recovery 

Act of 2008 (HERA), requires the 

Director of Federal Housing Finance 

Agency (FHFA) to establish criteria 

based on the amount and type of capital 

held by a Federal Home Loan Bank 

(Bank) for each of the following capital 

classifications: adequately capitalized, 

undercapitalized, significantly 

undercapitalized and critically 

undercapitalized. In addition, HERA 

provides that the critical capital level 

for each Bank shall be the amount of 

capital that the Director by regulation 

shall require. HERA also sets forth 

prompt corrective action (PCA) 

authority that the Director has for the 

Banks. To implement these new 

provisions, the FHFA is adopting this 

interim final rule to define critical 

capital for the Banks, establish the 

criteria for each of the capital 

classifications identified in HERA and 

delineate its PCA authority over the 

Banks. 

DATES: Effective Date: January 30, 2009. 

Comment Date: Comments on the 

interim final rule must be received on 

or before April 30, 2009. For additional 

information, see SUPPLEMENTARY

INFORMATION. 

ADDRESSES: You may submit your 

comments on the proposed regulation, 

identified by regulatory information 

number (RIN) 2590–AA21 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 and 

Christopher Curtis, Senior Deputy 

General Counsel, Attention: Comments/ 

RIN 2590–AA21, 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 and Christopher T. 

Curtis, Senior Deputy General Counsel, 

Attention: Comments/RIN 2590–AA21, 

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 and 

Christopher T. Curtis, Senior Deputy 

General Counsel, may be sent by e-mail 

at RegComments@FHFB.gov. Please 

include ‘‘RIN 2590–AA21’’ in the 

subject line of the message. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

FOR FURTHER INFORMATION CONTACT: Julie 

Paller, Senior Financial Analyst, (202) 

408–2842, and Anthony Cornyn, Senior 

Associate Director, (202) 408–2522, 

Division of Federal Home Loan Bank 

Regulation; or Thomas E. Joseph, Senior 

Attorney-Advisor, (202) 408–2512, 

Office of General Counsel, Federal 

Housing Finance Agency, 1625 Eye 

Street, NW., Washington, DC 20006. 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 interim final rule, and 

will amend the rule as appropriate after 

taking all comments into consideration. 

FHFA requests that comments 

submitted in hard copy also be 

accompanied by the electronic version 

in Microsoft® Word or in portable 

document format (PDF) on CD–ROM. 

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) 414–3751. 

II. Background 

A. Federal Housing Finance Agency and 

Recent Legislation 

Effective July 30, 2008, HERA, Public 

Law No. 110–289, 122 Stat. 2654 (2008), 

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) and the oversight 

responsibilities of the Federal Housing 

Finance Board (FHFB or Finance Board) 

over the Banks and the Office of Finance 

(which acts as the Banks’ fiscal agent) to 

a new independent executive branch 

agency, the FHFA. The FHFA is 

responsible for ensuring that the 

Enterprises and the Banks operate in a 

safe and sound manner, including that 

they maintain adequate capital and 

internal controls, that their activities 

foster liquid, efficient, competitive and 

resilient national housing finance 

markets, and that they carry out their 

public policy missions through 

authorized activities. See id. at § 1102, 

122 Stat. 2663–64. The Enterprises and 

the Banks 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. 

Section 1141 of HERA states that the 

Director shall adopt regulations 

specifying the critical capital level for 

each Bank. See id. at § 1141, 122 Stat. 

2730 (adopting 12 U.S.C. 4613(b)). In 

establishing this requirement, HERA 

provides that the Director shall take due 

consideration of the critical capital 

levels established for the Enterprises, 

with such modifications as the Director 

determines to be appropriate to reflect 

the difference in operations between the 

Banks and the Enterprises. HERA 

further requires the Director to issue 

regulations establishing the critical 

capital levels for the Banks no later than 

the expiration of the 180 day period 

from the date that HERA was enacted. 


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5596 Federal Register / Vol. 74, No. 19 / Friday, January 30, 2009 / Rules and Regulations 

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. 

2Since June 2000, the Banks have been issuing 

consolidated obligations under section 11(a) of the 

Bank Act (12 U.S.C. 1431(a)) and 12 CFR 966.2(b). 

Section 11(a) allows the Banks to issue debt subject 

to such rules, regulations and conditions imposed 

by their regulator while 12 CFR 966.2(b) allows the 

Banks only to issue consolidated obligations jointly 

and which are the joint and several obligation of all 

Banks. Prior to June 2000, the Finance Board issued 

consolidated obligations on which the Banks were 

jointly and severally liable on behalf of the Banks 

under section 11(c) of the Bank Act (12 U.S.C. 

1431(c)). HERA amended section 11(c) of the Bank 

Act to remove the authority of the Banks’ regulator 

to issue debt on behalf of the Banks. See 

§ 1204(3)(B), Pub. L. No. 110–289, 122 Stat. 2785– 

86 (amending 12 U.S.C. 1431(c)). 

3Class B stock is defined by the Bank Act as stock 

that is redeemable (subject to certain exceptions) 

five years after a member files notice of its intent 

to have the stock redeemed, while Class A stock is 

defined as stock redeemable (subject to the same 

exceptions) six months after a member files such a 

notice. See, 12 U.S.C. 1426(a)(5). See also 12 CFR 

931.1. The Chicago Bank is the only Bank that has 

not converted to the Class A/Class B capital 

structure required under the Gramm-Leach Bliley 

Act (GLB Act) amendments to the Bank Act and 

thus, does not issue either Class A or Class B stock. 

Instead, the Chicago Bank still issues stock as 

defined in the Bank Act prior to its amendment by 

the GLB Act. 

4Only two Banks, Topeka and Seattle, have 

issued both Class A and Class B stock. Nine Banks, 

Boston, New York, Pittsburgh, Atlanta, Cincinnati, 

Indianapolis, Des Moines, Dallas, and San 

Francisco, issue only Class B stock, while, as 

already noted, the Chicago Bank has yet to issue 

either Class A or Class B stock. 

5HERA defines these two leverage ratios as the 

‘‘minimum capital level’’ for a Bank. See § 1111, 

Pub. L. No. 110–289, 122 Stat. 2666–67. As already 

noted, the Act states that the capital classifications 

for the Banks should be based on among other 

things ‘‘the minimum capital * * * levels for the 

[B]anks.’’ HERA also provides the Director with 

authority to require an increase in a Bank’s 

minimum capital level by order, if the increase is 

to be temporary, and to promulgate regulations to 

In addition, section 1142 of HERA 

requires that the Director, no later than 

180 days from its enactment, establish 

for the Banks the following four capital 

classifications and criteria for each 

classification: adequately capitalized, 

undercapitalized, significantly 

undercapitalized, and critically 

undercapitalized. See id. at § 1142, 122 

Stat. 2730–32. HERA specifies that the 

criteria should be based on the amount 

and types of capital held by a Bank and 

the risk-based, minimum and critical 

capital levels for the Banks, taking due 

consideration of the capital 

classifications established for the 

Enterprises, with such modifications as 

the Director determines to be 

appropriate to reflect the difference in 

operations between the Banks and the 

Enterprises. HERA also provides the 

FHFA prompt corrective action 

authority over the Banks and amends 

the Federal Housing Enterprises Safety 

and Soundness Act of 1992 (Safety and 

Soundness Act) so that specific 

mandatory or discretionary supervisory 

actions and restrictions under that 

statute would apply to any Bank 

determined to be undercapitalized, 

significantly undercapitalized or 

critically undercapitalized. See id. at 

§§ 1143–1145, 122 Stat. 2732–34. The 

general purpose for the PCA framework 

is to supplement the FHFA’s other 

regulatory and supervisory authority 

and provide for timely and, in some 

situations, mandatory intervention by 

the regulator. 

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. The Bank Act also 

requires each Bank to establish an 

affordable housing program (AHP) and 

contribute a specified portion of its 

previous year’s net income to support 

that program. See 12 U.S.C. 1430(j). The 

purpose of the program is to enable 

Bank members to finance 

homeownership for low- or moderateincome households and the purchase, 

construction or rehabilitation of rental 

projects that benefit very low-income 

households. 

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 a modest spread over the rates 

on U.S. Treasury securities of 

comparable maturity. 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. Some of the 

Banks also have acquired member asset 

(AMA) programs whereby they acquire 

fixed-rate, single-family mortgage loans 

from participating member institutions. 

Consolidated obligations, consisting 

of bonds and discount notes, are the 

principal funding source for the Banks. 

The Office of Finance issues all 

consolidated obligations on behalf of the 

twelve Banks.2 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 of, and interest 

on, all consolidated obligations. See 12 

CFR 966.9. 

C. Capital Requirements for the Banks 

The Bank Act defines the types of 

capital that the Banks must hold— 

specifically permanent and total 

capital—and establishes the Banks’ 

minimum leverage and risk-based 

capital requirements. The Bank Act 

defines ‘‘permanent capital’’ as the 

amounts paid for Class B stock by 

members plus the Bank’s retained 

earnings as determined in accordance 

with generally accepted accounting 

principles (GAAP), and defines ‘‘total 

capital’’ as permanent capital plus the 

amounts paid by members for Class A 

stock, any general allowances for losses 

held by a Bank under GAAP (but not 

any allowances or reserves held against 

specific assets or specific classes of 

assets) and any other amounts from 

sources available to absorb losses that 

are determined by regulation to be 

appropriate to include in total 

capital.3 See 12 U.S.C. 1426(a)(5). 

However, because the Banks have no 

general allowances for losses and no 

additional sources have been 

determined to be appropriate to include 

in total capital, a Bank’s total capital 

currently consists of its permanent 

capital plus the amounts, if any, paid by 

its members for Class A stock.4

The Bank Act provides that each Bank 

must hold total capital equal to at least 

5 percent of its total assets, provided 

that in determining compliance with 

this ratio, a Bank’s total capital shall be 

calculated by multiplying its permanent 

capital by 1.5 and adding to this product 

any other component of total capital. 

See 12 U.S.C. 1426(a)(2). See also 12 

CFR 932.2(b). The Bank Act also 

requires that when total capital is 

calculated without application of the 

multiplier of 1.5, a Bank’s total capital 

must equal at least 4 percent of its total 

assets.5 See 12 U.S.C. 1426(a)(2)(B). See 


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require a permanent, higher minimum capital level 

for the Banks. Id. 

6HERA amended the risk-based capital provision 

to provide the Director more flexibility to adopt 

new risk-based capital standards if desired. See 

§ 1110, Pub. L. No. 110–289, 122 Stat. 2675–76 

(amending 12 U.S.C. 1426(a)(3)). The current riskbased capital rules are contained at 12 CFR 932.4, 

932.5, & 932.6. 

7Once a Bank converts to the GLB Act capital 

structure and first complies with the capital 

requirements under Part 932 of the rules, it is no 

longer subject to § 966.3(a). See, 12 CFR 931.9(b). 

8 In effect, 80 percent of the face value of 

outstanding subordinated debt will be used to 

calculate compliance beginning June 13, 2012, 60 

percent beginning June 13, 2013, etc. The 

subordinate debt comes due June 13, 2016. The face 

value of the subordinated debt issued by Chicago 

Bank was $1 billion, all of which remains 

outstanding. 

also, 12 CFR 932.2(a). Each Bank also 

must fulfill a risk-based capital 

requirement under which it must hold 

sufficient permanent capital to meet its 

market, credit and operations risk, as 

measured under current 

regulations.6 See 12 U.S.C. 1426(a)(3) 

and 12 CFR 932.3. 

The above requirements apply to the 

eleven Banks that have converted to the 

GLB Act capital structure, but do not 

apply to the Chicago Bank. The Chicago 

Bank is currently subject to capital 

requirements set forth in a 2007 Cease 

& Desist Order, as amended (Order), and 

remains the only Bank subject to capital 

requirements under § 966.3(a) of the 

rules.7 See 12 CFR 966.3(a). Under the 

Order, the Chicago Bank must maintain 

a leverage ratio of the sum of the paidin value of its capital stock, plus 

retained earnings, plus the face value of 

includable, outstanding subordinated 

debt instruments to total assets of at 

least 4.5 percent, and an aggregate 

amount of at least $3,600,000 in 

outstanding capital stock and includable 

subordinate debt. The includable 

amount of subordinated debt used to 

determine compliance with these 

requirements is 100 percent of the face 

value of the outstanding debt for the five 

years beginning on June 13, 2006, the 

date the debt was issued; thereafter, the 

included amount of outstanding debt 

shall be reduced by 20 percentage 

points annually.8 The capital 

requirements under the Order, rather 

than those of § 966.3(a), currently are 

binding on the Chicago Bank. 

In addition, the Bank Act imposes 

certain restrictions on Banks should 

they fail to meet any applicable capital 

requirement. These restrictions are 

separate and distinct from any 

restrictions or requirements imposed by 

the PCA provisions that apply to the 

Banks under HERA. Under the Bank 

Act, the Banks are prohibited from 

redeeming or repurchasing any stock if 

after doing so the Bank would fail to 

meet any minimum capital requirement. 

See 12 U.S.C. 1426(f). The Bank Act also 

prohibits a Bank from making any 

distribution of retained earnings if 

following such distribution the Bank 

would fail to meet any capital 

requirement. See 12 U.S.C. 1426(h)(3). 

Finally, the Bank Act and regulatory 

provisions restrict Bank activity if the 

value of a Bank’s stock is impaired by 

losses, whether or not the Bank meets 

its regulatory capital requirements. 

Specifically, the Bank Act prohibits a 

Bank from redeeming or repurchasing 

stock without the written permission of 

the Director if the Bank is experiencing, 

or is likely to experience, losses that 

will result in charges against capital. 

See 12 U.S.C. 1426(f). Current 

regulations define the phrase ‘‘charges 

against capital’’ to mean losses that 

would cause a Bank’s total equity to fall 

below the par value of outstanding Bank 

stock on an other than temporary basis. 

See 12 CFR 930.1. Current regulations 

also prohibit a Bank from declaring or 

paying a dividend if the par value of the 

Bank’s stock is impaired or is projected 

to become impaired after payment of the 

dividend. See 12 CFR 917.9(b). 

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 interim 

final rule, 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 a revision to the interim 

final rule. 

III. The Interim Final Rule 

The interim final rule adds new 

subpart A of part 1229 to 12 CFR 

chapter XII, subchapter B. The new 

provision clarifies and provides details 

on how the FHFA intends to implement 

sections 1363 through 1369D of the 

Safety and Soundness Act, as these 

provisions have been amended and 

made applicable to the Banks by HERA. 

Where appropriate, the rule also 

incorporates and makes clear that 

restrictions on capital distributions 

established under the Bank Act and its 

implementing regulations apply to 

Banks that do not meet their capital 

requirements or have suffered from 

charges against their capital, in addition 

to any of the PCA restrictions applicable 

under the Safety and Soundness Act. 

See e.g., 12 U.S.C. 1426(f) and (h)(3); 12 

CFR 917.9(b). The provisions adopted 

under new subpart A of part 1229 apply 

only to the Banks. The capital 

classification and PCA provisions 

applicable to the Enterprises are 

contained at 12 CFR part 1777. 

Analysis of the Interim Final Rule 

Section 1229.1. Section 1229.1 sets 

forth definitions that will be applicable 

to subpart A of part 1229. Many of the 

terms are specific to the Banks. Most of 

these Bank-specific terms are defined 

with reference to the Bank Act or adopt 

definitions that are set forth in the Bank 

Act or that were previously adopted by 

the Finance Board in part 900 of its 

rules. 12 CFR part 900. Such terms 

include ‘‘class A stock,’’ ‘‘class B stock,’’ 

‘‘consolidated obligations,’’ ‘‘permanent 

capital’’ and ‘‘total capital.’’ As 

discussed below, the definition of ‘‘total 

capital,’’ however, has been expanded 

from the definition in the Bank Act to 

ensure that it applies to all Banks and 

not just those that have converted to the 

GLB Act capital structure. See n.10, 

infra. 

The definition for the term 

‘‘consolidated obligations’’ in § 1229.1 

has been altered slightly from the 

definition previously set forth in part 

900 of the Finance Board’s rules to 

reflect the fact the HERA amendment to 

section 11 of the Bank Act to remove 

authority from the Banks’ regulator to 

issue debt on behalf of the Banks and to 

authorize the Banks, themselves, 

through their agent, the Office of 

Finance, to issue debt that would be the 

joint and several liability of all the 

Banks. See § 1204, Public Law 110–289, 

122 Stat. 2785–86 (amending 12 U.S.C. 

1431(b) and (c)). Nevertheless, the new 

definition recognizes that some of the 

outstanding consolidated obligations 

may have been issued by the Finance 

Board on behalf of the Banks, and it is 

meant to encompass all outstanding 

obligations issued under section 11 

(either before or after its amendment by 

HERA) on which the Banks are jointly 

and severally liable, whether such 

obligations were issued by the Finance 

Board or jointly by the Banks. 

The section also provides a definition 

of ‘‘capital distribution’’ that applies 

only to the Banks. The Safety and 

Soundness Act defines ‘‘capital 


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9This aspect of the regulation only applies to the 

Chicago Bank and does not apply to any of the other 

Banks, all of which have converted to the GLB Act 

capital structure and made the transition to 

complying with the GLB Act’s capital requirements. 

See 12 CFR 931.9(b)(1). 

10Similarly, the definition of total capital in 

§ 1229.1 states that for a Bank that has not issued 

either Class A or Class B stock, total capital ‘‘will 

be the measure of capital used to determine 

compliance with its minimum capital 

requirement.’’ This wording applies only to the 

Chicago Bank and recognizes that the Chicago 

Bank’s regulatory total capital (used to meet its 

applicable leverage requirements) is defined by the 

current Order and by Finance Board resolution. See 

Fin. Brd. Res. No. 2006–06 (Apr. 18, 2006). 

11The term ‘‘tangible equity’’ is used in a PCA 

provision added by HERA restricting asset growth 

for undercapitalized regulated entities. The term 

‘‘regulated entity’’ is defined in HERA to mean any 

Enterprise or any Bank. See § 1002(a), Public Law 

No. 110–289, 122 Stat.2659 (adopting 12 U.S.C. 

4502(20)). Section 1229.6(a)(4) of this interim final 

rule implements the provision restricting asset 

growth for undercapitalized Banks. 

distribution’’ but only in terms of 

payments made by, or with respect to 

shares of, an Enterprise, so that the 

statutory definition would not apply to 

the Banks. See 12 U.S.C. 4502(2). 

Nevertheless, the definition of ‘‘capital 

distribution’’ adopted in § 1229.1 covers 

the same types of transactions covered 

by the statutory provision to the extent 

that such transactions are undertaken by 

the Banks. The definition also makes 

clear that the payment of dividends in 

the form of stock is considered a capital 

distribution for the Banks even though 

this type of transaction is specifically 

excluded from the statutory definition 

of ‘‘capital distribution’’ for the 

Enterprises. In this respect, the Bank 

Act and regulations applicable to the 

Banks prohibit a Bank from declaring or 

paying a dividend in any form if it does 

not comply with any of its capital 

requirements or would not do so after 

paying the dividend. See 12 U.S.C. 

1426(h)(3); 12 CFR 931.4(b). To assure 

that these restrictions are captured in 

the PCA provisions, capital 

distributions for a Bank are defined to 

include dividends paid in the form of 

stock. 

Section 1229.1 defines the ‘‘minimum 

capital requirement’’ with reference to 

section 6(a)(2) of the Bank Act (12 

U.S.C. 1426(a)(2)), which establishes the 

minimum leverage and total capital 

requirement for Banks that have 

converted to the stock structure required 

by the GLB Act, as such requirements 

may be modified by the Director. This 

is consistent with HERA which 

specifically defines these two 

requirements as the ‘‘minimum capital 

level’’ for the Banks and allows the 

Director to raise these requirements 

either permanently or temporarily. See 

n.5, supra. In addition, the definition 

adopted in § 1229.1 states that the 

minimum capital requirement shall 

include ‘‘any similar requirement [to 

those under section 6(a)(2) of the Bank 

Act] established for a Bank by 

regulation, order, written agreement or 

other action.’’ This wording captures the 

fact that the Chicago Bank has not yet 

converted to the GLB Act capital 

structure and is therefore not subject to 

the leverage requirements in section 

6(a)(2) of the Bank Act, although it is 

subject to leverage requirements under 

the Cease and Desist Order and 

applicable regulations. See 12 CFR 

966.3(a).9 The FHFA does not believe 

that HERA intended to exclude the 

Chicago Bank from PCA coverage just 

because it has not converted to the GLB 

Act capital structure, and thus has 

adopted a definition of ‘‘minimum 

capital requirement’’ that encompasses 

the leverage requirements applicable to 

Chicago.10 The wording also recognizes 

that the Director could subject any Bank 

to higher minimum leverage 

requirements through an enforcement 

action and will assure that such 

requirements will be considered a 

minimum capital requirement for PCA 

purposes. 

Section 1229.1 defines the phrase 

‘‘tangible equity’’ to mean ‘‘for a Bank, 

the paid-in value of its outstanding 

capital stock plus its retained earnings 

calculated in accordance with generally 

accepted accounting principles in the 

United States (GAAP) less the amount of 

any assets that would be intangible 

assets under GAAP.’’ HERA adds 

references to ‘‘tangible equity’’ in 

certain PCA provisions but does not 

otherwise define the term.11 See § 1143, 

Pub. L. No. 110–289, 122 Stat. 2732 

(amending 12 U.S.C. 4615). The 

definition adopted is based on that used 

by banking regulators, adjusted to reflect 

the capital structure of the Banks. Other 

regulators generally include as ‘‘tangible 

equity’’ retained earnings, all forms of 

non-redeemable stock such as common 

stock and perpetual preferred stock less 

amounts of non-tangible assets. See e.g., 

12 CFR 565.3(f) (Office of Thrift 

Supervision (OTS) definition). Tangible 

equity generally does not include debt 

instruments such as subordinated debt. 

The Banks, however, are only allowed 

to issue stock as defined in the Bank 

Act. The Bank Act specifically defines 

all Bank stock as redeemable, although 

the Bank Act also prohibits redemption 

of the stock if it is needed to maintain 

a Bank’s compliance with its risk-based 

and minimum capital requirements. See 

12 U.S.C. 1426. Given this statutorilyimposed capital structure, it does not 

seem reasonable to exclude redeemable 

stock from the definition of ‘‘tangible 

equity’’ for the Banks. Therefore, the 

definition of ‘‘tangible equity’’ in 

§ 1229.1 includes the paid-in value of 

stock and retained earnings less 

intangible assets. As with the definition 

adopted by other regulators, this 

definition does not include 

subordinated debt instruments in 

‘‘tangible equity.’’ 

Finally, as required by § 1141(a) of 

HERA, the FHFA establishes and 

defines the critical capital level for the 

Banks in this section. See § 1141(a), 

Public Law No. 110–289, 122, Stat. 2730 

(adopting 12 U.S.C. 4613(b)). The 

critical capital level for a Bank is 

established as 2 percent of its total 

assets. This threshold is addressed 

below as part of the discussion of the 

criteria for classifying a Bank as 

‘‘critically undercapitalized.’’ 

Section 1229.2. Section 1229.2 of the 

interim final rule generally implements 

the requirements of section 1364(d) of 

the Safety and Soundness Act, as that 

provision was amended and redesignated by § 1142 of HERA. As set 

forth in the statute, the interim final rule 

requires the Director to determine the 

capital classification of each Bank no 

less often than once every quarter. The 

rule makes clear, however, that the 

Director may make such a determination 

more often than once a quarter and that 

the Director can make a determination 

at any time for one or more Banks 

without making a determination for all 

Banks. The rule also requires that the 

quarterly determination be made in 

accordance with the procedural 

requirements set forth in § 1229.12 of 

the rule, a provision which implements 

§ 1368 of the Safety and Soundness Act. 

12 U.S.C. 4618. The rule also requires a 

Bank to provide written notification to 

the FHFA within ten calendar days of 

any event that causes its permanent or 

total capital to fall below the level 

necessary to maintain the capital 

classification provided in the most 

recent notice from, or determination by, 

the Director. For purposes of this 

requirement, a notice would include 

one provided to the Bank under 

§ 1229.12(a) of this interim final rule. 

This requirement is similar to those 

currently imposed on the Enterprises, 

and the FHFA finds no reasons that the 

Banks should be treated differently in 

this respect. See 12 CFR 1777.21(b). 

Section 1229.3. Section 1229.3 sets 

forth the criteria for classifying the 

Banks as adequately capitalized, 

undercapitalized, significantly 

undercapitalized and critically 

undercapitalized, as required by § 1142 

of HERA. § 1142 Public Law No. 110– 

289, 122 Stat. 2730–31 (amending 12 


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12The Chicago Bank is not yet subject to the riskbased capital provisions under section 6(a)(3) of the 

Bank Act. Further, there are no (and have not been) 

statutory or regulatory risk-based capital 

requirements applicable to a Bank that has not 

converted to the GLB Act capital structure. Thus, 

until the Chicago Bank completes its transition to 

the GLB Act capital structure, it will not have to 

meet the risk-based requirement for purposes of the 

capital classification—unless further regulatory or 

supervisory action result in the adoption of a riskbased capital requirement for it. 

13Under both the Safety and Soundness Act and 

applicable regulations, an Enterprise would be 

critically undercapitalized if its core capital were 

less than the critical capital level. The term ‘‘core 

capital,’’ however, is not defined or used in the 

Bank Act or any regulation applicable to the Banks. 

An Enterprise’s core capital is similar to total 

capital for a Bank in that each is used to meet a 

leverage type requirement. On the other hand, the 

Bank Act specifically requires that the Bank’s 

permanent capital be used to meet its risk-based 

capital requirements while an Enterprise’s total 

capital is used to meet its risk-based capital 

requirements. Thus, whenever comparisons need to 

be made between the types of capital held by the 

Banks and the core capital and total capital of the 

Enterprises or provisions in HERA implemented by 

this interim final rule refer to core capital and total 

capital of a regulated entity, these terms generally 

have been interpreted as or compared to, 

respectively, a Bank’s total capital and permanent 

capital. 

U.S.C. 4614). As required by HERA, 

these categories are defined in terms of 

the risk-based and minimum capital 

requirements established for the Banks 

under the Bank Act and other applicable 

law, after taking due consideration of 

the classifications established for the 

Enterprises. Id. The rule also makes 

clear that the criteria are only applicable 

to the extent that the Director has not 

exercised authority to reclassify the 

Bank based on factors other than the 

capital levels of the Bank, such as that 

provided in § 1142 of HERA and 

implemented in § 1229.4 of this rule. 

See § 1142 Public Law No. 110–289, 122 

Stat. 2730–31 (adopting 12 U.S.C. 

4614(c)). 

Under the rule, a Bank will be 

adequately capitalized only if it holds 

sufficient capital to meet both its riskbased and minimum capital 

requirements.12 This is consistent with 

the provision in HERA that the Banks’ 

capital classifications be based on the 

amount and types of capital held by the 

Banks and the risk-based and minimum 

capital requirements for the Banks. It is 

also consistent with the general 

approach under existing Bank Act 

provisions that a Bank must remain in 

compliance with all its capital 

requirements, and that a Bank itself 

becomes subject to restrictions, similar 

to those under the PCA provisions of 

HERA, when it is not in compliance 

with any one of its capital requirements. 

See 12 U.S.C. 1426(c)(1)(D), (f)(1) and 

(h)(3). 

The rule states that a Bank will be 

undercapitalized if it fails to meet any 

one of its minimum or risk-based capital 

requirements. This approach is slightly 

different from that established for the 

Enterprises under the Safety and 

Soundness Act, which provides that an 

Enterprise is undercapitalized only if it 

does not meet its total capital 

requirement. See 12 U.S.C. 4614(a)(2). 

As previously noted, the Bank Act 

already imposes restrictions on a Bank’s 

activity when a Bank fails to comply 

with either the risk-based or minimum 

capital requirement that are similar to 

those imposed on undercapitalized 

Banks under these PCA provisions. 

Thus, it would appear reasonable to 

define an undercapitalized Bank by 

references to both risk-based and 

minimum capital requirements and 

conform the approach in this regulation 

to that generally mandated by the Bank 

Act. 

The rule establishes the threshold at 

which the Bank would become 

significantly undercapitalized at 75 

percent of the capital levels needed for 

the Bank to meet either its risk-based or 

minimum capital requirements. This 

threshold is reasonable given that the 

Banks have the obligation to adjust the 

amount of capital stock members are 

required to buy when they face a capital 

shortfall; a case where a Bank was 

facing a greater-than-25 percent shortfall 

in capital would suggest the Bank was 

having problems raising capital or was 

beginning to show serious structural or 

financial difficulties. The greater 

number of supervisory options available 

under the PCA provision with regard to 

significantly undercapitalized Banks 

would appear valuable in this case. At 

the same time, the threshold is still high 

enough that in most circumstances the 

Bank would have capital sufficient to 

operate safely, especially in light of the 

additional restrictions and safeguards 

that may be imposed under the PCA 

provisions, while action is taken to try 

to correct its capital problems. This 

threshold is also similar to how other 

banking regulators define the 

significantly undercapitalized category 

in their regulations. See, e.g., 12 CFR 

565.4(b)(4) (OTS regulation). 

Finally, a Bank would be critically 

undercapitalized whenever its total 

capital is 2 percent or less of its total 

assets. The threshold equals one-half of 

the 4 percent minimum total capital 

requirement established for the Banks 

under § 6(a)(2)(B) of the Bank Act. This 

approach is broadly similar to that 

defining critical capital for the 

Enterprises under the Safety and 

Soundness Act, although the approach 

adopted in this rule recognizes that the 

Banks do not issue or guarantee 

mortgage-backed securities or hold 

significant off-balance-sheet items; no 

charges are added for these items. See 

12 U.S.C. 4613(a) and 4614(a)(4); 12 

CFR 1777.20(a)(4).13 The FHFA also 

believes the two percent of total asset 

threshold is appropriate for the Banks. 

If a Bank’s total capital reached this low 

level, it would indicate that the Bank 

was having serious problems raising 

additional capital from members either 

because a significant portion of the 

membership were no longer interested 

in, or were not in a financial condition 

to be capable of, doing business with the 

Bank or were no longer willing or able 

to buy capital stock to support that 

business. Such a situation, no matter 

what the cause, would suggest either 

that the Bank’s cooperative business 

model was not working or that members 

were not capable of capitalizing a Bank 

and justify the intervention by the 

FHFA under the PCA provisions 

applicable to a critically 

undercapitalized regulated entity or 

other similar situations. The threshold 

adopted in this rule is similar to the 

critically undercapitalized category in 

the banking regulations. See, e.g., 12 

CFR 565.4(b)(5) (OTS regulation). 

Section 1229.4. Section 1229.4 

implements the authority provided in 

§ 1142(a)(4) of HERA, allowing the 

Director discretionary authority to 

reclassify a Bank’s capital classification 

for reasons other than the amount of 

capital held by a Bank, such as those 

related to the condition of the Bank or 

the quality of the assets or collateral 

held by a Bank. See § 1142 Public Law 

No. 110–289, 122 Stat. 2730–31 

(adopting 12 U.S.C. 4614(c)). 

This section of the interim final rule 

closely adheres to the text of the 

statutory provision. The grounds for 

reclassifying a Bank are set forth in 

§ 1229.4(b) of the interim final rule. 

Under this provision the Director can 

reclassify the Bank upon a written 

determination that the Bank is engaging 

in conduct that could result in a rapid 

depletion of its capital, or that the value 

of collateral pledged to the Bank or the 

value of property subject to mortgages 

owned by the Bank has decreased 

significantly. The Director can also 

reclassify a Bank if the Director 

determines the Bank is in an unsafe and 

unsound condition. Before making this 

determination, however, the rule states 

that the Director will provide the Bank 

with notice and an opportunity for an 

informal hearing before the Director 

during which the Bank can present 

information or testimony about its 


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14Each month, each Bank reports its daily average 

total assets held during that month. These reported 

figures are then used to calculate a quarterly 

average. 

15Similarly, § 1143 of HERA allows the Director 

to exempt an undercapitalized Bank from the 

prohibition on its engaging in new business 

activities or acquiring other entities if among other 

conditions, the Director determines the ‘‘proposed 

action will further purposes of this subtitle [C]’’ and 

provides that the Director shall monitor the 

restrictions and requirement imposed on an 

undercapitalized Bank to determine whether they 

are achieving ‘‘the purposes of this section [1143].’’ 

These statutory provisions are implemented by 

§ 1229.6(a)(5)(ii) and § 1229.6(c) of the interim final 

rule respectively. The wording employed for these 

two regulatory provisions reflects the FHFA’s view 

that the purposes of the PCA provisions are to help 

to assure that a Bank will operate in a safe and 

sound fashion, for both its own benefit and the 

benefit of its members and the financial system, and 

return within a reasonable period of time to 

compliance with its risk-based and minimum 

capital requirements. 

condition. The process contemplated is 

based on and similar to that used by 

other banking regulators before 

reclassifying regulated banks on similar 

grounds. See 12 CFR 308.202(a), 

325.103(d) (Federal Deposit Insurance 

Corporation regulations); 12 CFR 565.8 

(OTS regulations). Finally, the Director 

can reclassify a Bank if the Director has 

found, in accordance with § 1371(b) of 

the Safety and Soundness Act, that the 

Bank is engaging in an unsafe and 

unsound practice because the Bank’s 

asset quality, management, earnings or 

liquidity were found to be less than 

satisfactory during the most recent 

examination and any deficiency has not 

been corrected. 

As required by statute, § 1229.4(c) of 

the interim final rules provides that the 

capital reclassification of a Bank is 

subject to the notice and procedural 

requirements under § 1368 of the Safety 

and Soundness Act, as that provision is 

implemented by § 1229.12 of this rule. 

Section 1229.4(d) makes clear that any 

condition, action or inaction by a Bank 

that results in a reclassification of a 

Bank under this section can be the basis 

for a subsequent reclassification action, 

as long as the Bank has not rectified the 

original problem or condition. Finally, 

§ 1229.4(e) states that nothing in 

§ 1229.4 will prevent the Director from 

exercising any other authority available 

under the Bank Act, the Safety and 

Soundness Act or any other regulation 

to reclassify a Bank or take any other 

action against a Bank. 

Section 1229.5. Section 1229.5 of the 

interim final rule implements the 

provision added by § 1142(a)(5) of 

HERA addressing capital distributions 

by adequately capitalized regulated 

entities. See id. (adopting 12 U.S.C. 

4614(e)). The provision prohibits an 

adequately capitalized Bank from 

making a capital distribution if, after 

doing so, the Bank would be 

undercapitalized. The provision also 

makes clear that an adequately 

capitalized Bank cannot make any 

capital distribution if it would violate 

any restriction in section 6 of the Bank 

Act or any other applicable regulation. 

Section 1142(a)(5) of HERA allows the 

Director to grant an exception to the 

new restriction on capital distributions 

and permit a regulated entity to redeem, 

repurchase or retire stock if such 

transaction is in connection with the 

issuance of additional shares or 

obligations in an equivalent amount to 

those shares retired, will reduce the 

regulated entity’s financial obligations 

or otherwise improve its financial 

conditions. Section 1229.5(b) of the 

interim final rule implements this 

exception as applied to the Banks, but 

makes clear that any transaction 

permitted under this exception must be 

consistent with and not violate any 

restriction in the Bank Act or other 

regulation that prohibits redemption or 

repurchase of Bank stock. 

Section 1229.6 and Section 1229.7. 

Sections 1229.6 and 1229.7 of the 

interim final rule implement § 1365 of 

the Safety and Soundness Act as 

amended by HERA, which sets forth the 

mandatory and discretionary actions 

applicable to a Bank classified as 

undercapitalized. See 12 U.S.C. 4615, as 

amended by § 1143, Public Law No. 

110–289, 122 Stat. 2732–33. Section 

1229.6(a) sets forth the mandatory 

actions that a Bank must take and the 

restrictions that are applied to a Bank 

once it is deemed to be 

undercapitalized. These provisions 

closely follow the wording in the 

statute. The regulation requires an 

undercapitalized Bank to submit a 

capital restoration plan that meets with 

the approval of the Director within the 

timeframe required under § 1229.11 of 

this regulation, and carry out all 

commitments made in that plan. The 

regulation also restricts an 

undercapitalized Bank’s quarterly asset 

growth and its ability to engage in any 

new business activity or acquire any 

entity. The rule clarifies that for 

purposes of the restriction on asset 

growth, the calculation of a Bank’s 

average total assets for a quarter will be 

based on the daily total assets held by 

the Bank in the quarter.14 As required 

under the statute, § 1229.6(a) also 

prohibits an undercapitalized Bank from 

making any capital distribution that 

would cause it to become significantly 

or critically undercapitalized, but the 

regulation also makes clear that the 

undercapitalized Bank cannot make any 

capital distribution that would violate 

any additional restrictions in the Bank 

Act or other regulations related to the 

payment of dividends or the repurchase 

or redemption of stock. 

Section 1229.6(b) implements the 

changes made by § 1143 of HERA which 

require the Director to reclassify an 

undercapitalized Bank as significantly 

undercapitalized if the Bank fails to 

submit a capital restoration plan which 

the Director can approve within the 

time limits established under the 

interim final rule or fails to implement 

any approved capital restoration plan in 

any material respect. Finally, § 1229.6(c) 

implements the statutory requirements 

that the Director monitor the 

undercapitalized Bank’s condition and 

its compliance with the requirements 

and obligations imposed on it under the 

PCA provisions. 

Section 1229.7 implements the 

provision in § 1143 of HERA which 

allows the Director the discretion to take 

any action with respect to an 

undercapitalized Bank which the 

Director may take pursuant to § 1366 of 

the Safety and Soundness Act against a 

significantly undercapitalized Bank, ‘‘if 

the Director determines that such 

actions are necessary to carry out the 

purpose of this subtitle [C].’’ § 1143(6), 

Public Law No. 110–289, 122 Stat. 2733 

(amending 12 U.S.C. 4615(c)). The 

wording of § 1229.7 reflects the FHFA’s 

belief that the purposes of the PCA 

provisions contained in subtitle C of 

HERA are to assure the safe and sound 

operations of a Bank, for both its own 

benefit and the benefit of its members 

and the financial system, and its 

compliance with its risk-based and 

minimum capital requirements within a 

reasonable period of time.15 This 

provision of the rule also makes clear 

that, as required by § 1368 of the Safety 

and Soundness Act, the Director will 

provide notice to an undercapitalized 

Bank about any potential discretionary 

action under § 1299.7 and allow the 

Bank the opportunity, as set forth in 

§ 1229.12(c) of this interim final rule, to 

provide information relevant to the 

proposed action before the Director 

makes a final determination. 

Section 1229.8 and Section 1229.9. 

Sections 1229.8 and 1229.9 implement 

§ 1366 of the Safety and Soundness Act 

as amended by HERA, which sets forth 

the mandatory and discretionary actions 

applicable to a Bank classified as 

significantly undercapitalized. See 12 

U.S.C. 4616, as amended by § 1144, 

Public Law No. 110–289, 122 Stat. 

2733–34. Section 1229.8 sets forth the 

mandatory actions and restrictions on 

activities that will apply to a Bank 

found to be significantly 


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16While the HERA provision also excludes stock 

options from the calculation of average 

compensation, the Banks do not provide stock 

options to their executive officers; nor can the 

Banks provide such options to officers as the Bank 

Act only allows member institutions to purchase 

Bank stock and prevents individuals from buying 

Bank stock. Thus, the interim final rule does not 

need to exclude stock options from the calculation 

of compensation for executive officers of a Bank. 

undercapitalized, while § 1229.9 sets 

forth discretionary actions that the 

Director may take with regard to any 

significantly undercapitalized Bank. 

Sections 1229.8(a) and (b) of the 

interim final rule require a significantly 

undercapitalized Bank to submit a 

capital restoration plan consistent with 

the requirements of § 1229.11 of this 

rule, receive the Director’s approval for 

this plan, and fulfill all terms, 

conditions, and obligations contained in 

the approved plan. Sections 1229.8(c) 

and (d) implement restrictions on the 

capital distributions that a significantly 

undercapitalized Bank may make. 

Specifically, § 1229.8(c) prohibits a 

significantly undercapitalized Bank 

from making any capital distribution if 

the distribution would result in the 

Bank becoming critically 

undercapitalized or would otherwise 

violate restrictions on the declaration or 

payment of a dividend or the repurchase 

or redemption of stock set forth in 

section 6 of the Bank Act or any other 

applicable regulation. To the extent that 

a capital distribution is not already 

prohibited by § 1229.8(c), § 1229.8(d) 

provides that the Bank can make the 

distribution only with the prior 

approval of the Director. The Director 

may provide such approval only upon a 

determination that the capital 

distribution will enhance the ability of 

the Bank to meet its capital 

requirements promptly, contribute to 

the long-term financial safety and 

soundness of the Bank or otherwise be 

in the public interest. 

Finally, § 1229.8(e) and § 1229.8(f) of 

the interim final rule establish limits on 

the bonuses and compensation that a 

significantly undercapitalized Bank may 

pay to any executive officer. 

Section1229.8(e) prohibits a 

significantly undercapitalized Bank 

from paying any bonus to an executive 

officer without the prior written 

approval of the Director. For purposes of 

this provision, a bonus includes any 

amounts paid or accruing to the 

executive officer under any profit 

sharing arrangement established by the 

Bank. Section 1229.8(f) prohibits a 

significantly undercapitalized Bank 

from paying an executive officer at a 

rate of compensation that is higher than 

the average rate paid to that officer 

during the twelve month period 

immediately prior to the month the 

Bank became significantly 

undercapitalized, without first receiving 

the prior written approval from the 

Director. As set forth in HERA, the rule 

states that the average rate of 

compensation does not include bonuses 

or profit sharing paid or accruing to the 

officer during the twelve month 

period.16 A definition for ‘‘executive 

officer’’ is provided in § 1229.1 of the 

interim final rule. 

Section 1229.9 of the interim final 

rules sets forth the discretionary actions 

the Director may take with regard to a 

significantly undercapitalized Bank. 

Section 1229.9(a) provides that the 

Director shall carry out this section by 

taking any one or more of the listed 

action with regard to a significantly 

undercapitalized Bank. These actions 

can include requiring the Bank to 

reduce, or limit the growth of any 

obligation, class of obligation, asset or 

class of assets held by the Bank. The 

Director also can require a Bank to 

acquire new capital in such form and 

amount determined by the Director, 

which can include requiring the Bank to 

increase its retained earnings by specific 

amounts. The Director can also require 

a significantly undercapitalized Bank to 

modify, limit or terminate any activity 

that the Director determines creates 

excessive risk to the Bank. 

Section 1229.9(a) also allows the 

Director to take actions to improve the 

management and corporate governance 

of a significantly undercapitalized Bank. 

Under this provision the Director may 

take any or all of the following actions: 

ordering the Bank to hold new elections 

for its board of directors under such 

procedures established by the Director 

at the time of the order, ordering the 

Bank to dismiss particular directors or 

executive officers, and/or ordering the 

Bank to hire qualified executive officers. 

As set forth in § 1144 of HERA, 

§ 1229.9(a)(7) provides that the removal 

of a director or executive officer under 

this provision is separate and distinct 

from a removal action under § 1377 of 

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

4636a) and shall not be subject to any 

procedural requirements adopted to 

implement § 1377. As with other 

discretionary actions taken under 

§ 1229.9, however, removal of a director 

or executive officer under § 1229.9(a)(7) 

would be subject to the notice and 

procedural requirements applicable to 

supervisory actions set forth in 

§ 1229.12. This section also makes clear 

that the Director may require the 

significantly undercapitalized Bank to 

get the Director’s approval before hiring 

any new executive officer, whenever the 

Director has ordered the Bank to hire 

qualified executive officers. 

Finally, section 1229.9(a) provides 

that the Director, in his or her 

discretion, may reclassify a significantly 

undercapitalized Bank as critically 

undercapitalized if a Bank fails to 

submit a capital restoration plan within 

the time frame required by regulation, to 

receive the Director’s approval of such 

plan or to carry out any obligation under 

an approved plan. The provision makes 

clear that the Director may assert the 

stated grounds as a basis for 

reclassification to the critically 

undercapitalized category even if the 

same grounds previously formed the 

basis for reclassification of the Bank 

from undercapitalized to significantly 

undercapitalized, if the Bank has not 

acted to rectify the original problem. 

Section 1229.9(b) provides that the 

Director may take actions not 

specifically listed elsewhere in § 1229.9, 

if the Director determines that such 

action will better help ensure the safe 

and sound operation of a significantly 

undercapitalized Bank and the Bank’s 

prompt compliance with its minimum 

and risk-based capital requirements. 

This provision implements the part of 

§ 1144 of HERA which allows the 

Director to require a significantly 

undercapitalized Bank ‘‘to take any 

other action that the Director determines 

will better carry out the purpose of this 

section [1144].’’ Id. (adopting 12 U.S.C. 

4616(b)(7)). The wording adopted in 

§ 1229.9(b) reflects the FHFA’s belief, as 

noted above, that the purposes of the 

PCA provisions are to help ensure the 

safe and sound operations of the Banks 

and a Bank’s prompt compliance with 

its required capital levels, and thus, 

§ 1229.9(b) uses references to such goals 

to implement the quoted language of 

HERA. 

Section 1229.10. Section 1229.10 of 

the interim final rule implements 

various provisions of § 1145 of HERA 

which relate to critically 

undercapitalized Banks. See § 1145(a), 

Public Law No. 110–289, 122 Stat. 

2734–36 (amending 12 U.S.C. 4617). 

Under § 1229.10(a) of this rule, the 

Director is authorized to appoint the 

FHFA as conservator or receiver as soon 

as final action is taken to classify or 

reclassify a Bank as critically 

undercapitalized. 

Section 1229.10(b)(1) of this rule 

requires the Director to make a 

determination at least once every 30 

calendar days, beginning on the date a 

final determination is first made that a 

Bank is critically undercapitalized, as to 

whether the Bank’s assets during the 

previous 60 calendar day period were 

less than the Bank’s obligations, or the 


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Bank is not currently, or had not been 

during the previous 60 calendar day 

period, paying its debts as such debts 

became due. For purposes of this 

determination, the rule clarifies that a 

Bank’s obligations include only that 

portion of outstanding consolidated 

obligations for which the Bank is 

primary obligor or for which the Bank 

has been ordered to make payments of 

principal or interest by the Director or 

for which the Bank is actually making 

such payments on behalf of another 

Bank. Similarly, a Bank’s debts do not 

include any unpaid amounts that are 

subject of a bona fide dispute. 

If the Director determines that a 

critically undercapitalized Bank’s 

obligations are greater than its assets or 

the Bank has not been paying its debts, 

§ 1229.10(b)(2) requires the Director 

immediately to appoint the FHFA as 

receiver for the Bank. The appointment 

of the FHFA as receiver under 

§ 1229.10(b)(2) terminates any 

conservatorship established for the Bank 

and ends the requirement for future 

determinations by the Director under 

§ 1229.10(b)(1) for the pendency of the 

receivership. 

Section 1229.10(c) of the interim final 

rule provides that a Bank may seek 

judicial review of an action under 

§ 1229.10(a) or § 1229.10(b)(2) to 

appoint the FHFA as conservator or 

receiver, as allowed under HERA. See 

§ 1145(a), Public Law No. 110–289, 122 

Stat. 2736 (adopting 12 U.S.C. 

4617(a)(5)). Finally, § 1229.10(d) of the 

interim final rule makes clear that until 

the FHFA is appointed conservator or 

receiver of a critically undercapitalized 

Bank, the Bank is subject to all 

mandatory restrictions and obligations 

applicable to significantly 

undercapitalized Banks under the PCA 

provisions, any restrictions or 

obligations previously placed on the 

Bank by the Director under the PCA 

authority, or any restrictions or 

obligations imposed on the Bank by an 

approved capital restoration plan. 

Section 1229.11. Section 1229.11 of 

the interim final rule implements 

§ 1369C of the Safety and Soundness 

Act, as that provision is made 

applicable to the Banks by HERA, which 

sets forth the requirements for capital 

restoration plans that are required by 

various provisions of this interim final 

rule. See 12 U.S.C. 4622 (as amended by 

§ 1145(b)(2), Public Law No. 110–289, 

122 Stat. 2767). Section 1229.11(a) 

describes the minimum information that 

must be contained in each capital 

restoration plan. This information 

includes a description of any changes to 

members’ stock purchase requirements 

that a Bank intends to make to raise 

capital. As already noted, the Bank Act 

specifically requires each Bank’s board 

of directors to monitor the Bank’s 

capital levels and adjust its member’s 

stock purchase requirements to assure a 

Bank maintains compliance with all 

capital requirements. Given that a 

change in members’ stock purchase 

requirements will be a major method for 

a Bank to raise capital, it is reasonable 

for the Bank to explain how it will 

adjust these requirements as part of its 

capital restoration plan. 

Section 1229.11(b) of the interim final 

rule establishes that a Bank must submit 

a capital restoration plan within ten 

calendar days after the Bank learns that 

it is required to submit such a plan, but 

allows the Director to extend the 

deadline in writing if needed. The 

FHFA will consider that a Bank knows 

that it must submit a capital restoration 

plan if the Bank receives final 

notification that its capital classification 

is undercapitalized, significantly 

undercapitalized or critically 

undercapitalized, given that submission 

of a plan is mandatory in these 

situations, or if the Director otherwise 

informs the Bank that it must submit 

such a plan. While the Safety and 

Soundness Act provides that the 

Director may establish a deadline for 

submission of a capital restoration plan 

of no more than 45 days, it also allows 

the Director to establish a shorter 

deadline. The ten day period 

established in § 1229.11(b) appears 

reasonable given the need for a Bank to 

act promptly to restore its capital levels 

and the possibility that the Director can 

extend the deadline if needed. Ten 

calendar days for submission of a plan 

is also consistent with the deadline 

established for the Enterprises under 

current regulations, and the FHFA sees 

no reason why the Banks and the 

Enterprises should be treated differently 

with regard to this requirement. See 12 

CFR 1777.23(a). 

Section 1229.11(c) and (d) sets forth 

the requirements and deadlines for the 

Director’s review of a capital restoration 

plan submitted by a Bank and for the 

Bank’s submission of a new plan should 

the Director not approve the original 

submission. These provisions closely 

follow the requirements set forth in the 

Safety and Soundness Act. See 12 

U.S.C. 4622(c) and (d). Section 

1229.11(e) provides that the Director 

may approve amendments to a 

previously approved capital restoration 

plan if, after consideration of changes in 

market conditions or other relevant 

factors, the Director determines that the 

amendments are consistent with the 

Bank’s achieving an adequately 

capitalized classification in a reasonable 

period of time and operating in a safe 

and sound manner. 

Section 1229.11(f) of the interim final 

rule makes clear that a Bank is obligated 

to implement and fulfill all provisions 

of an approved capital restoration plan, 

and remains obligated under the 

provisions of an approved capital 

restoration plan until such provision is 

terminated as may be specifically stated 

in the plan or is otherwise amended or 

terminated in writing by the Director. 

Finally, § 1229.11(g) implements 

provisions added to the Safety and 

Soundness Act by § 1145 of HERA 

which provide that the Director may 

appoint the FHFA as conservator or 

receiver of a Bank if the Bank fails to 

submit an acceptable capital restoration 

plan within the time frame established 

under the regulations or materially fails 

to implement any provision or fulfill 

any obligation arising under an 

approved capital restoration plan. See 

§ 1145(a), Public Law No. 110–289, 122 

Stat. 2735 (adopting 12 U.S.C. 

4617(a)(3)(J)(iii) and (iv)). 

Section 1229.12. Section 1229.12 of 

the interim final rule implements the 

provisions of § 1368 of the Safety and 

Soundness Act as these provisions are 

made applicable to the Banks by HERA. 

See 12 U.S.C. 4618 (as amended by 

§ 1145(b)(1), Public Law No. 110–289, 

122 Stat. 2767). Section 1368 of the 

Safety and Soundness Act requires the 

Director to provide a Bank notice before 

finalizing any decision to classify or 

reclassify a Bank within a particular 

capital classification under § 1364 of the 

Safety and Soundness Act or before 

taking any discretionary action pursuant 

to the PCA authority set forth in §§ 1365 

or 1366 of the Safety and Soundness Act 

and allow the Bank an opportunity to 

submit information that would be 

relevant to the final decision. The cited 

statutory provisions with regard to 

capital classification or reclassification 

and discretionary PCA authority are 

implemented by §§ 1229.2, 1229.4, 

1229.7 and 1229.9 of this interim final 

rule. 

Section 1229.12 adheres to the time 

frames and requirements set forth in the 

statute. It provides that a notice to 

classify or reclassify a Bank within a 

particular capital classification may be 

combined with the notice to require a 

Bank to take a particular action or 

adhere to a particular restriction under 

the Director’s discretionary PCA 

authority. Additionally, the Director 

may combine a notice that the Bank has 

been classified in one capital 

classification category based on the 

amount of capital held or other factors 

with a simultaneous determination to 

reclassify the Bank to the next lower 


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17 If the economic value of a Bank’s equity base, 

defined as the market value of equity (MVE), falls 

below the par value of the Bank’s capital stock 

(PVCS), then any redemptions or repurchases at par 

value will dilute the economic value of the 

remaining shares, causing a Bank’s ratio of MVE/ 

PVCS to decline further. Moreover, should the MVE 

per share of a Bank’s stock fall significantly below 

its par value, members may decide not to purchase 

additional shares in the Bank. In the extreme, 

members may exit the System. 18The exception is a Bank that has experienced 

a charge against capital so that the par value of its 

stock is impaired. In this situation, the Bank Act 

and existing regulations would prohibit the Bank 

from redeeming or repurchasing any stock without 

the permission of the Director or from declaring or 

paying a dividend, even if the Bank is otherwise 

adequately capitalized. See 12 U.S.C. 1426(f); 12 

CFR 917.9(b). 

category. The rule allows a Bank thirty 

calendar days from the date the Bank is 

provided initial notice of the proposed 

action to provide information to the 

Director that may be relevant to such 

action. It also provides that the Director 

may make a final determination with 

regard to the proposed action at the end 

of the comment period or after receipt 

of the information provided by the 

Bank, whichever is earlier. The 

provision requires the Director to 

provide written notice to the Bank of 

final decisions and the reasons for 

making such decisions. Consistent with 

section 1369D of the Safety and 

Soundness Act (12 U.S.C. 4623), the 

regulation also provides that any Bank 

that is not classified as critically 

undercapitalized may seek judicial 

review of a final action taken under 

§§ 1229.2, 1229.4, 1229.7 and 1229.9 of 

this interim final rule, in accordance 

with the procedures and requirements 

set forth in that statutory provision. The 

rule also provides that any final 

decision that a Bank take action, refrain 

from action or comply with any other 

requirement that was the subject of a 

notice issued under this section shall 

constitute an final order under the 

Safety and Soundness Act and can be 

enforced by the Director by application 

to the relevant United States district 

court or be the subject of an 

administrative enforcement action. 

Issue for Further Consideration and 

Comment 

The interim final rule adopts criteria 

defining the four capital classification 

categories specifically identified in, and 

made applicable to the Banks by, HERA. 

FHFA requests comments on all aspects 

of the interim final rule, including these 

criteria. In addition, the FHFA is 

requesting comments on whether 

adopting a fifth capital classification 

category of ‘‘well-capitalized’’ would be 

a useful and appropriate way to 

encourage Banks to hold more than the 

minimum amounts of capital. Adopting 

a well-capitalized category would be 

similar to the approach used by banking 

regulators. See, e.g., 12 CFR 103(b) 

(capital categories for FDIC PCA rule). 

The criteria for a well-capitalized 

category could be specified as a 

percentage of a Bank’s minimum 

leverage and risk-based capital 

requirements, such as 110 percent of 

these requirements, and/or incorporate 

specific retained earnings or market 

value of equity/par value of capital 

stock (MVE/PVCS) targets. 

The FHFA believes that introducing a 

retained earnings target or an MVE/ 

PVCS target into such a regulation, or as 

a separate capital regulation, may be 

especially helpful in encouraging the 

Banks to maintain levels of retained 

earnings that would help prevent 

impairment of the par value of their 

stock. Impairment of the par value of a 

Bank’s stock could have consequences 

for the members’ willingness to 

continue to buy capital and do business 

with the Bank and for the Bank’s ability 

to raise funds. Thus, defining criteria 

that would provide incentives to protect 

the par value of the stock would be an 

important consideration for the FHFA if 

it were to adopt a well-capitalized 

category or a separate retained earnings 

regulation.17

The FHFA recognizes that the market 

incentive for an individual Bank to 

achieve and maintain a well-capitalized 

classification may be mitigated by the 

fact that the Banks generally fund 

themselves through issuance of 

consolidated obligations. Because this 

debt is the joint and several obligation 

of the Banks collectively and is not 

marketed in the name of an individual 

Bank, a well-capitalized Bank may not 

fully capture the funding advantage that 

could be associated with achieving this 

classification. Nevertheless, having a 

well-capitalized rating may provide 

advantages to the Bank in its dealings 

with counterparties and perhaps in 

other transactions in which the Bank 

engages in its own name. 

Additional incentives for a Bank to 

become well-capitalized could be 

created by restricting certain activities 

of Banks that have not achieved a wellcapitalized rating. Such restrictions 

could include limiting new business 

activities, preventing the Bank from 

repurchasing a member’s excess stock 

prior to the end of the statutory 

redemption period, or placing some 

restrictions on the payment of 

dividends. While neither the PCA 

provisions in the Safety and Soundness 

Act as amended by HERA, nor the Bank 

Act contains these types of restrictions 

on Banks that otherwise meet their 

capital requirements,18 the FHFA could 

adopt such restrictions pursuant to its 

general supervisory authority, especially 

its authority to oversee the prudential 

operations of the Banks, ensure that the 

Banks operate in a safe and sound 

manner and ensure that the manner in 

which the Banks operate is in the public 

interest. See § 1102, Public Law No. 

110–289, 122 Stat. 2663–64 (amending 

12 U.S.C. 4513). Similarly, the FHFA 

considers this authority to provide a 

basis for adopting a well-capitalized 

classification as part of the capital 

classification/PCA rules even though 

such category is not specifically 

identified in the Safety and Soundness 

Act as amended by HERA. 

While the FHFA has not adopted a 

well-capitalized category as part of this 

interim final rule, it is specifically 

seeking comments on all aspects of 

introducing such a category into the 

regulation. It is especially interested in 

comments on: 

1. Would a well-capitalized 

classification category provide 

incentives to the Banks to hold more 

than the minimum amounts of capital 

and increase retained earnings as a 

percentage of capital? 

2. What criteria may be appropriate to 

define such a category? 

3. Would a MVE/PVCS or a retained 

earnings target be appropriate in 

defining a well-capitalized category, and 

if so, what should the targets be? 

4. What restrictions on adequately 

capitalized Banks may be appropriate to 

create an incentive to Banks to achieve 

and maintain a well-capitalized rating? 

5. Alternatively, should the FHFA 

adopt a MVE/PVCS and/or retained 

earnings requirement as a separate riskbased capital rule that would be applied 

to the Banks in addition to the current 

risk-based capital requirement in 12 

CFR 932.3, and incorporate this new 

requirement into the criteria for defining 

either the adequately capitalized 

category or a new well-capitalized 

category? Should MVE/PVCS or 

retained-earnings targets be adopted 

other than as part of the risk-based 

capital structure? 

6. Are there any changes to the 

current risk-based capital requirements 

that should be considered in light of the 

PCA provisions that are being added by 

this interim final rule? Should MVE/ 

PVCS or retained-earnings targets be 

adopted other than as part of the riskbased Capital structure? 

In addition to seeking comments on 

the above questions, the FHFA is also 

interested in comments on all other 

aspects of the interim final rule as 

adopted. 


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5604 Federal Register / Vol. 74, No. 19 / Friday, January 30, 2009 / Rules and Regulations 

IV. Notice and Public Participation 

The FHFA finds for good cause that 

the notice and comment procedure 

required by the Administrative 

Procedure Act is impracticable or 

contrary to the public interest in this 

instance. See 5 U.S.C. 553(b)(3)(B). The 

rule is necessary to provide the details 

on how the FHFA will implement the 

capital classification and PCA 

provisions made applicable to the Banks 

by HERA. These authorities are critical 

to assuring the safe and sound 

operations of the Bank System and 

prompt intervention to address troubled 

Banks, should such a situation arise. 

The PCA authority is especially 

important during the current period of 

market stress when conditions are 

volatile and the financial conditions of 

a Bank could be subject to sudden 

change. Thus, the FHFA believes 

immediate adoption of this rule would 

be in the public interest, but 

nevertheless believes public comments 

on this rule would be valuable. The 

FHFA will consider all comments 

received on or before April 30, 2009 in 

promulgating a final rule. 

V. Effective Date 

For the reasons stated in part IV 

above, the FHFA for good cause finds 

that the interim final rule should 

become effective on January 30, 2009. 

See 5 U.S.C. 553(d). 

VI. Paperwork Reduction Act 

The rule 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. 

VII. Regulatory Flexibility Act 

The FHFA is adopting this regulation 

in the form of an interim final rule and 

not as a proposed rule. Therefore, the 

provisions of the Regulatory Flexibility 

Act (RFA) (5 U.S.C. 601 et seq.) do not 

apply. See 5 U.S.C. 601(2) and 603(a). 

List of Subjects in 12 CFR Part 1229 

Capital, Federal home loan banks, 

Government-sponsored enterprises, 

Reporting and recordkeeping 

requirements. 

■ For the reasons stated in the preamble, 

the Federal Housing Finance Agency is 

amending 12 CFR chapter XII, 

subchapter B, by adding new Part 1229 

to read as follows: 

PART 1229—CAPITAL 

CLASSIFICATIONS AND PROMPT 

CORRECTIVE ACTION 

Subpart A—Federal Home Loan Banks 

Sec. 

1229.1 Definitions. 

1229.2 Determination of a Bank’s capital 

classification. 

1229.3 Criteria for a Bank’s capital 

classification. 

1229.4 Reclassification by the Director. 

1229.5 Capital distributions for adequately 

capitalized Banks. 

1229.6 Mandatory actions applicable to 

undercapitalized Banks. 

1229.7 Discretionary actions applicable to 

undercapitalized Banks. 

1229.8 Mandatory actions applicable to 

significantly undercapitalized Banks. 

1229.9 Discretionary actions applicable to 

significantly undercapitalized Banks. 

1229.10 Actions applicable to critically 

undercapitalized Banks. 

1229.11 Capital restoration plans. 

1229.12 Procedures related to capital 

classification and other actions. 

Authority: 12 U.S.C. 1426, 4513, 4526, 

4613, 4614, 4615, 4616, 4617, 4618, 4622, 

4623. 

Subpart A—Federal Home Loan Banks 

§ 1229.1 Definitions. 

For purposes of this subpart: 

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). 

Capital distribution means any 

payment by the Bank, whether in cash 

or stock, of a dividend, any return of 

capital or retained earnings by the Bank 

to its shareholders, any transaction in 

which the Bank redeems or repurchases 

capital stock, or any transaction in 

which the Bank redeems, repurchases or 

retires any other instrument which is 

included in the calculation of its total 

capital. 

Class A stock means capital stock 

issued by a Bank, including subclasses, 

that has the characteristics specified in 

section 6(a)(4)(A)(i) of the Bank Act (12 

U.S.C. 1426(a)(4)(A)(i)) and related 

regulations. 

Class B stock means capital stock 

issued by a Bank, including subclasses, 

that has the characteristics specified in 

section 6(a)(4)(A)(ii) of the Bank Act (12 

U.S.C. 1426(a)(4)(A)(ii)) and related 

regulations. 

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. 

Critical capital level for a Bank means 

an amount equal to 2 percent of the 

Bank’s total assets. 

Director means the Director of the 

Federal Housing Finance Agency or his 

or her designee. 

Executive officer means for a Bank 

any of the following persons, provided 

that the Director may from time to time 

add or remove persons, positions, or 

functions to or from the list 

(individually for one or more Banks or 

jointly for all the Banks) by 

communication to the affected Banks: 

(1) Executive officers about whom the 

Banks must publicly disclose detailed 

compensation information under 

Regulation S–K, 17 CFR part 229, issued 

by the Securities and Exchange 

Commission; 

(2) Any other executive who occupies 

one of the following positions or is in 

charge of one of the following subject 

areas: 

(i) Overall Bank operations, such as 

the Chief Operating Officer or an 

equivalent employee; 

(ii) Chief Financial Officer or an 

equivalent employee; 

(iii) Chief Administrative Officer or an 

equivalent employee; 

(iv) Chief Risk Officer or an 

equivalent employee; 

(v) Asset and Liability Management 

officer, or an equivalent employee; 

(vi) Chief Accounting Officer or an 

equivalent employee; 

(vii) General Counsel or an equivalent 

employee; 

(viii) Strategic Planning officer or an 

equivalent employee; 

(ix) Internal Audit officer or an 

equivalent employee; or 

(x) Chief Information Officer or an 

equivalent employee; or 

(3) Any other individual, without 

regard to title: 

(i) Who is in charge of a principal 

business unit, division or function; or 

(ii) Who reports directly to the Bank’s 

chairman of the board of directors, vice 

chairman of the board of directors, 

president or chief operating officer. 

FHFA means the Federal Housing 

Finance Agency. 

Minimum capital requirement means 

the leverage and total capital 

requirements established for a Bank 

under section 6(a)(2) of the Bank Act (12 

U.S.C. 1426(a)(2)) and related 

regulations, as such requirements may 

be revised by the Director, or any 

similar requirement established for a 

Bank by regulation, order, written 

agreement or other action. 


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Federal Register / Vol. 74, No. 19 / Friday, January 30, 2009 / Rules and Regulations 5605 

New business activity means any 

activity undertaken by a Bank that 

requires approval from the FHFA under 

part 980 of this title. 

Permanent capital means the retained 

earnings of a Bank, determined in 

accordance with generally accepted 

accounting principles in the United 

States (GAAP), plus the amount paid-in 

for the Bank’s Class B stock. 

Risk-based capital requirement means 

any capital requirement established for 

a Bank under section 6(a)(3) of the Bank 

Act (12 U.S.C. 1426(a)(3)) and related 

regulations that ensures a Bank will 

hold sufficient permanent capital and 

reserves to support the risks that arise 

from its operations. 

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. 

Tangible equity means, for a Bank, the 

paid-in value of its outstanding capital 

stock plus its retained earnings 

calculated in accordance with generally 

accepted accounting principles in the 

United States (GAAP) less the amount of 

any assets that would be intangible 

assets under GAAP. 

Total capital means the sum of the 

Bank’s permanent capital, the amount 

paid-in for its Class A stock, the amount 

of any general allowances for losses, and 

the amount of any other instruments 

indentified in a Bank’s capital plan that 

the Director has determined to be 

available to absorb losses incurred by 

such Bank. For a Bank that has issued 

neither Class A nor Class B stock, the 

Bank’s total capital shall be the measure 

of capital used to determine compliance 

with its minimum capital requirement. 

§ 1229.2 Determination of a Bank’s capital 

classification. 

(a) Quarterly determination. The 

Director shall determine the capital 

classification for each Bank no less often 

than once a quarter based on the capital 

classifications in § 1229.3 of this 

subpart. The Director may make a 

determination with regard to a capital 

classification for a Bank more often than 

the minimum required under this 

paragraph or make a determination for 

one or more Banks without making a 

determination for all the Banks. 

(b) Notification to a Bank. Before 

finalizing any action to classify a Bank 

under this section, the Director shall 

provide a Bank written notice 

describing the proposed action and an 

opportunity to submit information that 

the Bank considers relevant to the 

proposed action in accordance with 

§ 1229.12 of this subpart. 

(c) Notification to the FHFA. A Bank 

shall provide written notification within 

ten calendar days of any event or 

development that has caused or is likely 

to cause its permanent or total capital to 

fall below the level necessary to 

maintain its capital classification at the 

level assigned in the most recent capital 

classification or reclassification 

determination by the Director or that is 

contained in the most recent notice of 

a proposed capital classification or 

reclassification provided under 

§ 1229.12(a) of this subpart. 

§ 1229.3 Criteria for a Bank’s capital 

classification. 

(a) Adequately capitalized. Except 

where the Director has exercised 

authority to reclassify a Bank, a Bank 

shall be considered adequately 

capitalized if, at the time of the 

determination under § 1229.2(a) of this 

subpart, the Bank has sufficient 

permanent and total capital, as 

applicable, to meet or exceed its riskbased and minimum capital 

requirements. 

(b) Undercapitalized. Except where 

the Director has exercised authority to 

reclassify a Bank, a Bank shall be 

considered undercapitalized if, at the 

time of the determination under 

§ 1229.2(a) of this subpart, the Bank 

does not have sufficient permanent or 

total capital, as applicable, to meet any 

one or more of its risk-based or 

minimum capital requirements but such 

deficiency is not of a magnitude to 

classify the Bank as significantly 

undercapitalized or critically 

undercapitalized. 

(c) Significantly undercapitalized. 

Except where the Director has exercised 

authority to reclassify a Bank, a Bank 

shall be considered significantly 

undercapitalized if, at the time of the 

determination under § 1229.2(a) of this 

subpart, the amount of permanent or 

total capital held by the Bank is less 

than 75 percent of what is required to 

meet any one of its risk-based or 

minimum capital requirements but the 

magnitude of the Bank’s deficiency in 

total capital is not sufficient to classify 

it as critically undercapitalized. 

(d) Critically undercapitalized. Except 

where the Director has exercised 

authority to reclassify a Bank, a Bank 

shall be considered critically 

undercapitalized if, at the time of the 

determination under § 1229.2(a) of this 

subpart, the total capital held by the 

Bank is less than or equal to the critical 

capital level for a Bank as defined under 

§ 1229.1 of this subpart. 

§ 1229.4 Reclassification by the Director. 

(a) Discretionary reclassification. 

Where the Director determines that any 

of the grounds described in paragraph 

(b) of this section exist, the Director may 

reclassify a Bank as: 

(1) Undercapitalized, if it is otherwise 

classified as adequately capitalized; 

(2) Significantly undercapitalized, if it 

is otherwise classified as 

undercapitalized; or 

(3) Critically undercapitalized if it is 

otherwise classified as significantly 

undercapitalized. 

(b) Grounds for discretionary 

reclassification. Notwithstanding any 

other provision of this subpart, the 

Director may at any time reclassify a 

Bank under this section if: 

(1) The Director determines in writing 

that: 

(i) The Bank is engaging in conduct 

that could result in the rapid depletion 

of permanent or total capital; 

(ii) The value of collateral pledged to 

the Bank has decreased significantly; or 

(iii) The value of property subject to 

mortgages owned by the Bank has 

decreased significantly. 

(2) The Director determines, after 

notice to the Bank and opportunity for 

an informal hearing before the Director, 

that a Bank is in an unsafe and unsound 

condition; or 

(3) The Director finds, under § 1371(b) 

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

4631(b)), that the Bank is engaging in an 

unsafe and unsound practice because 

the Bank’s asset quality, management, 

earnings or liquidity were found to be 

less than satisfactory during the most 

recent examination, and any deficiency 

has not been corrected. 

(c) Procedures. Before finalizing any 

action to reclassify a Bank under this 

section, the Director shall provide a 

Bank written notice describing the 

proposed action and an opportunity to 

submit information that the Bank 

considers relevant to the Director’s 

proposed action in accordance with 

§ 1229.12 of this subpart. 

(d) Duration. Any condition, action or 

inaction by a Bank that is the basis for 

a decision to reclassify a Bank under 

this section or under any other authority 

provided the Director may be 

considered by the Director and form the 

basis of further, subsequent actions to 

reclassify the Bank until such time as 

the Bank remedies such condition or 

takes necessary action to correct such 

situation to the satisfaction of the 

Director. 

(e) Reservation of authority. Nothing 

in this section shall prevent the Director 

from exercising any other authority 

under the Safety and Soundness Act, 

the Bank Act or any regulation to 

reclassify a Bank for reasons not set 

forth in paragraph (b) of this section or 

to take any other action against a Bank. 


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5606 Federal Register / Vol. 74, No. 19 / Friday, January 30, 2009 / Rules and Regulations 

§ 1229.5 Capital distributions for 

adequately capitalized Banks. 

(a) Restriction. An adequately 

capitalized Bank may not make a capital 

distribution if after doing so the Bank’s 

capital would be insufficient to 

maintain a classification of adequately 

capitalized. A Bank may not make a 

capital distribution if such distribution 

would violate any restriction on the 

redemption or repurchase of capital 

stock or the payment of a dividend set 

forth in section 6 of the Bank Act (12 

U.S.C. 1426) and any other applicable 

regulation. 

(b) Exception. Notwithstanding the 

restriction in paragraph (a) of this 

section, the Director may permit a Bank 

to repurchase or redeem its shares of 

stock if the transaction is made in 

connection with the issuance of 

additional Bank shares or obligations in 

at least an equivalent amount to the 

shares that are redeemed or repurchased 

and will reduce the Bank’s financial 

obligations or otherwise improve its 

financial condition. Any transaction 

under this paragraph also must conform 

with any restriction on the redemption 

or repurchase of Bank stock set forth in 

section 6 of the Bank Act (12 U.S.C. 

1426) and in any other applicable 

regulation. 

§ 1229.6 Mandatory actions applicable to 

undercapitalized Banks. 

(a) Mandatory Actions by the Bank. A 

Bank that is classified as 

undercapitalized shall: 

(1) Submit to the Director for approval 

a capital restoration plan that complies 

with the the requirements and 

procedures established by § 1229.11 of 

this part and receive approval from the 

Director for such plan; 

(2) Fulfill all terms, conditions and 

obligations contained in the capital 

restoration plan as approved by the 

Director; 

(3) Not make any capital distribution 

that would result in the Bank being 

reclassified as significantly 

undercapitalized or critically 

undercapitalized, nor make a capital 

distribution if such distribution would 

violate any restriction on the 

redemption or repurchase of capital 

stock or the declaration or payment of 

a dividend set forth in section 6 of the 

Bank Act (12 U.S.C. 1426) or in any 

other applicable regulation; 

(4) Not permit its average total assets 

in any calendar quarter to exceed its 

average total assets during the preceding 

calendar quarter, where such average is 

calculated based on the total amount of 

assets held by the Bank for each day in 

a quarter, unless: 

(i) The Director has approved the 

Bank’s capital restoration plan; and 

(ii) The Director determines that: 

(A) The increase in total assets is 

consistent with the approved capital 

restoration plan; and 

(B) The ratio of tangible equity to the 

Bank’s total assets is increasing at a rate 

sufficient to enable the Bank to become 

adequately capitalized within a 

reasonable time and consistent with any 

schedule established in the capital 

restoration plan; and 

(5) Not acquire, directly or indirectly, 

any interest in any entity nor engage in 

any new business activity unless: 

(i) The Director has approved the 

Bank’s capital restoration plan, the Bank 

is implementing the capital restoration 

plan and the Director determines that 

proposed acquisition or activity will 

further achievement of the goals set 

forth in that plan; or 

(ii) The Director determines that the 

proposed acquisition or activity will be 

consistent with the safe and sound 

operation of the Bank and will further 

the Bank’s compliance with its riskbased and minimum capital 

requirements in a reasonable period of 

time. 

(b) Mandatory reclassification by the 

Director. The Director shall reclassify an 

undercapitalized Bank as significantly 

undercapitalized if: 

(1) The Bank does not submit a capital 

restoration plan that is substantially in 

compliance with § 1229.11 of this 

subpart and within the time frame 

required. 

(2) The Director does not approve the 

capital restoration plan submitted by the 

Bank; or 

(3) The Director determines that the 

Bank has failed in any material respect 

to comply with its approved capital 

restoration plan or fulfill any schedule 

for action established by that plan. 

(c) Monitoring. The Director shall 

monitor the condition of any 

undercapitalized Bank and monitor the 

Bank’s compliance with the capital 

restoration plan and any restrictions 

imposed under this section or § 1229.7 

of this subpart. As part of this process, 

the Director shall review the capital 

restoration plan and any restrictions or 

requirements imposed on the 

undercapitalized Bank to determine 

whether such plan, restrictions or 

requirements are consistent with the 

safe and sound operation of the Bank 

and will further the Bank’s compliance 

with its risk-based and minimum capital 

requirements in a reasonable period of 

time. 

§ 1229.7 Discretionary actions applicable 

to undercapitalized Banks. 

(a) Discretionary safeguards. The 

Director may take any action with 

regard to an undercapitalized Bank that 

may be taken with regard to a 

significantly undercapitalized Bank 

under section 1366 of the Safety and 

Soundness Act (12 U.S.C. 4616) or 

§ 1229.7 or § 1229.8 of this subpart if the 

Director determines that such action is 

necessary to assure the safe and sound 

operation of the Bank and the Bank’s 

compliance with its risk-based and 

minimum capital requirements in a 

reasonable period of time. 

(b) Procedures. Before finalizing any 

action under this section, the Director 

shall provide a Bank written notice 

describing the proposed action or 

actions and an opportunity to submit 

information that the Bank considers 

relevant to the Director’s decision to 

take such action in accordance with 

§ 1229.12 of this subpart. 

§ 1229.8 Mandatory actions applicable to 

significantly undercapitalized Banks. 

A Bank that is classified as 

significantly undercapitalized: 

(a) Shall submit to the Director for 

approval a capital restoration plan that 

complies with the requirements and 

procedures established by § 1229.11 of 

this part and receive approval from the 

Director for such plan; 

(b) Fulfill all terms, conditions and 

obligations contained in the capital 

restoration plan once the plan is 

approved by the Director; 

(c) Shall not make any capital 

distribution that would result in the 

Bank being reclassified as critically 

undercapitalized or that would violate 

any restriction on the redemption or 

repurchase of capital stock or the 

payment of a dividend set forth in 

section 6 of the Bank Act (12 U.S.C. 

1426) or any applicable regulation; 

(d) Shall not make any capital 

distribution not otherwise prohibited 

under paragraph (c) of this section 

absent the prior written approval of the 

Director, provided that the Director may 

approve such distribution only if the 

Director determines that: 

(1) The capital distribution will 

enhance the ability of the Bank to meet 

its risk-based and minimum capital 

requirements promptly; 

(2) The capital distribution will 

contribute to the long-term financial 

safety and soundness of the Bank; or 

(3) The capital distribution is 

otherwise in the public interest; 

(e) Shall not without prior written 

approval of the Director pay a bonus to 

any executive officer, provided that for 

purposes of this paragraph a bonus shall 


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include any amount paid or accruing to 

an executive officer under a profit 

sharing arrangement; and 

(f) Shall not without the prior written 

approval of the Director compensate an 

executive officer at a rate exceeding the 

average rate of compensation of that 

officer during the 12 months preceding 

the calendar month in which the Bank 

became significantly undercapitalized, 

provided however, that for purposes of 

calculating the executive officer’s 

average rate of compensation, such 

compensation shall not include any 

bonus or profit sharing paid or accruing 

to the officer during the 12 month 

period. 

§ 1229.9 Discretionary actions applicable 

to significantly undercapitalized Banks. 

(a) Actions by the Director. The 

Director shall carry out this section by 

taking, at any time, one or more of the 

following actions with respect to a 

significantly undercapitalized Bank: 

(1) Limit the increase in any 

obligations or class of obligations of the 

Bank, including any off-balance sheet 

obligations. Such limitation may be 

stated in an absolute dollar amount, as 

a percentage of current obligations or in 

any other form chosen by the Director; 

(2) Reduce the amount of any 

obligations or class of obligations held 

by the Bank, including any off-balance 

sheet obligations. Such reduction may 

be stated in an absolute dollar amount, 

as a percentage of current obligations or 

in any other form chosen by the 

Director; 

(3) Limit the increase in, or prohibit 

the growth of any asset or class of assets 

held by the Bank. Such limitation may 

be stated in an absolute dollar amount, 

as a percentage of current assets or in 

any other form chosen by the Director; 

(4) Reduce the amount of any asset or 

class of asset held by the Bank. Such 

reduction may be stated in an absolute 

dollar amount, as a percentage of 

current obligations or in any other form 

chosen by the Director; 

(5) Acquire new capital in the form 

and amount determined by the Director, 

which specifically may include 

requiring a Bank to increase its level of 

retained earnings; 

(6) Modify, limit or terminate any 

activity of the Bank that the Director 

determines creates excessive risk; 

(7) Take steps to improve the 

management at the Bank by: 

(i) Ordering a new election for the 

Bank’s board of directors in accordance 

with procedures established by the 

Director; 

(ii) Dismissing particular directors or 

executive officers, in accordance with 

section 1366(b)(5)(B) of the Safety and 

Soundness Act (12 U.S.C. 4616(b)(5)(B)), 

who held office for more than 180 days 

immediately prior to the date on which 

the Bank became undercapitalized, 

provided further that such dismissals 

shall not be considered removal 

pursuant to an enforcement action 

under section 1377 of the Safety and 

Soundness Act (12 U.S.C. 4636a) and 

shall not be subject to the requirements 

necessary to remove an officer or 

director under that section; or 

(iii) Ordering the Bank to hire 

qualified executive officers, the hiring of 

whom, prior to employment by the Bank 

and at of the option of the Director, may 

be subject to review and approval by the 

Director; or 

(8)(i) Reclassify a significantly 

undercapitalized Bank as critically 

undercapitalized if: 

(A) The Bank does not submit a 

capital restoration plan that is 

substantially in compliance with 

§ 1229.11 of this part and within the 

time frame required; 

(B) The Director does not approve the 

capital restoration plan submitted by the 

Bank; or 

(C) The Director determines that the 

Bank has failed to make reasonable, 

good faith efforts to comply with its 

approved capital restoration plan and 

fulfill any schedule established by that 

plan. 

(ii) Subject to paragraph (c) of this 

section, the Director may reclassify a 

significantly undercapitalized Bank 

under paragraph (a)(8)(i) of this section 

at any time the grounds for such action 

exist, notwithstanding the fact that such 

grounds had formed the basis on which 

the Director reclassified a Bank from 

undercapitalized to significantly 

undercapitalized. 

(b) Additional safeguards. The 

Director may require a significantly 

undercapitalized Bank to take any other 

action not specifically listed in this 

section if the Director determines such 

action will help ensure the safe and 

sound operation of the Bank and the 

Bank’s compliance with its risk-based 

and minimum capital requirements in a 

reasonable period of time more than any 

action specifically authorized under 

paragraph (a) of this section. 

(c) Procedures. Before finalizing any 

action under this section, the Director 

shall provide a Bank written notice 

describing the proposed action or 

actions and an opportunity to submit 

information that the Bank considers 

relevant to the Director’s decision to 

take such action in accordance with 

§ 1229.12 of this subpart. 

§ 1229.10 Actions applicable to critically 

undercapitalized Banks. 

(a) Appointment of conservator or 

receiver. Notwithstanding any other 

provision of federal or state law, the 

Director may appoint the FHFA as 

conservator or receiver of any Bank at 

any time after the Director determines 

that the Bank is, or the Director 

otherwise exercises authority to 

reclassify the Bank as, critically 

undercapitalized. 

(b) Periodic determination—(1) 

Determination. Not later than 30 

calendar days after the Director first 

determines that a Bank is, or the 

Director otherwise exercises authority to 

reclassify the Bank as, critically 

undercapitalized, and a least once 

during each succeeding 30-day calendar 

period, the Director make a 

determination in writing as to whether: 

(i) The assets of the Bank are, and 

during the preceding 60 calendar days 

have been, less than its obligations to its 

creditors and others, provided that the 

Director shall consider as an obligation 

only that amount of outstanding 

consolidated obligations for which the 

Bank is primary obligor or for which the 

Bank has been ordered to make 

payments of principal or interest on 

behalf of another Bank, or is actually 

making payments of principal or 

interest on behalf of another Bank; or 

(ii) The Bank is not, and during the 

previous 60 calendar days has not been 

paying its debts on a regular basis as 

such debts become due, provided that 

this provision does not apply to any 

unpaid debts that are the subject of a 

bona fide dispute. 

(2) Mandatory receivership. If the 

Director determines that the conditions 

described in either paragraph (b)(1)(i) or 

(b)(1)(ii) of this section applies to a 

Bank, the Director shall appoint the 

FHFA as receiver for the Bank. The 

appointment of the FHFA as receiver 

under this paragraph shall immediately 

terminate any conservatorship 

established for the Bank. 

(3) Determination not required. A 

determination under paragraph (b)(1) of 

this section shall not be required during 

any period in which the FHFA serves as 

receiver for a Bank. 

(c) Judicial review. If the Director 

appoints the FHFA as conservator or 

receiver of a Bank under paragraph (a) 

or (b)(2) of this section, the Bank may 

within 30 days of such appointment 

bring an action in the United States 

district court for the judicial district in 

which the Bank was established 

pursuant to section 3 of the Bank Act 

(12 U.S.C. 1423) or in the United States 

District Court for the District of 

Columbia, for an order requiring the 


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FHFA to remove itself as conservator or 

receiver. 

(d) Other applicable actions. Until 

such time the FHFA is appointed as 

conservator or receiver for a critically 

undercapitalized Bank, a critically 

undercapitalized Bank shall be subject 

to all mandatory restrictions or 

obligations applicable to significantly 

undercapitalized Bank under § 1229.8 of 

this subpart and will remain subject to 

any on-going restrictions that the 

Director may have placed on the Bank 

under § 1229.7 or § 1229.9 of this 

subpart, or any restrictions or 

obligations that are applicable to the 

Bank under the terms of an approved 

capital restoration plan. 

§ 1229.11 Capital restoration plans. 

(a) Contents. Each capital restoration 

plan submitted by a Bank shall set forth 

a plan to restore its permanent and total 

capital to levels sufficient to fulfill its 

risk-based and minimum capital 

requirements within a reasonable period 

of time. Such plan must be feasible 

given general market conditions and the 

conditions of the Bank and, at a 

minimum, shall: 

(1) Describe the actions the Bank will 

take, including any changes that the 

Bank will make to member stock 

purchase requirements, to assure that it 

will become adequately capitalized 

within the meaning of § 1229.3(a) of this 

subpart; 

(2) Specify the level of permanent and 

total capital the Bank will achieve and 

maintain; 

(3) Specify the types and levels of 

activities in which the Bank will engage 

during the term of the plan, including 

any new business activities that it 

intends to begin during such term; 

(4) Describe any other actions the 

Bank intends to take to comply with any 

other requirements imposed on it under 

this subpart A of part 1229; 

(5) Provide a schedule which sets 

forth dates for meeting specific goals 

and benchmarks and taking other 

actions described in the proposed 

capital restoration plan, including 

setting forth a schedule for it to restore 

its permanent and total capital to levels 

necessary for meeting its risk-based and 

minimum capital requirements; and 

(6) Address such other items that the 

Director shall provide in writing in 

advance of such submission. 

(b) Deadline for submission. A Bank 

must submit a proposed capital 

restoration plan no later than 10 

calendar days after it receives written 

notification that such a plan is required 

either because the notice specifically 

states that the Director has required the 

submission of a plan or the notice 

indicates that the Bank’s capital 

classification or reclassification is to a 

category for which a capital restoration 

plan is a mandatory action required of 

the Bank. The Director may extend this 

deadline if the Director determines that 

such extension is necessary. Any such 

extension shall be in writing and 

provide a specific date by which the 

Bank must submit its proposed capital 

restoration plan. 

(c) Review of the plan by the Director. 

The Director shall have 30 calendar 

days from the date the Bank submits a 

proposed capital restoration plan to 

approve or disapprove the plan. The 

Director may extend the period for 

consideration of a capital restoration 

plan for a single 30 calendar day period 

by providing the Bank with written 

notification that the decision deadline 

has been extended. The Director shall 

provide the Bank with written 

notification of the decision to approve 

or not approve a proposed capital 

restoration plan. If the Director does not 

approve the capital restoration plan, the 

written notification of such decision 

shall provide the reasons for the 

disapproval. 

(d) Resubmission. If the Director does 

not approve the Bank’s proposed capital 

restoration plan, the Bank shall submit 

a new capital restoration plan 

acceptable to the Director within 30 

calendar days of the date that the Bank 

was notified of the disapproval. The 

Director may extend the period for the 

Bank’s submission of a new acceptable 

capital restoration plan upon a 

determination that such extension is in 

the public interest. The Director shall 

provide the Bank written notice of the 

extension and include in such notice 

the date by which the Bank must submit 

an acceptable plan. 

(e) Amendments. The Director, in his 

or her sole discretion, may approve 

amendments to an approved capital 

restoration plan if, after consideration of 

changes in conditions of the Bank, 

changes in market conditions and other 

relevant factors, the Director determines 

that such amendments are consistent 

with the restoration of the Bank’s capital 

to levels necessary to meet its risk-based 

and minimum capital requirements in a 

reasonable period of time and with the 

safe and sound operations of the Bank. 

(f) Effectiveness of provisions. A Bank 

is obligated to implement and fulfill all 

provisions of an approved capital 

restoration plan. Unless expressly 

addressed by the terms of the capital 

restoration plan, a Bank remains bound 

by each and every obligation and 

requirement set forth in the approved 

capital restoration plan until such 

requirement or obligation is amended 

under paragraph (e) of this section or 

terminated in writing by the Director. 

(g) Appointment of conservator or 

receiver. Notwithstanding any other 

provision of federal or state law, the 

Director may appoint the FHFA as 

conservator or receiver of any Bank that 

is classified as undercapitalized or 

significantly undercapitalized if the 

Bank fails to submit a capital restoration 

plan acceptable to the Director within 

the time frames established by this 

section or if the Bank materially fails to 

implement any capital restoration plan 

that has been approved by the Director. 

A Bank may within 30 days of such 

appointment bring an action in the 

United States district court for the 

judicial district in which the Bank is 

established pursuant to section 3 of the 

Bank Act (12 U.S.C. 1423) or in the 

United States District Court for the 

District of Columbia, for an order 

requiring the FHFA to remove itself as 

conservator or receiver. 

§ 1229.12 Procedures related to capital 

classification and other actions. 

(a) Classification or reclassification of 

a Bank. Before finalizing any decision to 

classify a Bank under § 1229.2(a) of this 

subpart or reclassify the Bank under 

§ 1229.4(a) of this subpart, the Director 

shall provide the Bank with written 

notification of the proposed action that 

states the reasons for the proposed 

action and describes the information on 

which the proposed action is based. The 

notice required under this paragraph 

may be combined with the notice of a 

proposed supervisory action required 

under paragraph (b) of this section. The 

Director also may combine a notice 

informing the Bank of its capital 

classification and simultaneously 

informing the Bank that the Director 

intends to reclassify a Bank to a lower 

capital classification category. 

(b) Notice of a supervisory action. 

Before finalizing any action or actions 

authorized under § 1229.7 or § 1229.9 of 

this subpart, the Director shall provide 

the Bank with written notification of the 

proposed action that states the reasons 

for the proposed action and describes 

the information on which the proposed 

action is based. The notice required 

under this paragraph may be combined 

with the notice of a proposed action to 

classify or reclassify the Bank required 

under paragraph (a) of this section. 

(c) Bank response. During the 30 

calendar day period beginning on the 

date that the Bank is provided notice 

under paragraph (a) or (b) of this section 

of a proposed action or actions, a Bank 

may submit to the Director any 

information that the Bank considers 

relevant or appropriate for the Director 


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to consider in determining whether to 

finalize the proposed action. The 

Director may, in his or her sole 

discretion, convene an informal hearing 

with representatives of the Bank to 

receive or discuss any such information. 

The Director, in his or her sole 

discretion, also may extend the period 

in which the Bank may respond to a 

notice for an additional 30 calendar 

days for good cause, or shorten such 

comment period if the Director 

determines the condition of the Bank 

requires faster action or a shorter 

comment period or if the Bank consents 

to a shorter comment period. The 

Director shall inform the Bank in 

writing, which may be provided as part 

of the notice required under paragraphs 

(a) or (b) of this section, of any decision 

to extend or shorten the comment 

period. The failure of a Bank to provide 

information during the allotted 

comment period will waive any right of 

the Bank to comment on the proposed 

action. 

(d) Final action. At the earlier of the 

completion of the comment period 

established under paragraph (c) or the 

receipt of information provided by the 

Bank during such period, the Director 

shall determine whether to take the 

proposed action or actions that were the 

subject of the notice under paragraphs 

(a) or (b) of this section, after taking into 

consideration any information provided 

by the Bank. Such notice shall respond 

to any information submitted by the 

Bank. Any final order that the Bank take 

action, refrain from action or comply 

with any other requirement that was the 

subject of a notice under paragraph (b) 

of this section shall take effect upon the 

Bank’s receipt of the notice required 

under this paragraph, unless a different 

effective date is set forth in this notice, 

and shall remain in effect and binding 

on the Bank until terminated in writing 

by the Director or until any terms and 

conditions for termination, as set forth 

in the notice, have been met. 

(e) Final actions under this section. 

Any final decision that the Bank take 

action, refrain from action or comply 

with any other requirement that was the 

subject of a notice under paragraph (b) 

of this section shall constitute an order 

under the Safety and Soundness Act. 

The Director in his or her discretion 

may apply to the United States District 

Court for the District of Columbia or to 

the United States district court for the 

judicial district in which the Bank in 

question is established pursuant to 

section 3 of the Bank Act (12 U.S.C. 

1423) for the enforcement of such order, 

as allowed under § 1375 of the Safety 

and Soundness Act (12 U.S.C. 4635) . In 

addition, a Bank or any executive officer 

or director of a Bank can be subject to 

enforcement action, including the 

imposition of civil monetary penalties, 

under § 1371, § 1372 or § 1376 of the 

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

4631, 4632, or 4636) for failure to 

comply with such an order. 

(f) Judicial review. A Bank that is not 

classified as critically undercapitalized 

may obtain judicial review of any final 

capital classification decision or of any 

final decision to take supervisory action 

made by the Director under § 1229.2, 

§ 1229.4, § 1229.7 or § 1229.9 in 

accordance with the requirements and 

procedures set forth in § 1369D of the 

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

4623). 

Dated: January 26, 2009. 

James B. Lockhart III, 

Director, Federal Housing Finance Agency. 

[FR Doc. E9–2083 Filed 1–29–09; 8:45 am] 

BILLING CODE 8070–01–P 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1252 

RIN 2590–AA22 

Portfolio Holdings 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Interim final rule; request for 

comments. 

SUMMARY: The Federal Housing Finance 

Agency is issuing an interim final 

regulation to govern the portfolio 

holdings of the Federal National 

Mortgage Association (Fannie Mae) and 

the Federal Home Loan Mortgage 

Corporation (Freddie Mac). Comments 

on the issues and questions set forth in 

the preamble are requested, and the 

agency will amend the rule as 

appropriate after considering comments. 

DATES: Effective Date: January 30, 2009. 

Comment Date: Written comments 

must be submitted on or before June 1, 

2009. 

ADDRESSES: You may submit your 

comments, identified by ‘‘Portfolio 

Holdings IFR/RFC, [RIN 2590–AA22],’’ 

by any of the following methods: 

• U.S. Mail, United Parcel Post, 

Federal Express, or Other Mail Service: 

The mailing address for submitting 

comments is: Alfred M. Pollard, General 

Counsel, Attention: Comments 

‘‘Portfolio Holdings IFR/RFC, [RIN 

2590–AA22],’’ Federal Housing Finance 

Agency, Fourth Floor, 1700 G Street, 

NW., Washington, DC 20552. 

• Hand Delivery/Courier: The hand 

delivery address for submitting 

comments is: Alfred M. Pollard, General 

Counsel, Attention: Comments 

‘‘Portfolio Holdings IFR/RFC, [RIN 

2590–AA22],’’ 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 may be 

submitted via electronic mail at 

RegComments@FHFA.gov addressed to 

Alfred M. Pollard, General Counsel. 

Please include ‘‘Portfolio Holdings IFR/ 

RFC, [RIN 2590–AA22]’’ in the subject 

line of the message. 

• Federal eRulemaking: Instructions 

on comment submission are also 

available on the eRulemaking portal at 

http://www.regulations.gov. 

The Federal Housing Finance Agency 

(FHFA) requests that comments 

submitted in hard copy also be 

accompanied by the electronic version 

in Microsoft Word or in a portable 

document format (PDF) on 3.5’’ disk or 

CD–ROM, and identify the comments as 

pertaining to the Portfolio Holdings 

Interim Final Rule. 

FOR FURTHER INFORMATION CONTACT: 

Ming-Yuen Meyer-Fong, Office of the 

General Counsel, (202) 414–3798, or 

Valerie Smith, Office of Policy Analysis 

and Research, (202) 414–3770, Federal 

Housing Finance Agency, 1700 G Street, 

NW., Washington, DC 20552. The 

telephone number for the 

Telecommunications Device for the Deaf 

is (800) 877–8339. For more information 

on this Interim Final Regulation, see the 

SUPPLEMENTARY INFORMATION section of 

this document. 

SUPPLEMENTARY INFORMATION: 

I. Comments and Access 

Instructions: FHFA requests that 

comments submitted in hard copy also 

be accompanied by the electronic 

version in Microsoft® Word or in a 

portable document format (PDF) on 3.5’’ 

disk or CD–ROM, and identify that 

comments pertain to ‘‘Portfolio 

Holdings IFR/RFC, [RIN 2590–AA22].’’ 

Statement of Availability: This 

Interim Final Regulation as well as any 

comments posted may be accessed via 

the internet. Users can access the FHFA 

web page at http://www.fhfa.gov; select 

Supervision and Regulations Tab; select 

Regulations, Notices and Public 

Comments; then, select the link titled 

‘‘Portfolio Holdings’’ or via the 

worldwide eRulemaking portal at 

http://www.regulations.gov. User can 

also access Exhibits A to F referenced in 

this interim rule document. Specifically, 

Exhibit A (Amended and Restated 

Senior Preferred Stock Purchase 


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