51452 Federal Register / Vol. 74, No. 193 / Wednesday, October 7, 2009 / Rules and Regulations 

8 CFR CHAPTER 1—DEPARTMENT OF 

HOMELAND SECURITY 

PART 274a—CONTROL OF 

EMPLOYMENT OF ALIENS 

■ 1. The authority citation for part 274a 

continues to read as follows: 

Authority: 8 U.S.C. 1101, 1103, 1624a, 8 

CFR part 2, Public Law 101–410, 104 Stat. 

890, as amended by Public Law 104–134, 110 

Stat. 1321. 

■ 2. Section 274a.1 is amended by 

revising paragraph (l) to read as follows: 

§ 274a.1 Definitions. 

* * * * * 

(l)(1) The term knowing includes not 

only actual knowledge but also 

knowledge which may fairly be inferred 

through notice of certain facts and 

circumstances which would lead a 

person, through the exercise of 

reasonable care, to know about a certain 

condition. Constructive knowledge may 

include, but is not limited to, situations 

where an employer: 

(i) Fails to complete or improperly 

completes the Employment Eligibility 

Verification Form, I–9; 

(ii) Has information available to it that 

would indicate that the alien is not 

authorized to work, such as Labor 

Certification and/or an Application for 

Prospective Employer; or 

(iii) Acts with reckless and wanton 

disregard for the legal consequences of 

permitting another individual to 

introduce an unauthorized alien into its 

work force or to act on its behalf. 

(2) Knowledge that an employee is 

unauthorized may not be inferred from 

an employee’s foreign appearance or 

accent. Nothing in this definition 

should be interpreted as permitting an 

employer to request more or different 

documents than are required under 

section 274(b) of the Act or to refuse to 

honor documents tendered that on their 

face reasonably appear to be genuine 

and to relate to the individual. 

Janet Napolitano, 

Secretary. 

[FR Doc. E9–24200 Filed 10–6–09; 8:45 am] 

BILLING CODE 9111–28–P 

FEDERAL HOUSING FINANCE BOARD 

12 CFR Part 915 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1261 

RIN 2590–AA03 

Federal Home Loan Bank Boards of 

Directors: Eligibility and Elections 

AGENCY: Federal Housing Finance 

Board; Federal Housing Finance 

Agency. 

ACTION: Final rule. 

SUMMARY: The Federal Housing Finance 

Agency (FHFA) is adopting a final 

regulation on the eligibility and election 

of Federal Home Loan Bank (Bank) 

directors. The final rule implements 

section 1202 of the Housing and 

Economic Recovery Act of 2008, which 

amended section 7 of the Federal Home 

Loan Bank Act (Bank Act) as it relates 

to the eligibility and election of 

individuals to serve on the boards of 

directors of the Banks. 

DATES: This final rule will become 

effective on November 6, 2009. 

FOR FURTHER INFORMATION CONTACT: 

Thomas P. Jennings, Senior Attorney 

Advisor, thomas.jennings@fhfa.gov, 

(202) 414–8948; or Patricia L. Sweeney, 

Management Analyst, 

pat.sweeney@fhfa.gov, (202) 408–2872. 

SUPPLEMENTARY INFORMATION: 

I. Statutory and Regulatory Background 

The Housing and Economic Recovery 

Act of 2008 (HERA), Public Law 110– 

289, 122 Stat. 2654 (2008), transferred 

the supervisory and oversight 

responsibilities over the Federal 

National Mortgage Association, the 

Federal Home Loan Mortgage 

Corporation (collectively, Enterprises), 

and the Banks to FHFA, which is 

responsible for ensuring that the 

Enterprises and the Banks operate in a 

safe and sound manner and carry out 

their public policy missions. The 

Enterprises and the Banks continue to 

operate under regulations promulgated 

by the Office of Federal Housing 

Enterprise Oversight and the Federal 

Housing Finance Board (Finance Board), 

respectively, until FHFA issues its own 

regulations. 

Section 1202 of HERA amended 

section 7 of the Bank Act, 12 U.S.C. 

1427, which governs the directorship 

structure of the Banks. The Finance 

Board regulation implementing section 

7 was codified at 12 CFR part 915. Part 

915 governed the nomination and 

election only of those directors who are 

chosen from among the officers and 

directors of members of the Banks, 

which this final rule refers to as member 

directors. Section 1202(1) of HERA 

amended section 7(a) of the Bank Act to 

give the members the additional right to 

elect all of the other directors on the 

boards of directors of the Banks, which 

this rule refers to as independent 

directors. 

On September 26, 2008, FHFA 

published an interim final rule (interim 

rule) to implement the amendments 

made by section 1202 of HERA. See 73 

FR 55710, September 26, 2008. FHFA 

retained the basic process of elections 

that existed in part 915 as applied to 

member directorships, making changes 

as necessary to comply with the 

amendments to section 7 of the Bank 

Act. FHFA also added new provisions to 

govern the process for nominating 

individuals for independent 

directorships and for conducting 

elections of independent directors in 

conjunction with the elections of the 

member directors. 

FHFA adopted the rule on an interim 

basis because there was insufficient 

time after the enactment of HERA for 

FHFA to conduct a full notice and 

comment rulemaking that would have 

allowed the Banks to conduct their 2008 

elections before the end of 2008. 

Nonetheless, the interim rule afforded 

interested persons the opportunity to 

participate in the rulemaking process by 

submitting written comments on the 

interim rule, which FHFA has 

considered in adopting this final rule. 

The comment period closed on 

November 25, 2008. 

Section 1201 of HERA (codified at 12 

U.S.C. 4513(f)) requires the Director of 

FHFA to consider the differences 

between the Banks and the Enterprises 

with respect to the Banks’ cooperative 

ownership structure, mission of 

providing liquidity to members, 

affordable housing and community 

development mission, capital structure, 

and joint and several liability, whenever 

promulgating regulations that affect the 

Banks. In preparing this final rule, the 

Director considered these factors and 

determined that the rule is appropriate, 

particularly because this final rule 

implements a statutory provision that 

applies only to the Banks. See 12 U.S.C. 

1427. 

II. Analysis of the Public Comments 

and Final Rule 

FHFA received 15 public comments 

on the interim rule. Eleven Banks and 

one Bank member submitted comments. 

Two trade associations and a member of 

the United States House of 


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Representatives also submitted 

comments. There were common threads 

in the Bank comments, which FHFA 

considered in making revisions to the 

interim rule. The final rule establishes 

Subpart A— Federal Home Loan Bank 

Boards of Directors: Eligibility and 

Elections of part 1261 of the FHFA 

regulations, which now will be titled 

‘‘Federal Home Loan Bank Directors.’’ 

Comments on specific issues are 

addressed in the section-by-section 

discussion below. 

A. Section 1261.1 Definitions 

FHFA received no comments on the 

definitions in the interim rule, but has 

made technical changes to some of the 

definitions that were in part 915, 

without changing their meanings. For 

example, in some definitions the final 

rule has replaced the word ‘‘person’’ 

with ‘‘individual’’ for purposes of 

consistency. 

B. Section 1261.2 General Provisions 

Section 1261.2 of the final rule 

includes two substantive amendments 

from the interim rule, noted below, as 

well as certain technical revisions. 

Section 7(a) of the Bank Act sets the size 

of a Bank’s board of directors at 13, or 

such other number as the Director may 

determine, provided the member 

directorships always constitute a 

majority and the independent 

directorships comprise at least 40 

percent of the entire board. As a 

practical matter, however, the 

‘‘grandfather’’ provision of section 7(c) 

of the Bank Act, which guarantees each 

State at least as many member 

directorships as it had in 1960, requires 

that nearly all of the Banks must have 

at least 8 member directorships. As a 

result, the minimum size board that 

could comply with both of those 

provisions is 14 persons, with 8 member 

directorships and 6 independent 

directorships. Section 1261.2(a) of the 

interim rule provided that the FHFA 

Director annually will set the number of 

directorships for each Bank and will 

designate the directorships as either 

member directorships or independent 

directorships. At least two independent 

directorships are required by the Bank 

Act to be public interest directorships. 

Some Banks commented that the boards 

of directors of the Banks should have 

the discretion to determine how many 

of the independent directors should be 

designated as public interest directors. 

In response to those comments, section 

1261.2(a) of the final rule has been 

changed to require the board of directors 

of each Bank annually to determine how 

many of its independent directorships 

should be designated as public interest 

directorships, provided that the Bank at 

all times has at least two public interest 

directorships. 

Section 1261.2(c) of the interim rule 

carried forward the requirement in 

§ 915.3(a) that the Banks conduct their 

elections, and provided that each Bank 

must hold one election each year for all 

directors, rather than separate elections 

for the independent directors and 

member directors. The final rule has 

amended the latter provision to clarify 

that the purpose of an election occurring 

in a particular year is to elect directors 

whose terms will commence on January 

1 of the following year. Two 

commenters advocated that FHFA 

become more involved in the election 

process to help assure that elections 

result in an appropriate board 

composition. One trade association 

requested that FHFA ‘‘monitor the 

extent to which credit unions and other 

minority interests’’ are represented on 

the boards of the Banks and take 

actions, including encouraging 

nominations of individuals who are 

associated with minority interests, when 

such interests are not represented 

adequately. A member of the House of 

Representatives requested that FHFA 

consider ‘‘implementing safeguards’’ to 

assure that individuals from the general 

population, including minorities and 

women, are considered for nomination 

and are represented adequately on the 

boards. 

FHFA believes that diversity among 

the members of each board of directors 

of the Banks would be beneficial to the 

Banks, and thus encourages the Banks to 

consider the diversity of their boards, 

both as to representation among the 

general population and as to 

representation of its members, as it 

requests nominees for member 

directorships from its members and as it 

goes through the process of nominating 

candidates for independent 

directorships. Each Bank could be 

assisted in the nomination of candidates 

for independent directorships by 

effectively integrating its process of 

consulting with the Bank’s Advisory 

Council, as required by § 1261.6(d) of 

the final rule, into the election process. 

Nonetheless, the final rule does not 

include any provisions mandating that 

the boards of the Banks include 

representatives from any particular 

industry groups or other populations. 

Such a provision could be contrary to 

the statutory provisions vesting the 

nominations of member and 

independent directors in the members 

and the boards of directors of the Banks, 

respectively, as well as to HERA’s repeal 

of the authority for the Finance Board to 

appoint directors to the boards of the 

Banks. Moreover, the Banks have gone 

through only one election cycle since 

the enactment of HERA, and therefore it 

is difficult to assess the extent to which 

the new process will generate diverse 

boards. 

C. Section 1261.3 Designation of 

Member Directorships 

Section 1261.3 of the interim rule 

addressed the process by which the 

Director annually designates the 

member directorships at each Bank. The 

final rule adopts this provision with one 

substantive change, noted below, as 

well as several wording changes, none 

of which has substantive effect. Section 

1261.3(c)(1) of the interim rule required 

that the designation of directorships be 

conducted in accordance with section 

7(b) and (c) of the Bank Act. Section 

1261.3(c)(2) of the interim rule further 

provided that if an existing directorship 

were to cease to exist as a result of the 

annual designation of directorships, 

then the incumbent director sitting in 

that directorship would not be eligible 

to serve after December 31 of that year. 

The final rule deletes section 

1261.3(c)(2) in its entirety because it is 

largely duplicative of another provision 

of the interim rule, which is codified at 

§ 1261.4(e) of the final rule. 

D. Section 1261.4 Director Eligibility 

Section 1261.4(a) of the interim rule 

carried forward § 915.7(b) of the Finance 

Board rule regarding the eligibility 

requirements of member directors. 

Several Banks commented that the final 

rule should clarify how these 

requirements should be applied when a 

Bank’s board must fill a vacancy. 

Specifically, these commenters asked 

whether a board of directors is limited 

to choosing officers or directors of 

institutions that were members at the 

time the position initially was filled, or 

may consider candidates from any 

institutions that are members when the 

board acts. 

Section 7(f)(2) of the Bank Act 

requires a vacancy to be filled by an 

individual who meets the eligibility 

requirements applicable to his or her 

predecessor. The Bank Act, however, 

does not include a single list of 

provisions that are labeled ‘‘eligibility’’ 

requirements. Instead, certain 

requirements for directors are contained 

within the definitions of the types of 

directorships, while others exist 

elsewhere in the form of qualifications 

for persons to serve as directors. Section 

1261.4(a)(2) of the interim rule included 

as part of the regulatory eligibility 

requirements for member directors a 

requirement that the person be an 

officer or director of an institution that 


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51454 Federal Register / Vol. 74, No. 193 / Wednesday, October 7, 2009 / Rules and Regulations 

was a member as of the record date prior 

to the election. Commenters expressed 

concern about applying the record date 

requirement to a replacement director, 

and suggested that the final rule make 

clear that an institution’s membership 

status as of the record date should not 

be deemed an eligibility requirement for 

a replacement director. FHFA agrees 

that this provision of the rule should be 

clarified and, because the Bank Act does 

not address the issue of the time of 

membership in determining whether a 

candidate is an officer or director of a 

member, believes that the rule should 

distinguish between directors elected by 

the members and those elected by the 

board to fill a vacancy. Accordingly, 

§ 1261.4(a)(2) of the final rule provides 

that in the case of member directors 

elected by the members, the institution 

at which a candidate serves must have 

been a member as of the record date, but 

in the case of the board filling a 

vacancy, the institution at which the 

candidate serves as an officer or director 

must be a member of the Bank at the 

time the individual is elected by the 

board, whether or not it was a member 

as of the record date for the election of 

the predecessor. 

Section 1261.4(a)(2) of the final rule 

also has been changed by replacing a 

reference to a member being located in 

a ‘‘voting State’’ with a reference to the 

member being located in the Bank’s 

‘‘district’’, which conforms more closely 

to the statutory language. The 

requirements relating to a voting State 

are located in a new paragraph (b) of the 

final rule. This has been added to 

maintain the requirement that each 

individual filling a member directorship 

must be an officer or director of a 

member that is located in the State to 

which the Director has allocated that 

directorship. This requirement applies 

to all individuals serving as member 

directors, though it is not designated as 

an eligibility requirement. 

As a result of the addition of new 

§ 1261.4(b), the final rule also 

redesignates § 1261.4(b)–(d) of the 

interim rule as § 1261.4(c)–(e) of the 

final rule and revises portions of the 

redesignated paragraphs (d) and (e). 

Section 1261.4(c)(1) of the interim rule 

described situations in which otherwise 

eligible individuals would not be 

eligible to serve, while § 1261.4(c)(2) 

clarified the application of the statutory 

term limits provision. The final rule 

makes certain changes relating to the 

application of the term limits, which are 

described below. The term limit 

provisions of section 7(d) of the Bank 

Act limit service of individuals who 

have been elected to and served all or 

part of three consecutive full terms. 

Such individuals are ineligible for the 

two years following such service. 

Although § 1261.4(c)(2)(i) of the interim 

rule provided that terms adjusted 

subsequent to HERA would not be 

considered to be full terms, some 

commenters construed this to mean that 

FHFA would apply that provision only 

to the terms that commenced on January 

1, 2009, but not to terms adjusted 

subsequently. It is possible that the 

discussion of the term limits provisions 

in the preamble to the interim rule, 

which focused primarily on the 2008 

election, may have caused some 

misunderstanding about this provision, 

which is intended to apply whenever a 

term is adjusted by FHFA to fewer than 

four years, and not just to terms 

commencing on January 1, 2009. 

Because the language of that provision 

of the interim rule is clear, it has not 

been changed in the final rule, although 

the provision has been redesignated as 

§ 1261.4(d)(2)(i). 

Section 1261.4(c)(2)(iii) of the interim 

rule provided that a director’s election 

to a three-year term prior to HERA 

constituted service in a full-term 

directorship. This provision also 

applied only to the terms of member 

directors. Some Bank commenters 

requested that this provision be changed 

to apply to all directors holding threeyear directorships as of the effective 

date of HERA, and one trade association 

commented that only four-year terms 

should count toward the term limit 

provision. FHFA believes that the 

provision as it currently reads is in 

accordance with the Bank Act. The term 

limits provisions apply only to terms to 

which a director ‘‘has been elected.’’ 

Prior to HERA, the minority members of 

the board of the Banks were appointed 

to three-year terms by the Finance 

Board. Because section 7(d) applies only 

to persons who have been elected, terms 

served by persons appointed by the 

Finance Board cannot count toward the 

consecutive term limitation. With regard 

to the other issue, prior to HERA a 

three-year term constituted a full term 

as a matter of law and FHFA cannot 

disregard that fact by limiting the 

application of the term limits provision 

solely to four-year terms. Accordingly, 

§ 1261.4(c)(2)(iii) of the interim rule will 

remain the same in this respect, except 

that in the final rule it is redesignated 

as § 1261.4(d)(2)(ii) and includes certain 

other nonsubstantive wording changes. 

One Bank asked FHFA to clarify 

whether the period of time served by a 

person who is elected to fill a vacancy 

constitutes a full term for purposes of 

the term limits provision. In the past, 

the Finance Board has interpreted 

section 7(d) of the Bank Act as applying 

only when the director is elected by the 

members, and not to persons elected by 

the board of directors of a Bank to fill 

a vacancy. Moreover, because 

replacement directors serve only the 

unexpired portion of an existing term of 

office, they are not elected to serve a full 

term. Accordingly, the final rule 

includes a new provision, 

§ 1261.4(d)(2)(iv), that makes clear that 

the time served by a replacement 

director filling a vacancy does not 

constitute a full term for purposes of the 

term limit provision. 

Section 1261.4(d) of the interim rule 

addressed situations in which an 

incumbent Bank director becomes 

ineligible to remain in office if the 

directorship in which he serves is 

eliminated or is designated to another 

State as part of the annual designation 

of directorships before its term expires. 

The final rule redesignates this 

provision as section 1261.4(e), but does 

not make any substantive changes to the 

regulation. Paragraph (e)(2) has been 

revised slightly to include a cross 

reference to section 1261.14(a) of the 

final rule, which includes language that 

had previously been included in 

paragraph (e)(2) regarding how the 

board fills a redesignated directorship. 

Although the final rule does not change 

this provision, certain comments related 

to the issue of vacancies arising from the 

redesignation of a directorship to 

another State have prompted FHFA to 

consider whether the rule should be 

revised to allow the members in the 

affected States to select the person to fill 

the redesignated directorship, rather 

than the board of directors, which is the 

current practice. The Finance Board 

treated the redesignation of a 

directorship from one State to another 

as creating a vacancy on the board, 

which is to be filled by a Bank’s board 

of directors. FHFA believes, however, 

that the relevant provisions of the Bank 

Act allow it to construe the 

redesignation of directorship to another 

State as the termination of the original 

directorship and the creation of a new 

directorship, which would allow the 

members in the new State to elect a 

person to fill the new directorship. Such 

treatment would have no effect on the 

staggering of the directorships, so long 

as the Director adjusts the term of the 

new directorship to match the 

unexpired portion of the original 

directorship. Because such a change 

would constitute a change in the policy 

established by the Finance Board, 

however, FHFA has not included that 

provision in this final rule, but intends 

to address this issue in a separate 

proposed rulemaking, which it intends 


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Federal Register / Vol. 74, No. 193 / Wednesday, October 7, 2009 / Rules and Regulations 51455 

to publish in the Federal Register 

shortly after the final rule takes effect. 

E. Section 1261.5 Determination of 

Member Votes 

Section 1261.5 of the interim rule 

carried forward § 915.5 of the Finance 

Board rule, which sets forth how the 

Banks must determine the number of 

votes of each member. The final rule 

makes no changes to § 1261.5 of the 

interim rule, except that the reference to 

the specific Finance Board rules in 

paragraph (b) has been modified to 

reflect that they may at some time be 

replaced by FHFA rules that succeed 

them. 

F. Section 1261.6 Nominations for 

Member and Independent Directorships 

Section 1261.6 of the interim rule 

carried forth, in modified form, the 

requirements of § 915.6 of the Finance 

Board regulations regarding 

nominations for member directorships, 

and added provisions relating to the 

nomination of independent directorship 

candidates. In the final rule, 

§ 1261.6(a)–(c) remain essentially the 

same as the corresponding provisions of 

the interim rule. The final rule does 

modify certain language used in 

paragraph (a)(5), relating to the 

nominating certificate that a Bank’s 

election notice must include, and in 

paragraph (c), which includes certain 

editorial changes, none of which affect 

the substance of those provisions. 

Section 1261.6(d) of the interim rule 

addressed independent directorship 

nominations and implemented Section 

7(b)(2) of the Bank Act, which requires 

independent directors to be nominated 

by each Bank’s board of directors but to 

be elected by the members of each Bank. 

The final rule includes some modest 

revisions to certain provisions of 

§ 1261.6(d), which are noted below, but 

otherwise does not differ from the 

interim rule. HERA amended the Bank 

Act to require that independent 

directors either must possess 

demonstrated knowledge or experience 

in certain specified subject matter areas, 

or must have more than four years of 

experience in representing certain 

consumer or community interests. 

Section 1261.6(d)(1) of the interim 

rule generally reiterated those statutory 

requirements, which are somewhat 

more rigorous than were the pre-HERA 

requirements for the appointed 

directors. Certain Banks expressed 

concern about the effect of the new 

qualifications on their holdover 

appointed directors, and asked that the 

final rule allow those incumbent 

directors that do not satisfy the HERA 

requirements to stand for election so 

long as they continue to comply with 

the pre-HERA requirements under 

which they were appointed initially. 

These Banks assert that the changes in 

qualifications are not significant and 

that board continuity with wellperforming directors is more important 

than is compliance with the new 

qualifications. The final rule does not 

include the revisions suggested by the 

commenters because that would be 

contrary to the unambiguous language 

of the Bank Act, which does not allow 

a person who does not meet the new 

qualifications to stand for election as an 

independent director. Any such 

holdover appointed directors are 

deemed to be independent directors 

while they serve out the remainder of 

their terms, and any persons who were 

designated as public interest directors 

prior to HERA may retain that status 

until their term expires. 

Section 1261.6(d)(2) of the interim 

rule required each Bank to include in its 

bylaws the procedures that it will follow 

for nominating and electing 

independent directors, and it is not 

being changed in any substantive way in 

the final rule. The Banks commented 

that this provision should be modified 

to allow them to incorporate the 

procedures in this rule into their bylaws 

by reference. While incorporation of this 

rule into the bylaws might be one 

method of including procedures in a 

Bank’s bylaws, FHFA declines to 

include that in the regulation. 

FHFA expects that each Bank will 

include in its bylaws provisions relating 

to the procedures that it believes will 

work best in identifying nominees and 

presenting them to the members, and 

FHFA prefers that approach over an 

approach that would prescribe bylaw 

provisions by regulation. The provisions 

adopted by each Bank should address 

how and when the board will consult 

with its Advisory Council, how 

applications from prospective nominees 

will be processed, and how the board 

will nominate candidates for 

independent directorships. 

Section 1261.6(d)(3) of the interim 

rule required each Bank to determine 

the number of public interest 

directorships its board would have, 

subject to the statutory minimum of 

two, and to nominate at least as many 

individuals as there are independent 

directorships to be filled in the elections 

for that year. 

The Banks commenting on this 

provision believe that their boards 

should have the flexibility to determine 

how many independent directorships 

should be designated as public interest 

directorships, provided they have at 

least two public interest directors. They 

also believe that they should determine 

how many persons should be nominated 

for each type of directorship for which 

elections will be held, stating that the 

directors’ fiduciary duties will ensure 

that they make appropriate decisions. 

One member commenting on this 

provision, however, contended that 

each Bank should be required to 

nominate all qualified candidates who 

apply, so that the members can decide 

who will serve as the independent 

directors. 

The Bank Act does not require the 

board of directors to nominate any 

specific number of candidates for the 

independent directorships that are up 

for election, but it does require that each 

independent directorship be filled by 

the vote of the members. The FHFA has 

decided to leave this provision 

unchanged in the final rule, although 

the final rule does include other 

revisions, at § 1261.7(f), that are 

intended to strike a balance between the 

right of a board to nominate 

independent directors and the right of 

the members to elect those directors. As 

discussed later in this preamble, that 

provision would allow a board to 

nominate as few as one person for each 

open independent directorship, but if 

only one person is nominated for an 

open independent directorship, that 

person could not be elected without 

receiving at least 20 percent of the 

eligible votes. The provision is intended 

to ensure that the members retain a 

meaningful role in the election process. 

Section 1261.6(e) of the interim rule 

implemented provisions of section 7(a) 

of the Bank Act that specify the 

qualifications that each independent 

director, other than public interest 

directors, must have. Section 7(a) also 

authorizes the Director to establish other 

knowledge or experience requirements 

that an independent director may have 

in addition to those specified in section 

7(a). The interim rule provided that 

independent directors will be qualified 

if they have knowledge or experience in 

law or in the statutorily prescribed 

subjects, which are auditing or 

accounting, derivatives, financial 

management, organizational 

management, project development or 

risk management practices. In each case, 

the interim rule required a candidate’s 

knowledge or experience to be 

commensurate with the knowledge or 

experience needed to oversee a business 

of the size and complexity of the Bank. 

One Bank requested that the Director 

consider adding up to eight additional 

qualifications to the statutory list of 

qualifications, as authorized by section 

7(a)(3)(B)(i) of the Bank Act. The Bank 

asserts that it has found each of the 


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51456 Federal Register / Vol. 74, No. 193 / Wednesday, October 7, 2009 / Rules and Regulations 

additional qualifications to be helpful 

for corporate governance at the Bank. 

Although each of the suggested 

additional qualifications may be of 

value, the Bank Act heretofore has not 

specified qualifications for the 

independent directors, and the Director 

believes that the Banks should gain 

further experience applying the 

qualifications set forth in the statute and 

interim rule before FHFA considers 

adding additional qualifications. Other 

qualifications, indeed, may deserve 

consideration, and FHFA intends 

periodically to review whether 

additional qualifications should be 

added to the rule. 

Section 1261.6(e) of the interim rule 

also addressed the knowledge or 

experience qualifications that each 

independent director must have. The 

final rule is retaining the substance of 

the provisions from the interim rule, but 

the final rule divides § 1261.6(e) into 

two paragraphs, one addressing 

independent directors generally, and 

one addressing only the public interest 

directors. The general qualifications for 

independent directors who are not also 

public interest directors remain as set 

forth in the interim rule, with some 

clarifying language, and are located in 

paragraph (1). The statutory 

qualifications for public interest 

directors have been added in paragraph 

(2). 

As set forth in § 1261.6(f) of the 

interim rule, Banks must verify the 

eligibility of nominees for directorships 

before placing their names on the 

ballots. To verify eligibility for member 

director nominees, the Banks must use 

information on certification forms 

prescribed by FHFA. To verify 

eligibility and qualifications for 

nominees for independent 

directorships, the Banks must use 

information on the appropriate 

application forms. For incumbent 

nominees for independent 

directorships, the Banks may verify 

eligibility by using information on 

eligibility certification forms or, if a 

director was recently elected, on 

application forms. For all persons to be 

proposed as independent directorship 

nominees, the interim rule required the 

Banks to deliver the names and 

contemporaneously executed director 

application forms of the nominees to 

FHFA for its review before announcing 

the nominees. FHFA will review the 

information submitted and, if it has 

concerns about a nominee’s 

qualifications, may so inform the Bank. 

FHFA received several comments 

questioning how the FHFA review 

provision of the interim rule is intended 

to work, particularly how long a Bank 

should wait to receive comments from 

FHFA on the nominees. Some Banks 

raised questions about when 

certification forms, but not application 

forms, are appropriate for verification. 

As a result of those comments, FHFA 

has revised § 1261.6(f) to set forth its 

requirements more clearly. The final 

rule separately sets forth the 

requirements with respect to member 

directors and independent directors. 

The final rule also provides for a twoweek period after a Bank delivers 

application forms to FHFA before it may 

resume the next step in the election 

process, which previously was located 

in § 1261.7(a) of the interim rule. The 

final rule provides that the two-week 

period is to allow FHFA an opportunity 

to comment on nominees. FHFA expects 

that it will not comment in all cases, but 

if it does, the final rule gives the Bank’s 

board of directors discretion to reopen 

the nominations and consider other 

candidates in light of those comments. 

FHFA believes that a two-week interval 

to allow for review and potential 

comments by FHFA should not disrupt 

the nomination process. 

G. Section 1261.7 Election Process 

Section 1261.7 of the interim rule 

addressed how the Banks must conduct 

the elections process, from the 

distribution of ballots to the members 

through the reporting of the election 

results to their members and FHFA. 

Apart from the revisions described 

below, the final rule generally retains 

the substance of the provisions of the 

interim rule. 

Section 1261.7(a) of the interim rule 

addressed the content and distribution 

of the ballots, and included a provision 

regarding the two-week period for FHFA 

review of nominee application forms. 

As discussed above, FHFA received 

comments about how the two-week 

period for FHFA comments should work 

and has addressed that issue by 

relocating the provisions relating to the 

review period to § 1261.6(f) of the final 

rule. The final rule includes no other 

substantive changes to paragraphs (a) or 

(b) of this provision. Section 1261.7(c) 

of the interim rule addressed how a 

Bank is to proceed if the number of 

nominees for member directorships is 

equal to or less than the number of 

directorships to fill in an election. That 

provision directs a Bank to declare 

elected all eligible nominees, without 

holding an election, and provides that 

any unfilled directorship shall be 

deemed vacant on January 1 of the 

following year. 

Several Banks commented that 

§ 1261.7(c) should be revised to allow a 

Bank’s board of directors to elect 

someone to fill the vacancy as soon as 

the nomination process is closed 

because after that date the seat cannot 

be filled through election by the 

members and will become vacant on the 

following January 1. The final rule does 

not include the requested changes to 

§ 1261.7(c) because FHFA has 

incorporated other revisions into 

§ 1261.14(a) of the final rule, relating to 

vacancies generally, that would allow a 

Bank’s board of directors to fill an 

anticipated vacancy under certain 

circumstances, which could be applied 

if a vacancy were to occur as a result of 

no persons being nominated for a 

member directorship. FHFA, therefore, 

has not changed § 1261.7(c) of the 

interim rule, except to provide some 

clarifying language. 

The final rule has adopted without 

change § 1261.7(d) and (e) of the interim 

rule, which deal with the voting process 

and the counting of ballots, respectively. 

One Bank commented that the final rule 

should allow members the option of 

voting ‘‘no’’ for any independent 

director nominee, which would serve as 

an alternative to the requirement in 

§ 1261.7(f) that a nominee for an 

independent directorship must receive 

20 percent of the vote. FHFA has not 

adopted this suggestion, in light of the 

changes to the 20 percent requirement 

made in § 1261.7(f), discussed 

immediately below. 

Section 1261.7(f) of the interim rule 

addressed the manner in which a Bank 

is to declare the results of its elections 

for the member and independent 

directorships and included a 

requirement that any nominee for an 

independent directorship must receive 

at least 20 percent of the number of 

votes eligible to be cast in order to be 

declared elected. FHFA included the 20 

percent vote requirement in the interim 

rule as a means of ensuring that the 

members would maintain a meaningful 

role in the selection of the independent 

directors, and that the nomination 

process would not result in the board of 

directors effectively choosing the 

independent directors. FHFA also 

requested comment on whether the final 

rule should require that each Bank 

nominate more than one person for each 

independent directorship, as an 

alternative means of ensuring that the 

members retain a meaningful role in the 

process. 

All of the commenting Banks and one 

trade association requested that the 20 

percent vote requirement for 

independent directors be removed or 

reduced to a more manageable number, 

such as 10 percent. Some expressed 

concern about being able to obtain a 

minimum of 20 percent of the eligible 


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votes on the election of individuals who 

are not affiliated with the voting 

members, and others commented that 

the rule will have the effect of reducing 

the number of nominees in order to 

increase the likelihood that those 

nominated will receive 20 percent of the 

vote. 

After reviewing the comments, FHFA 

has decided to modify, rather than to 

eliminate, the requirement that an 

independent director must receive at 

least 20 percent of the eligible votes in 

order to be elected. Accordingly, the 

final rule provides that if a Bank’s board 

of directors nominates only one 

individual for each directorship, receipt 

of 20 percent of the eligible votes by that 

individual is the minimum level at 

which one could deem the members to 

have endorsed the board’s choice, 

especially given the need for only a 

plurality of the votes. If, however, a 

Bank’s board of directors nominates 

more persons for the type of 

independent directorship to be filled, 

either a public interest or other 

independent directorship, than there are 

directorships of that type to be filled in 

the election, then the final rule would 

allow the person with the highest 

number of votes to be declared elected, 

even if the total received was less than 

20 percent of the votes eligible to be cast 

in the election. FHFA believes this 

change strikes an appropriate balance 

between allowing the boards of the 

Banks to identify and nominate 

individuals who are well qualified and 

ensuring that the members have a 

meaningful role in determining whether 

the nominees are to become 

independent directors. 

Section 1261.7(g) of the interim rule 

required each Bank promptly to report 

the results of each election to its 

members, each nominee, and FHFA. 

The report must contain the number of 

voting members, the number of votes 

cast, and the number of votes received 

by each nominee, as well as other 

information specified therein. Although 

the interim rule did not require the 

submission of the total number of 

eligible votes that may be cast, FHFA 

needs this information to verify that the 

20 percent vote, if required, has been 

met, and thus added a requirement to 

the final rule to provide this 

information. 

If a Bank cannot fill an independent 

directorship because no nominee has 

received 20 percent of the eligible votes, 

§ 1261.7(h) of the interim rule required 

a Bank to continue the election for such 

directorship by starting again with 

consideration of nominees by its board 

of directors and going through all the 

steps thereafter. The Bank must 

continue repeated election procedures 

until the directorship is filled by a vote 

of 20 percent of the votes eligible to be 

cast. In their comments, the Banks 

requested more specific guidance on 

what steps should be taken in carrying 

out the repeated elections, and 

requested that they be allowed to 

shorten the amount of time required for 

various stages of the process. The Banks 

also suggested that a nominee’s failure 

to receive 20 percent of the vote may 

have been caused by any number of 

factors, ranging from having too many 

nominees to voter apathy, and that the 

final rule should not prohibit their 

boards from renominating some or all of 

the original nominees. 

After considering the comments, 

FHFA is revising § 1261.7(h) in the final 

rule to state more clearly what the 

Banks must do, starting with making 

nominations by the board of directors. 

The final rule allows the Banks to 

nominate any of the original nominees, 

as well as to shorten the voting period, 

provided they provide what they 

consider to be a reasonable voting 

period. However, because the original 

vote will have failed, the final rule 

requires the Banks to withhold placing 

names on ballots until FHFA has had an 

opportunity to approve them, without 

regard to any two-week time period. 

H. Section 1261.9 Actions Affecting 

Director Elections 

Section 1261.9 of the interim rule 

pertained to actions that representatives 

of a Bank may take in connection with 

the nomination and election of 

directors. Paragraphs (a) and (c) of the 

final rule are unchanged from the 

interim rule, apart from a wording 

change in paragraph (c). 

Section 1261.9(b) of the interim rule 

generally authorized a Bank and its 

representatives to support any nominee 

for election to an independent 

directorship, but allowed support for a 

nominee to a member directorship only 

if the persons are acting in their 

personal capacity and, as to Bank 

directors only, do not purport to 

represent the views of the Bank. 

Seven Banks requested that FHFA 

revise paragraph (b)(1) (which allowed 

Bank representatives to support member 

director nominees only when acting in 

their personal capacity and if not 

purporting to represent the views of the 

Bank) so that it would apply to all 

directorships, not just member 

directorships. Those commenters also 

asked that the prohibition on purporting 

to represent the views of the Bank be 

applied to all agents of the Bank, not 

just to the directors. The effect of that 

change would be to prohibit all such 

agents from stating that their views on 

any candidate are the same as the 

Bank’s views. Two other Banks 

advocated allowing directors to state 

that their views were the same as those 

of the Bank, so long as the statements 

were true. 

Because all candidates for member 

directorships are nominated by the 

members, not the Banks, FHFA believes 

that a Bank should not take a position 

favoring any particular nominee for a 

member directorship. Revising the rule 

to allow an agent of a Bank to represent 

that his or her personal views are the 

same as those of the Bank could 

undermine that policy, and FHFA 

declines to broaden the rule in that 

respect. The interim rule had allowed 

certain representatives of a Bank, when 

acting in their personal capacity, to 

support member director nominees, but 

prohibited only Bank directors from 

purporting to represent the views of the 

Bank. Section 1261.9(b)(1) of the final 

rule corrects that discrepancy by 

providing that none of the listed 

representatives shall purport to 

represent the views of the Bank when 

they act in their personal capacity to 

support a nominee for any Bank 

directorship. FHFA believes that 

differences do exist in how member 

directors and independent directors are 

chosen and that those differences justify 

separate rules on support and 

nomination, so § 1261.9(b)(1) of the 

interim rule has not been expanded to 

cover actions with respect to 

independent directors. 

Section 1261.9(b)(2) of the interim 

rule governs what is further allowed in 

one situation: After an individual has 

been nominated for an independent 

directorship. In this situation, 

individuals who are directors, officers, 

attorneys, employees or other agents of 

a Bank, as well as the Bank’s board and 

Advisory Council may support those 

nominees, and the section does not 

prohibit supporters from stating that 

their views represent the views of the 

Bank. Some Banks request that the final 

rule specifically authorize members of 

the Advisory Council to support 

independent directorship nominees, 

since the interim rule specifically 

authorizes members of a Bank’s board of 

directors to do so. FHFA has modified 

the final rule to clarify that members of 

the Advisory Council are included 

among those who may support a 

nominee for an independent 

directorship. Other clarifying changes 

also have been made to § 1261.9(b)(2) of 

the interim rule. 


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I. Section 1261.10 Independent Director 

Conflict of Interests 

Section 1261.10(a) of the interim rule 

prohibits an independent director from 

serving as an officer of any Bank and 

from serving as a director, officer, or 

employee of any member of the Bank on 

whose board the director sits, or of any 

recipient of any advances from that 

Bank. It also requires any independent 

director or nominee to disclose such 

interests. 

One Bank and one trade association 

commented that directors, officers and 

employees of nonmember institutions 

that are recipients of advances should 

not be disqualified from becoming 

independent directors solely because of 

that affiliation. They believe that such 

recipients of advances are treated 

unfairly by such a rule because their 

officers and directors also are not 

eligible to become member directors. 

However, the provision of the interim 

rule that prompted the comments 

simply reiterates a statutory prohibition, 

which FHFA cannot change. 

Accordingly, § 1261.10(a) has not been 

changed in the final rule, other than two 

instances in which the word ‘‘shall’’ has 

replaced ‘‘may’’. 

Section 1261.10(b) of the interim rule 

addressed situations in which a person’s 

service with a holding company having 

subsidiaries that are members of, or that 

receive advances from, the Bank on 

whose board the independent director 

serves would be deemed to be service 

with a member. The interim rule 

included a reference to institutions that 

were members of, or received advances 

from, ‘‘any’’ Bank, which would have 

included institutions that were members 

of other Banks. In order to clarify the 

intended reach of this provision, the 

final rule has added language limiting 

the reach of this provision to 

institutions that are member of, or that 

receive advances from, the Bank at 

which the independent director serves. 

J. Section 1261.11 Conflict-of-Interests 

Policy for Bank Directors 

Section 1261.11 of the interim rule 

required each Bank to adopt a conflictof-interests policy for the members of its 

board of directors, and set forth the 

minimum contents of the policy. The 

final rule adopts these provisions as 

they were stated in the interim rule, 

with the exception of the revisions 

noted below. Section 1261.11(a) 

specifies six specific minimum 

requirements that each Bank’s conflictof-interests policy must address, and 

allows a Bank to adopt a more 

expansive policy to address other issues 

if the Bank’s board of directors deems it 

appropriate to do so. Some commenters 

were unclear about what FHFA intends 

in one area, so the final rule modifies 

the fifth requirement of paragraph (a), 

relating to internal controls, to provide 

that the conflict-of-interests policy must 

require Bank management to establish 

internal controls with respect to 

disclosure and resolution of conflicts of 

interests. 

Section 1261.11(d) of the interim rule 

prohibits the acceptance of gifts that are 

given with the intent to influence the 

director’s actions as a member of the 

board of directors, or would have that 

appearance, and requires directors to 

discourage their family members from 

accepting gifts given with the intent of 

influencing the actions of the directors. 

The commenting Banks believed that 

the interim rule was too restrictive and 

argued that directors should be allowed 

to accept de minimis gifts and gifts that 

directors of insured depository 

institutions may accept. 

The interim rule was intended to 

preclude gifts that are given with the 

intent to influence the actions of a 

director, as well as those that a director 

reasonably believes to have been given 

with that intent and those that have the 

appearance of being given with that 

intent. FHFA believes that any gift that 

is intended to influence a director’s 

official actions is inappropriate and that 

it is not possible to eliminate the 

‘‘corrupt intent’’ of the person giving the 

gift by establishing a de minimis 

exception. For that reason, § 1261.11(d) 

of the final rule has not adopted the 

comments that sought to relax the scope 

of the rule. Nonetheless, FHFA 

recognizes that at times it is customary 

for persons in business relationships to 

give insubstantial gifts without any 

intent to influence the business 

decisions of the recipients of those gifts. 

FHFA expects that such insubstantial 

gifts could not reasonably be viewed by 

a director as having been given with the 

intent to influence, nor would an 

objective person view the gift as having 

been given for the purpose of 

influencing business decisions, and it 

has included a provision to that effect 

in the final rule. FHFA expects that the 

Banks will include in their codes of 

conduct provisions governing the views 

of their board on what constitutes an 

insubstantial gift and how to determine 

whether any gift violates the provisions 

of the final rule. 

K. Section 1261.12 Reporting 

Requirements for Bank Directors 

Section 1261.12(a) of the interim rule 

required each sitting director to execute 

an annual eligibility certification form 

applicable to the directorship held by 

the director. Section 1261.12(b) of the 

interim rule requires any sitting director 

of a Bank who believes or has reason to 

believe that she or he no longer meets 

the statutory or regulatory eligibility 

requirements to notify promptly both 

the Bank and FHFA. Likewise, any Bank 

that believes or has reason to believe 

that any of its directors no longer meets 

the eligibility requirements must notify 

FHFA promptly. The final rule does not 

change the interim rule in any 

substantive manner. 

L. Section 1261.13 Ineligible Bank 

Directors 

Section 1261.13 of the interim rule 

implemented section 7(f) of the Bank 

Act, which provides that a director’s 

failure to meet any statutory 

requirements causes the directorship to 

become vacant immediately. The 

section provides that a vacancy occurs 

whenever FHFA or a Bank determines 

that the director has failed to meet any 

eligibility requirement set forth in the 

Bank Act or in part 1261 or has failed 

to comply with the reporting 

requirements in § 1261.12. As discussed 

above in section D. Director Eligibility, 

a Bank director must satisfy certain 

eligibility requirements as well as other 

qualifications in order to remain in 

office. Section 1261.13 is intended to 

encompass all such requirements, so the 

final rule makes this clarifying change. 

M. Section 1261.14 Vacant Bank 

Directorships 

Section 1261.14 of the interim rule 

implemented the requirements of 

section 7(f) of the Bank Act relating to 

how vacancies in Bank directorships are 

to be filled. Paragraph (a) of that 

provision stated that the board of the 

Bank must fill such a vacancy ‘‘as soon 

as practicable after any vacancy occurs’’. 

Banks commenting on this provision 

asked that they also be allowed to elect 

a director to fill an anticipated vacancy 

that they know will occur, such as when 

a director resigns with an effective date 

some months into the future. FHFA 

believes that section 7(f) of the Bank 

Act, which uses the phrase ‘‘[i]n the 

event of a vacancy’’ to preface when a 

Bank can act, allows sufficient latitude 

for a Bank to fill an anticipated vacancy 

under certain circumstances. FHFA 

further believes that Banks could benefit 

from selecting persons to fill anticipated 

vacancies, such as by eliminating gaps 

in service that might otherwise arise and 

by allowing a new director more time to 

prepare for service prior to participating 

in his or her first board meeting. Section 

1261.14(a) of the final rule, therefore, 

has been modified to allow a Bank to 

select a replacement director prior to the 


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occurrence of the vacancy, provided 

that it does so no earlier than the date 

of the board meeting that is scheduled 

to occur immediately prior to the date 

of the anticipated vacancy. The final 

rule also provides that in any event the 

board of a Bank must act as soon as 

practicable after a vacancy actually 

occurs. 

Section 1261.14(b) of the interim rule 

required the board of directors to fill 

any vacancy with an individual who 

meets the eligibility requirements and 

the qualifications that applied to the 

predecessor director, except in the case 

of vacant public interest directorship 

where the Bank continues to have at 

least two other sitting public interest 

directors. In that case, the board of 

directors could fill the vacancy with an 

individual meeting the eligibility and 

qualification requirements for any 

independent directorship. Some Banks 

asked how they should apply the 

requirement that the replacement 

director satisfy the eligibility and 

qualification requirements that applied 

to the predecessor director if the 

predecessor was an appointed director 

who does not satisfy the HERA 

qualifications for independent directors. 

FHFA believes that the Bank Act 

distinguishes between eligibility 

requirements and qualifications for the 

independent directors and that a 

replacement director need only satisfy 

the eligibility requirements that applied 

to the predecessor, i.e., citizenship and 

residency in the district, and not the 

other qualifications, as to which the 

replacement director may meet the 

requirements of the Bank Act and the 

rule in the same manner as any 

independent director. Section 

1261.14(b) of the interim rule did not 

make this distinction, which the final 

rule does, albeit in § 1261.14(a)(3). 

As to member directorships, some 

Banks expressed concern that the 

interim rule would limit them to filling 

a vacancy with an individual who is an 

officer or director of an institution that 

was a member of the Bank as of the 

record date preceding the election in 

which the predecessor director was 

elected. The commenters suggested that 

the final rule allow them to elect a 

person that is an officer or director of an 

institution that is a member of the Bank 

as of the date that the board votes to fill 

the vacancy. FHFA believes that there is 

merit in this suggestion and that 

revising the final rule in this manner 

would be consistent with the applicable 

provisions of the Bank Act. Section 

1261.14(a)(3) of the final rule provides 

that a successor member director must 

satisfy the eligibility requirements and 

the other qualifications of the 

predecessor director as of the date that 

the board acts and that a successor 

independent director must satisfy the 

eligibility requirements for independent 

directors and have at least one of the 

qualifications for an independent 

director. Thus, a Bank may fill a vacant 

member directorship with an individual 

who is a citizen of the United States and 

is an officer or director of a current 

member that is located in the State to 

which the Director has allocated the 

directorship. 

The comments from the Banks also 

indicate some confusion about how to 

meet the requirements in § 1261.14(b) to 

verify eligibility for vacant directorships 

to be filled by the board of directors of 

a Bank. FHFA intends that the Banks 

verify eligibility for member 

directorships in the same manner as 

they verify eligibility of nominees for 

member directorships under § 1261.6(c) 

of the interim rule, which is by using 

the eligibility certification form 

prescribed by FHFA. FHFA intends that 

both eligibility and qualification for 

independent directorships be verified 

by using the independent director 

application form prescribed by FHFA. 

In addition, FHFA intends that the 

Banks deliver to FHFA, for its review, 

the application forms of all individuals 

that their boards will consider to fill 

independent directorship vacancies. 

The final rule has been revised to more 

clearly set forth these requirements. 

N. Section 1261.16 Temporary Rule for 

2008 Election of Directors 

This temporary director election 

schedule ceased to be effective after 

December 31, 2008. The final rule 

reserves this section for future use. 

III. Paperwork Reduction Act 

The final rule will have no 

substantive effect on any collection of 

information covered by the Paperwork 

Reduction Act of 1995 (PRA). See 44 

U.S.C. 3501 et seq. Therefore, FHFA has 

not submitted this final rule to the 

Office of Management and Budget 

(OMB) for review. The Finance Board 

used application and certification forms 

to collect information on prospective 

and incumbent directors, and those 

forms had been assigned control number 

3069–0002 by the OMB. FHFA will 

direct the Banks to use a revised version 

of those forms, which revised version 

will not modify materially the approved 

information collection, pending the 

assignment by OMB of control numbers 

to the revised forms. FHFA will submit 

only the revised forms to OMB for 

review under the PRA. 

IV. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) requires that a 

regulation that has a significant 

economic impact on a substantial 

number of small entities, small 

businesses, or small organizations must 

include an initial regulatory flexibility 

analysis describing the regulation’s 

impact on small entities. Such an 

analysis need not be undertaken if the 

agency has certified that the regulation 

will not have a significant economic 

impact on a substantial number of small 

entities. 5 U.S.C. 605(b). FHFA has 

considered the impact of the final rule 

under the Regulatory Flexibility Act. 

FHFA certifies that the final rule is not 

likely to have a significant economic 

impact on a substantial number of small 

business entities because the regulation 

is applicable only to the Banks, which 

are not small entities for the purposes of 

the Regulatory Flexibility Act. 

List of Subjects in 12 CFR Parts 915 and 

1261 

Banks, Banking, Conflicts of interest, 

Elections, Ethical conduct, Federal 

home loan banks, Financial disclosure, 

Reporting and recordkeeping 

requirements. 

■ Accordingly, the interim final rule 

removing part 915 of Title 12 CFR 

chapter IX and adding part 1261 of Title 

12 CFR chapter XII, published at 73 FR 

55710 on September 26, 2008, is 

adopted as a final rule, with the 

following changes: 

PART 1261—FEDERAL HOME LOAN 

BANK DIRECTORS 

■ 1. The authority citation for 12 CFR 

part 1261 is revised to read as follows: 

Authority: 12 U.S.C. 1426, 1427, 1432, 

4511 and 4526. 

■ 2. The heading for part 1261 is revised 

to read as set forth above. 

■ 3. Designate §§ 1261.1 through 

1261.16 as Subpart A and add a new 

Subpart A heading above § 1261.1 to 

read as follows: 

Subpart A—Federal Home Loan Bank 

Boards of Directors: Eligibility and 

Elections 

■ 4. Subpart B is added after § 1261.16 

and reserved to read as follows: 

Subpart B—Federal Home Loan Bank 

Directors’ Compensation and 

Expenses [Reserved] 

■ 5. Subpart C is added after Subpart B 

and reserved to read as follows: 


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Subpart C—[Reserved] 

■ 6. The Table of Contents is revised to 

read as follows: 

Subpart A—Federal Home Loan Bank 

Boards of Directors: Eligibility and 

Elections 

Sec. 

1261.1 Definitions. 

1261.2 General provisions. 

1261.3 Designation of member 

directorships. 

1261.4 Director eligibility. 

1261.5 Determination of member votes. 

1261.6 Nominations for member and 

independent directorships. 

1261.7 Election process. 

1261.8 [Reserved]. 

1261.9 Actions affecting director elections. 

1261.10 Independent director conflict of 

interests. 

1261.11 Conflict-of-interests policy for 

Bank directors. 

1261.12 Reporting requirements for Bank 

directors. 

1261.13 Ineligible Bank directors. 

1261.14 Vacant Bank directorships. 

1261.15 Minimum number of member 

directorships. 

1261.16 [Reserved]. 

Subpart B—Federal Home Loan Bank 

Directors’ Compensation and Expenses 

[Reserved] 

Subpart C—[Reserved] 

■ 7. Amend § 1261.1 by revising the 

introductory text and the definitions of 

‘‘Director’’, ‘‘FHFA’’, ‘‘FHFA ID 

number’’, ‘‘Independent directorship’’, 

‘‘Member directorship’’, ‘‘Method of 

equal proportions’’, ‘‘Public interest 

director’’, ‘‘Stock directorship’’, and 

‘‘Voting State’’ to read as follows: 

§ 1261.1 Definitions. 

As used in this Subpart A: 

* * * * * 

Director means the Director of the 

Federal Housing Finance Agency. 

FHFA means Federal Housing 

Finance Agency. 

FHFA ID number means the number 

assigned to a member by FHFA and 

used by FHFA and the Banks to identify 

a particular member. 

* * * * * 

Independent directorship means a 

directorship, as defined by section 

7(a)(4)(A) of the Act, 12 U.S.C. 

1427(a)(4)(A), that is filled by a plurality 

vote of the members at large by an 

individual having the qualifications 

specified by section 7(a)(3)(B)(i) or (ii), 

12 U.S.C. 1427(a)(3)(B)(i) or (ii). 

Member directorship means a 

directorship, as defined by section 

7(a)(4)(A) of the Act, 12 U.S.C. 

1427(a)(4)(A), that is filled by a plurality 

vote of the members located in a 

particular State by an individual who is 

an officer or director of a member 

located in that State, and includes 

guaranteed directorships and stock 

directorships. 

Method of equal proportions means 

the mathematical formula used by 

FHFA to allocate member directorships 

among the States in a Bank’s district 

based on the relative amounts of Bank 

stock required to be held as of the 

record date by members located in each 

State. 

Public interest director means an 

individual serving in a public interest 

directorship. 

* * * * * 

Stock directorship means a member 

directorship that is designated by FHFA 

as representing the members located in 

a particular voting State based on the 

amount of Bank stock required to be 

held by the members in that State as of 

the record date, other than a guaranteed 

directorship. 

Voting State means the District of 

Columbia, Puerto Rico, or the State of 

the United States in which a member’s 

principal place of business, as 

determined in accordance with 12 CFR 

part 925, or any successor provision, is 

located as of the record date. The voting 

State of a member with a principal place 

of business located in the U.S. Virgin 

Islands as of the record date is Puerto 

Rico, and the voting State of a member 

with a principal place of business 

located in American Samoa, Guam, or 

the Commonwealth of the Northern 

Mariana Islands as of the record date is 

Hawaii. 

■ 8. Amend § 1261.2 by revising 

paragraphs (a), (b), and (c) to read as 

follows: 

§ 1261.2 General provisions. 

(a) Board size and composition. 

Annually, the FHFA Director will 

determine the size of the board of 

directors for each Bank and will 

designate at least a majority, but no 

more than 60 percent, of the 

directorships as member directorships 

and the remainder as independent 

directorships. Annually, the board of 

directors of each Bank shall determine 

how many, if any, of the independent 

directorships with terms beginning the 

following January 1 shall be public 

interest directorships, ensuring that at 

all times the Bank will have at least two 

public interest independent 

directorships. 

(b) Term of directorships. The term of 

office of each directorship commencing 

on or after January 1, 2009 shall be four 

years, except as adjusted pursuant to 

section 7(d) of the Act (12 U.S.C 

1427(d)) to achieve a staggered board, 

and shall commence on January 1 of the 

calendar year so designated by FHFA. 

(c) Annual elections. Each Bank 

annually shall conduct an election the 

purpose of which is to fill all 

directorships designated by FHFA as 

commencing on January 1 of the 

calendar year immediately following the 

year in which such election is 

commenced. Subject to the provisions of 

the Act and in accordance with the 

requirements of this subpart, the 

disinterested members of the board of 

directors of each Bank, or a committee 

of disinterested directors, shall 

administer and conduct the annual 

election of directors. In so doing, the 

disinterested directors may use Bank 

staff or independent contractors to 

perform ministerial and administrative 

functions concerning the elections 

process. 

* * * * * 

■ 9. Revise § 1261.3 to read as follows: 

§ 1261.3 Designation of member 

directorships. 

(a) Determination of voting stock. (1) 

On or before April 10 of each year, each 

Bank shall deliver to FHFA a capital 

stock report that indicates, as of the 

record date, the number of members 

located in each voting State in the 

Bank’s district, the number of shares of 

Bank stock that each member (identified 

by its FHFA ID number) was required to 

hold, and the number of shares of Bank 

stock that all members located in each 

voting State were required to hold. If a 

Bank has issued more than one class of 

stock, it shall report the total shares of 

stock of all classes required to be held 

by the members. The Bank shall certify 

to FHFA that, to the best of its 

knowledge, the information provided in 

the capital stock report is accurate and 

complete, and that it has notified each 

member of its minimum capital stock 

holding requirement as of the record 

date. 

(2) If a Bank’s capital plan was not in 

effect as of the record date, the number 

of shares of Bank stock that any member 

was required to hold as of the record 

date shall be determined in accordance 

with 12 CFR 925.20 and 925.22, or any 

successor provisions. If a Bank’s capital 

plan was in effect as of the record date, 

the number of shares of Bank stock that 

any member was required to hold as of 

the record date shall be determined in 

accordance with the minimum 

investment established by the capital 

plan for that Bank; however, for any 

member whose Bank stock is less than 

the minimum investment during a 

transition period, the amount of Bank 

stock to be reported shall be the number 


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of shares of Bank stock actually owned 

by the member as of the record date. 

(b) Designation of member 

directorships as stock directorships. 

Using the method of equal proportions, 

the Director annually will conduct a 

designation of member directorships for 

each Bank based on the number of 

shares of Bank stock required to be held 

by the members in each State as of 

December 31 of the preceding calendar 

year. If a Bank has issued more than one 

class of stock, the Director will 

designate the directorships for each 

State in that Bank district based on the 

combined number of shares required to 

be held by the members in that State. 

For purposes of conducting the 

designation, if a Bank’s capital plan was 

not in effect on the immediately 

preceding December 31, the number of 

shares of Bank stock required to be held 

by members as of that date shall be 

determined in accordance with 12 CFR 

925.20 and 925.22, or any successor 

provisions. If a Bank’s capital plan was 

in effect on the immediately preceding 

December 31, the number of shares of 

Bank stock required to be held by 

members as of that date shall be 

determined in accordance with the 

minimum investment established by 

such capital plan; however, for any 

members whose Bank stock is less than 

the minimum investment during a 

transition period, the amount of stock to 

be used in the designation of 

directorships shall be the number of 

shares of Bank stock actually owned by 

those members as of that December 31. 

In all cases, the Director will designate 

the directorships by using the 

information provided by each Bank in 

its capital stock report required by 

paragraph (a)(1) of this section. 

(c) Allocation of directorships. The 

member directorships designated by the 

Director will be allocated among the 

States by the Director in accordance 

with section 7(b) and (c) of the Act. 

(d) Notification. On or before June 1 

of each year, FHFA will notify each 

Bank in writing of the total number of 

directorships established for the Bank 

and the number of member 

directorships designated as representing 

the members in each voting State in the 

Bank district. If the annual designation 

of member directorships results in an 

existing directorship being redesignated 

as representing members in a different 

State, the directorship shall be deemed 

to become vacant as of December 31 of 

that year, and the notice shall state that 

the directorship will be filled by the 

board of directors of the Bank with an 

eligible individual who is an officer or 

director of a member located in the 

newly designated State. 

■ 10. Amend § 1261.4 as follows: 

■ a. Revise paragraph (a)(2); 

■ b. Redesignate paragraphs (b) through 

(d) as paragraphs (c) through (e); 

■ c. Add a new paragraph (b); 

■ d. Revise newly redesignated 

paragraph (d)(2); and 

■ e. Revise newly redesignated 

paragraph (e). 

§ 1261.4 Director eligibility. 

(a) * * * 

(2) An officer or director of a member 

that is located in the district in which 

the Bank is located and that meets all 

minimum capital requirements 

established by its appropriate Federal 

banking agency or appropriate State 

regulator. In the case of a director 

elected by the members, the institution 

of which the director is an officer or 

director must have been a member as of 

the record date. In the case of a director 

elected by a Bank’s board of directors to 

fill a vacancy, the institution of which 

the director is an officer or director must 

be a member at the time the board acts. 

(b) State designation for member 

directors. Each member director, and 

each nominee to a member directorship, 

shall be an officer or director of a 

member that is located in the State to 

which the Director has allocated such 

directorship under § 1261.3(c). 

* * * * * 

(d) * * * 

(2) For purposes of applying the term 

limit provision of section 7(d) of the Act 

(12 U.S.C. 1427(d)): 

(i) A term of office that is adjusted 

after July 30, 2008 to a period of fewer 

than four years shall not be deemed to 

be a full term; 

(ii) Any member director’s election 

and service to a directorship with a 

three year term of office prior to July 30, 

2008 shall be deemed to be a full term; 

(iii) Any three-year term of office that 

ends immediately before a term of office 

that is adjusted after July 30, 2008 to a 

period of fewer than four years, and any 

term of office commencing immediately 

following such adjusted term of office, 

shall constitute consecutive full terms of 

office; and 

(iv) Any period of time served by a 

director who has been elected by the 

board of directors to fill a vacancy shall 

not be deemed to constitute a full term. 

(e) Loss of eligibility. (1) A director 

shall become ineligible to remain in 

office if, during his or her term of office, 

the directorship to which he or she has 

been elected is eliminated or, with 

respect to a member directorship, is 

redesignated by FHFA as representing 

members located in another State, in 

accordance with § 1261.3(c). The 

incumbent director shall become 

ineligible after the close of business on 

December 31 of the year in which the 

directorship is redesignated or 

eliminated. Any directorship ceasing 

through elimination or redesignation 

shall not be deemed to be a full-term 

directorship for purposes of this section. 

(2) In the case of a redesignation to 

another State, the redesignated 

directorship shall be filled by a majority 

vote of the remaining Bank directors, in 

accordance with § 1261.14(a). 

■ 11. Amend § 1261.5 by revising 

paragraph (b) to read as follows: 

§ 1261.5 Determination of member votes. 

* * * * * 

(b) Number of votes. For each member 

directorship and each independent 

directorship that is to be filled in an 

election, each member shall be entitled 

to cast one vote for each share of Bank 

stock that the member was required to 

hold as of the record date. 

Notwithstanding the preceding 

sentence, the number of votes that any 

member may cast for any one 

directorship shall not exceed the 

average number of shares of Bank stock 

required to be held as of the record date 

by all members located in the same 

State as of the record date. If a Bank has 

issued more than one class of stock, it 

shall calculate the average number of 

shares separately for each class of stock, 

using the total number of members in a 

State as the denominator, and shall 

apply those limits separately in 

determining the maximum number of 

votes that any member owning that class 

of stock may cast in the election. If a 

Bank’s capital plan was not in effect as 

of the record date, the number of shares 

of Bank stock that a member was 

required to hold as of the record date 

shall be determined in accordance with 

12 CFR 925.20 and 925.22, or any 

successor provisions. If a Bank’s capital 

plan was in effect as of the record date, 

the number of shares of Bank stock that 

a member was required to hold as of the 

record date shall be determined in 

accordance with the minimum 

investment requirement established by 

the Bank’s capital plan; however, for 

any member whose Bank stock is less 

than the minimum investment during a 

transition period, the amount of Bank 

stock to be used shall be the number of 

shares of Bank stock actually owned by 

the member as of the record date. 

* * * * * 

■ 12. Amend § 1261.6 by revising 

paragraphs (a)(5), (c), (d)(1), (d)(2), (e), 

and (f) to read as follows: 

§ 1261.6 Nominations for member and 

independent directorships. 

(a) * * * 


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(5) If a member directorship is to be 

filled by members in a State, a 

nominating certificate for those 

members. 

* * * * * 

(c) Accepting member directorship 

nominations. Promptly after receipt of 

any nominating certificate, a Bank shall 

notify in writing any individual 

nominated for a member directorship. 

An individual may accept the 

nomination only by delivering to the 

Bank, prior to a deadline established by 

the Bank and set forth in its notice, an 

executed director eligibility certification 

form prescribed by FHFA. A Bank shall 

allow each nominee at least 30 calendar 

days after the date the Bank delivered 

the notice of nomination within which 

to deliver the executed form. A nominee 

may decline the nomination by so 

advising the Bank in writing, or by 

failing to deliver a properly executed 

director eligibility certification form 

prior to the deadline. Each Bank shall 

retain all information received under 

this paragraph for at least two years after 

the date of the election. 

(d) Independent directorship 

nominations. (1) Any individual who 

seeks to be an independent director of 

the board of directors of a Bank may 

deliver to the Bank, on or before the 

deadline set by the Bank for delivery of 

nominating certificates, an executed 

independent director application form 

prescribed by FHFA that demonstrates 

that the individual both is eligible and 

has either of the following 

qualifications: 

(i) More than four years experience 

representing consumer or community 

interests in banking services, credit 

needs, housing, or consumer financial 

protections; or 

(ii) Knowledge of or experience in one 

or more of the areas set forth in 

paragraph (e) of this section. 

(2) Any other interested party may 

recommend to the Bank that it consider 

a particular individual as a nominee for 

an independent directorship, but the 

Bank shall not nominate any individual 

unless the individual has delivered to 

the Bank, on or before the date the Bank 

has set for delivery of nominating 

certificates, an executed independent 

director application form prescribed by 

FHFA. The application form prescribed 

by FHFA will provide a means by which 

an individual can indicate an intent to 

be considered for a public interest 

directorship. The board of directors of 

the Bank may consider any individual 

for any independent directorship 

nomination, provided it has determined 

that the individual is eligible and 

qualified, but the board shall nominate 

for a public interest directorship only an 

individual who indicates on the 

application form a desire to be 

considered for a public interest 

directorship. The board of directors of 

the Bank shall consult with the Bank’s 

Advisory Council before nominating 

any individual for any independent 

directorship. Each Bank shall include in 

its bylaws the procedures it intends to 

use for the nomination and election of 

the independent directors, and shall 

retain all information received under 

this paragraph for at least two years after 

the date of the election. 

* * * * * 

(e) Independent director 

qualifications. (1) Each independent 

director and each nominee for an 

independent directorship, other than a 

public interest directorship, shall have 

experience in, or knowledge of, one or 

more of the following areas: auditing 

and accounting, derivatives, financial 

management, organizational 

management, project development, risk 

management practices, and the law. 

Before nominating any individual for an 

independent directorship, other than a 

public interest directorship, the board of 

directors of a Bank shall determine that 

such knowledge or experience of the 

nominee is commensurate with that 

needed to oversee a financial institution 

with a size and complexity that is 

comparable to that of the Bank. 

(2) Each public interest independent 

director and each nominee for a public 

interest directorship shall have more 

than four years experience representing 

consumer or community interests in 

banking services, credit needs, housing 

or consumer financial protection. 

(f) Eligibility verification. Using the 

information provided on member 

director eligibility forms prescribed by 

FHFA, each Bank shall verify that each 

nominee for each member directorship 

meets all the eligibility requirements for 

such directorship. Using the 

information provided on independent 

director application forms prescribed by 

FHFA, each Bank shall verify that each 

nominee for each public interest 

independent directorship and each 

other independent directorship meets 

all eligibility requirements and any 

knowledge or experience qualifications 

for such directorship, as set forth in the 

Act and this subpart. Before announcing 

any independent director nominee, the 

Bank shall deliver to FHFA, for the 

Director’s review, a copy of the 

independent director application forms 

executed by the individuals nominated 

for independent directorships. If within 

two weeks of such delivery FHFA 

provides comments to the Bank on any 

independent director nominee, the 

board of directors of the Bank shall 

consider the FHFA’s comments in 

determining whether to proceed with 

those nominees or to reopen the 

nomination. 

■ 13. Amend § 1261.7 by revising 

paragraphs (a) introductory text, 

(a)(1)(ii), (a)(1)(v), (c), (f), (g), and (h) to 

read as follows: 

§ 1261.7 Election process. 

(a) Ballots. Promptly after fulfilling 

the requirements of § 1261.6(f), each 

Bank shall prepare and deliver a ballot 

to each member that was a member as 

of the record date. The Bank shall 

include with each ballot a closing date 

for the Bank’s receipt of voted ballots, 

which date shall be no earlier than 30 

calendar days after the date such ballot 

is delivered to the member. 

(1) * * * 

(ii) An alphabetical listing of the 

names of each nominee for a public 

interest independent directorship and a 

brief description of each nominee’s 

experience representing consumer and 

community interests; 

* * * * * 

(v) A confidentiality statement 

prohibiting the Bank from disclosing 

how any member voted. 

* * * * * 

(c) Lack of member directorship 

nominees. If, for any voting State, the 

number of nominees for the member 

directorships for that State is equal to or 

fewer than the number of such 

directorships to be filled in that year’s 

election, the Bank shall deliver a notice 

to the members in the affected voting 

State (in lieu of including any member 

directorship nominees on the ballot for 

that State) that such nominees shall be 

deemed elected without further action, 

due to an insufficient number of 

nominees to warrant balloting. 

Thereafter, the Bank shall declare 

elected all such eligible nominees and 

in doing so shall designate particular 

nominees to guaranteed directorships or 

stock directorships, respectively, if 

necessary. The nominees declared 

elected shall be included as directorselect in the report of election required 

under paragraph (g) of this section. Any 

member directorship that is not filled 

due to a lack of nominees shall be 

deemed vacant as of January 1 of the 

following year and shall be filled by the 

Bank’s board of directors in accordance 

with § 1261.14(a). 

* * * * * 

(f) Declaring results. (1) For member 

directorships. The Bank shall declare 

elected the nominee receiving the 

highest number of votes. If more than 


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one member directorship is to be filled 

for a particular State, the Bank shall 

declare elected each successive nominee 

receiving the next highest number of 

votes until all such open directorships 

are filled. 

(2) For independent directorships. (i) 

The bank shall tabulate separately the 

votes received for public interest 

independent director nominees and 

those received for other independent 

director nominees, in each case in 

accordance with paragraph (f)(2)(ii) of 

this section. 

(ii) If the number of nominees exceeds 

the number of directorships to be filled, 

the Bank shall declare elected the 

nominee receiving the highest number 

of votes. If more than one directorship 

is to be filled, the Bank shall declare 

elected each successive nominee 

receiving the next highest number of 

votes for such directorship until all such 

open directorships are filled. 

(iii) If the number of nominees is no 

more than the number of directorships 

to be filled, the Bank shall declare 

elected each nominee receiving at least 

20 percent of the number of votes 

eligible to be cast in the election. If any 

directorship is not filled due to any 

nominee’s failure to receive at least 20 

percent of the votes eligible to be cast, 

the Bank shall continue the election 

process for that directorship under the 

procedures in paragraph (h) of this 

section. 

(3) Tie votes. In the event of a tie for 

the last available directorship, the 

disinterested incumbent members of the 

board of directors of the Bank, by a 

majority vote, shall declare elected one 

of the nominees for whom the number 

of votes cast was tied. 

(4) Eligibility. A Bank shall not 

declare elected a nominee that it has 

reason to know is ineligible to serve, nor 

shall it seat a director-elect that it has 

reason to know is ineligible to serve. 

(5) Record retention. The Bank shall 

retain all ballots it receives for at least 

two years after the date of the election, 

and shall not disclose how any member 

voted. 

(g) Report of election. Promptly 

following the election, each Bank shall 

deliver a notice to its members, to each 

nominee, and to FHFA that contains the 

following information: 

(1) For each member directorship, the 

name of the director-elect, the name and 

location of the member at which he or 

she serves, his or her title or position at 

the member, the voting State 

represented, and the expiration date of 

the term of office; 

(2) For each independent 

directorship, the name of the directorelect, whether the director-elect will fill 

a public interest directorship and, if so, 

the consumer or community interest 

represented by such directorship, any 

qualifications under § 1261.6(e), and the 

expiration date of the term of office; 

(3) For member directorships, the 

total number of eligible votes, the 

number of members voting in the 

election, and the total number of votes 

cast for each nominee, which shall be 

reported by State; and 

(4) For independent directorships, the 

total number of eligible votes, the 

number of members voting in the 

election, and the total number of votes 

cast for each nominee, which shall be 

reported for the district at large. 

(h) Failure to fill all independent 

directorships. If any independent 

directorship is not filled due to the 

failure of any nominee to receive at least 

20 percent of the eligible vote, the Bank 

shall continue the election process for 

that directorship under the following 

procedures: 

(1) The Bank’s board of directors, after 

again consulting with the Bank’s 

Advisory Council, shall nominate at 

least as many individuals as there are 

independent directorships to be filled. It 

may nominate individuals who failed to 

be elected in the initial vote. The Bank 

thereafter shall deliver to FHFA a copy 

of the independent director application 

form executed by each nominee. 

(2) The Bank then shall follow the 

provisions in this section that are 

applicable to the election process for 

independent directors, except for the 

following: 

(i) The Bank shall not place the name 

of any nominee on a ballot without prior 

approval of FHFA; and 

(ii) The Bank may adopt a closing date 

that is earlier than 30 calendar days 

after delivery of the ballots to the 

eligible voting members, provided the 

Bank determines that an earlier closing 

date provides a reasonable amount of 

time to vote the ballots. 

■ 14. Amend § 1261.9 by revising the 

section heading and paragraphs (b) and 

(c) to read as follows: 

§ 1261.9 Actions affecting director 

elections. 

* * * * * 

(b) Support for nomination or 

election. (1) A Bank director, officer, 

attorney, employee, or agent, acting in 

his or her personal capacity, may 

support the nomination or election of 

any individual for a member 

directorship, provided that no such 

individual shall purport to represent the 

views of the Bank or its board of 

directors in doing so. 

(2) A Bank director, officer, attorney, 

employee or agent and the board of 

directors and Advisory Council 

(including members of the Council) of a 

Bank may support the candidacy of any 

individual nominated by the board of 

directors for election to an independent 

directorship. 

(c) Prohibition. Except as provided in 

paragraphs (a) and (b) of this section, no 

director, officer, attorney, employee, or 

agent of a Bank shall: 

(1) Communicate in any manner that 

a director, officer, attorney, employee, 

or agent of a Bank, directly or indirectly, 

supports or opposes the nomination or 

election of a particular individual for a 

directorship; or 

(2) Take any other action to influence 

the voting with respect to any particular 

individual. 

■ 15. Amend § 1261.10 by revising 

paragraphs (a) and (b) to read as follows: 

§ 1261.10 Independent director conflict of 

interests. 

(a) Employment interests. During any 

independent director’s term of service, 

such director shall not serve as an 

officer, employee, or director of any 

member of the Bank on whose board the 

individual sits, or of any recipient of 

advances from such Bank, and shall not 

serve as an officer of any Bank. An 

independent director or nominee for 

any independent directorship shall 

disclose all such interests to the Bank 

on whose board of directors the 

individual serves or which is 

considering the individual for 

nomination to its board of directors. 

(b) Holding companies. Service as an 

officer, employee, or director of a 

holding company that controls one or 

more members of, or one or more 

recipients of advances from, the Bank 

on whose board an independent director 

serves is not deemed to be service as an 

officer, employee or director of a 

member or recipient of advances if the 

assets of all such members or all such 

recipients of advances constitute less 

than 35 percent of the assets of the 

holding company, on a consolidated 

basis. 

* * * * * 

■ 16. Amend § 1261.11 by revising the 

section heading and paragraphs (a) 

introductory text, (a)(4), (a)(5), (a)(6), 

and (d) to read as follows: 

§ 1261.11 Conflict-of-interests policy for 

Bank directors. 

(a) Adoption of conflict-of-interests 

policy. Each Bank shall adopt a written 

conflict-of-interests policy that applies 

to all members of its board of directors. 

At a minimum, the conflict-of-interests 

policy of each Bank shall: 

* * * * * 


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(4) Require directors to disclose actual 

or apparent conflicts of interests and 

establish procedures for addressing such 

conflicts; 

(5) Require the establishment of 

internal controls to ensure that conflictof-interests reports are made and filed 

and that conflict-of-interests issues are 

disclosed and resolved; and 

(6) Establish procedures to monitor 

compliance with the conflict-of-interests 

policy. 

* * * * * 

(d) Gifts. No Bank director shall 

accept, and each Bank director shall 

discourage the director’s immediate 

family members from accepting, any gift 

that the director believes or has reason 

to believe is given with the intent to 

influence the director’s actions as a 

member of the Bank’s board of directors, 

or where acceptance of such gift would 

have the appearance of intending to 

influence the director’s actions as a 

member of the board. Any insubstantial 

gift would not be expected to trigger this 

prohibition. 

* * * * * 

■ 17. Revise § 1261.12 to read as 

follows: 

§ 1261.12 Reporting requirements for Bank 

directors. 

(a) Annual reporting. Annually, each 

Bank shall require each of its directors 

to execute and deliver to the Bank the 

appropriate director eligibility 

certification form prescribed by FHFA 

for the type of directorship held by such 

director. The Bank promptly shall 

deliver to FHFA a copy of the 

certification form delivered to it by each 

director. 

(b) Report of noncompliance. At any 

time that any director believes or has 

reason to believe that he or she no 

longer meets the eligibility requirements 

set forth in the Act or this subpart, the 

director promptly shall so notify the 

Bank and FHFA in writing. At any time 

that a Bank believes or has reason to 

believe that any director no longer 

meets the eligibility requirements set 

forth in the Act or this subpart, the Bank 

promptly shall notify FHFA in writing. 

■ 18. Revise § 1261.13 to read as 

follows: 

§ 1261.13 Ineligible Bank directors. 

Upon a determination by FHFA or a 

Bank that any director of the Bank no 

longer satisfies the eligibility 

requirements set forth in the Act or this 

part, or has failed to comply with the 

reporting requirements of § 1261.12, the 

directorship shall immediately become 

vacant. Any director that is determined 

to have failed to comply with any of 

these requirements shall not continue to 

serve as a Bank director. Whenever a 

Bank makes such a determination, the 

Bank promptly shall notify the Bank 

director and FHFA in writing. 

■ 19. Revise § 1261.14 to read as 

follows: 

§ 1261.14 Vacant Bank directorships. 

(a) Filling unexpired terms. (1) When 

a vacancy occurs on the board of 

directors of any Bank, the board of 

directors of the Bank shall elect, by a 

majority vote of the remaining Bank 

directors sitting as a board, an 

individual to fill the unexpired term of 

office of the vacant directorship, 

regardless of whether the remaining 

Bank directors constitute a quorum of 

the Bank’s board of directors. 

(2) The board of directors of the Bank 

may fill an anticipated vacancy prior to 

the effective date of the vacancy, 

provided the board does so no sooner 

than the date of the regularly scheduled 

board meeting that occurs immediately 

prior to the effective date of the 

vacancy. 

(3) The board of directors shall elect 

only an individual who satisfies all the 

eligibility requirements in the Act and 

in this subpart that applied to his or her 

predecessor and, for independent 

directorships, also satisfies any of the 

qualifications in the Act or this subpart. 

If a Bank does not have at least two 

sitting public interest independent 

directors, the board of directors of the 

Bank shall designate the directorship as 

a public interest directorship and shall 

elect an individual who satisfies a 

public interest independent directorship 

qualification in the Act or in this 

subpart. 

(b) Verifying eligibility. Prior to any 

election by the board of directors, the 

Bank shall obtain an executed member 

director eligibility certification form 

prescribed by FHFA from each 

individual being considered to fill a 

member directorship and an executed 

independent director application form 

prescribed by FHFA from each 

individual being considered to fill an 

independent directorship. Using the 

executed forms, each Bank shall verify 

each individual’s eligibility and, as to 

independent directors, also shall verify 

the individual’s qualifications. Before 

any independent director is elected by 

the board of directors of a Bank, the 

Bank shall deliver to FHFA for its 

review a copy of the application form of 

each individual being considered by the 

board. The Bank shall retain the 

information it receives in accordance 

with paragraphs (c) and (d) of § 1261.6. 

(c) Notification. Promptly after 

allowing the individual to assume the 

directorship, as provided in paragraph 

(b) of this section, a Bank shall notify 

FHFA and each member located in the 

Bank’s district in writing of the 

following: 

(1) For each member directorship 

filled by the board of a Bank, the name 

of the director, the name, location, and 

FHFA ID number of the member the 

director serves, the director’s title or 

position with the member, the voting 

State that the director represents, and 

the expiration date of the director’s term 

of office; and 

(2) For each independent directorship 

filled by the board of a Bank, the name 

of the director, the name and location of 

the organization with which the director 

is affiliated, if any, the director’s title or 

position with such organization, and the 

expiration date of the director’s term of 

office. 

§ 1261.16 [Removed and reserved] 

■ 20. Remove and reserve § 1261.16. 

Dated: September 30, 2009. 

Edward J. DeMarco, 

Acting Director, Federal Housing Finance 

Agency. 

[FR Doc. E9–24063 Filed 10–6–09; 8:45 am] 

BILLING CODE P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2009–0367; Directorate 

Identifier 2009–NE–10–AD; Amendment 39– 

16023; AD 2009–19–07] 

RIN 2120–AA64 

Airworthiness Directives; Teledyne 

Continental Motors O–470, IO–470, 

TSIO–470, IO–520, TSIO–520, IO–550, 

and IOF–550 Series Reciprocating 

Engines; Correction 

AGENCY: Federal Aviation 

Administration, DOT. 

ACTION: Final rule; correction. 

SUMMARY: The FAA is correcting 

airworthiness directive (AD) 2009–19– 

06, which published in the Federal 

Register on September 22, 2009. That 

AD applies to Teledyne Continental 

Motors O–470, IO–470, TSIO–470, IO– 

520, TSIO–520, IO–550, and IOF–550 

series reciprocating engines. The two 

references to the AD number are 

incorrect due to a software problem 

with the automated AD number 

assignment system. This document 

corrects those references. In all other 

respects, the original document remains 

the same. 


erowe on DSK5CLS3C1PROD with RULES