87730 Federal Register / Vol. 89, No. 213 / Monday, November 4, 2024 / Proposed Rules 

1See 12 U.S.C. 1427(a)(1). 

2FHFA’s regulations refer to eligible nonmember 

borrowers as ‘‘housing associates.’’ See 12 CFR part 

1264. 

3See 12 U.S.C. 1427(a)(4), (b), and (d). 

4See 12 U.S.C. 1427(a)(2). 

5See 12 U.S.C. 1427(d). 

6See 12 U.S.C. 1429, 1430(a)(1), 1430b. 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Parts 1239, 1261, and 1273 

RIN 2590–AB24 

Federal Home Loan Bank System 

Boards of Directors and Executive 

Management 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Federal Housing Finance 

Agency (FHFA or the Agency) is 

proposing to revise regulations 

addressing boards of directors and 

overall corporate governance of the 

Federal Home Loan Banks (Banks) and 

the Bank System’s Office of Finance 

(OF) to update and clarify regulatory 

requirements on a variety of topics 

including: FHFA’s annual designation 

of Bank directorships; Bank director 

eligibility and professional 

qualifications; nomination, election, and 

removal of Bank directors; the conduct 

of System board and committee 

meetings; conflicts of interest; and the 

respective responsibilities of System 

boards of directors and executive 

management. 

DATES: Written comments must be 

received on or before February 3, 2025. 

ADDRESSES: You may submit your 

comments on the proposed rule, 

identified by regulatory information 

number (RIN) 2590–AB24, by any one of 

the following methods: 

• Agency Website: https://

www.fhfa.gov/regulation/federalregister?comments=open. 

• Federal eRulemaking Portal: 

https://www.regulations.gov. Follow the 

instructions for submitting comments. If 

you submit your comment to the 

Federal eRulemaking Portal, please also 

send it by email to FHFA at 

RegComments@fhfa.gov to ensure 

timely receipt by FHFA. Include the 

following information in the subject line 

of your submission: Comments/RIN 

2590–AB24. 

• Hand Delivered/Courier: The hand 

delivery address is: Clinton Jones, 

General Counsel, Attention: Comments/ 

RIN 2590–AB24, Federal Housing 

Finance Agency, 400 Seventh Street 

SW, Washington, DC 20219. Deliver the 

package at the Seventh Street entrance 

Guard Desk, First Floor, on business 

days between 9 a.m. and 5 p.m. 

• U.S. Mail, United Parcel Service, 

Federal Express, or Other Mail Service: 

The mailing address for comments is: 

Clinton Jones, General Counsel, 

Attention: Comments/RIN 2590–AB24, 

Federal Housing Finance Agency, 400 

Seventh Street SW, Washington, DC 

20219. Please note that all mail sent to 

FHFA via U.S. Mail is routed through a 

national irradiation facility, a process 

that may delay delivery by 

approximately two weeks. For any timesensitive correspondence, please plan 

accordingly. 

FOR FURTHER INFORMATION CONTACT: 

Lindsay Spadoni, Assistant General 

Counsel, Office of General Counsel, 

(202) 649–3634, Lindsay.Spadoni@

FHFA.gov; or Janna Bruce, Senior 

Financial Analyst, Division of Bank 

Regulation, (202) 649–3202, 

Janna.Bruce@FHFA.gov. These are not 

toll-free numbers. For TTY/TRS users 

with hearing and speech disabilities, 

dial 711 and ask to be connected to any 

of the contact numbers above. 

SUPPLEMENTARY INFORMATION: 

I. Comments 

FHFA invites comments on all aspects 

of the proposed rule and will take all 

comments into consideration before 

issuing a final rule. Comments will be 

posted to the electronic rulemaking 

docket on the FHFA public website at 

https://www.fhfa.gov, except as 

described below. Commenters should 

submit only information the commenter 

wishes to make available publicly. 

FHFA may post only a single 

representative example of identical or 

substantially identical comments, and 

in such cases will generally identify the 

number of identical or substantially 

identical comments represented by the 

posted example. FHFA may, in its 

discretion, redact or refrain from posting 

all or any portion of any comment that 

contains content that is obscene, vulgar, 

profane, or threatens harm. All 

comments, including those that are 

redacted or not posted, will be retained 

in their original form in FHFA’s internal 

rulemaking file and considered as 

required by all applicable laws. 

Commenters that would like FHFA to 

consider any portion of their comment 

exempt from disclosure on the basis that 

it contains trade secrets, or financial, 

confidential or proprietary data or 

information, should follow the 

procedures in section IV.D. of FHFA’s 

Policy on Communications with Outside 

Parties in Connection with FHFA 

Rulemakings, see https://www.fhfa.gov/ 

sites/default/files/documents/Ex-ParteCommunications-Public-Policy_3-5- 

19.pdf. FHFA cannot guarantee that 

such data or information, or the identity 

of the commenter, will remain 

confidential if disclosure is sought 

pursuant to an applicable statute or 

regulation. See 12 CFR 1202.8 and 

1214.2 and the FHFA FOIA Reference 

Guide at https://www.fhfa.gov/about/ 

foia-reference-guide for additional 

information. 

II. Background 

A. Statutory Requirements on Bank 

System Governance 

The Bank System consists of eleven 

district Banks and the OF. The Banks 

are wholesale, cooperatively owned 

financial institutions, the debt of which 

is the joint and several obligation of all 

eleven Banks. They are organized under 

authority of the Federal Home Loan 

Bank Act (Bank Act) to serve the public 

interest by enhancing the availability of 

residential housing finance and 

community lending credit through their 

member institutions and, to a very 

limited extent, through certain eligible 

nonmembers. In general, only members 

may obtain advances (low-cost secured 

loans) and access other products and 

services provided by a Bank. 

The Bank Act vests the management 

of each Bank in its board of directors.1

As required by statute, each Bank’s 

board comprises two types of directors: 

(1) member directors, who are drawn 

from the officers and directors of 

member institutions located in the 

Bank’s district and who are elected to 

represent members in each respective 

state in that district; and (2) 

independent directors, who are 

unaffiliated with any of the Bank’s 

member institutions or borrowing 

housing associates,2 but who reside in 

the Bank’s district and are elected on an 

at-large basis.3 The Bank Act specifies 

that a majority of seats on each Bank’s 

board of directors must be member 

directorships, while not less than 40 

percent must be independent 

directorships.4 Both types of directors 

serve four-year terms, which must be 

staggered so that approximately onequarter of a Bank’s total directorships 

are up for election every year.5 The 

Bank Act establishes the eligibility 

requirements for both types of Bank 

directors, including the professional 

qualifications required for independent 

directors, and sets forth requirements 

for their nomination and election.6 The 

statute requires the FHFA Director to 

annually designate the size and 

composition of each Bank’s board of 

directors for the following calendar 


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7See 12 U.S.C. 1427(b)(1), (c). 

8 12 U.S.C. 1427(a)(3)(B)(ii). 

9 12 U.S.C. 1427(a)(3)(B)(i). 

10See 12 CFR 1261.7(e)(1). 

11Subpart A of the existing regulation, entitled 

‘‘Definitions,’’ has no content. 

12See 88 FR 22919 (Apr. 14, 2023) (FHFA Notice 

of Regulatory Review). The Regulatory Review Plan 

establishes a process by which, at least every five 

years, FHFA issues a notice of the regulatory review 

in the Federal Register and requests comments on 

how its regulations may be made more effective and 

less burdensome in achieving the Agency’s 

regulatory objectives. See 77 FR 10351 (Feb. 22, 

2012) (FHFA Regulatory Review Plan). 13See FHLBank System at 100 Report at 64. 

year, including by establishing the 

number of member and independent 

directorships and allocating member 

directorships among the states of the 

Bank district.7

The Bank Act requires that at least 

two of a Bank’s independent directors 

qualify as ‘‘public interest’’ independent 

directors, each of which must ‘‘have 

more than 4 years of experience in 

representing consumer or community 

interests on banking services, credit 

needs, housing, or financial consumer 

protections.’’ 8 Each independent 

director that is not a public interest 

independent director (referred to in this 

proposed rule as a ‘‘regular independent 

director’’) must ‘‘have demonstrated 

knowledge of, or experience in, 

financial management, auditing and 

accounting, risk management practices, 

derivatives, project development, or 

organizational management, or such 

other knowledge or expertise as the 

[FHFA] Director may provide by 

regulation.’’ 9 By regulation, FHFA has 

added ‘‘the law’’ to that list of qualifying 

knowledge and experience.10

B. Existing Regulations on Corporate 

Governance of Banks and OF 

Part 1261 of FHFA’s regulations, 

entitled ‘‘Federal Home Loan Bank 

Directors,’’ implements the statutory 

provisions and otherwise establishes 

requirements and processes relating to 

the composition and operations of Bank 

boards of directors. With respect to the 

former, sections in subpart B of the 

regulation (§§ 1261.2 through 1261.15) 

cover the annual designation of Bank 

directorships by the FHFA Director, 

director eligibility, the nomination and 

election processes, reporting and record 

retention requirements, handling 

conflicts of interest, and the filling of 

vacancies. Sections in subpart C 

(§§ 1261.20 through 1261.24) address 

director compensation and expenses 

and the conduct of board and committee 

meetings.11

In addition to the corporate 

governance issues addressed in part 

1261, part 1239 of FHFA’s regulations, 

entitled ‘‘Responsibilities of Boards of 

Directors, Corporate Practices, and 

Corporate Governance,’’ addresses 

duties and responsibilities of directors, 

required board committees, and 

programs and policies each Bank must 

establish and maintain. Although part 

1239 generally applies to all of FHFA’s 

regulated entities, subpart E of the 

regulation sets forth requirements that 

are specific to the Banks. Part 1273 of 

FHFA’s regulations governs the Bank 

System’s OF, with governance issues— 

including composition and meetings of 

the OF board of directors—being 

addressed primarily in § 1273.8. 

III. Overview of the Proposed Rule 

The proposed rule would make 

numerous revisions to part 1261, as well 

as more limited revisions to parts 1239 

and 1273 to address various issues 

related to the corporate governance of 

the Banks and the OF. While the greater 

portion of the proposed changes to 

existing regulatory text are intended 

merely to restate existing requirements 

more clearly, many of the proposed 

revisions are substantive. The latter are 

being proposed primarily to ensure that 

the Banks maintain strong corporate 

governance that enables them to 

effectively fulfill their public policy 

mission while maintaining safe and 

sound operations. New proposed 

requirements and authorities would 

help ensure the Banks have the 

leadership and resources to forestall 

avoidable difficulties and to address 

challenges that may arise in the years 

ahead. The proposed revisions reflect 

FHFA’s view that corporate governance 

of the Banks is strengthened when: the 

public interest is adequately 

represented; Bank boards have the 

collective knowledge and expertise to 

guide the Bank through new and 

emerging risks and complex problems; 

independent directors represent a true 

independent voice; each Bank has the 

tools to ensure that its directors are fit 

to serve in a fiduciary role with the 

Bank; and Bank directors and 

management are incentivized to carry 

out their duties and responsibilities 

conscientiously. 

As discussed further below, several of 

the proposed changes implement action 

items from FHFA’s FHLBank System at 

100: Focusing on the Future Report 

(FHLBank System at 100 Report or 

Report), published in November 2023. 

The proposed rule would also address 

issues raised in comments received in 

response to FHFA’s April 2023 Notice of 

Regulatory Review, which was 

published pursuant to FHFA’s 

Regulatory Review Plan.12 Other 

substantive changes are intended to 

increase transparency by codifying 

existing guidance or practices or to 

provide clarity on issues for which there 

currently exists no formal guidance, but 

on which FHFA has received inquiries. 

Finally, FHFA is also proposing many 

non-substantive revisions to part 1261, 

which are intended merely to address 

existing requirements, processes, and 

authorities pertaining to Bank boards 

and directors more clearly than does the 

existing regulation. 

The FHLBank System at 100 Report 

provides a blueprint for innovative and 

prudent steps to bolster and improve the 

Bank System over the next several years, 

with the goal of ensuring that the Banks 

remain well positioned to meet the 

needs of their members and the 

communities they serve as they 

approach their 100th anniversary. The 

Report was informed by a year-long 

review of the Bank System involving 

significant stakeholder outreach, a 

historical review of the role of the 

Banks, and detailed analysis of both the 

strengths and areas for improvement in 

the System’s current structure. As stated 

in the Report, FHFA’s vision for the 

future is to have an effectively governed 

Bank System that efficiently provides 

stable and reliable funding to 

creditworthy members and delivers 

innovative products and services to 

support the housing and community 

development needs of the communities 

its members serve, all in a safe and 

sound manner. The Report noted that 

each Bank’s ‘‘effectiveness in achieving 

its mission and safety and soundness 

goals is influenced by its 

governance.’’ 13

The Report laid out four regulatory 

actions to be taken by FHFA to 

strengthen Bank boards of directors and 

enable them to effectively address 

emerging risks and to oversee the safety 

and soundness and mission 

achievement of the Banks in today’s 

financial market environment: (1) clarify 

required qualifications for public 

interest independent directors; (2) 

expand the list of qualifying experience 

for regular independent directors to 

reflect business developments in 

housing finance and new and emerging 

risks and complex problems; (3) 

encourage the Banks to evaluate 

potential gaps in board knowledge and 

pursue opportunities to address these 

gaps by nominating individuals with 

particular skills, backgrounds, and 

experience; and (4) facilitate the 

nomination of individuals with 


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14See FHLBank System at 100 Report at 67. 

15See 12 CFR 1261.9(a). 

16See 12 CFR part 1264. A Bank may make an 

advance to an entity, such as a state housing finance 

agency, that is certified as a housing associate, but 

housing associates cannot become bank members. 

technical subject matter expertise.14 The 

proposed rule would address each of 

those four action items. 

The proposed rule would clarify 

required qualifications for public 

interest independent directors, 

including by specifying criteria for a 

Bank to consider when determining if 

an individual has ‘‘represented’’ 

consumer or community interests on 

banking services, credit needs, housing, 

or financial consumer protections, as 

required by statute to qualify as a public 

interest independent director. The rule 

would codify existing guidance that a 

person must have advocated for, or 

otherwise acted primarily on behalf of 

or for the direct benefit of, consumers or 

the community to meet the 

representation requirement. 

The revised regulation would require 

each Bank to take affirmative measures 

to ensure that its board of directors has 

the knowledge and experience needed 

to adequately oversee the management 

of the Bank. Based on input received 

during the FHLBank System at 100 

outreach, the proposed rule would add 

artificial intelligence, information 

technology and security, climate-related 

risk, Community Development 

Financial Institution (CDFI) business 

models, and modeling to the list of 

qualifying experience for regular 

independent directors. To ensure 

coverage of critical areas, each Bank’s 

board would be required to conduct an 

annual assessment of the skills and 

experience possessed by its incumbents 

and those for which the board has a 

need. ‘‘Skills and experience’’ 

assessments are authorized, but not 

required, under the existing 

regulation.15

Banks would be required to take 

active steps to seek independent 

directorship nominees—and to 

encourage member directorship 

nominees—who possess needed skills 

and experience. The revised regulation 

also would require the Banks to 

prioritize knowledge and experience 

relevant to the business, programs, and 

mission of the Bank and gained 

primarily through full time paid 

executive, management, or other senior 

positions when considering potential 

independent directorship nominees. To 

provide Banks with more flexibility to 

address critical needs when filling 

board vacancies, the proposed rule 

would add a provision expressly 

permitting Banks to fill a vacant public 

interest independent directorship by 

redesignating a qualifying incumbent 

regular independent director as a public 

interest independent director and vice 

versa. The Bank could then find new 

nominees to fill the resulting 

independent directorship vacancy (a 

practice FHFA currently permits). 

At several points during the outreach 

phase of the FHLBank System at 100 

initiative, stakeholders stressed the 

importance of independent voices on a 

Bank’s board. The proposed rule 

includes provisions addressing director 

independence. It would make modest 

changes to increase the separation 

between independent directors and 

Bank members by extending 

‘‘independence’’ requirements (which 

currently only apply to seated directors) 

to independent directorship nominees 

and prohibiting former member 

directors from serving as an 

independent director until they have 

been off the board for at least two years. 

In response to a Notice of Regulatory 

Review comment, the proposed rule 

includes a new provision clarifying the 

definition of ‘‘advances’’ for purposes of 

the prohibition against an independent 

director serving as an officer, employee, 

or director of any ‘‘recipient of 

advances’’ from the Bank. This issue is 

of particular relevance for independent 

directors who lead or work for entities 

certified as housing associates.16 As 

proposed, the word ‘‘advances’’ would 

refer to any loan from a Bank to the 

recipient, regardless of form or 

nomenclature, except for debt securities 

traded in the public capital markets. 

This definition strikes a balance 

between preventing circumvention of 

the independence requirements and 

allowing Banks to tap into their housing 

associates’ valuable expertise without 

having to relinquish, or decline to make, 

investments in their debt securities. 

The proposed rule would codify 

requirements and authorities relating to 

the ‘‘fitness’’ of an individual to serve as 

a director. It would require that a Bank 

decline to nominate or seat as a director 

any individual it knows to be ‘‘unfit’’ to 

serve and authorize each Bank’s board 

to adopt bylaws or policies under which 

it may remove directors ‘‘for cause’’ 

upon a two-thirds vote of the board. As 

proposed, ‘‘cause’’ for removal would 

include code of ethics or policy 

violations, violations of the law, posing 

a risk of material harm to the Bank, 

conduct or a mental condition 

indicating an inability to oversee the 

Bank, and poor performance or lack of 

participation. The proposed rule would 

also require that each Bank’s board 

conduct an annual assessment of 

director performance and participation 

to determine whether each director is 

contributing positively to the board’s 

ability to adequately oversee the 

operations of the Bank. The proposed 

rule would require that director 

compensation reflect performance, as 

determined through the annual 

assessment, and permit the board to 

remove a director where the assessment 

reveals that a director’s continuous poor 

performance or lack of participation is 

compromising the board’s ability to 

adequately oversee the operations of the 

Bank. Additionally, the proposed rule 

would allow the FHFA Director to 

establish and provide notice of an 

annual amount of director 

compensation determined to be 

reasonable. 

As further assurance that all Bank 

directors are fit to serve, the proposed 

rule would codify as a regulatory 

requirement the Banks’ existing practice 

of conducting thorough background 

checks on independent directorship 

nominees, as well as individuals under 

consideration to fill a vacant 

directorship. It would also for the first 

time expressly require the Banks to 

conduct background checks for their 

member directorship nominees. The 

revised regulation would prohibit a 

Bank from including any individual on 

the ballot without having first 

confirmed, based on the background 

check, the individual’s fitness to serve 

in a fiduciary role with the Bank. 

With respect to directorship terms 

and term limits, the proposed rule 

would expressly provide that FHFA 

may continue, as part of the annual 

designation of directorships process, to 

adjust downward the length of terms 

from time to time where required to 

maintain the even staggering of 

directorship terms on a Bank’s board. 

The proposed rule would make clear 

that such truncated terms do not count 

as ‘‘full terms’’ for purposes of the 

statutory term limit provisions, but that 

full terms on either side of a truncated 

term must be counted as consecutive for 

those purposes. 

In one of only a few revisions to 

address corporate governance issues 

below the board level, the proposed rule 

would require each Bank to adopt and 

implement a conflicts of interest policy 

covering all Bank employees. The 

required policy would establish 

appropriate limitations, standards, and 

procedures on the holding of outside 

positions and financial interests by 

Bank employees and close family 

members and associates. Although the 

treatment of different types of 

employees under such a policy may be 


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calibrated to the risk presented, each 

Bank’s policy would be required to 

prohibit its executive officers and senior 

management from holding paid 

positions with any entity that is, or may 

be eligible to become, a member or 

housing associate of any Bank or with 

any affiliate of such entity. 

Finally, the proposed rule would 

revise the regulation’s existing 

provisions on record retention. Changes 

would increase the amount of time a 

Bank must retain materials pertaining to 

its directors and the director nomination 

and election process from two years to 

the longer of seven years or seven years 

after the director to which the 

information pertains leaves the board. 

This requirement is consistent with 

recognized best practices and should 

not be burdensome to implement in an 

electronic environment. 

Although the proposed rule would 

impose new requirements (in addition 

to codifying some existing 

expectations), it would also implement 

new, or make permanent previously 

temporary, flexibilities. As requested in 

a Notice of Regulatory Review comment, 

the proposed rule would remove the 

requirement that Bank boards satisfy 

their six meeting per year minimum 

only through in-person meetings. The 

proposed revision would codify the 

substance of a waiver that has been in 

place since early in the COVID–19 

pandemic by permitting Bank and OF 

board and committee meetings to be 

held by video or teleconferencing, or in 

a hybrid format, provided all directors 

have an opportunity to communicate, 

have access to all written documents 

and presentations, and all participants 

are within a state or U.S. Territory that 

is part of a Bank district. 

To reduce burden in other areas, the 

proposed rule would also implement a 

number of other recommendations 

received as comments on the Notice of 

Regulatory Review. These changes 

include expanding the range of armslength transactions not considered to be 

a prohibited ‘‘financial interest’’ for 

purposes of the Bank director conflictsof-interest requirements, updating and 

expanding the authorized methods for 

withdrawal of OF operating funds, and 

allowing the OF board of directors to 

delegate review and approval of 

contracts as specified in applicable 

governance documents. 

In addition to these substantive 

revisions, the proposed rule would 

make non-substantive revisions 

throughout part 1261 to improve the 

readability of the regulatory text and 

provide greater clarity on the 

requirements, processes, and authorities 

pertaining to Bank directors. In 

particular, provisions governing the 

annual designation of directorships, 

director eligibility, the nomination and 

election processes, and the filling of 

vacant directorships would be updated. 

These proposed non-substantive 

revisions include substitution of clearer 

phrasing, changes to assure consistent 

use of terminology, consolidation of 

related subject matter, replacement of 

statutory cross-references with either 

substantive text or regulatory crossreferences, reorganization of sections 

and revision of headings, and removal 

of transitional material that is no longer 

needed. 

IV. Section-by-Section Analysis of the 

Proposed Rule 

A. Revisions to 12 CFR Part 1261 

1. Definitions—§ 1261.2 

Section 1261.2 of the existing 

regulation sets forth definitions 

applicable to subpart B of part 1261, 

which consists of the provisions 

governing Bank director eligibility, 

nominations, and elections. Existing 

§ 1261.2 includes definitions for 

‘‘independent directorship,’’ ‘‘member 

directorship,’’ ‘‘public interest director,’’ 

and ‘‘public interest directorship.’’ As 

described below, the proposed rule 

would add to and revise the regulatory 

terms describing the Bank directorship 

types and sub-types. The proposals are 

intended to provide clarity, and 

revisions to existing definitions are not 

intended to change the scope of the 

defined terms. 

The existing regulation defines the 

terms ‘‘independent directorship’’ and 

‘‘member directorship’’ by means of 

cross-references to the relevant 

provisions of the Bank Act. The 

proposed rule would replace these 

statutory references with crossreferences to the regulatory provisions 

establishing the eligibility and 

designation requirements for those two 

types of Bank directorships. FHFA 

believes it is preferable to define terms 

with reference to the regulation itself, as 

opposed to requiring reference to the 

statute the regulation is intended to 

implement. Because part 1261 addresses 

both ‘‘directorships’’ (the designated 

seats comprising a Bank’s board) and 

‘‘directors’’ (the individuals filling those 

seats), those variants would be defined 

together for each directorship type. 

While both the Bank Act and the 

existing regulation define ‘‘public 

interest directorship’’ (referring to an 

independent directorship to be filled by 

an individual meeting the ‘‘representing 

consumer or community interests’’ 

qualification requirement), both refer to 

an independent directorship to be filled 

by an individual meeting the 

‘‘knowledge and experience’’ 

qualification requirement of the statute 

with such undefined terms as ‘‘an 

independent directorship, other than a 

public interest directorship’’ and ‘‘an 

independent director that is not a public 

interest director.’’ The proposed rule 

would establish a joint definition for 

‘‘regular independent directorship and 

regular independent director’’ to refer to 

those types of independent 

directorships and directors, and would 

define the terms with a cross-reference 

to the new provision addressing the 

qualifications requirements for such 

directors under the proposed rule 

(§ 1261.5(c)(1), discussed below). 

The existing regulation defines 

‘‘public interest directorship’’ as ‘‘an 

independent directorship filled by an 

individual with more than four years of 

experience representing consumer or 

community interests in banking 

services, credit needs, housing or 

consumer financial protections.’’ The 

regulation separately defines ‘‘public 

interest director’’ to mean ‘‘an 

individual serving in a public interest 

directorship.’’ The proposed rule would 

revise the former term to ‘‘public 

interest independent directorship’’ to 

make clear that it refers to a sub-type of 

independent directorship and so the 

construction of the term parallels that of 

its counterpart, ‘‘regular independent 

directorship.’’ The proposed rule would 

also combine the ‘‘directorship’’ and 

‘‘director’’ definitions into one 

paragraph and define the terms with a 

cross-reference to the new provision 

addressing the qualifications 

requirements for such directors under 

the proposed rule (§ 1261.5(c)(2), also 

discussed below), so that the definitions 

parallel those of the other directorship 

types. 

The proposed rule would also add a 

definition for the term ‘‘nominee,’’ 

referring to an individual formally 

nominated by a Bank’s members or 

board of directors, as appropriate, to 

stand for election for a Bank 

directorship. This change is intended to 

allow a clearer distinction in the 

regulatory text between requirements 

that apply to persons requesting or 

being considered for nomination for a 

directorship and requirements that 

apply only to those that have been duly 

nominated. 

Existing § 1261.2 defines the term 

‘‘voting State’’ to mean ‘‘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 1263, is located as of the record 

date,’’ and further clarifies that ‘‘[t]he 


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17Bank directorship terms, for both member and 

independent directors, are generally four years but, 

as discussed below, FHFA may on rare occasions 

truncate the term length for a Bank directorship to 

maintain the equal staggering of terms. 

18Among other things, a base number of eight 

seats has been shown to result in most cases in a 

board that is not excessively large, but is large 

enough so that the board’s composition meets all 

statutory requirements. 

19The Bank Act provides that each Bank is to 

have a board of 13 directors, ‘‘or such other number 

as the Director determines appropriate.’’ See 12 

U.S.C. 1427(a)(1). 

20See 12 U.S.C. 1427(c). 

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.’’ The proposed 

rule would amend this definition to 

eliminate the unnecessary references to 

the District of Columbia and Puerto Rico 

in the first clause. Section 1201.1 of 

FHFA’s regulations, which defines 

terms that are used frequently 

throughout the regulations, already 

defines the term ‘‘State’’ to include the 

District of Columbia and Puerto Rico (as 

well as American Samoa, the 

Commonwealth of the Northern Mariana 

Islands, Guam, and the United States 

Virgin Islands), so there is no reason to 

specify their inclusion in the definition 

of ‘‘voting State.’’ 

Where appropriate, the proposed rule 

would also revise numerous references 

to a ‘‘State’’ in existing part 1261 to refer 

to a ‘‘voting State.’’ This is especially 

important with respect to provisions on 

the allocation of member directorships 

and member directorship nominations 

and voting, as the latter term includes 

the concept that members in U.S. Virgin 

Islands nominate, vote for, and are 

represented by member directors for 

Puerto Rico, while members in 

American Samoa, Guam, or the 

Northern Mariana Islands nominate, 

vote for, and are represented by member 

directors for Hawaii. 

2. General Provisions—§ 1261.3 

Section 1261.3 of the existing 

regulation sets forth ‘‘General 

provisions’’ addressing board size and 

composition, length of term of 

directorships, annual elections, location 

of members for purposes of voting to fill 

member directorships, and the 

calculation of dates for purposes of 

determining compliance with deadlines 

required under the regulation. The 

proposed rule would remove the 

material on board size and composition 

in existing § 1261.3(a), the substance of 

which would be consolidated with 

related material on the designation of 

directorships in revised § 1261.4. The 

remaining paragraphs of § 1261.3 would 

be redesignated as appropriate and 

revised to remove or replace statutory 

references and streamline language for 

greater clarity and consistency. No 

change in substantive meaning is 

intended. 

3. Annual Designation of 

Directorships—§ 1261.4 

Section 1261.4 of the existing 

regulation addresses the annual 

‘‘designation of directorships’’ process 

which results in the issuance of an order 

by the FHFA Director designating the 

size and composition of each Bank’s 

board of directors for the following 

calendar year. The proposed rule would 

make various revisions to this section to 

consolidate provisions relating to the 

designation of directorships and to 

provide clarity regarding the methods 

through which FHFA determines the 

appropriate size and composition for 

each Bank’s board and the requirements 

and procedures associated with the 

process. The proposed rule would also 

change the heading of § 1261.4 to 

‘‘Annual designation of directorships’’ 

to reflect that the process is annual and 

that the Director designates not only 

member directorships, but also 

independent directorships for each 

Bank. The proposed revisions are not 

intended to change any current 

procedure or requirement. 

The proposed rule would redesignate 

existing § 1261.4(a) as § 1261.4(b) and 

would add a new paragraph (a) 

providing that the Director will 

annually issue a written order 

designating for each Bank’s board of 

directors for the following calendar 

year: (1) the total number of member 

directorships and their allocation among 

the voting States of the Bank’s district; 

(2) the total number of independent 

directorships; and (3) the directorships 

for which an election will be held for 

terms beginning on January 1 of the 

following year, and the length of those 

terms.17 The designation of 

directorships has been carried out by 

means of a Director’s order since the 

inception of FHFA and the new 

regulatory text would make this explicit 

and would more accurately describe the 

content of the designations order than 

existing § 1261.3(a). Consistent with 

current practice, the proposed rule 

would provide that the Director will 

issue the designation of directorships 

order by June 1 of each year. 

Redesignated § 1261.4(b), requiring 

each Bank to submit a capital stock 

report to provide data for the allocation 

of member directorships and the 

determination of the number of votes 

each member may cast in the election, 

would remain substantively unchanged. 

For clarity, however, the sentence 

providing that ‘‘[i]f 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 members’’ 

would be revised to refer to ‘‘the total 

shares of each class of stock required to 

be held by the members.’’ 

Paragraphs (b) and (c) of existing 

§ 1261.4—entitled ‘‘Designation of 

member directorships’’ and ‘‘Allocation 

of directorships,’’ respectively—would 

be replaced by a new § 1261.4(c), which 

is intended to describe the process 

through which FHFA sets the total 

number of member directorships for 

each Bank and allocates them among the 

respective States of the Bank district. 

Proposed paragraph (c)(1) would 

describe the first part of the statutorily 

required process, whereby member 

directorships are allocated among the 

States of each district based on the 

relative amount of Bank stock the 

members in each respective state were 

required to hold as of December 31 of 

the preceding year. As described in the 

proposed regulatory text, FHFA begins 

by choosing for each Bank a ‘‘base’’ 

number of member directorships to 

allocate among the states of the district. 

For practical reasons, the base number 

is typically eight,18 but may differ where 

there is a legal or policy reason for 

selecting a different number. For 

example, where the number of states 

comprising a Bank district exceeds 

eight, FHFA must begin with a higher 

base number for that Bank because the 

Bank Act requires that each state have 

a minimum of one member directorship. 

In other cases, for example where 

application of the statutory ‘‘grandfather 

provision’’ (discussed below) would 

otherwise result in an excessively large 

board size, FHFA may start with a base 

number lower than eight.19

Proposed § 1261.4(c)(1)(i) provides 

that FHFA will then use the ‘‘method of 

equal proportions’’ to allocate those 

member directorships among the voting 

States of the Bank district, based on the 

ratio of the number of shares of Bank 

stock required to be held by the 

members in each State to the number of 

shares required to be held by all 

members of the Bank. As required by 

statute,20 proposed § 1261.4(c)(1)(ii) 

makes clear that each State must be 

allocated at least one, but no more than 


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21The method of equal proportions has been the 

required method for the stock-based allocation of 

Bank member directorship seats since 1998. See 63 

FR 65683, 65685, 65688 (Nov. 30, 1998) (final rule); 

63 FR 26532, 26533 (May 13, 1998) (proposed rule). 

22 12 U.S.C. 1427(c). By its express terms, the 

statutory grandfather provision does not apply to 

the directorships of any Bank resulting from the 

merger of two or more Banks—currently only the 

Federal Home Loan Bank of Des Moines. 

six, member directorships. As does the 

existing regulation, proposed 

§ 1261.4(c)(1)(iii) provides that, for 

those Banks that have issued more than 

one class of stock, member directorships 

will be allocated based on the combined 

number of shares required to be held by 

members. Proposed § 1261.4(c)(1)(iv) 

would make clear that the required 

stock amounts on which the allocations 

are based shall be the amounts as of the 

record date (December 31 of the 

preceding calendar year, as defined in 

§ 1261.2) shown in the capital stock 

report required to be submitted by the 

Banks under redesignated § 1261.4(b). 

In practice, when allocating member 

directorships for a Bank, FHFA first 

allocates one member directorship to 

each State in the Bank district to fulfill 

the minimum statutory requirement. 

Any remaining seats are then allocated 

using the ‘‘method of equal 

proportions,’’ which is the method that 

has been used to apportion seats in the 

United States House of Representatives 

since 1941.21 The use of the method of 

equal proportions is intended to result 

in the stock-based allocation of member 

directorships having the closest possible 

correlation with the relative amounts of 

stock required to be held by Bank 

members in each respective state of the 

district. 

Under the method of equal 

proportions, after each state has been 

allocated one seat, a priority value is 

calculated for each potential subsequent 

seat a state could be allocated—out to 

the maximum of six member 

directorships that may be allocated to 

each State—based on the following 

formula: 

• V represents a priority value. 

• P represents the total shares of Bank 

stock required to be held by members in 

a particular State. 

• n represents the number of member 

directorships the state would have if it 

gained a seat. 

The remaining seats are then allocated 

sequentially among the states of the 

district based on those priority values. 

For example, if FHFA were to allocate 

eight member directorships among the 

states of a Bank district including three 

states having required member stock 

holdings of 20 million, 12.5 million, and 

5 million shares, respectively, the 

priority values for potential seats #2 

through #6 for each state would be as 

follows: 

Seat # > 2nd Seat 3rd Seat 4th Seat 5th Seat 6th Seat 

Multiplier > 0.7071068 0.4082483 0.2886751 0.2236068 0.1825742 

State A (20,000,000 sh) ........................................................................... 14,142,136 8,164,966 5,773,503 4,472,136 3,651,484 

State B (12,500,000 sh) ........................................................................... 8,838,835 5,103,104 3,608,439 2,795,085 2,282,177 

State C (5,000,000 sh) ............................................................................ 3,535,534 2,041,241 1,443,376 1,118,034 912,871 

This would result in a priority order 

for the allocation of seats #2 through #6 

for each state as follows: 

Seat # > 2nd 3rd 4th 5th 6th 

State A ....................................................................................................................................................... 1 3 4 6 7 

State B ....................................................................................................................................................... 2 5 8 10 11 

State C ....................................................................................................................................................... 9 12 13 14 15 

Assuming a base number of eight total 

member directorships are to be 

allocated, there would be five remaining 

seats after each state has been allocated 

one seat. Based on the priority order 

reflected in the table above, State A 

would be allocated the first of the 

remaining seats, State B the second, 

State A the third and fourth, and State 

B the fifth, resulting in an overall 

allocation of four seats to State A, three 

seats to State B, and one seat to State C. 

The Bank Act generally requires that 

FHFA allocate member directorships 

based on the ratio of required stock 

holdings. However, the statute also 

requires that, whenever the number of 

member directorships representing the 

members located in any State would not 

be at least equal to the total number 

representing that State on December 31, 

1960, FHFA ‘‘shall add to the board of 

directors’’ such additional seats as are 

necessary to bring the total number 

being allocated to that State up to the 

1960 total (the ‘‘grandfather 

provision’’).22 The minimum number of 

member directorships that must be 

allocated to each State to meet the 

requirements of the grandfather 

provision is specified in a table set forth 

in existing § 1261.15, which would not 

be revised as part of this rulemaking. 

Existing § 1261.4(c) implements the 

grandfather provision through a bare 

cross-reference to the statute. In 

contrast, proposed § 1261.4(c)(2) would 

expressly provide that, where the stockbased allocation has resulted in a state 

being allocated fewer member 

directorships than shown for that State 

in § 1261.15, FHFA will allocate it as 

many additional member directorships 

as are necessary to increase the total 

number of member directorships for that 

State to the number shown on the table 

in that section. Only those states that 

have been ‘‘grandfathered’’ at more than 

one member directorship appear on the 

table in § 1261.15. Proposed 

§ 1261.4(c)(2) would deem the 

minimum number of member 

directorships required to fulfill the 

‘‘grandfather provision’’ to be one for 

those States not appearing on the table. 

In the example above, if all three States 

had been represented by three member 

directorships in 1960, FHFA would 

need to allocate two additional seats to 

State C, beyond the one earned in the 

stock-based allocations, increasing the 

total number of member directorships 

for the Bank to 10. 


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87736 Federal Register / Vol. 89, No. 213 / Monday, November 4, 2024 / Proposed Rules 

23See 12 U.S.C. 1427(d). 

24 12 U.S.C. 1427(a)(3)(B)(iii). 

25 12 U.S.C. 1427(a)(3)(B)(i), (ii). 

Proposed § 1261.4(d) would state that, 

after the total number of member 

directorships and their allocation have 

been determined for each Bank, FHFA 

will set the number of independent 

directorships at a number within the 

statutorily prescribed range of at least 40 

percent, but less than 50 percent, of 

total directorships. In the example 

above, with 10 member directorships, 

FHFA could choose to designate seven, 

eight, or nine independent directorships 

(with independent directors 

representing 41 percent, 44 percent, or 

47 percent of boards comprising 17, 18, 

or 19 directors). That decision is based 

on a variety of general and Bank-specific 

considerations, including the number of 

independent directorships designated 

for the current year. 

Under the designation of 

directorships process, year-to-year 

changes in the relative level of required 

stock holdings for the members in the 

various States of a Bank district may 

result in the redesignation of one or 

more member directorships from one 

state to another. In some cases, the 

interaction of changes in the relative 

level of required stockholdings with the 

requirements of the grandfather 

provision may result in the addition of 

a new member directorship to a Bank’s 

board. This could also lead to the 

addition of a new independent 

directorship if needed to maintain the 

required ratio of independent 

directorships to total directorships. In 

other instances, FHFA may simply 

choose to add a new independent 

directorship for policy reasons or at the 

request of a Bank’s board. 

Proposed § 1261.4(e) would address 

these redesignations and additions. 

Proposed paragraph (e)(1) (like existing 

§ 1261.4(e)) would make clear that the 

member directorship representing the 

state that is losing a seat terminates as 

of December 31 of the year the 

designation of directorships order is 

issued and a new directorship is created 

as of January 1 of the following year to 

represent the state that is gaining a seat. 

The Bank would need to hold an 

election to fill the newly added member 

directorship during the year the 

designation of directorships order is 

issued, with the duly elected director to 

begin serving on the following January 

1. The individual occupying the 

member directorship being terminated 

would cease to be a director after 

December 31 of the current year. 

As does the existing regulation, 

proposed paragraph (e)(1) would further 

provide that the length of the initial 

term of the newly added member 

directorship shall be adjusted to equal 

the remaining term of the directorship 

being terminated, to ensure that the 

terms of the Bank’s directorships remain 

staggered with approximately one 

quarter of the terms expiring each year, 

as required by statute.23 Similarly, 

proposed paragraph (e)(2) would 

provide that the Director may truncate 

the initial term of any new directorship 

added to a Bank’s board if needed to 

maintain the even staggering of terms. 

As under the existing regulation, such 

truncated terms would not be counted 

in determining term limits for Bank 

directors (this is discussed further 

below). 

Finally, proposed § 1261.4(f) would 

provide that the board of directors of 

each Bank shall determine the number 

of public interest independent 

directorships to be included among its 

designated independent directorships 

for the following year, a requirement 

that appears in § 1261.3(a) of the 

existing regulation. Under the proposed 

provision, a Bank would now also be 

expressly permitted to change the 

number of public interest independent 

directorships during the year (a practice 

which FHFA has permitted). As 

required by statute, a Bank would at all 

times need to have at least two such 

directorships. 

4. Director Eligibility—§ 1261.5 

The proposed rule would make 

numerous revisions to § 1261.5 of the 

existing regulation, which governs 

director eligibility, including 

qualifications for independent directors 

and term limits. These revisions are 

intended to consolidate provisions 

relating to director eligibility, strengthen 

eligibility requirements to encourage 

strong corporate governance, fill in gaps 

in the coverage of the existing 

regulation, and provide greater overall 

clarity than the existing regulation. 

The proposed rule would make 

clarifying revisions to § 1261.5(a), which 

implements the statutory eligibility 

requirements for member directors, with 

no intended change to the substance. 

The heading to the provision would be 

revised to make clear (as does the 

existing text) that the eligibility 

requirements apply not just to sitting 

directors, but to nominees as well. 

Proposed paragraph (a)(1) would 

provide that each member director, and 

each nominee for a member directorship 

must be: (i) a citizen of the United 

States; and (ii) an officer or director of 

a member institution that is located in 

the voting State of the Bank district to 

which the directorship being occupied, 

sought, or filled has been allocated 

under proposed § 1261.4(c). As required 

by statute, paragraph (a)(1)(ii) would 

make clear that the member institution 

with which any member director or 

member directorship nominee is 

associated must meet all minimum 

capital requirements established by its 

appropriate Federal banking agency or 

appropriate State regulator. As does 

existing § 1261.5(a), paragraph (a)(2) 

would provide that the institution with 

which the director is associated must 

have been a member as of the ‘‘record 

date’’ (that is, December 31 of the year 

preceding the election) or, in the case of 

a director chosen by a Bank’s board of 

directors to fill a vacancy, as of the time 

the board acts. 

Existing § 1261.5(b) provides that 

each member director, and each 

nominee to a member directorship, must 

be an officer or director of a member 

located in the State to which the 

Director has allocated the directorship. 

Because its substance would be 

incorporated into proposed § 1261.5(a), 

the proposed rule would delete this 

provision. 

Existing § 1261.5(c), entitled 

‘‘Eligibility requirements for 

independent directors,’’ provides that 

each independent director and each 

nominee to an independent directorship 

shall be: (1) a citizen of the United 

States; and (2) a bona fide resident of 

the district in which the Bank is located. 

The Bank Act actually sets forth a total 

of four requirements each independent 

director must meet to be eligible to 

serve. In addition to the two covered by 

existing § 1261.5(c), an independent 

director may not serve as an officer of 

any Bank or as a director, officer, or 

employee of any member of a Bank, or 

of any recipient of advances from a 

Bank 24 and must possess certain 

professional qualifications, which differ 

depending on whether the individual is 

filling a public interest independent 

directorship or a regular independent 

directorship.25 While the latter two 

requirements are covered in separate 

provisions of the existing regulation 

(§§ 1261.10 and 1261.7, respectively), 

they are not identified as ‘‘eligibility 

requirements’’ in § 1261.5(c). 

The proposed rule would redesignate 

§ 1261.5(c) as § 1261.5(b) and would 

expand the list of eligibility 

requirements set forth therein to include 

the independence and qualifications 

requirements. This proposed revision is 

intended to provide clarity by itemizing 

in one provision all of the requirements 

an individual must meet to be eligible 

for nomination and service as an 

independent director. In the case of the 


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26See 12 CFR 1261.5(c)(2), 1261.7(d)(1)(i) and 

(e)(2) (public interest independent director 

qualifications); 12 CFR 1261.7(d)(1)(ii) and (e)(1), 

1261.8(a)(1)(iii) (regular independent director 

qualifications). 

27See 12 CFR 1261.7(e). 

28Under existing §§ 1261.7(f) and 1261.14(b), 

FHFA has an opportunity to review the completed 

Independent Director Application Forms and other 

supporting materials for each Bank’s proposed 

independent directorship nominees and to provide 

comments to the Bank where warranted. For public 

interest independent directorship nominees, 

FHFA’s review includes evaluation of whether the 

individual’s professional experience meets the 

statutory standard. 

29FHFA released an updated version of the Form 

with some additional minor revisions in 2023. 

independence and qualifications 

requirements, proposed § 1261.5(b) 

would cross-reference other provisions 

of the revised regulation (§§ 1261.10 and 

1261.5(c), respectively) providing more 

detail on how a Bank must determine 

whether an individual meets those 

requirements. Under proposed 

§ 1261.5(b), all four requirements would 

apply to both sitting independent 

directors and to independent 

directorship nominees. While the 

citizenship, residency, and 

qualifications requirements apply to 

nominees as well as sitting directors 

under the existing regulation, the 

independence requirement currently 

applies only to seated directors. The 

extension of this requirement to 

nominees is discussed below in the 

analysis of proposed § 1261.10. 

The proposed rule would add a new 

paragraph (c) to § 1261.5 to address the 

required professional qualifications for 

both regular and public interest 

independent directors. Under the 

existing regulation, both sets of required 

qualifications are fully or partially 

stated in multiple provisions, which 

FHFA believes is a potential source of 

confusion.26 Under the proposed rule, 

the required qualifications for regular 

and public interest independent 

directors would be described once—in 

proposed § 1261.5(c)—which would, in 

turn, simply be cross-referenced where 

relevant in other provisions of the 

revised regulation. As explain below, 

the proposed rule would also make 

substantive revisions to the regulatory 

text describing the qualifications. 

The existing regulation, at § 1261.7(e), 

provides that each independent director 

that is not a public interest independent 

director (i.e., a ‘‘regular independent 

director’’ under the proposed rule) must 

‘‘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.’’ 27

To that list of qualifying knowledge and 

experience, which would now appear in 

proposed § 1261.5(c)(1), the proposed 

rule would add artificial intelligence, 

information technology and security, 

climate-related risk, CDFI business 

models, and modeling. 

These additions were developed both 

from input on critical areas of expertise 

that should be covered by a Bank’s 

board of directors sought and received 

during the FHLBank System at 100 

initiative and from understanding of the 

Banks’ corporate governance needs 

developed through FHFA’s general 

supervisory efforts. Their inclusion is 

intended to encourage each Bank’s 

board to take active steps to ensure it 

has sufficient knowledge and expertise 

regarding recent business developments 

in housing finance and new and 

emerging risks and complex problems 

that could affect Bank operations. To 

allow FHFA and the Banks to respond 

more rapidly to evolving conditions and 

risks going forward, the list of qualifying 

knowledge or expertise for regular 

independent directors in proposed 

§ 1261.5(c)(1) would also include ‘‘such 

other areas as the Director shall 

determine,’’ thus allowing FHFA to add 

other areas to the list, as appropriate, 

without going through the rulemaking 

process. Such additions would be 

conveyed through guidance. 

FHFA requests comment on whether 

these areas of qualifying experience are 

appropriate and whether other specific 

areas should be included. 

Proposed § 1261.5(c)(2) would 

implement the statutory requirement 

that each public interest independent 

director qualify by having ‘‘more than 

four years of experience representing 

consumer or community interests in 

banking services, credit needs, housing, 

or consumer financial protection.’’ The 

application of this requirement has been 

a frequent subject of inquiry and 

discussion between FHFA and Bank 

boards of directors and staff, potential 

directors, and trade groups since it was 

adopted as part of the Housing and 

Economic Recovery Act of 2008 

(HERA).28 In early 2022, FHFA issued a 

revised version of the Bank Independent 

Director Application Form (FHFA Form 

#129), the instructions for which 

provide guidance on how to determine 

whether an applicant for a public 

interest independent directorship meets 

the statutory qualifications.29 The 

guidance provided on the Form is 

consistent with advice given by FHFA 

in individual cases over the years. In 

addition to restating the statutory 

requirement, proposed § 1261.5(c)(2) 

would include the substance of this 

material to provide clarity on the 

implementation of the statutory 

standard in the regulation itself. 

The new provision would stipulate 

that, for purposes of determining 

compliance with the public interest 

qualification requirements, 

‘‘representing’’ means advocating for, or 

otherwise acting primarily on behalf of 

or for the direct benefit of, consumers or 

the community in one of the four 

enumerated areas. Those who have not 

advocated for or acted on behalf of or for 

the direct benefit of consumers and the 

community in any material capacity 

cannot reasonably be viewed as 

representatives of those constituencies. 

Industry-side interests are more than 

adequately represented among the 

Banks’ member and regular independent 

directors. Among other things, FHFA 

believes that experience related to fair 

housing, fair lending, consumer 

protection, affordable housing, 

community development, and diversity 

and inclusion that otherwise meets the 

requirements of the statute and 

regulation would be qualifying 

experience for public interest 

independent directors. 

Proposed § 1261.5(c)(2) would also 

provide that qualifying experience in 

one of the four enumerated areas may 

have been acquired in professional, 

public service, or significant volunteer 

positions, so long as the work done was 

substantial in terms of time commitment 

and responsibility and that the 

experience was accrued from activities 

personally undertaken by the director or 

nominee, as opposed to being attributed 

based solely on the activities of 

organizations with which the person 

was associated. 

Prior to 2008, the Bank Act required 

the appointment of at least two 

‘‘community interest’’ directors at each 

Bank ‘‘chosen from organizations with 

more than a 2-year history of 

representing consumer or community 

interests on banking services, credit 

needs, housing, or financial consumer 

protections.’’ In 2008, HERA substituted 

the current language focusing on the 

personal experience of the individual in 

representing community or consumer 

interests, as opposed to the mission of 

the organization with which they were 

affiliated. The additional clarifying 

regulatory text is intended to ensure that 

nominees meet the statutory 

requirement of personal experience and 

have the kind of knowledge, experience, 

and perspective necessary to oversee a 

Bank and guide it in the safe and sound 

fulfillment of its public policy mission. 

Experience gained through full-time 

paid employment is almost always 

qualifying. FHFA has generally viewed 

experience with nonprofits, community 


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30 12 U.S.C. 1427(d). (The Bank Act provides that 

‘‘[i]f any person . . . has been elected to each of 

three consecutive full terms as a director of a [Bank] 

and has served for all or part of each of said terms, 

such person shall not be eligible for election to a 

directorship of such [Bank] for a term which begins 

earlier than two years after the expiration of the last 

expiring of said three terms’’). 

organizations, state and local housing 

finance agencies, and non-member 

CDFIs, or service as an elected, 

appointed, or career government 

official, to be qualifying. Ultimately, 

determinations as to qualification to 

serve as a public interest independent 

director must be made on a case-by-case 

basis, given the numerous ways in 

which a person could conceivably meet 

the statutory standard. 

Both regular and public interest 

independent directors need to have the 

capacity to challenge Bank management 

on important issues, including the 

sufficiency and effectiveness of its 

mission programs. While Bank boards 

can benefit from a wide variety of 

viewpoints, FHFA has observed that the 

most effective directors possess 

knowledge and experience that are 

relevant to the business, programs, and 

mission of the Bank and that provide a 

basis for understanding the actual and 

potential impact of the Bank’s activities 

on its members and on communities 

within the Bank’s district. FHFA also 

believes that service in full-time 

executive, management, or other senior 

paid professional positions generally 

provides the most valuable experience 

for a Bank director. Proposed 

§ 1261.5(c)(3) would require that Banks’ 

boards prioritize those characteristics 

when soliciting and choosing Bank 

independent directorship nominees. 

With respect to length of board 

service, the Bank Act limits Bank 

directors to ‘‘three consecutive full 

terms’’ and requires former directors 

who have termed out to sit out for a 

minimum of two years before seeking to 

serve again as a Bank director.30 Section 

1261.5(d) of the existing regulation, 

entitled ‘‘Restrictions,’’ implements the 

statutory term limit provisions by 

setting forth principles for determining 

whether a director has been elected to 

and served three consecutive full terms. 

In general, under the existing regulation, 

four-year terms to which a director has 

been elected and has served any part 

count as full terms, while terms that 

have been truncated to maintain board 

staggering and terms served out by a 

vacancy electee do not. Much of the 

material in existing § 1261.5(d) is 

intended to address issues arising from 

the transition from the pre-HERA 

regime, under which directors served 

three-year terms and independent 

directors were appointed by the Bank 

System regulator, to the current regime, 

under which directors serve four-year 

terms and independent directors are 

nominated by Bank boards and elected 

by Bank members. 

Proposed § 1261.5(d) (which would be 

re-titled ‘‘Term limits’’) would continue 

to address director term limits using the 

principles reflected in the existing 

regulation. The proposed rule, however, 

would remove from the regulatory text 

the post-HERA transition material, 

which is no longer needed because all 

directors who were serving at the time 

of the statutory change have now termed 

out, and otherwise streamline the 

language and structure of the provision. 

Consistent with other revisions, the 

proposed rule would replace crossreferences to the Bank Act with either 

an express substantive statement or a 

cross-reference to a substantive 

regulatory provision. As proposed, 

§ 1261.5(d) would continue to provide 

that truncated terms do not count as full 

terms, but would make clear that two 

full terms on either side of a truncated 

term count as consecutive full terms; 

that is, while a truncated term may not 

count in the term limit calculation, it 

cannot re-set the term limit calculation 

back to zero. 

Existing § 1261.5(e) explains that a 

director shall become ineligible to 

remain in office if, during their 

incumbency, the directorship to which 

they have been elected is eliminated. 

The proposed rule would add to this 

provision a cross-reference to the 

section of the proposed rule (§ 1261.4, 

governing the designation of 

directorships) under which a seat could 

be eliminated. As under the existing 

regulation, proposed § 1261.5(e) would 

continue to provide that the incumbent 

director shall become ineligible after the 

close of business on December 31 of the 

year in which the directorship is 

eliminated. 

Section 1261.6 of the existing 

regulation, governing the determination 

of members votes, would not be 

changed by the proposed rule. 

5. Nominations for Member and 

Independent Directorships—§ 1261.7 

Section 1261.7 of the existing 

regulation governs nominations for 

member and independent directorships, 

including election announcements, the 

submission and acceptance of member 

directorship nominations, independent 

directorship qualifications and 

nominations, and eligibility verification. 

The proposed rule would make 

numerous textual and structural 

revisions to § 1261.7, most of which are 

non-substantive and intended only to 

provide clarity. 

Existing § 1261.7(a) requires that 

‘‘[w]ithin a reasonable time in advance 

of an election,’’ a Bank provide notice 

to each member in its district of the 

commencement of the election process 

to include: (1) the number of member 

directorships designated for each voting 

State and the total number of 

independent directorships; (2) the name 

of, and pertinent information about, 

each incumbent Bank director; (3) a 

brief statement of the skills and 

experience the Bank believes are most 

likely to add strength to its board; (4) an 

attachment identifying every member, 

its voting state, and the number of votes 

it is eligible to cast; and (5) a certificate 

to be used by member institutions to 

make any desired nominations. 

The proposed rule would make three 

substantive revisions to the list of 

information to be included in or with 

the election announcement, each of 

which FHFA believes is consistent with 

the current practice of most Banks. First, 

the proposed rule would require that the 

statement regarding the number of 

member and independent directorships 

include the number of independent 

directorships designated by the Bank as 

public interest independent 

directorships for the following calendar 

year. Second, the proposed rule would 

require that the election notice identify 

the member directorships, regular 

independent directorships, and public 

interest independent directorships, 

respectively, for which the Bank will be 

holding an election in the current year. 

Finally, while the existing regulation 

makes inclusion of a brief statement of 

sought-after skills and experience 

contingent on the Bank having carried 

out the assessment of board skills and 

experience permitted under existing 

§ 1261.9, the proposed rule would make 

the inclusion of the statement 

mandatory because, as discussed below, 

the annual assessment would also be 

made mandatory. In addition to these 

substantive revisions, the proposed rule 

would also move a misplaced heading 

and renumber the paragraphs to 

accommodate the additional material. 

The proposed rule would combine 

into proposed § 1261.7(b) material that 

appears in existing paragraphs (b) and 

(c) governing member directorship 

nominations by members and the 

acceptance of such nominations by a 

Bank’s board. The one substantive 

change would be the removal in two 

places of the requirement that election 

and nomination records be retained for 

at least two years after the date of the 

election. These provisions would be 

replaced by a new § 1261.7(f), requiring 


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31 In 2022, in conjunction with FHFA’s issuance 

of the revised Bank Independent Director 

Application and Certification Forms, FHFA’s 

Division of Bank Regulation issued a Supervisory 

Letter on the proper submission of Independent 

Director Application Forms and pertinent 

supplementary material to FHFA for review. This 

guidance would remain in effect under the 

proposed rule. 

each Bank to retain all information 

received under proposed § 1261.7 for at 

least seven years after the date of the 

election in question and, in the case of 

any information about a specific 

director, for at least seven years after 

that director leaves the board (discussed 

below). The remaining changes consist 

of non-substantive paragraph 

redesignations, revised headings, and 

minor textual changes to provide clarity. 

In the existing regulation, § 1261.7(d) 

and (e) address independent director 

nominations and independent director 

required qualifications, respectively. 

The proposed rule would remove 

§ 1261.7(e) in its entirety because, under 

the revised regulation, the required 

qualifications for regular and public 

interest independent directors would be 

stated in only one provision—proposed 

§ 1261.5(c). Further duplicative 

statements regarding the required 

qualifications would also be removed 

from existing § 1261.7(d), which would 

be redesignated as § 1261.7(c). The 

proposed rule would also remove from 

the redesignated provision language 

indicating that an interested individual 

may not submit, and a Bank may not 

consider, an Independent Director 

Application Form that does not 

demonstrate that the applicant is both 

eligible and qualified to serve; these 

restrictions are not consistent with the 

intended use of the completed Form as 

a means through which eligibility may 

be determined. Instead, the proposed 

rule would include in proposed 

§ 1261.7(d)(3), discussed below, a new 

express provision prohibiting a Bank’s 

board from nominating any individual 

for an independent directorship or 

accepting the nomination of any 

individual for a member directorship if 

it has not concluded based on the 

appropriate completed Form and 

supplementary materials that the 

individual is eligible to serve. 

The proposed rule would also remove 

the language in existing § 1261.7(d)(3) 

requiring that each Bank determine and 

announce to its members the number of 

public interest independent 

directorships to be included among its 

authorized independent directorships 

for the following year, because this 

requirement would be covered by 

proposed § 1261.4(f). The proposed rule 

would also remove language requiring 

each Bank to retain all completed 

Independent Director Application 

Forms for at least two years after the 

date of the election because, as 

mentioned, the record retention 

requirements for all records related to 

the nomination and election of directors 

would now be governed by proposed 

§ 1261.7(f). The remaining changes to 

the existing provisions on the 

nomination of independent directors 

would be non-substantive textual and 

organizational revisions (including the 

division of different topical material 

into paragraphs) for better readability. 

Existing § 1261.7(f) addresses the 

steps each Bank must take to verify the 

eligibility of its member and 

independent director nominees. It 

requires each Bank to use the 

information provided on the Member 

Director Eligibility Certification Form or 

the Independent Director Application 

Form, as applicable, to verify that each 

nominee meets the relevant eligibility 

requirements and, for independent 

directorship nominees, possesses the 

required qualifications. The provision 

further requires that, before announcing 

any independent director nominee, the 

Bank deliver to FHFA for review a copy 

of the proposed nominee’s executed 

Independent Director Application Form. 

Although the existing regulation does 

not generally require FHFA approval of 

Bank independent directorship 

nominees, existing § 1261.7(f) requires a 

Bank’s board to consider any comments 

on a proposed nominee provided by 

FHFA within two weeks of FHFA’s 

receipt of the Application Form for that 

individual.31

The proposed rule would redesignate 

§ 1261.7(f) as § 1261.7(d) and, for clarity, 

would break the existing text into 

topical paragraphs and revise references 

to the member and independent director 

eligibility requirements to add crossreferences to the applicable substantive 

provisions of the revised regulation 

(proposed § 1261.5(a) and (b) 

respectively). The proposed rule would 

also add a new paragraph (d)(3) 

expressly prohibiting a Bank’s board 

from nominating any individual for an 

independent directorship or including 

on the ballot any individual nominated 

for a member directorship except where 

it has concluded that the individual 

meets the applicable eligibility 

requirements and is not term limited. 

Although this concept is implicit in the 

existing regulation, FHFA believes it is 

preferable for the regulation to set forth 

a clear statement to this effect. 

The proposed rule would add a new 

§ 1261.7(e), which would prohibit a 

Bank’s board from nominating any 

person for an independent directorship 

or including on the election ballot any 

individual nominated for a member 

directorship without having first 

conducted a thorough background check 

and concluding that the individual is fit 

to serve in a fiduciary role with the 

Bank. The proposed rule would require 

each Bank to include a discussion of the 

results of the background check for each 

independent directorship nominee 

when submitting its Independent 

Director Application Forms to FHFA, 

including any potentially concerning 

information that was revealed and how 

the Bank’s concerns were allayed. In 

recent years, the Banks have typically 

conducted background checks on 

independent directorship nominees and 

addressed the results of those checks in 

their submissions to FHFA; the 

proposed rule would codify this 

practice. The rule would also require 

each Bank to conduct a background 

check on nominees for a member 

directorship, as the risks background 

checks are designed to mitigate are no 

less of a concern for member directors 

than they are for independent directors. 

Although the Bank Act clearly vests 

in a Bank’s members the authority to 

nominate and elect their own 

representatives on a Bank’s board, the 

continued safe and sound operation of 

every Bank depends upon the 

reservation of some mechanism for 

identifying and addressing potential 

risks to the institution that could be 

posed by its own directors. Bank 

directors not only have a unique 

opportunity to influence a Bank’s course 

of action, they also are privy to the most 

sensitive inside information, including 

confidential supervisory information 

(CSI), about the operations, finances, 

and personnel of the Bank. It is critical 

that a Bank’s board retain the ability to 

police itself and prevent individuals 

whose history of criminality, 

malfeasance, poor judgment, or other 

concerning behavior indicates they are 

not fit to fulfill a fiduciary role with the 

Bank from being or remaining seated as 

directors. Conducting a background 

investigation in support of a director’s 

nomination, whether for a member or 

independent directorship, is a commonsense way to prevent problems before 

they start. 

In July 2020, FHFA’s Division of Bank 

Regulation issued a Supervisory Letter 

discussing the importance of conducting 

a thorough background check on any 

individual a Bank’s board intends to 

nominate for an independent 

directorship. The guidance given in the 

letter remains applicable to background 

checks to be carried out under proposed 

§ 1261.7(e). 


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32See 12 CFR 1261.7(b)(3), (c), (d)(2) (nominating 

certificates, executed Membership Director 

Certification Forms, and Independent Directorship 

Application Forms, respectively). 

33See, e.g., 17 CFR 210.2–06 (Securities and 

Exchange Commission rule requiring records of an 

audit or review of an issuer’s financial statements 

to be retained for seven years). 

34FHFA’s regulations at 12 CFR part 1235 

establish general minimum requirements for record 

retention for the Agency’s regulated entities, 

including the Banks and the OF. The standards 

established require that the regulated entities 

maintain adequate records in accordance with 

consistent accounting policies and practices that 

enable the Director to evaluate the financial 

condition of each regulated entity and the OF and 

such other operational and management standards 

as the Director determines to be appropriate. 

Without a background investigation, a 

Bank could not reasonably determine 

whether a potential nominee meets its 

own standards, including codes of 

conduct, codes of ethics, conflicts of 

interest policies, and anti-fraud policies. 

A background check also gives a Bank 

an opportunity to verify that eligibility 

requirements have been met and that 

the employment and educational history 

shown on nominee’s Application Forms 

is accurate. On occasion, a background 

check may reveal information that calls 

into question the validity of the 

responses on the Application Form, or 

the fitness of the nominee to serve in a 

fiduciary role with a large financial 

institution like the Bank. Examples that 

may give rise to concerns about the 

latter include a criminal record, past 

bankruptcy, or failure to pay taxes. A 

Bank should evaluate the circumstances 

surrounding each issue of concern and 

take appropriate steps to determine 

whether the risk can be satisfactorily 

mitigated or whether the board should 

decline to the nominate an individual 

for an independent directorship or post 

a member-nominated individual on the 

ballot for a member directorship. In 

either case, the board should thoroughly 

document its decision-making process. 

Finally, the proposed rule would add 

a new § 1261.7(f), which would require 

each Bank to retain all information 

received under proposed § 1261.7 for at 

least seven years after the date of the 

election in question and, in the case of 

any information about a specific 

director, for at least seven years after 

that director leaves the board. Each 

Bank would be required to maintain 

those records pursuant to a duly 

adopted policy. As mentioned above, 

existing § 1261.7 includes a number of 

separate provisions requiring that a 

Bank retain various documents for at 

least two years after an election.32 FHFA 

believes that all material documentation 

regarding a Bank’s nomination and 

election process should be subject to the 

same retention requirements and that 

two years is not a sufficient length of 

time to retain those types of important 

records. Seven years is a conservative 

retention period that is frequently 

required by law or corporate policy,33

and one that is an appropriate minimum 

for Bank nomination and election 

records and not burdensome for a Bank 

to fulfill given the ease with which 

electronic records are stored.34

Where information involves an 

individual that was elected to the board, 

proposed § 1261.7(f) would require the 

information to be retained for the 

duration of that director’s service and 

then for at least seven years after that 

director leaves the board. Issues 

regarding sitting Bank directors arise 

from time to time that call for reference 

to information or materials submitted 

years earlier as part of the nomination 

process and these materials should 

remain accessible until well after the 

directors to which they pertain have left 

the board. 

6. Election Process—§ 1261.8 

Section 1261.8 of the existing 

regulation governs the various aspects of 

the Bank director election process. The 

proposed rule would make several 

substantive revisions to this section, 

including revisions regarding the 

required contents of a Bank’s director 

election ballot, the authority of a Bank’s 

board to decline to seat a director-elect 

for cause, and the length of time ballots 

need to be retained. 

Existing § 1261.8(b) provides that if a 

Bank has conducted an annual 

assessment of the skills and experience 

possessed by the board permitted by 

§ 1261.9 and has included the results of 

the assessment as part of the election 

notice, it may include with each ballot 

a statement of the results of that 

assessment or any subsequent 

assessment. As discussed below, the 

proposed rule would revise § 1261.9 to 

make the now optional assessment 

mandatory for each Bank. The proposed 

rule would also require that the results 

of that assessment be included as part 

of the election notice required under 

§ 1261.7(a). 

Consistent with those changes, the 

proposed rule would delete existing 

§ 1261.8(b) and revise § 1261.8(a) to 

require that a Bank include on the ballot 

a statement of the results of the 

assessment, including an explanation 

for any differences between the 

statement on the ballot and that 

appearing on the earlier election notice. 

Revised § 1261.8(a) would also require 

that each Bank include on its election 

ballot a brief description of the skills 

and experience of each nominee for a 

member directorship. This is permitted 

but not required under the existing 

regulation, which does require that that 

qualifying areas of expertise for 

independent directorship nominees be 

noted on the ballot (a requirement that 

would be retained under the proposed 

rule). To accommodate these 

substantive revisions, the provisions 

within § 1261.8(a) would be 

redesignated as paragraphs (a)(1) 

through (6). 

Given the ever changing business and 

societal landscape within which the 

Banks operate, it is prudent to look 

beyond the four to six regular 

independent directors they are likely to 

have on their respective boards and find 

ways to promote the nomination and 

election to member directorships of 

individuals that have the experience to 

cover some of the critical areas of board 

expertise. For example, if the Chief 

Technology Officer (CTO) of a Bank 

member were to be elected as a member 

director, that individual would likely be 

able to provide the board with necessary 

expertise in information technology and 

security and possibly in other critical 

areas enumerated in proposed 

§ 1261.5(c). 

Even if the nomination and election of 

member directors is largely within the 

control of Bank members in the 

respective voting States of the district, 

the required statement of needed skills 

and expertise on the election notice and 

ballot and the required inclusion on the 

ballot of a statement on the knowledge 

and skills possessed by individual 

member directorship nominees would 

encourage Bank members to take into 

account the expertise needed to allow 

the board to most effectively supervise 

the operations of the Bank. The coverage 

of vital areas of expertise through 

member directors, where possible, 

would allow the Bank to seek 

independent directors to cover some of 

the areas of expertise that senior officers 

and directors of Bank member 

institutions would be less likely to have. 

Existing § 1261.8(f)(4) provides that a 

‘‘[b]ank 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.’’ This provision, 

which would be redesignated as 

§ 1261.8(e)(4), would be revised also to 

prohibit a Bank’s board from declaring 

elected a nominee or seating any 

director-elect it has reason to know is 

‘‘unfit’’ to serve. As discussed above 

with respect to the background check 

required under § 1261.7(e), a Bank’s 

board must retain the ability to address 

the directorship status of individuals 


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35Notwithstanding FHFA’s approach to this issue 

since the post-HERA requirements were 

implemented, the extension of the independence 

requirements to independent directorship nominees 

is consistent with section 7(b)(2)(B) of the Bank Act, 

which provides that ‘‘[n]ominees shall meet all 

applicable requirements prescribed in this section.’’ 

See 12 U.S.C. 1427(b)(2)(B). 

who may pose a material risk to the 

Bank to fulfill its fiduciary duty to 

protect the Bank’s interests. Proposed 

§ 1261.8(e)(4) would authorize and 

require a Bank to prevent the seating of 

a director if it obtains information 

indicating the individual poses a 

material and unacceptable risk to the 

Bank that was not available to it at the 

time it conducted the required 

background check. 

Because § 1261.8(b) would be 

eliminated, the proposed rule would 

redesignate existing paragraphs (c) 

though (h) as paragraphs (b) through (g). 

It would also make multiple nonsubstantive changes throughout the 

section by adding cross-references to 

appropriate provisions of the revised 

regulation, removing redundant 

statements of the required qualifications 

for independent directors, and making 

other minor changes to nomenclature 

and phrasing. 

7. Actions Affecting Director Elections— 

§ 1261.9 

Existing § 1261.9 addresses actions 

affecting director elections. Paragraph 

(a) authorizes each Bank to ‘‘conduct an 

annual assessment of the skills and 

experience possessed by its board of 

directors as a whole and [to] determine 

whether the capabilities of the board 

would be enhanced through the 

addition of individuals with particular 

skills and experience.’’ The proposed 

rule would make this annual assessment 

mandatory and require that the results 

of the assessment be reflected in the 

election announcement under proposed 

§ 1261.7(a) and the election ballot under 

proposed § 1261.8(a), as discussed 

above. It would also require that the 

assessment be undertaken ‘‘pursuant to 

policies adopted by the board.’’ 

To effectively oversee a Bank’s 

operations, its board should be balanced 

and includes a diversity of experience 

and perspectives across member and 

independent directors. Periodic 

assessment of the knowledge and skills 

possessed by sitting board directors and 

identification of areas that require better 

coverage is critical to ensuring that a 

Bank’s board of directors is able to 

effectively oversee and guide the 

operations of the Bank. 

FHFA requests comment on whether 

requiring that such an assessment be 

completed on a less frequent cadence 

than annually would compromise a 

Bank’s ability to plan effectively. 

Aside from this, to plan effectively, 

Bank boards of directors should develop 

and maintain a director’s service 

timeline to track all directors’ terms 

from beginning to end; develop and 

annually review and update a director 

position description for member 

directors, regular independent directors, 

and public interest independent 

directors; and focus recruiting on 

addressing gaps in knowledge and skills 

identified by the assessment. 

Insufficient board succession planning 

can lead to a lack of experience and 

expertise needed to effectively oversee a 

Bank’s operations. For example, if 

several long-tenured directors were to 

vacate a Bank’s board simultaneously, 

the board may face a critical loss of 

institutional knowledge. Without 

appropriate succession planning, a 

Bank’s board may find itself lacking 

knowledge, skills, and abilities that are 

critical to providing effective strategic 

direction and oversight. 

The remaining revisions to § 1261.9(a) 

would be non-substantive clarifying 

revisions to change the heading from the 

cryptic ‘‘Banks’’ to the more descriptive 

‘‘Annual assessment of skills and 

experience,’’ add cross-references to 

appropriate provisions of the revised 

regulation, remove redundant 

statements of the required qualifications 

for independent directors, and make 

other minor changes to nomenclature 

and phrasing. Existing § 1261.9(b) and 

(c) would remain unchanged. 

8. Independent Director 

Independence—§ 1261.10 

Section 1261.10 is currently entitled 

‘‘Independent director conflict of 

interests.’’ Because the focus of the 

section is to elaborate on the 

‘‘independence’’ requirements for 

independent directors, the proposed 

rule would revise the heading of 

§ 1261.10 to read ‘‘Independent director 

independence.’’ Conflicts-of-interest 

policies for all Bank directors are 

covered separately from independence 

requirements, in § 1261.11. 

Existing § 1261.10(a) prohibits any 

independent director from serving as an 

officer, employee, or director of any 

member of the Bank, or of any recipient 

of advances from the Bank, or as an 

officer of any Bank, during that 

director’s term of service on the Bank’s 

board. The proposed rule would 

redesignate paragraph (a) as paragraph 

(a)(1) and revise the provision to 

prohibit an independent director from 

serving not only as an officer, but also 

as any kind employee, of another Bank. 

Permitting even a non-executive 

employee of one Bank to serve on the 

board of another Bank could not only 

compromise the independence of the 

board on which the individual sits, but 

could also give rise to internal control 

concerns for the Bank employing the 

individual. 

The proposed rule would further 

revise newly-redesignated 

§ 1261.10(a)(1) to prohibit not just the 

seating, but also the nomination of 

individuals with any of the 

impermissible connections. Under the 

existing regulation, FHFA has permitted 

Banks to nominate individuals with a 

prohibited connection for an 

independent directorship, provided the 

nominee agrees to relinquish the 

impermissible position prior to being 

seated on the board. Extending the 

independence requirement to the 

nomination phase creates greater 

separation between a director’s term of 

service and pursuit of possible 

conflicting interests and helps ensure 

that anyone wishing to serve as an 

independent director is committed to 

being a true outside voice.35

The proposed rule would also create 

a new paragraph (a)(2), which would 

define the term ‘‘advances’’ for purposes 

of applying the prohibition against the 

seating or nomination of any officer, 

employee, or director of any ‘‘recipient 

of advances’’ from the Bank. As 

proposed, the term would include any 

loan from a Bank to the recipient, 

regardless of form or nomenclature, 

except for debt securities traded in the 

public capital markets. This definition 

is intended to prevent Banks and 

housing associates such as state housing 

finance agencies (SHFAs) from skirting 

the independence requirements by 

creating bespoke lending terms for the 

housing associate by which an 

independent director or nominee is 

employed in an arrangement called 

something other than an ‘‘advance.’’ At 

the same time, the definition would 

allow Banks to support their housing 

associates through the purchase of debt 

securities on the open market on the 

same terms and conditions as are 

applicable to other market participants 

even where an employee of the housing 

associate is serving as an independent 

director. Providing clarity regarding the 

meaning of the word ‘‘advances’’ in this 

context was suggested in the Bank 

System’s joint letter in response to 

FHFA’s Spring 2023 Notice of 

Regulatory Review. FHFA requests 

comment on whether the proposed 

definition adequately addresses the 

relevant legal and policy concerns or 

whether a different definition would be 

more appropriate. 


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36See 12 U.S.C. 1427(d). 

37The AHP regulation prohibits Bank directors, 

employees, and advisory council members from 

participating in decisions regarding AHP projects in 

which they or a family member have a financial 

interest and requires each Bank to adopt a conflictsof-interest policy for its AHP. See 12 CFR 1291.16. 

For purposes of these requirements, the regulation 

defines ‘‘family member’’ as ‘‘any individual related 

to a person by blood, marriage, or adoption,’’ see 

12 CFR 1291.1, but does not define ‘‘financial 

interest.’’ 

The proposed rule would make no 

revisions to existing § 1261.10(b). 

Existing § 1261.10(c) provides that, for 

purposes of determining compliance 

with the independence requirements, a 

Bank shall attribute to the independent 

director any officer position, employee 

position, or directorship of the director’s 

spouse. The proposed rule would 

further strengthen independence 

requirements by extending the 

attribution requirement to all 

‘‘immediate family members’’ of the 

director or nominee. Existing 

§ 1261.11(f) defines ‘‘immediate family 

member’’ to include a ‘‘parent, sibling, 

spouse, child, or dependent, or any 

relative sharing the same residence as 

the director’’ for purposes of the director 

conflicts-of-interest requirements; under 

the proposed rule, the same definition 

would apply for purposes of the 

independence provisions. The proposed 

change recognizes that director 

independence can be compromised 

through the activities and financial 

interests of close family members other 

than a spouse, seeks to prevent 

circumvention of the spirit of the 

independence requirement, and aligns 

the standards for the independence 

requirement with those of the conflictsof-interest requirements. 

In line with the extension of the 

independence requirements to 

nominees under proposed § 1261.10(a), 

the rule would also add a new 

paragraph (d) to § 1261.10 to require any 

former member director to wait at least 

two years after leaving a member 

directorship before returning to the 

board as an independent director 

(assuming all eligibility requirements 

are met for the position). The two-year 

requirement parallels the two-year 

requirement set forth in the statutory 

provision at 18 U.S.C. 207 that is the 

primary source of post-employment 

restrictions applicable to officers and 

employees of the executive branch of 

the Federal Government and the two 

year period during which former Bank 

directors who have termed out are 

prohibited from serving.36 These types 

of transitions have happened on 

occasion and FHFA has typically 

permitted a member director to 

transition to an independent 

directorship upon relinquishing the 

impermissible position, without any 

‘‘cooling off’’ period. By requiring a twoyear sit out period FHFA intends to 

create greater separation between the 

seating of an independent director and 

the individual’s employment with a 

member. The Agency requests 

comments on whether a different length 

of time would more effectively ensure 

board independence. 

9. Conflicts of Interest Policy for Bank 

Directors—§ 1261.11 

In § 1261.11, the proposed rule would 

revise the section heading to read 

‘‘Conflicts of interest’’ instead of 

‘‘Conflict of interests’’ and would make 

related conforming changes throughout 

the section. The only other changes to 

§ 1261.11 would be to revise the 

definition of ‘‘financial interest’’ in 

paragraph (f) and to list definitions in 

alphabetical order. 

Existing § 1261.11(b) requires a Bank 

director to disclose any ‘‘financial 

interests,’’ as well as those of any 

immediate family member or business 

associate, in any matter to be considered 

by the Bank’s board of directors and in 

any other proposed or actual business 

matter involving the Bank and any other 

person or entity and to refrain from 

considering or voting on any issue in 

which the director, any immediate 

family member, or any business 

associate has any financial interest. For 

purposes of those requirements, existing 

§ 1261.11(f) defines ‘‘financial interest’’ 

to mean ‘‘a direct or indirect financial 

interest in any activity, transaction, 

property, or relationship that involves 

receiving or providing something of 

monetary value, and includes, but is not 

limited to any right, contractual or 

otherwise, to the payment of money, 

whether contingent or fixed.’’ The 

provision further states that the term 

‘‘does not include a deposit or savings 

account maintained with a member, nor 

does it include a loan or extension of 

credit obtained from a member in the 

normal course of business on terms that 

are available generally to the public.’’ 

In its letter in response to FHFA’s 

Spring 2023 Notice of Regulatory 

Review, the Bank System commented 

that the list of exclusions in the 

definition of ‘‘financial interest’’ found 

in existing § 1261.11 is too narrow in 

scope and should be broadened to 

reflect other financial services products 

obtained under similar circumstances. 

In response to the comment, FHFA is 

proposing to revise the exclusion from 

the definition of ‘‘financial interest’’ in 

§ 1261.11(f) to refer to ‘‘a deposit or 

savings account, loan or extension of 

credit, or other accounts and products 

obtained in the normal course of 

business on non-preferential terms 

generally available to the public from a 

member institution or from a nonmember counterparty to the Bank on 

whose board the director sits.’’ 

In the same letter, the Bank System 

recommended that FHFA harmonize the 

standard for what constitutes a conflict 

under FHFA’s Affordable Housing 

Program (AHP) regulation 37 with the 

standard for Bank directors under 

§ 1261.11—specifically, that the 

definitions of ‘‘financial interest’’ and 

‘‘immediate family member’’ be made 

identical for both regulations. Existing 

§ 1261.11 defines ‘‘immediate family 

member’’ as a parent, sibling, spouse, 

child, or dependent, or any relative 

sharing the same residence as the 

director. That definition would remain 

unchanged under the proposed rule and 

would also be used, along with the 

revised definition of ‘‘financial 

interest,’’ in the new provision on Bank 

employee conflicts under proposed 12 

CFR 1239.31 (discussed below). FHFA 

anticipates that the Bank System’s 

request regarding the AHP regulation 

will be addressed in a subsequent 

rulemaking. 

The proposed rule would not make 

any other revisions to § 1261.11. 

10. Reporting Requirements for Bank 

Directors—§ 1261.12 

The proposed rule would make only 

one change to § 1261.12, which 

establishes reporting requirements for 

Bank directors. Existing § 1261.12(b) 

provides that at any time a director 

believes or has reason to believe that 

they no longer meet the eligibility 

requirements set forth in the Bank Act 

or the regulation, the director shall 

promptly notify the Bank and FHFA in 

writing. The proposed rule would 

eliminate the requirement that a director 

submit the notification to FHFA, 

requiring only that it be submitted to the 

Bank. The last sentence of § 1261.12(b) 

requires a Bank to promptly notify 

FHFA in writing any time it believes or 

has reason to believe that any director 

no longer meets the eligibility 

requirements, and this has typically 

been the method through which FHFA 

has been informed of director 

ineligibility. Director eligibility is an 

issue for a Bank to monitor and address 

in the first instance and there is no 

reason for an individual director to 

contact FHFA directly about eligibility 

issues. 


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38 12 CFR 1261.14(a)(1). 

39 12 CFR 1261.14(a)(2). 

40 12 CFR 1261.14(a)(3). 

11. Ineligibility and Removal of Bank 

Directors—§ 1261.13 

Existing § 1261.13 addresses the 

ineligibility of Bank directors. It 

provides that upon a determination by 

FHFA or a Bank that any director of the 

Bank no longer satisfies the statutory or 

regulatory eligibility requirements, or 

has failed to comply with the reporting 

requirements, the directorship shall 

immediately become vacant. The 

proposed rule would retain this 

provision without revision, other than 

to redesignate it as paragraph (a), with 

the heading ‘‘Ineligibility.’’ 

The proposed rule would also create 

a new paragraph (b) to establish the 

authority of a Bank’s board to remove 

directors for good cause, which may be 

based upon: (i) a material violation of 

the Bank’s code of ethics or other 

applicable Bank policy; (ii) a material 

violation of the Bank Act, FHFA 

regulations or other criminal or civil 

law; (iii) a determination by the board 

that continuation in office of such 

director would be materially harmful to 

the Bank; (iv) conduct, or a mental or 

physical condition, that raises 

substantial questions concerning the 

director’s ability to fulfill their duties 

and obligations; or (v) a determination 

under proposed § 1261.22(b)(3) 

(discussed below, requiring that the 

board assess director performance 

annually) that the director’s continuous 

poor performance or lack of 

participation is compromising the 

board’s ability to adequately oversee the 

operations of the Bank. Under the 

proposed rule, a Bank would also be 

required to promptly notify FHFA in 

writing of any pending or final removal 

actions taken pursuant to this authority. 

As stated above with respect to the 

required background check for 

directorship nominees, the safe and 

sound operation of every Bank depends, 

in part, upon the existence of some 

mechanism for identifying and 

addressing potential risks to a Bank that 

could be posed by its own directors. It 

is important that a Bank’s board have 

clear authority to address risks posed by 

sitting directors, as well as potential 

risks posed by those seeking to become 

directors. FHFA believes that the 

prescribed list of ‘‘good cause’’ bases for 

removal, as well as the requirements 

that two-thirds of disinterested Bank 

directors vote to remove and that a Bank 

carry out any actions pursuant to 

policies adopted by the Bank’s board 

should minimize the chance that any 

removal authority would be abused or 

applied in anything other than an 

objective fashion in the best interests of 

the Bank. 

Some Banks already have a policy 

providing for the good cause removal of 

directors, which FHFA believes is 

appropriate. FHFA believes it is 

important to make clear that each 

Bank’s board retains this limited 

authority and requests comment on 

whether it would be appropriate to 

require each Bank to adopt policies on 

good cause removal. The Agency also 

requests comment on whether any 

factors should be added or eliminated 

from the list of ‘‘good cause’’ bases for 

removal and on whether the revised 

regulation should require separate votes 

by member and independent directors 

or something other than a two-thirds 

vote for removal. 

12. Vacant Bank Directorships— 

§ 1261.14 

Section 1261.14 of the existing 

regulation establishes the requirements 

and procedures for the filling of vacant 

Bank directorships by the Bank’s board 

of directors. The proposed rule would 

make numerous clarifying edits to this 

section. 

Existing § 1261.14(a), entitled ‘‘Filling 

of unexpired terms,’’ requires that, 

when a directorship vacancy occurs, the 

Bank’s board elect an individual to 

complete the unexpired term of office of 

the vacant directorship. The election is 

determined by a majority vote of the 

remaining Bank directors sitting as a 

board, regardless of whether the 

remaining Bank directors constitute a 

quorum.38 The regulation permits a 

Bank’s board to fill an anticipated 

vacancy prior to its occurrence, but it 

may do so no sooner than the regularly 

scheduled board meeting immediately 

prior to the effective date of the 

vacancy.39 To fill a particular vacancy, 

a Bank’s board may elect only an 

individual who satisfies all the statutory 

and regulatory eligibility requirements 

‘‘that applied to his or her predecessor’’ 

and, for independent directorships, also 

satisfies any of the independent director 

qualifications. If a Bank does not have 

at least two sitting public interest 

independent directors, its board must 

designate the vacant directorship as a 

public interest independent directorship 

and elect an eligible and qualified 

individual to fill it.40

While retaining the same basic 

approach, the proposed rule would 

restate the standards for determining 

who is eligible to fill a particular 

vacancy and expressly allow Banks 

some flexibility in filling vacant 

independent directorships. The 

proposed rule would also reconfigure 

existing paragraph (a)(1) into the 

introductory paragraph to § 1261.14(a) 

and redesignate the succeeding 

paragraphs accordingly. 

With respect to determining who is an 

eligible successor to a director that has 

left the board, the existing regulation 

provides that the board ‘‘shall elect only 

an individual who satisfies all the 

eligibility requirements in the Bank Act 

and in this subpart that applied to his 

or her predecessor and, for independent 

directorships, also satisfies any of the 

qualifications in the Bank Act or this 

subpart.’’ The proposed rule would 

delete this language and state, simply, 

in § 1261.14(a)(2) that a Bank’s board 

must: (i) fill a vacant member 

directorship only with an individual 

who meets the member director 

eligibility requirements set forth in 

proposed § 1261.5(a) (including by 

being an officer or director of a member 

located in the voting state to which the 

vacant member directorship is 

allocated); and (ii) fill a vacant 

independent directorship only with an 

individual who meets the eligibility 

requirements for independent directors 

set forth in proposed § 1261.5(b). 

By statute, a Bank’s board must at all 

times have at least two seats designated 

as public interest independent 

directorships. If one of those seats 

becomes vacant, it should be filled as 

expeditiously as possible. Proposed 

§ 1261.14(a)(3) would provide more 

express flexibility in filling a vacant 

public interest independent directorship 

than the existing regulation by 

permitting a Bank’s board either to: (i) 

elect an individual who is qualified 

under § 1261.5(c)(2) to serve as a public 

interest independent director to fill the 

vacancy; or (ii) elect to redesignate as a 

public interest independent director a 

sitting regular independent director who 

is qualified under § 1261.5(c)(2) to serve 

as a public interest independent 

director. In the latter case, the board 

would elect another individual who is 

qualified under § 1261.5(c)(1) to serve as 

a regular independent director to fill the 

resulting vacant regular independent 

directorship. The proposed change 

would also make it possible for the 

board of directors to redesignate a 

public interest independent director as 

a regular independent director. This 

may occur, for example, if the Bank 

already has more than two sitting public 

interest independent directors on its 

board. Although FHFA views such 

scenarios as permissible under the 

existing language and has permitted 

Banks to fill vacant public interest and 

regular independent directorships in 

that way, the proposed revisions would 


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41Section 1261.21 applies to OF independent 

directors by operation of 12 CFR 1273.7(f)(2). Bank 

presidents serve as ex officio directors of the OF but 

are not compensated for such service. 12 CFR 

1273.7(f)(1). 

42See 12 CFR 1261.22(a) and (d). 

43See 12 CFR 1261.23. 

44See 12 U.S.C. 1427(i)(1). FHFA has applied 

section 7(i) to OF pursuant to the Director’s 

authorities under 12 U.S.C. 4511(b)(2). 

45Compare 12 U.S.C. 1427(i)(1) with Public Law 

72–304, sec. 7(h), 47 Stat. 725, 730 (July 22, 1932). 

46Public Law 72–304, sec. 2(1), 47 Stat. 725. 

47Public Law 72–304, sec. 7(a) and (b), 47 Stat. 

730. 

48See generally, Public Law 72–304, secs. 12, 17, 

18, and 20, 47 Stat. 735–38. 

49Amendments from 1935 also used ‘‘Board’’ in 

uppercase to refer to the FHLBB. Among other 

changes, amendments to section 7 in 1935 provided 

for the election of ‘‘[t]wo of such [Bank] directors’’ 

by Bank members without regard to classes, under 

‘‘rules and regulations to be prescribed by the 

Board.’’ Public Law 74–76, sec. 3(b), 49 Stat. 293, 

294 (May 28, 1935) (emphasis added). As later 

examples, see Public Law 84–345, sec. 109(a)(2), 69 

Stat. 635, 640 (Aug. 11, 1955), and Public Law 86– 

349, sec. 1 and 2, 73 Stat. 625 (Sept. 22, 1959). The 

1935 amendments also added a new paragraph (d), 

such that original paragraph (h) on Bank director 

compensation was re-lettered paragraph (i), as it is 

today. 

50Public Law 74–76, sec. 3(b), 49 Stat. 294. 

make it clear that the Banks have this 

flexibility. 

Proposed § 1261.14(a)(4) would make 

clear that a Bank’s board of directors 

must consult with the Bank’s Advisory 

Council before considering any 

individual to fill a vacant independent 

directorship, just as is required under 

existing § 1261.7(d)(2) (proposed 

§ 1261.7(c)(3)) when a board is 

considering independent directorship 

nominations during the regular election 

cycle. 

Existing § 1261.14(b), entitled 

‘‘Verifying eligibility,’’ requires that 

prior to any election to fill a board 

vacancy, the Bank obtain an executed 

Application or Certification Form (as 

appropriate) from each individual being 

considered to fill the vacancy and use 

the Forms to verify each individual’s 

eligibility and qualifications. The 

existing provision also requires that the 

Bank deliver to FHFA for its review a 

copy of the Application Form of each 

individual being considered by the 

board. 

The proposed rule would make 

several clarifications to § 1261.14(b), as 

well as breaking the revised material 

into four paragraphs for better 

readability. Proposed § 1261.14(b)(1) 

would continue to require that a Bank 

obtain the appropriate executed 

Application or Certification Form from 

each individual being considered to fill 

a vacancy and would clarify that this 

requirement applies even when a Bank’s 

board is contemplating the 

redesignation of a sitting regular 

independent director as a public interest 

independent director or vice versa. 

Proposed § 1261.14(b)(2) would 

require that a Bank conduct a 

background check on any individual 

being considered to fill a vacant 

directorship in the same manner as 

required for nominees in the regular 

election cycle under proposed 

§ 1261.7(e). 

Proposed § 1261.14(b)(3) would 

continue to require that a Bank’s board 

deliver to FHFA for review the executed 

Independent Director Application Form 

for each individual being considered by 

the board to fill a vacant independent 

directorship and would clarify that (as 

is the case for its review of Independent 

Director Application Forms during the 

regular election cycle) FHFA has two 

weeks within which to provide 

comments to the Bank. The proposed 

provision would also require a Bank to 

provide a summary of the background 

check. 

Finally, proposed § 1261.14(b)(4) 

would require a Bank to retain all 

information obtained under § 1261.14(b) 

for at least seven years after the date of 

the election in question and, in the case 

of any information about a specific 

director, for at least seven years after 

that director leaves the board. This 

parallels the retention requirements that 

would apply to materials received 

during the regular nomination and 

election cycles under §§ 1261.7(f) and 

1261.8(e)(5). 

Existing § 1261.14(c), governing 

notification, would remain unchanged 

under the proposed rule. 

In the remainder of subpart B of part 

1261, the proposed rule would make no 

changes to existing § 1261.15 (setting 

forth the table for ‘‘grandfathered’’ 

member directorships) and would 

remove § 1261.16, which contains no 

regulatory text and is designated as 

reserved. 

13. (Directors’ Compensation) General— 

§ 1261.21 

In subpart C of the existing regulation, 

§ 1261.21 addresses Bank and OF 

director compensation.41 Existing 

§ 1261.21(a) authorizes each Bank and 

OF to pay its directors reasonable 

compensation and necessary expenses. 

This authority is subject to further 

provisions of subpart C requiring each 

Bank and the OF to compensate its 

directors pursuant to an annually 

adopted and FHFA-reviewed written 

compensation policy 42 and authorizing 

the Director to disapprove 

compensation or expenses determined 

not to be reasonable.43 Existing 

§ 1261.21(b) requires that each Bank and 

OF report to the Director annually about 

the compensation it anticipates paying 

out in the following year and director 

compensation, expenses, and meeting 

attendance for the immediately 

preceding calendar year. FHFA is 

proposing changes to both paragraphs 

(a) and (b) of existing § 1261.21, as 

described below. 

Proposed amendment to paragraph 

(a), ‘‘Standard.’’ By statute, the Banks 

and OF are authorized to pay their 

directors reasonable compensation for 

the time required of them and necessary 

expenses they incurred in performing 

their duties, provided the Bank System 

regulator approves such 

compensation.44 As did predecessor 

Bank System regulators, FHFA 

interprets its statutory obligation to 

approve reasonable director 

compensation as conferring authority to 

establish a maximum amount or level of 

reasonable compensation and to provide 

prior notice of that amount to each Bank 

and the OF. FHFA now proposes to state 

that authority in the regulation. 

Current section 7(i)(1) of the Bank Act 

is identical to the provision regarding 

director compensation originally 

enacted as section 7(h) of the Bank Act 

in 1932, providing that ‘‘[e]ach bank 

may pay its directors reasonable 

compensation for the time required of 

them, and their necessary expenses, in 

the performance of their duties, in 

accordance with the resolutions adopted 

by such directors, subject to the 

approval of the board.’’ 45 Although the 

current statutory provision does not 

expressly identify FHFA as the 

approving authority, review of the Bank 

Act demonstrates that ‘‘board,’’ as used 

in the approval proviso, must be read to 

refer to FHFA. 

When originally enacted in 1932, the 

Bank Act defined ‘‘board’’ as the Federal 

Home Loan Bank Board (FHLBB), the 

original regulator of the Bank System.46

Thus, through use of the word ‘‘board,’’ 

section 7(h) as originally enacted 

unambiguously provided the FHLBB 

authority to approve Bank director 

compensation. When section 7 of the 

original Bank Act is read as a whole, it 

is apparent that Congress used the term 

‘‘board’’ standing alone to mean the 

Bank System regulator, and used ‘‘board 

of directors’’ or a clear derivative of that 

term (e.g., a ‘‘board of eleven directors,’’ 

or ‘‘such board’’) when referring to a 

Bank’s board of directors.47 Moreover, 

that approach is evident throughout the 

Bank Act as originally enacted 48 and 

across amendments over time.49

Original section 7(h) was redesignated 

as section 7(i) in 1935.50 When Congress 

amended sections 7(a) through (h) in 

1961 to revise provisions governing the 


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51Public Law 87–211, 75 Stat. 486 (Sept. 8, 1961). 

52 ‘‘Every clause and word of a statute should, if 

possible, be given effect.’’ United States v. 

Menasche, 348 U.S. 528, 538–539 (1955) (internal 

citations omitted). ‘‘The presence of statutory 

language cannot be regarded as mere surplusage; it 

means something.’’ Potter v. U.S., 155 U.S. 438, 446 

(1894). 

53See 23 FR 9878, 9885 (Dec. 23, 1958). 

Presumably Congress was aware of this 

interpretation in 1961, when it chose not to amend 

paragraph (i). The FHLBB did not amend its Bank 

directors’ compensation regulation again until 1978, 

when it codified its policy, first established in 1974, 

of imposing supervisory limits on Bank director 

compensation. See 43 FR 46835 (Oct. 11, 1978). 

54Public Law 101–73, secs. 401(a)(2), 702(a), and 

703, 103 Stat. 354, 413, and 415 (Aug. 9, 1989); see 

also Public Law 101–73, sec. 701(a)(1) and (b), 103 

Stat. 411, 412. 

55See 12 CFR 522.60 (1989), as originally adopted 

in 1978, 43 FR 46837. This regulatory provision was 

not thereafter amended by the FHLBB but was 

transferred without change by the Finance Board 

after FIRREA’s enactment, see 54 FR 36757, 36758 

(Sept. 5, 1989). See also 61 FR 43151, 43153 (Aug. 

21, 1996) (wherein the Finance Board determined 

that a dollar cap on Bank director compensation 

was appropriate considering ‘‘the agency’s statutory 

responsibility to ‘approve’ Bank directors’ 

compensation, see 12 U.S.C. 1427(i), the Bank Act’s 

requirement that such compensation be 

‘reasonable,’ see id., and the preference for 

providing a clear regulatory standard.’’). 

56Public Law 110–289, sec. 1202(7), 122 Stat. 

2783 (July 30, 2008); see also Public Law 106–102, 

sec. 606(b), 113 Stat. 1450, 1453 (Nov. 12, 1999). 

Even after GLBA’s imposition of statutory limits the 

Bank System regulator continued to assert approval 

authority by regulation, see 12 CFR 932.17(f) (2000) 

(‘‘Payments made to directors in compliance with 

the limits on annual directors’ compensation and 

the standards set forth in this section are deemed 

to be approved by the Finance Board for purposes 

of section 7(i) of the [Bank] Act, as amended.’’). 

57Public Law 110–289, sec. 1204, 122 Stat. 2785. 

58Consistent statutory interpretation by the 

administrative regulator ‘‘is of persuasive force,’’ 

U.S. v. Madigan, 300 U.S. 500, 505 (1937); see also 

Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944). 

59See 61 FR 17603 (Apr. 22, 1996). 

60See 43 FR 46837 (Oct. 11, 1978), 54 FR 36757 

(Sept. 5, 1989), 61 FR 43151 (Aug. 21, 1996), 64 FR 

71278 (Dec. 21, 1999), 65 FR 8260 (Feb. 18, 2000), 

67 FR 12846 (Mar. 20, 2002), and 75 FR 17040 (Apr. 

5, 2010). 

election and appointment of Bank 

directors it added a clause stating that 

‘‘Federal Home Loan Bank Board’’ 

would be ‘‘hereinafter in this section 

referred to as the Board’’ to paragraph 

(a).51 Section 7(i) on director 

compensation and section 7(j) on 

administration of the affairs of each 

Bank by its board of directors were not 

addressed in the 1961 amendments, and 

section 2(1) of the Bank Act, defining 

‘‘board’’ as the FHLBB, also was not 

amended or repealed. As a result, after 

the 1961 amendments, section 7 used 

both ‘‘Board’’ and ‘‘board’’ standing 

alone, and each term was identified or 

defined as—and understood to refer to— 

the Bank System regulator. 

Reading ‘‘board’’ otherwise—as 

referring to a Bank’s board of directors— 

leads to an implausible outcome. For 

example, the Bank’s board of directors 

would then be statutorily required to act 

twice on the matter of directors’ 

compensation—once by resolution and 

once by ‘‘approval’’—or one of the two 

actions (resolution or approval) is 

unnecessary, because it would be 

redundant.52 Moreover, such a reading 

also requires assuming that in 1961 

Congress intended to withdraw 

authority from the Bank System 

regulator and confer it on each Bank’s 

board of directors through a new 

practice, used in only one place in the 

Bank Act, of referring to the Bank’s 

board of directors as ‘‘board,’’ standing 

alone in lowercase and as distinguished 

from ‘‘Board,’’ meaning the Bank 

System regulator, standing alone in 

uppercase. The correct reading of 

section 7 after the 1961 amendments is 

that either ‘‘board’’ or ‘‘Board,’’ when 

standing alone in section 7, meant the 

‘‘Federal Home Loan Bank Board.’’ This 

conclusion is also supported by the 

Bank System regulator’s 

contemporaneous understanding, as 

evidenced by the fact that following the 

1961 amendments, the FHLBB did not 

revise its Bank director compensation 

regulation adopted in 1958, which 

stated that Bank directors’ fees were 

subject to the approval of the FHLBB.53

In 1989, the Financial Institutions 

Reform, Recovery, and Enforcement Act 

(FIRREA) established the Federal 

Housing Finance Board (Finance Board) 

to replace the FHLBB as the Bank 

System regulator and revised the Bank 

Act to replace all uses of ‘‘board’’ except 

in section 7 with ‘‘Board,’’ which 

FIRREA defined as the Finance Board.54

Because this change in terms did not 

cover section 7 (plausibly to avoid 

changing ‘‘board’’ in the term ‘‘board of 

directors’’ to ‘‘Board’’), in sections 7(a) 

through (h) ‘‘Board’’ continued to 

connote the Bank System regulator 

while section 7(i) continued to use the 

lowercase ‘‘board.’’ There is no evidence 

that FIRREA’s failure to change the 

word ‘‘board’’ in section 7(i) as part of 

the conforming amendments to reflect 

the name of the new System regulator, 

however, was intended to change the 

long-held understanding that the word 

refers to the Bank System regulator. In 

contrast, FHLBB regulations in effect 

immediately prior to FIRREA’s 

enactment and later regulations of the 

Finance Board demonstrate that those 

agencies understood ‘‘board’’ in the 

approval proviso to refer to the System 

regulator.55

Most recently, section 7(i) of the Bank 

Act was amended by HERA in 2008, 

when section 7(i)(2), which was added 

by the Gramm-Leach-Bliley Act (GLBA) 

in 1999 and imposed statutory limits on 

Bank director compensation, was 

repealed.56 The 2008 amendment thus 

returned section 7(i)(1) to the same 

language as section 7(i) before GLBA 

was enacted, providing that director 

compensation was subject to the 

approval of the ‘‘board’’—in lowercase 

but standing alone. Because HERA also 

made FHFA the Bank System regulator, 

replacing the Finance Board, HERA 

included a number of general 

amendments changing references to the 

‘‘Board’’ or the ‘‘Finance Board’’ to the 

‘‘Director’’ of FHFA.57 Likely because 

‘‘board’’ in the section 7(i)(1) approval 

proviso was not capitalized, it was not 

identified as a reference in need of 

updating. Once again however, the fact 

that the proviso was not changed 

indicates that Congress did not intend to 

change its meaning. And, as has been 

consistently demonstrated from the 

enactment of the Bank Act in 1932 

through its many amendments and in 

the regulations of successive System 

regulators, the proviso means that the 

Bank System regulator—now FHFA— 

has authority to approve Bank director 

compensation.58

The legislative and regulatory history 

that substantiates FHFA’s authority to 

approve Bank director compensation 

also affirms its authority to establish 

limits on ‘‘reasonable’’ compensation. 

As early as 1974, the Bank System 

regulator limited Bank director 

compensation by policy, exercising 

statutory authority identical to that in 

existing section 7(i)(1).59 Thereafter, the 

Bank System regulator’s authority to 

determine a level of ‘‘reasonable’’ Bank 

director compensation was codified in 

regulation, first in 1978 and again in 

1989, 1996, 1999, 2000, 2002, and 

2010.60

In common with earlier Bank System 

regulators, FHFA views its express 

statutory authority to approve Bank 

director compensation on the basis that 

it is reasonable as conferring authority 

to establish and provide to the Banks 

and OF an amount of director 

compensation that FHFA has 

determined would be reasonable. After 

administering the existing regulation for 

almost 15 years, FHFA believes it could 

be useful to provide the Banks and OF 

information on a level or amount of 

director compensation FHFA has 

determined to be reasonable, for 

consideration when each Bank and OF 

develops its directors’ compensation 

policy. 

The existing regulation requires each 

Bank and OF to submit its director 

compensation policy to FHFA for prior 


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61See 12 U.S.C. 4518(a); see also 12 CFR part 

1230. 62See 12 CFR 1261.22 and 1261.23. 

63See PwC’s, Governance Insights Center, 

Individual director assessments, (August 2023), 

available at https://www.pwc.com/us/en/services/ 

review and addresses FHFA’s obligation 

to disapprove director compensation 

that is not reasonable. The Bank Act 

does not define ‘‘reasonable,’’ but FHFA 

relies on concepts and processes similar 

to those used in its review of Bank 

executive officer compensation (where, 

by statute, FHFA is required to prohibit 

the regulated entities from providing 

executive officers compensation that is 

not reasonable and comparable to 

compensation paid by similar 

institutions for the performance of 

similar duties 61). When determining if 

proposed compensation of Bank or OF 

directors is ‘‘reasonable,’’ FHFA 

considers a variety of factors including 

compensation of directors at other 

banking institutions; the Banks’ status 

as government-sponsored enterprises 

and features of their statutory charters, 

governance, and businesses that may 

distinguish them from other 

institutions; their statutory purposes 

and mission; and the fact that they were 

created to serve a public purpose. 

Currently, if FHFA determines that 

proposed director compensation is not 

reasonable, it does not provide the 

relevant Bank or OF information on an 

alternative amount of compensation that 

FHFA would deem to be reasonable. 

Instead, the Bank or OF must submit a 

new proposal, subject to a new FHFA 

review. FHFA believes this process 

imposes a burden on the Banks and OF 

which could be reduced or avoided if 

FHFA provided notice of a maximum 

amount of annual director 

compensation FHFA has determined 

would be reasonable. Because FHFA has 

not previously exercised that authority, 

and for consistency with earlier System 

regulators which stated such authority 

in regulation, FHFA now believes it 

should state its authority to establish an 

amount of ‘‘reasonable’’ director 

compensation and to provide prior 

notice of that amount to the Banks and 

OF in regulation. 

FHFA does not propose to establish a 

maximum amount or level of 

compensation in this regulatory action. 

In the future, FHFA may establish such 

an amount and may do so through a 

regulatory amendment or an order. 

FHFA may also provide guidance on an 

amount of Bank or OF director 

compensation it believes would be 

reasonable. In any case, FHFA expects 

any amount or level of ‘‘reasonable’’ 

compensation so established would 

reflect consideration factors such as 

those set forth above. 

Likewise, FHFA does not propose to 

amend other provisions of existing 

subpart C that currently require each 

Bank and OF, when submitting its 

directors’ compensation policy to 

FHFA, to include all studies or other 

supporting materials upon which the 

board relied in determining the level of 

compensation and expenses to pay to its 

directors; require FHFA to review the 

policy; and acknowledge FHFA’s 

authority to disapprove the policy if 

FHFA determines that compensation 

and/or expenses to be paid to the 

directors are not reasonable.62 Should 

FHFA in the future provide the Banks 

and OF prior notice of a maximum 

amount of director compensation 

determined to be reasonable, FHFA does 

not intend that each Bank or OF simply 

adopt that amount in its policy. Instead, 

FHFA expects that the board of directors 

of each Bank and OF would continue to 

evaluate and affirmatively determine 

reasonable director compensation and 

that each annual policy submission 

would continue to provide studies, 

supporting materials, and justification 

for such determinations. As it does 

currently, FHFA expects to review each 

submission in full and may disapprove 

proposed compensation that is not 

supported as reasonable. FHFA may 

also approve a proposal to pay 

compensation that exceeds the amount 

FHFA has communicated by prior 

notice if the Bank or OF provides 

appropriate support. 

Proposed amendment to paragraph 

(b), ‘‘Reporting.’’ As noted above, 

existing § 1261.21(b) requires that each 

Bank report to the Director annually 

about the compensation it anticipates 

paying out in the following year and 

director compensation, expenses, and 

meeting attendance for the immediately 

preceding calendar year. One of the 

items required to be included in the 

latter category under the existing 

regulation is ‘‘[t]he number of board and 

designated committee meetings each 

director attended in-person or through 

electronic means such as video or 

teleconferencing.’’ In order to conform 

more closely to the language that would 

be used in revised § 1261.24 (discussed 

below), the proposed rule would revise 

the description of this item to refer to 

‘‘meetings each director attended in 

person or remotely, through video or 

teleconferencing, and in accordance 

with § 1261.24(b).’’ 

14. Directors’ Compensation Policy— 

§ 1261.22 

Existing § 1261.22 requires that a 

Bank adopt a written compensation 

policy to ‘‘provide for the payment of 

reasonable compensation and expenses 

to the directors for the time required of 

them in performing their duties as 

directors.’’ The policy must ‘‘address 

the activities or functions for which 

director attendance or participation is 

necessary and which may be 

compensated, and . . . explain and 

justify the methodology used to 

determine the amount of compensation 

to be paid to the Bank director.’’ A 

Bank’s compensation policy must 

require that compensation be reduced, 

as necessary, to reflect lesser attendance 

or performance at board or committee 

meetings during a given year. 

The proposed rule would split 

paragraph (b), addressing minimum 

contents for Bank compensation plans, 

into two paragraphs. It would also add 

a third paragraph, § 1261.22(b)(3), 

requiring each Bank to establish, as part 

of its compensation policy, a fair and 

impartial process for annually 

evaluating individual director 

performance and participation, 

including, but not limited to, an 

assessment of whether each director: (i) 

demonstrated understanding of the 

Bank System; (ii) demonstrated 

knowledge of the Bank’s policies and 

governance documents; (iii) 

demonstrated understanding of his or 

her legal and ethical responsibilities as 

a board member; (iv) made suggestions 

congruent with the Bank’s mission, 

vision and values (even if divergent 

from majority opinion); and (v) acted in 

support of Board decisions, regardless of 

initial position. The proposed rule 

would also revise newly designated 

§ 1261.22(b)(2) to stipulate that, as a 

consequence for poor performance or 

participation, a Bank’s board may not 

only reduce a director’s pay, but may 

also remove a director whose lack of 

performance or participation is 

compromising the board’s ability to 

adequately oversee the operations of the 

Bank. This authority is also referenced 

in proposed § 1261.13, which addresses 

a board’s authority to remove a director 

for good cause. 

Bank directors hold positions of trust 

and are well compensated for their time 

and efforts. Each Bank needs all of its 

directors to devote the time, attention, 

and thought necessary to properly 

oversee the Bank and its operations. It 

is a matter of strong corporate 

governance for a Bank’s board of 

directors to have an effective process for 

assessing the performance of board 

directors; this process can help improve 

individual and collective board 

performance.63 It is just as essential that 


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64See 12 CFR 1273.8(b). 

65See 12 CFR 1261.22. 

66See 12 CFR 1273.7(f)(2). 67See 12 CFR 1261.22(d). 68See 12 CFR 1201.1. 

a Bank’s board have an effective 

mechanism for addressing lack of 

performance. In extreme cases, where a 

director’s performance is so poor or 

detrimental that it poses a risk to the 

board’s ability to effectively oversee the 

Bank’s operations, this could include 

removal of a director using the 

procedures established under proposed 

§ 1261.13(b). 

15. Board Meetings—§ 1261.24 

The proposed rule would make 

multiple substantive changes to codify a 

waiver FHFA first issued in 2020 

permitting Bank System board and 

committee meetings to be held in virtual 

formats. 

Existing § 1261.24(a) requires that the 

board of directors of each Bank hold as 

many meetings each year as are 

necessary and appropriate to carry out 

its fiduciary duties regarding its 

oversight of the Bank, provided that 

each board must hold a minimum of six 

in-person meetings during each 

calendar year. A similar regulatory 

requirement applies to the board of 

directors of the OF.64 As mentioned 

above, FHFA regulations also require 

that each Bank annually adopt a written 

compensation policy to provide for the 

payment of reasonable compensation 

and expenses to the directors for the 

time required of them in performing 

their duties as directors.65 The OF is 

required to pay reasonable 

compensation to independent directors 

in accordance with the requirements of 

part 1261 applying to the compensation 

of Bank directors, including the 

requirement that compensation be 

reduced to reflect lesser attendance or 

performance at board or committee 

meetings.66

The requirements for Bank and OF 

boards to hold at least six in-person 

meetings are prudential measures 

adopted by FHFA as an aid to 

promoting sound governance; they are 

not required by statute. In response to 

the COVID–19 pandemic, the FHFA 

Director issued a letter in March 2020 

waiving the need to comply with the inperson board meeting regulatory 

requirements and with provisions of 

compensation policies tying 

compensation to attendance at in-person 

board and committee meetings. Over the 

course of the pandemic, the waiver was 

extended nine times and the last 

extension remains in effect without an 

expiration date. 

Although the COVID–19 public health 

emergency has ended and FHFA prefers 

that Banks and OF hold in-person board 

meetings whenever possible, it also 

recognizes the benefits of allowing 

greater flexibility in fulfilling the 

Agency’s regulatory requirement to hold 

at least six board meetings a year, 

particularly in times of emergency. The 

proposed revisions allowing boards to 

meet remotely at their discretion 

without seeking prior Agency approval 

could promote efficiency by minimizing 

delays in response to urgent issues and 

reducing travel costs and unexpected 

travel disruptions while fostering 

greater board participation for directors 

unable to attend in person. 

Additionally, the Bank System has 

already demonstrated its ability to use 

electronic platforms to engage in 

discourse and conduct business over the 

past four years. The proposed rule 

would permanently address the issue by 

codifying the substance of the existing 

waiver into regulation. 

The principal effect of modifying the 

regulation would be to allow the Banks 

and OF an alternative means of holding 

a board meeting that would otherwise 

be held in person. The interests of the 

members and the public should be 

equally represented through either type 

of board meeting. Expectations for 

attendance and performance at meetings 

and the compensation methodology 

should be communicated to board 

members in the compensation policy, 

which, with supporting materials, must 

be submitted to the FHFA Director 

annually.67 Consequently, the Agency 

would expect the Banks and OF to keep 

adequate meeting records to sufficiently 

document board member attendance 

and performance. FHFA also expects the 

Banks and OF to appropriately mitigate 

any security risks that may arise from 

meeting in a virtual setting. 

The proposed rule would revise 

existing § 1261.24(a) to remove the 

requirement that the six minimum 

board meetings be ‘‘in-person.’’ In 

conjunction with this, the proposed rule 

would revise § 1261.24(b) to provide 

that ‘‘[a] Bank’s board of directors and 

its committees may conduct meetings 

in-person, through video conferencing 

or teleconferencing, or in a hybrid 

format, provided that all directors have 

an opportunity to communicate and 

have access to all written documents 

and presentations.’’ Any meeting of the 

type described can be counted as one of 

the minimum six meetings required 

under § 1261.24(a). 

Proposed § 1261.24(b)(2) would state 

an expectation that that each Bank will 

‘‘generally’’ hold board and committee 

meetings within the Bank district and 

would retain the prohibition against 

holding any board or committee meeting 

that is not within a ‘‘State’’ as defined 

by 12 CFR 1201.1. This definition 

includes ‘‘United States, American 

Samoa, the Commonwealth of the 

Northern Mariana Islands, the District of 

Columbia, Guam, Puerto Rico, or the 

United States Virgin Islands.’’ 68 It 

would further require that all directors 

be located within a State, as so defined, 

when attending a board or committee 

meeting via video conference or 

teleconference. 

The proposed rule would also add to 

§ 1261.24 a new paragraph (c) to define 

‘‘quorum’’ to mean ‘‘for purposes of 

meetings of a Bank’s board of directors, 

. . . a majority of sitting directors, 

which must include a majority of sitting 

independent directors.’’ This provision 

would better ensure that independent 

voices are heard on critical Bank issues 

and provide consistency within the 

Bank System. The proposed provision 

parallels the definition of ‘‘quorum’’ as 

it is currently stated in the OF 

regulation at 12 CFR 1273.8(b). 

B. Revisions to 12 CFR Part 1239 

Although each Bank is required under 

existing § 1261.11 to adopt a conflictsof-interest policy to cover all of its board 

directors, there is currently no 

equivalent requirement with respect to 

Bank employees, many of whom are in 

no less a position of trust at the Bank 

than are its board directors. 

Part 1239 of FHFA’s regulations 

addresses responsibilities of boards of 

directors, corporate practices, and 

corporate governance for FHFA’s 

regulated entities. The proposed rule 

would add to part 1239 a new § 1239.31 

requiring each Bank to adopt a conflictsof-interest policy covering its employees 

and establishing the requirements for 

those policies. The content and format 

of the new section is based on that of 

§ 1261.11, which addresses the Bank 

director conflicts-of-interest policy 

requirement, appropriately modified to 

be applicable to Bank employees. 

Proposed § 1239.31(a) would require 

that each Bank’s board of directors 

adopt a written conflicts-of-interest 

policy covering all employees, which 

must, at a minimum: (1) require that all 

employees of the Bank discharge their 

official responsibilities in an objective 

and impartial manner in furtherance of 

the interests of the Bank’s membership 

as a whole and consistent with the 

public interest; (2) establish appropriate 

limitations, standards, and procedures 


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regarding the holding of outside 

positions and financial interests by 

Bank employees and close family 

members and associates; (3) prohibit 

executive officers and senior 

management from holding paid 

positions with any entity that is, or may 

be eligible to become, a member or 

housing associate of any Bank or with 

any affiliate of such entity; (4) prohibit 

employees from participating in any 

particular matter in which the employee 

or any immediate family member or 

business associate has a financial 

interest; (5) prohibit employees from 

otherwise holding financial interests 

that conflict with the conscientious 

performance of duty; (6) require 

employees to disclose actual or apparent 

conflicts of interests and establish 

procedures for addressing such 

conflicts, including recusal; (7) require 

the establishment of internal controls to 

ensure that conflicts-of-interest reports 

are made and filed and that conflicts-ofinterest issues are disclosed and 

resolved; and (8) establish procedures to 

monitor compliance with the conflictsof-interest policy. While the proposed 

rule would require each Bank’s policy to 

set appropriate guidelines for all of its 

personnel, FHFA would expect a Bank 

to appropriately calibrate the treatment 

of different types of employees under 

the policy according to the risk 

presented, including by setting more 

stringent standards for executives and 

officers. 

Paralleling § 1261.11, paragraphs (b) 

and (c) of proposed § 1239.31 would 

prohibit employees in most cases from 

disclosing or using confidential 

information they receive by reason of 

their position with the Bank and 

discourage Bank employees from 

accepting gifts that appear to be 

intended to influence the employee’s 

actions. 

Proposed paragraph (d) would employ 

the same definitions that are used in 

proposed § 1261.11(f). For purposes of 

attribution, ‘‘immediate family member’’ 

means a parent, sibling, spouse, child, 

or dependent, or any relative sharing the 

same residence as the director and the 

term ‘‘business associate’’ means any 

individual or entity with whom a 

director has a business relationship, 

including, but not limited to: (1) Any 

corporation or organization of which the 

employee is an officer or partner, or in 

which the employee beneficially owns 

ten percent or more of any class of 

equity security, including subordinated 

debt; (2) Any other partner, officer, or 

beneficial owner of ten percent or more 

of any class of equity security, including 

subordinated debt, of any such 

corporation or organization; and (3) Any 

trust or other estate in which an 

employee has a substantial beneficial 

interest or as to which the employee 

serves as trustee or in a similar fiduciary 

capacity. The definition of ‘‘financial 

interest’’ matches the revised definition 

of that term in proposed § 1261.11(f). 

C. Revisions to 12 CFR Part 1273 

The proposed rule would also make 

several revisions to part 1273, which 

governs the OF. Primarily, the proposed 

rule would amend part 1273 to revise 

the provision governing the minimum 

number and site of OF board meetings 

to match the revised language with 

respect to the Bank’s boards in 

§ 1261.24. The remaining proposed 

revisions are in response to comments 

provided by the Bank System in 

response to FHFA’s Spring 2023 Notice 

of Regulatory Review. 

1. Funding of the OF—§ 1273.5 

Existing § 1273.5 addresses the 

funding of the OF. Existing 

§ 1273.5(b)(1)(ii) limits OF operating 

funds withdrawals to check, wire 

transfer, or draft signed by the Chief 

Executive Officer (CEO) or other persons 

designated by the OF board of directors. 

In its letter sent in response to FHFA’s 

Spring 2023 Notice of Regulatory 

Review, the Bank System commented 

that the existing regulation governing 

the withdrawal of OF operating funds is 

both limited and outdated. It suggested 

that the regulation be modernized to 

permit the use of other widely accepted 

fund transfer methods that have been or 

will be developed in the future and that 

the regulation be expanded to allow 

CEO delegation of authority to achieve 

greater operational efficiency. In 

response, FHFA is proposing to revise 

§ 1273.5(b)(1)(ii) to expand the range of 

permissible OF withdrawal methods to 

include ‘‘draft[s]’’ and ‘‘other funds 

transfer methods with written 

authorization by the CEO or other 

persons designated by the CEO or OF 

board of directors in accordance with 

OF governance documents.’’ 

2. General Duties of the OF Board of 

Directors—§ 1273.8 

Existing § 1273.8 addresses the 

‘‘general duties of the OF board of 

directors.’’ Paragraph (b) of this section 

establishes requirements for OF board 

meetings, requiring that the OF board of 

directors conduct its business by 

majority vote of its members at meetings 

convened in accordance with its bylaws, and hold no fewer than six inperson meetings annually. 

The proposed rule would subdivide 

§ 1273.8(b) into four paragraphs for 

clarity and would revise the existing 

text concerning meeting frequency and 

location in a manner paralleling the 

proposed changes to the board meeting 

requirements for the Banks set forth in 

§ 1261.24. The reasons for these 

revisions are discussed in depth in the 

discussion of proposed § 1261.24, 

above. 

Proposed § 1273.8(b)(1) would allow 

the OF board of directors and its 

committees to conduct meetings ‘‘in 

person, through video conferencing or 

teleconferencing, or in a hybrid format, 

provided that all meeting attendees have 

an opportunity to communicate and 

have access to all written documents 

and presentations.’’ Under the proposed 

rule, all such meetings could be counted 

toward the minimum of six board 

meetings per year that is required under 

the existing regulation and as proposed. 

The proposed rule, in § 1273.8(b)(2), 

would prohibit the OF from holding any 

board or committee meeting that is not 

within a ‘‘State’’ as defined by 12 CFR 

1201.1 and would also require that all 

directors be located within a State, as so 

defined, when attending the meeting via 

teleconference or video conference. 

Proposed § 1273.8(b)(3) and (4) would 

retain the meeting notice and quorum 

provisions, respectively, of the existing 

regulation. 

In existing § 1273.8, paragraph (d) 

enumerates duties of the OF board, 

other than those relating to Bank System 

consolidated obligations, among which 

is included the duty to review and 

approve all contracts of the OF, except 

for contracts for which exclusive 

authority is provided to the Audit 

Committee by regulation. In its letter 

sent in response to FHFA’s Spring 2023 

Notice of Regulatory Review the Bank 

System commented that the current 

requirement seems impractical and 

unnecessary, as those activities 

generally fall under management’s 

responsibilities. In response, FHFA is 

proposing to eliminate the requirement 

that the OF board of directors review 

and approve all contracts of the OF, 

except for those reserved to the audit 

committee by regulation. Instead, 

proposed § 1273.8(d)(4) would state that 

the OF board of directors will review 

and approve contracts of the OF, as 

specified in OF governance documents. 

V. Considerations of Differences 

Between the Banks and the Enterprises 

Section 1313(f) of the Safety and 

Soundness Act requires the Director of 

FHFA, when promulgating regulations 

relating to the Banks, to consider the 

differences between the Banks and the 

Enterprises (Fannie Mae and Freddie 

Mac) as they relate to: the Banks’ 

cooperative ownership structure; the 


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69 12 U.S.C. 4513(f). 

70 44 U.S.C. 3501 et seq. 

71 5 U.S.C. 601 et seq. 

72See 5 U.S.C. 605(b). 

mission of providing liquidity to 

members; the affordable housing and 

community development mission; their 

capital structure; and their joint and 

several liability on consolidated 

obligations.69 The Director also may 

consider any other differences that are 

deemed appropriate. In preparing this 

proposed rule, the Director considered 

the differences between the Banks and 

the Enterprises as they relate to the 

above factors, and determined that the 

rule is appropriate. FHFA requests 

comments regarding whether 

differences related to those factors 

should result in any revisions to the 

proposed rule. 

VI. Paperwork Reduction Act 

The proposed rule would not contain 

any changes to information collection 

requirements that would require the 

approval of the Office of Management 

and Budget (OMB) under the Paperwork 

Reduction Act.70 Therefore, FHFA has 

not submitted any information to OMB 

for review. 

VII. Regulatory Flexibility Act 

The Regulatory Flexibility Act 71

(RFA) 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.72

FHFA has considered the impact of the 

proposed rule under the RFA. FHFA 

certifies that the proposed rule, if 

adopted as a final rule, would not have 

a significant economic impact on a 

substantial number of small entities 

because the proposed rule applies only 

to the Banks and OF, which are not 

small entities for purposes of the RFA. 

VIII. Providing Accountability Through 

Transparency Act of 2023 

The Providing Accountability 

Through Transparency Act of 2023 (5 

U.S.C. 553(b)(4)) requires that a notice 

of proposed rulemaking include the 

internet address of a summary of not 

more than 100 words in length of a 

proposed rule, in plain language, that 

shall be posted on the internet website 

under section 206(d) of the EGovernment Act of 2002 (44 U.S.C. 3501 

note) (commonly known as 

Regulations.gov). FHFA’s proposal and 

the required summary can be found at 

https://www.regulations.gov. 

List of Subjects 

12 CFR Part 1239 

Administrative practice and 

procedure, Federal home loan banks, 

Government-sponsored enterprises, 

Reporting and recordkeeping 

requirements. 

12 CFR Part 1261 

Administrative practice and 

procedure, Compensation, Conflicts of 

interest, Directors, Elections, Eligibility, 

Federal home loan banks, Meetings, 

Reporting and recordkeeping 

requirements. 

12 CFR Part 1273 

Administrative practice and 

procedure, Audit committee, 

Consolidated obligations, Directors. 

Accordingly, for the reasons stated in 

the preamble, under the authority of 12 

U.S.C. 4511, 4513, and 4526, FHFA 

proposes to amend parts 1239, 1261, 

and 1273 of chapter XII of title 12 of the 

Code of Federal Regulations, as follows: 

PART 1239—RESPONSIBILITIES OF 

BOARDS OF DIRECTORS, 

CORPORATE PRACTICES, AND 

CORPORATE GOVERNANCE 

■ 1. The authority citation for part 1239 

continues to read as follows: 

Authority: 12 U.S.C. 1426, 1427, 1432(a), 

1436(a), 1440, 4511(b), 4513(a), 4513(b), 

4526, and 15 U.S.C. 78oo(b). 

■ 2. Add § 1239.31 to read as follows: 

§ 1239.31 Conflicts of interest policy for 

Bank employees. 

(a) Adoption of conflicts-of-interest 

policy. Each Bank’s board of directors 

shall adopt a written conflicts-ofinterest policy covering all Bank 

employees. At a minimum, the 

conflicts-of-interest policy of each Bank 

shall: 

(1) Require that all Bank employees 

discharge their official responsibilities 

in an objective and impartial manner in 

furtherance of the interests of the Bank’s 

membership as a whole and consistent 

with the public interest; 

(2) Establish appropriate limitations, 

standards, and procedures regarding the 

holding of outside positions and 

financial interests by Bank employees 

and close family members and 

associates; 

(3) Prohibit Bank executive officers 

and senior management from holding 

paid positions with any entity that is, or 

may be eligible to become, a member or 

housing associate of any Bank or with 

any affiliate of such entity; 

(4) Prohibit Bank employees from 

participating in any particular matter in 

which the employee or any immediate 

family member or business associate has 

a financial interest; 

(5) Prohibit Bank employees from 

otherwise holding financial interests 

that conflict with the conscientious 

performance of duty; 

(6) Require Bank employees to 

disclose actual or apparent conflicts of 

interests and establish procedures for 

addressing such conflicts, including 

recusal; 

(7) Require the establishment of 

internal controls to ensure that 

conflicts-of-interest reports are made 

and filed and that conflicts-of-interest 

issues are disclosed and resolved; and 

(8) Establish procedures to monitor 

compliance with the conflicts-of-interest 

policy. 

(b) Confidential information. Bank 

employees shall not disclose or use 

confidential information they receive 

solely by reason of their position with 

the Bank to obtain any benefit for 

themselves or for any other individual 

or entity. 

(c) Gifts. No Bank employee shall 

accept, and each Bank employee shall 

discourage the employee’s immediate 

family members from accepting, any gift 

that the employee believes or has reason 

to believe is given with the intent to 

influence the employee’s actions, or 

where acceptance of such gift would 

have the appearance of intending to 

influence the employee’s actions. Any 

insubstantial gift would not be expected 

to trigger this prohibition. 

(d) Definitions. For purposes of this 

section: 

Business associate means any 

individual or entity with whom a Bank 

employee has a business relationship, 

including, but not limited to: 

(i) Any corporation or organization of 

which the employee is an officer or 

partner, or in which the employee 

beneficially owns ten percent or more of 

any class of equity security, including 

subordinated debt; 

(ii) Any other partner, officer, or 

beneficial owner of ten percent or more 

of any class of equity security, including 

subordinated debt, of any such 

corporation or organization; and 

(iii) Any trust or other estate in which 

an employee has a substantial beneficial 

interest or as to which the employee 

serves as trustee or in a similar fiduciary 

capacity. 

Financial interest means a direct or 

indirect financial interest in any 

activity, transaction, property, or 


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relationship that involves receiving or 

providing something of monetary value, 

and includes, but is not limited to any 

right, contractual or otherwise, to the 

payment of money, whether contingent 

or fixed. It does not include a deposit or 

savings account, loan or extension of 

credit, or other accounts and products 

obtained in the normal course of 

business on non-preferential terms 

generally available to the public from a 

member institution or from a nonmember counterparty to the Bank by 

which the individual is employed. 

Immediate family member means a 

parent, sibling, spouse, child, or 

dependent of a Bank employee, or any 

relative sharing the same residence as a 

Bank employee. 

■ 3. Revise and republish part 1261 to 

read as follows: 

PART 1261—FEDERAL HOME LOAN 

BANK DIRECTORS 

Subpart A—Definitions 

Sec. 

1261.1 [Reserved] 

Subpart B—Federal Home Loan Bank 

Boards of Directors: Eligibility and 

Elections 

1261.2 Definitions. 

1261.3 General provisions. 

1261.4 Annual designation of directorships. 

1261.5 Director eligibility. 

1261.6 Determination of member votes. 

1261.7 Nominations for member and 

independent directorships. 

1261.8 Election process. 

1261.9 Actions affecting director elections. 

1261.10 Independent director 

independence. 

1261.11 Conflicts of interest policy for Bank 

directors. 

1261.12 Reporting requirements for Bank 

directors. 

1261.13 Ineligibility and removal of Bank 

directors. 

1261.14 Vacant Bank directorships. 

1261.15 Minimum number of member 

directorships. 

Subpart C—Federal Home Loan Bank 

Directors’ Compensation and Expenses 

1261.20 Definitions. 

1261.21 General. 

1261.22 Directors’ compensation policy. 

1261.23 Director disapproval. 

1261.24 Board meetings. 

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

4511 and 4526. 

Subpart A—Definitions 

§ 1261.1 [Reserved] 

Subpart B—Federal Home Loan Bank 

Boards of Directors: Eligibility and 

Elections 

§ 1261.2 Definitions. 

As used in this subpart: 

Advisory Council means the Advisory 

Council each Bank is required to 

establish pursuant to section 10(j)(11) of 

the Bank Act (12 U.S.C. 1430(j)(11)), and 

part 1291 of this chapter. 

Bona fide resident of a Bank district 

means an individual who: 

(1) Maintains a principal residence in 

the Bank district; or 

(2) If serving as an independent 

director, owns or leases in his or her 

own name a residence in the Bank 

district and is employed in a voting 

State in the Bank district. 

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 and 

independent director mean, 

respectively, a directorship designated 

as provided under § 1261.4 to be filled 

by an individual meeting the eligibility 

requirements of § 1261.5(b) and an 

individual serving in such a 

directorship. 

Member directorship and member 

director mean, respectively, a 

directorship designated as provided 

under § 1261.4 to be filled by an 

individual meeting the requirements of 

§ 1261.5(a) and an individual serving in 

such a directorship. 

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. 

Nominee means an individual who 

has been nominated for a Bank 

directorship under the applicable 

provision of § 1261.7. 

Public interest independent 

directorship and public interest 

independent director mean, 

respectively, an independent 

directorship designated by a Bank to be 

filled by an individual having the 

qualifications specified in § 1261.5(c)(2) 

and an individual serving in such a 

directorship. 

Record date means December 31 of 

the calendar year immediately 

preceding the election year. 

Regular independent directorship and 

regular independent director mean, 

respectively, an independent 

directorship designated by a Bank to be 

filled by a person having the 

qualifications specified in § 1261.5(c)(1) 

and an individual serving in such a 

directorship. 

Voting State means the State in which 

a member’s principal place of business, 

as determined in accordance with 12 

CFR part 1263, 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. 

§ 1261.3 General provisions. 

(a) Term of directorships. The term of 

office of each directorship shall be four 

years, except as adjusted pursuant to 

§ 1261.4(e) or (f) to achieve a staggered 

board, and shall commence on January 

1 of the calendar year so designated by 

FHFA. 

(b) 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 Bank Act and in accordance with 

the requirements of this subpart, the 

disinterested 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. 

(c) Location of members. For purposes 

of the election of member directors, a 

member is deemed to be located in its 

voting State, unless otherwise specified 

by the Director. 

(d) Dates. If any date specified in this 

subpart for action by a Bank, or 

specified by a Bank pursuant to this 

subpart, falls on a Saturday, Sunday, or 

Federal holiday, the relevant time 

period is deemed to be extended to the 

next calendar day that is not a Saturday, 

Sunday, or Federal holiday. 

§ 1261.4 Annual designation of 

directorships. 

(a) Designation of directorships order. 

As provided in this section, the Director 

will by June 1 of each year issue a 

written order designating for each 

Bank’s board of directors for the 

following calendar year: 

(1) The total number of member 

directorships and their allocation among 

the voting States of the Bank’s district; 

(2) The total number of independent 

directorships; and 

(3) The directorships for which an 

election will be held for terms beginning 

on the January 1 of the following year, 

and the length of those terms. 


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(b) Capital stock reports. (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 each class 

of stock 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) 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. 

(c) Allocation of member 

directorships. For each Bank’s board of 

directors, the Director will designate a 

total number of member directorships 

and allocate them among the voting 

States of the Bank’s district as follows: 

(1) Method of equal proportions. (i) 

FHFA will choose a base number of 

member directorships and, using the 

method of equal proportions, allocate 

those among the voting States of the 

Bank district according to the ratio of 

the number of shares of Bank stock 

required to be held by the members in 

each State to the number of shares 

required to be held by all members of 

the Bank. 

(ii) In no case shall the number of 

member directorships allocated to a 

voting State be fewer than one or more 

than six. 

(iii) If a Bank has issued more than 

one class of stock, the Director will 

allocate the member directorships based 

on the combined number of shares 

required to be held by members. 

(iv) The Director will allocate a Bank’s 

member directorships based upon 

members’ minimum required stock 

holdings as of the record date, as shown 

in the Bank’s capital stock report 

required by paragraph (b) of this section. 

(2) Grandfather provision. If, after 

completing the process described in 

paragraph (c)(1) of this section for a 

Bank, the number of member 

directorships allocated to any voting 

State is not at least equal to the 

minimum number shown for that voting 

State on the table in § 1261.15, the 

Director will allocate to that voting State 

such number of additional member 

directorships as are necessary to 

increase the total number of member 

directorships allocated to that voting 

State to the number shown on the table. 

If a voting State does not appear on the 

table in § 1261.15, the minimum 

number of member directorships for that 

voting State is deemed to be one for 

purposes of this paragraph (c)(2). 

(d) Independent directorships. After 

designating the member directorships 

for a Bank’s board of directors as 

provided in paragraph (c) of this 

section, the Director will designate a 

number of independent directorships 

for the Bank’s board that is at least 40 

percent, but less than 50 percent, of the 

total number of directorships on the 

board. 

(e) Adjustments—(1) Redesignated 

member directorships. If the annual 

designation of directorships results in 

an existing member directorship being 

redesignated as representing members 

in a different voting State, that 

directorship shall be deemed to 

terminate in the previous voting State as 

of December 31 of the current year, and 

a new directorship to begin in the 

succeeding voting State as of January 1 

of the next year. The new directorship 

shall be filled by vote of the members 

in the succeeding voting State and, in 

order to maintain the staggered terms of 

directorships, shall be adjusted to a term 

equal to the remaining term of the 

previous directorship if it had not been 

redesignated to another State. 

(2) New directorships. If the annual 

designation of directorships results in 

the addition of one or more 

directorships to a Bank’s board, the 

Director may truncate the initial term of 

any such new directorship if required to 

ensure that the terms of the Bank’s 

directorships are staggered with 

approximately one quarter of the terms 

expiring each year. 

(f) Public interest independent 

directorships. Annually, the board of 

directors of each Bank shall determine 

the number of public interest 

independent directorships to be 

included among its designated 

independent directorships for the 

following year, ensuring that at all times 

the Bank will have at least two such 

directorships. In its discretion, a Bank’s 

board may change the number of public 

interest independent directorships 

during the year, provided that there are 

at all times at least two such 

directorships. 

§ 1261.5 Director eligibility. 

(a) Eligibility requirements for 

member directors and nominees. (1) 

Each member director, and each 

nominee for a member directorship, 

shall be: 

(i) A citizen of the United States; and 

(ii) An officer or director of a member 

that is located in the voting State of the 

Bank district to which the directorship 

being occupied, sought, or filled has 

been allocated under § 1261.4(c) and 

that meets all minimum capital 

requirements established by its 

appropriate Federal banking agency or 

appropriate State regulator. 

(2) In the case of a director elected by 

a Bank’s members under § 1261.8, 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 under 

§ 1261.14, the institution of which the 

director is an officer or director must be 

a member at the time the board acts. 

(b) Eligibility requirements for 

independent directors and nominees. 

Each independent director, and each 

nominee for an independent 

directorship, shall at all times: 

(1) Be a citizen of the United States; 

(2) Be a bona fide resident of the 

district in which the Bank is located; 

(3) Meet the independence 

requirements of § 1261.10; and 

(4) Meet the applicable qualifications 

requirements specified in paragraph (c) 

of this section. 

(c) Independent director 

qualifications—(1) Regular independent 

directors. Each regular independent 

director and each nominee for a regular 

independent 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; artificial 

intelligence; information technology 

and security; climate-related risk; 

Community Development Financial 

Institution (CDFI) business models; 

modeling; the law; and such other areas 

as the Director shall determine. Before 

nominating any individual for a regular 

independent 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) Public interest independent 

directors. Each public interest 

independent director and each nominee 

for a public interest independent 

directorship shall have more than four 

years of experience representing 

consumer or community interests in 

banking services, credit needs, housing, 

or consumer financial protection. For 


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purposes of this paragraph (c)(2), 

representing means advocating for, or 

otherwise acting primarily on behalf of 

or for the direct benefit of, consumers or 

the community. Qualifying experience 

in one of the four enumerated areas may 

have been acquired in professional, 

public service, or significant volunteer 

positions, so long as the work done was 

substantial in terms of time commitment 

and responsibility. Such experience 

must have accrued from activities 

personally undertaken by the director or 

nominee, as opposed to being attributed 

based solely on the activities of 

organizations with which the person 

was associated. 

(3) Relevance of experience to be 

considered. In considering potential 

nominees for independent 

directorships, a Bank’s board of 

directors shall give special 

consideration to individuals that: 

(i) Possess knowledge and experience 

that are relevant to the business, 

programs, and mission of the Bank and 

that provide a basis for understanding 

the actual and potential impact of the 

Bank’s activities on its members and on 

communities within the Bank’s district; 

and 

(ii) Have gained their knowledge and 

experience primarily through full time 

paid executive, management, or other 

senior positions. 

(d) Term limits. (1) The following are 

ineligible for nomination or election to 

a directorship of a Bank: 

(i) Any incumbent director whose 

term of office would not expire before 

the new term of office would begin; and 

(ii) Any person that has been elected 

to each of three consecutive full terms 

as a director of a Bank and has served 

for all or part of each of those terms, 

unless the term of the directorship to be 

filled begins at least two years after the 

expiration of the third consecutive term. 

(2) For purposes of determining 

whether a person is ineligible under the 

term limit provision of paragraph 

(d)(1)(ii) of this section: 

(i) A four-year term of office shall 

count as a full term; 

(ii) A term of office that is adjusted to 

a period of fewer than four years as 

provided in § 1261.4(e) shall not count 

as a full term; 

(iii) Any full term of office that ends 

immediately before a term of office that 

is adjusted to a period of fewer than four 

years as provided in § 1261.4(e), and 

any full term of office commencing 

immediately following such adjusted 

term of office, shall count as 

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 under 

§ 1261.14 shall not count as a full term. 

(e) Loss of eligibility. A director shall 

become ineligible to remain in office if, 

during the director’s term of office, the 

directorship to which the director has 

been elected is eliminated through the 

annual designation of directorships 

process described in § 1261.4. The 

incumbent director shall become 

ineligible after the close of business on 

December 31 of the year in which the 

directorship is eliminated. 

§ 1261.6 Determination of member votes. 

(a) In general. Each Bank shall 

determine, in accordance with this 

section, the number of votes that each 

member of the Bank may cast for each 

directorship that is to be filled by the 

vote of the members. 

(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. 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. 

(c) Voting preferences. If the board of 

directors of a Bank includes any voting 

preferences as part of its approved 

capital plan, those preferences shall 

supersede the provisions of paragraph 

(b) of this section that otherwise would 

allow a member to cast one vote for each 

share of Bank stock it was required to 

hold as of the record date. If a Bank 

establishes a voting preference for a 

class of stock, the members with voting 

rights shall remain subject to the 

provisions of section 7(b) of the Bank 

Act (12 U.S.C. 1427(b)) that prohibit any 

member from casting any vote in excess 

of the average number of shares of stock 

required to be held by all members in 

its state. 

§ 1261.7 Nominations for member and 

independent directorships. 

(a) Election announcement. Within a 

reasonable time in advance of an 

election, a Bank shall notify each 

member in its district of the 

commencement of the election process. 

Such notice shall include: 

(1) The number of member 

directorships designated for each voting 

State in the Bank district and the 

number of independent directorships 

designated for the Bank, including the 

number of independent directorships 

designated by the Bank as public 

interest independent directorships, for 

the following calendar year; 

(2) The name of each incumbent Bank 

director, the name and location of the 

member at which each member director 

serves, and the name and location of the 

organization with which each 

independent director is affiliated, if any, 

and the expiration date of each Bank 

director’s term of office; 

(3) Identification of the member 

directorships, regular independent 

directorships, and public interest 

independent directorships for which an 

election will be held; 

(4) A brief statement describing the 

skills and experience the Bank believes 

are most likely to add strength to the 

board of directors, as determined 

through the annual assessment required 

under § 1261.9; 

(5) An attachment indicating the 

name, location, and FHFA ID number of 

every member in the member’s voting 

State, and the number of votes each 

such member may cast for each 

directorship to be filled by such 

members, as determined in accordance 

with § 1261.6; and 

(6) If a member directorship is to be 

filled by members in a voting State, a 

nominating certificate for those 

members. 

(b) Member directorship 

nominations—(1) Nominating 

certificates. (i) Any member that is 

entitled to vote in the election may 

nominate an eligible individual to fill 

each available member directorship for 

its voting State by delivering to its Bank, 

prior to a deadline to be established by 

the Bank and set forth in the notice 

required in paragraph (a) of this section, 

a nominating certificate duly adopted by 

the member’s governing body or by an 

individual authorized by the member’s 

governing body to act on its behalf. 

(ii) The nominating certificate shall 

include the name of the nominee and 

the name, location, and FHFA ID 

number of the member the nominee 

serves as an officer or director. 

(iii) The Bank shall establish a 

deadline for delivery of nominating 


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certificates, which shall be no earlier 

than 30 calendar days after the date on 

which the Bank delivers the notice 

required by paragraph (a) of this section, 

and the Bank shall not accept 

certificates received after that deadline. 

(2) 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 member 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 member director 

eligibility certification form prior to the 

deadline. 

(c) Independent directorship 

nominations—(1) Potential nominees. 

Any individual may request to be 

considered for nomination to an 

independent directorship of the board of 

directors of a Bank by delivering 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. Any other interested party also 

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. 

(2) Application form. The 

independent director application form 

prescribed by FHFA will provide a 

means by which an individual can 

indicate an intent to be considered for 

a public interest independent 

directorship. The board of directors of 

the Bank shall nominate for a public 

interest independent directorship only 

an individual who indicates on the 

application form a desire to be 

considered for a public interest 

independent directorship. 

(3) Advisory Council. The board of 

directors of the Bank shall consult with 

the Bank’s Advisory Council before 

nominating any individual for any 

independent directorship. 

(4) Procedures. Each Bank shall 

include in its bylaws the procedures it 

intends to use for the nomination and 

election of the independent directors. 

(5) Minimum number of nominees. 

Each Bank shall nominate at least as 

many individuals as there are respective 

regular and public interest independent 

directorship to be filled in that year’s 

election. 

(d) Eligibility verification—(1) 

Member directorship nominees. Using 

the information provided on executed 

member director eligibility certification 

forms prescribed by FHFA, each Bank 

shall verify that each nominee for each 

member directorship meets all the 

eligibility requirements of § 1261.5(a). 

(2) Independent directorship 

nominees. (i) Using the information 

provided on executed independent 

director application forms prescribed by 

FHFA, each Bank shall verify that each 

nominee for each public interest 

independent directorship and each 

regular independent directorship meets 

the eligibility requirements of 

§ 1261.5(b). 

(ii) Before announcing any 

independent director nominee, the Bank 

shall deliver to FHFA for its 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 FHFA’s comments 

in determining whether to proceed with 

those nominees or to reopen the 

nomination. 

(3) Eligible nominees. A Bank’s board 

shall neither nominate any individual 

for an independent directorship nor 

include any nominee for a member 

directorship on the ballot required 

under § 1261.8(a) if it has not concluded 

based on the submissions required 

under this part and any pertinent 

supplementary material that the 

individual meets the applicable 

eligibility requirements set forth in 

§ 1261.5(a) or (b) and is not term-limited 

as provided under § 1261.5(d). 

(e) Background checks. A Bank’s 

board shall neither nominate any 

individual for an independent 

directorship nor include any nominee 

for a member directorship on the ballot 

required under § 1261.8(a), without 

having first concluded, based on a 

thorough background check, that the 

individual is fit to serve in a fiduciary 

role with the Bank. Each Bank shall 

include with its submission required 

under paragraph (d)(2)(ii) of this section 

a discussion of the results of the 

background check for each independent 

directorship nominee, including any 

potentially concerning information that 

was revealed and how the Bank’s 

concerns were allayed. 

(f) Record retention. Subject to a duly 

enacted record retention policy, each 

Bank shall retain all information 

received under this section for at least 

seven years after the date of the election 

in question and, in the case of any 

information about a specific director, for 

at least seven years after that director 

leaves the board. 

§ 1261.8 Election process. 

(a) Ballots. Promptly after fulfilling 

the requirements of § 1261.7(d), 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. A ballot 

shall include at least the following 

provisions: 

(1) For states in which one or more 

member directorships are to be filled in 

the election, an alphabetical listing of 

the names of each nominee for such 

directorship, the name, location, and 

FHFA ID number of the member each 

nominee serves, the nominee’s title or 

position with the member, a brief 

description of the skills and experience 

of each nominee, and the number of 

member directorships to be filled by the 

members in that voting State in the 

election; 

(2) An alphabetical listing of the 

names of each nominee for a public 

interest independent directorship and a 

brief description of how each nominee 

meets the qualifications requirements 

for public interest independent directors 

set forth in § 1261.5(c)(2); 

(3) An alphabetical listing of the 

names of each nominee for regular 

independent directorships and a brief 

description of how each nominee meets 

the required qualification requirements 

for regular independent directors set 

forth in § 1261.5(c)(1); 

(4) A statement of the results of 

assessments conducted under § 1261.9 

and, if the statement differs from the 

statement provided under § 1261.7(a)(4), 

an explanation of why the statements 

differ; 

(5) A statement that write-in 

candidates are not permitted; and 

(6) A confidentiality statement 

prohibiting the Bank from disclosing 

how any member voted. 

(b) 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 


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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. The 

nominees declared elected shall be 

included as directors-elect in the report 

of election required under paragraph (f) 

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. 

(c) Voting. For each directorship to be 

filled, a member may cast the number of 

votes determined by the Bank pursuant 

to § 1261.6. A member may not split its 

votes among multiple nominees for a 

single directorship, and, where there are 

multiple directorships to be filled, 

either within the member’s voting State 

or at large, in the case of independent 

directorships, a member may not 

cumulatively vote for a single nominee. 

If any member votes, it shall by 

resolution of its governing body either 

authorizing the voting for specific 

nominees or delegating to an individual 

the authority to vote for specific 

nominees. To vote, a member shall: 

(1) Mark on the ballot the name of not 

more than one of the nominees for each 

directorship to be filled. Each nominee 

so selected shall receive all of the votes 

that the member is entitled to cast. 

(2) Execute and deliver the ballot to 

the Bank on or before the closing date. 

A Bank shall not allow a member to 

change a ballot after it has been 

delivered to the Bank. 

(d) Counting ballots. A Bank shall not 

review any ballot until after the closing 

date, and shall not include in the 

election results any ballot received after 

the closing date. Promptly after the 

closing date, each Bank shall tabulate 

the votes cast in the election: for the 

member directorships, the Bank shall 

tabulate votes by each voting State; for 

the independent directorships, the Bank 

shall tabulate votes for the district atlarge. Any ballots cast in violation of 

paragraph (c) of this section shall be 

void. 

(e) Declaring results—(1) For member 

directorships. The Bank shall declare 

elected the nominee receiving the 

highest number of votes. If more than 

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 directorship nominees and 

those received for regular independent 

directorship nominees, in each case in 

accordance with paragraph (e)(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 (g) of this 

section. 

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

the last available directorship, the 

disinterested incumbent 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’s board shall 

not declare elected a nominee that it has 

reason to know is ineligible or unfit to 

serve, nor shall it seat a director-elect 

that it has reason to know is ineligible 

or unfit to serve. 

(5) Record retention. The Bank shall 

retain all ballots it receives for at least 

seven years after the date of the election, 

and shall not disclose how any member 

voted. 

(f) 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 or a regular 

independent directorship and, as 

appropriate, the consumer or 

community interest represented by such 

director, any qualifications under 

§ 1261.5(c)(1), 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. 

(g) 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. 

§ 1261.9 Actions affecting director 

elections. 

(a) Annual assessment of skills and 

experience. Each Bank, acting through 

its board of directors pursuant to 

policies adopted by the board, shall 

conduct an annual assessment of the 

skills and experience possessed by its 

board of directors as a whole and may 

determine whether the capabilities of 

the board would be enhanced through 

the addition of individuals with 

particular skills and experience. If the 

board of directors determines that the 

Bank could benefit by the addition to 

the board of directors of individuals 

with particular qualifications such as 

those described in § 1261.5(c)(1), it shall 

identify those qualifications and inform 

the members that the Bank is seeking 


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member and independent director 

nominees that have those qualifications 

as part of its election announcement 

pursuant to § 1261.7(a). 

(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, or 

§ 1223.21(b)(7) of this chapter, 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. 

§ 1261.10 Independent director 

independence. 

(a) Employment interests. (1) An 

independent director, and a nominee for 

an independent directorship, shall not 

serve as an officer, employee, or director 

of any member of the Bank on whose 

board the individual serves or has been 

nominated to serve, or of any recipient 

of advances from such Bank, and shall 

not serve as an officer or employee of 

any Bank. An independent director or 

nominee for any independent 

directorship, and any individual seeking 

nomination for an 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. 

(2) For purposes of paragraph (a)(1) of 

this section, ‘‘advances’’ includes any 

loan from a Bank to the recipient, 

regardless of form or nomenclature, 

except for debt securities traded in the 

public capital markets. 

(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. 

(c) Attribution. For purposes of 

determining compliance with this 

section, a Bank shall attribute to the 

independent director any officer 

position, employee position, or 

directorship of the director’s immediate 

family members (as defined in 

§ 1261.11(f)). 

(d) Member director transition period. 

An individual who has served as a 

member director of any Bank may not 

serve as an independent director of any 

Bank until at least two years has elapsed 

since the date the individual officially 

left the member directorship, whether 

due to ineligibility or otherwise. 

§ 1261.11 Conflicts of interest policy for 

Bank directors. 

(a) Adoption of conflicts of interest 

policy. Each Bank shall adopt a written 

conflicts of interest policy that applies 

to all members of its board of directors. 

At a minimum, the conflicts of interest 

policy of each Bank shall: 

(1) Require the directors to administer 

the affairs of the Bank fairly and 

impartially and without discrimination 

in favor of or against any member; 

(2) Require independent directors to 

comply with § 1261.10(a); 

(3) Prohibit the use of a director’s 

official position for personal gain; 

(4) Require directors to disclose actual 

or apparent conflicts of interest and 

establish procedures for addressing such 

conflicts; 

(5) Require the establishment of 

internal controls to ensure that conflicts 

of interest reports are made and filed 

and that conflicts of interest issues are 

disclosed and resolved; and 

(6) Establish procedures to monitor 

compliance with the conflicts of interest 

policy. 

(b) Disclosure and recusal. A director 

shall disclose to the Bank’s board of 

directors any financial interests he or 

she has, as well as any financial 

interests known to the director of any 

immediate family member or business 

associate of the director, in any matter 

to be considered by the Bank’s board of 

directors and in any other business 

matter or proposed business matter 

involving the Bank and any other 

person or entity. A director shall 

disclose fully the nature of his or her 

interests in the matter and shall provide 

to the Bank’s board of directors any 

information requested to aid in its 

consideration of the director’s interest. 

A director shall refrain from considering 

or voting on any issue in which the 

director, any immediate family member, 

or any business associate has any 

financial interest. 

(c) Confidential information. Directors 

shall not disclose or use confidential 

information they receive solely by 

reason of their position with the Bank 

to obtain any benefit for themselves or 

for any other individual or entity. 

(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 the 

prohibition in this paragraph (d). 

(e) Compensation. Directors shall not 

accept compensation for services 

performed for the Bank from any source 

other than the Bank for which the 

services are performed. 

(f) Definitions. For purposes of this 

section: 

Business associate means any 

individual or entity with whom a 

director has a business relationship, 

including, but not limited to: 

(i) Any corporation or organization of 

which the director is an officer or 

partner, or in which the director 

beneficially owns ten percent or more of 

any class of equity security, including 

subordinated debt; 

(ii) Any other partner, officer, or 

beneficial owner of ten percent or more 

of any class of equity security, including 

subordinated debt, of any such 

corporation or organization; and 

(iii) Any trust or other estate in which 

a director has a substantial beneficial 

interest or as to which the director 

serves as trustee or in a similar fiduciary 

capacity. 

Financial interest means a direct or 

indirect financial interest in any 

activity, transaction, property, or 

relationship that involves receiving or 

providing something of monetary value, 

and includes, but is not limited to any 

right, contractual or otherwise, to the 

payment of money, whether contingent 

or fixed. It does not include a deposit or 

savings account, loan or extension of 

credit, or other accounts and products 

obtained in the normal course of 

business on non-preferential terms 

generally available to the public from a 

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member counterparty to the Bank on 

whose board the director sits. 

Immediate family member means 

parent, sibling, spouse, child, or 

dependent, or any relative sharing the 

same residence as the director. 

§ 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 Bank Act or this subpart, 

the director promptly shall so notify the 

Bank 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 

Bank Act or this subpart, the Bank 

promptly shall notify FHFA in writing. 

§ 1261.13 Ineligibility and removal of Bank 

directors. 

(a) Ineligibility. Upon a determination 

by FHFA or a Bank that any director of 

the Bank no longer satisfies the 

eligibility requirements set forth in the 

Bank Act or this subpart, 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 the 

requirements in this paragraph (a) 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. 

(b) Removal for good cause. (1) A 

Bank’s board of directors may, upon a 

vote of two-thirds of its disinterested 

directors, remove any director for good 

cause pursuant to policies adopted by 

the board. Removal for good cause may 

be based upon: 

(i) A material violation of the Bank’s 

code of ethics or other applicable Bank 

policy; 

(ii) A material violation of the Bank 

Act, FHFA regulations, or other civil or 

criminal law; 

(iii) A determination by the board that 

continuation in office of such director 

would be materially harmful to the 

Bank; 

(iv) Conduct, or a mental or physical 

condition, that raises substantial 

questions concerning the director’s 

ability to fulfill his or her duties and 

obligations; or 

(v) A determination under 

§ 1261.22(b)(3) that the director’s 

continuous poor performance or lack of 

participation is compromising the 

board’s ability to adequately oversee the 

operations of the Bank. 

(2) A Bank shall promptly notify 

FHFA in writing of any pending or final 

removal action under this paragraph (b). 

§ 1261.14 Vacant Bank directorships. 

(a) Filling unexpired terms. Subject to 

the provisions of this section, when a 

vacancy occurs on the board of directors 

of a Bank, the board 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. 

(1) The board of directors 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. 

(2) The board of directors shall: 

(i) Fill a vacant member directorship 

only with an individual who meets the 

requirements of § 1261.5(a); and 

(ii) Fill a vacant independent 

directorship only with an individual 

who meets the requirements of 

§ 1261.5(b). 

(3) If a Bank does not have at least two 

sitting public interest independent 

directors, its board of directors shall 

either: 

(i) Elect an individual who is 

qualified under § 1261.5(c)(2) to serve as 

a public interest independent director to 

fill the vacancy; or 

(ii) Elect to redesignate as a public 

interest independent director a sitting 

regular independent director who is 

qualified under § 1261.5(c)(2) to serve as 

a public interest independent director 

and elect another individual who is 

qualified under § 1261.5(c)(1) to serve as 

a regular independent director to fill the 

resulting vacant regular independent 

directorship. 

(4) If the Bank has more than two 

sitting public interest independent 

directors, the board of directors may 

redesignate as a regular independent 

director a sitting public interest 

independent director who is qualified 

under § 1261.5(c)(2). 

(5) The board of directors of the Bank 

shall consult with the Bank’s Advisory 

Council before considering any 

individual to fill a vacant independent 

directorship. 

(b) Verifying eligibility. Prior to any 

election by the board of directors to fill 

a board vacancy, the Bank shall fulfill 

the requirements of this paragraph (b). 

(1) The Bank shall obtain an executed 

member director eligibility certification 

form prescribed by FHFA from each 

individual being considered to fill a 

vacant member directorship and an 

executed independent director 

application form prescribed by FHFA 

from each individual being considered 

to fill a vacant independent directorship 

(including any sitting regular 

independent director to be redesignated 

as public interest independent director). 

Using the executed forms, each Bank 

shall verify each individual’s eligibility 

and, as to independent directors, also 

shall verify that the individual meets 

the qualifications requirements for 

regular independent directors under 

§ 1261.5(c)(1) or public interest 

independent directors under 

§ 1261.5(c)(2), as appropriate. 

(2) For each individual being 

considered to fill a vacant directorship, 

the Bank shall conduct a background 

check, as provided in § 1261.7(e). 

(3) The Bank shall deliver to FHFA for 

its review a copy of the executed 

independent director application form 

for each individual being considered by 

the board to fill a vacant independent 

directorship, as well as a summary of 

the results of the background check. If 

within two weeks of such delivery 

FHFA provides comments to the Bank 

on any of those individuals, the board 

of directors of the Bank shall consider 

FHFA’s comments in determining 

whether to elect a director from among 

those individuals or to seek additional 

individuals for consideration. 

(4) The Bank shall retain the 

information it receives pursuant to this 

paragraph (b) for at least seven years 

after the date of the election in question 

and, in the case of any information 

about a specific director, for at least 

seven years after that director leaves the 

board. 

(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 


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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. 

§ 1261.15 Minimum number of member 

directorships. 

Except with respect to member 

directorships of a Bank resulting from 

the merger of any two or more Banks, 

the number of member directorships 

allocated to each State shall not be less 

than the number of directorships 

allocated to that State on December 31, 

1960. The following table sets forth the 

States within Bank districts not created 

from the merger of two or more Banks 

whose members held more than one 

directorship on December 31, 1960: 

TABLE 1 TO § 1261.15 

State 

Number of 

elective 

directorships 

on December 31, 

1960 

California ......................... 3 

Colorado ......................... 2 

Illinois .............................. 4 

Indiana ............................ 5 

Kansas ............................ 3 

Kentucky ......................... 2 

Louisiana ........................ 2 

Massachusetts ................ 3 

Michigan ......................... 3 

New Jersey ..................... 4 

New York ........................ 4 

Ohio ................................ 4 

Oklahoma ....................... 2 

Pennsylvania .................. 6 

Tennessee ...................... 2 

Texas .............................. 3 

Wisconsin ....................... 4 

Subpart C—Federal Home Loan Bank 

Directors’ Compensation and 

Expenses 

§ 1261.20 Definitions. 

As used in this subpart: 

Compensation means any payment of 

money or the provision of any other 

thing of current or potential value in 

connection with service as a director. 

Compensation includes all direct and 

indirect payments of benefits, both cash 

and non-cash, granted to or for the 

benefit of any director. 

Expenses means necessary and 

reasonable travel, subsistence and other 

related expenses incurred in connection 

with the performance of official duties 

as are payable to senior officers of the 

Bank under the Bank’s travel policy, 

except gift or entertainment expenses. 

§ 1261.21 General. 

(a) Standard. Each Bank may pay its 

directors reasonable compensation for 

the time required of them, and their 

necessary expenses, in the performance 

of their duties, as determined by a 

resolution adopted by the board of 

directors of the Bank and subject to the 

provisions of this subpart. The Director 

may establish and provide notice of an 

annual amount of compensation 

determined to be reasonable. 

(b) Reporting—(1) Following calendar 

year. By December 31 of each calendar 

year, each Bank shall report to the 

Director the compensation it anticipates 

paying to its directors for the following 

calendar year. 

(2) Preceding calendar year. No later 

than the tenth business day of each 

calendar year, each Bank shall report to 

the Director the following information 

relating to director compensation, 

expenses, and meeting attendance for 

the immediately preceding calendar 

year: 

(i) The total compensation paid to 

each director; 

(ii) The total expenses paid to each 

director; 

(iii) The total compensation paid to 

all directors; 

(iv) The total expenses paid to all 

directors; 

(v) The total of all expenses incurred 

at group functions that are not 

reimbursed to individual directors, such 

as the cost of group meals in connection 

with board and committee meetings; 

(vi) The total number of meetings held 

by the board and its designated 

committees; and 

(vii) The number of board and 

designated committee meetings each 

director attended in-person or remotely, 

through video conferencing or 

teleconferencing, and in accordance 

with § 1261.24(b). 

§ 1261.22 Directors’ compensation policy. 

(a) General. Each Bank’s board of 

directors annually shall adopt a written 

compensation policy to provide for the 

payment of reasonable compensation 

and expenses to the directors for the 

time required of them in performing 

their duties as directors. Payments 

under the directors’ compensation 

policy may be based on any factors that 

the board of directors determines 

reasonably to be appropriate, subject to 

the requirements in this subpart. 

(b) Minimum contents. (1) The 

compensation policy shall address the 

activities or functions for which director 

attendance or participation is necessary 

and which may be compensated, and 

shall explain and justify the 

methodology used to determine the 

amount of compensation to be paid to 

the Bank directors. 

(2) The compensation policy shall 

require that any compensation paid to a 

director reflect the amount of time the 

director has spent on official Bank 

business and shall require that 

compensation be reduced or a director 

removed, as necessary, to reflect lesser 

attendance or performance at board or 

committee meetings during a given year. 

(3) In addition to attendance, the 

compensation policy shall establish a 

fair and impartial process for annually 

evaluating individual director 

performance and participation, 

including, but not limited to, an 

assessment of whether each director: 

(i) Demonstrated understanding of the 

Bank System; 

(ii) Demonstrated knowledge of the 

Bank’s policies and governance 

documents; 

(iii) Demonstrated understanding of 

his or her legal and ethical 

responsibilities as a board member; 

(iv) Made suggestions congruent with 

the Bank’s mission, vision and values 

(even if divergent from majority 

opinion); and 

(v) Acted in support of Board 

decisions, regardless of initial position. 

(c) Prohibited payments. A Bank shall 

not pay a director who regularly fails to 

attend board or committee meetings, 

and shall not pay fees to a director that 

do not reflect the director’s performance 

of official Bank business conducted 

prior to the payment of such fees. 

(d) Submission requirements. No later 

than the tenth business day after 

adopting its annual policy for director 

compensation and expenses, and at least 

30 days prior to disbursing the first 

payment to any director, each Bank 

shall submit to the Director a copy of 

the policy, along with all studies or 

other supporting materials upon which 

the board relied in determining the level 

of compensation and expenses to pay to 

its directors. 

§ 1261.23 Director disapproval. 

The Director may determine, based 

upon his or her review of a Bank’s 

director compensation policy, 

methodology and/or other related 

materials, that the compensation and/or 

expenses to be paid to the directors are 

not reasonable. In such case, the 

Director may order the Bank to refrain 

from making any further payments 

under that compensation policy. Any 

such order shall apply prospectively 

only and will not affect either 

compensation or expenses that have 


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been earned but not yet paid or 

reimbursed or payments that had been 

made prior to the date of the Director’s 

determination and order. 

§ 1261.24 Board meetings. 

(a) Number of meetings. The board of 

directors of each Bank shall hold as 

many meetings each year as necessary 

and appropriate to carry out its 

fiduciary responsibilities with respect to 

the effective oversight of Bank 

management and such other duties and 

obligations as may be imposed by 

applicable laws, provided the board 

holds a minimum of six meetings in any 

year. 

(b) Site of meetings. (1) A Bank’s 

board of directors and its committees 

may conduct meetings in-person, 

through video conferencing or 

teleconferencing, or in a hybrid format, 

provided that all directors have an 

opportunity to communicate and have 

access to all written documents and 

presentations. 

(2) Each Bank should generally hold 

board and committee meetings within 

the district served by the Bank. A Bank 

shall not hold board or committee 

meetings in any location that is not 

within a State, as defined by 12 CFR 

1201.1. A director must be located 

within a State when attending a meeting 

remotely through video conferencing or 

teleconferencing. 

(c) Quorum. A quorum, for purposes 

of meetings of a Bank’s board of 

directors, shall require a majority of 

sitting directors, which must include a 

majority of sitting independent 

directors. 

PART 1273—OFFICE OF FINANCE 

■ 4. The authority citation for part 1273 

continues to read as follows: 

Authority: 12 U.S.C. 1431, 1440, 4511(b), 

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

■ 5. Amend § 1273.5 by revising 

paragraph (b)(1) to read as follows: 

§ 1273.5 Funding of the OF. 

* * * * * 

(b) * * * 

(1) At the direction of and pursuant to 

policies and procedures adopted by the 

OF board of directors, the Banks shall 

periodically reimburse the OF in order 

to maintain sufficient operating funds 

under the budget approved by the OF 

board of directors. The OF operating 

funds shall be: 

(i) Available for expenses of the OF 

and the OF board of directors, according 

to their approved budgets; and 

(ii) Subject to withdrawal by check, 

draft, wire transfer, or other funds 

transfer methods with written 

authorization by the CEO or other 

persons designated by the CEO or OF 

board of directors in accordance with 

OF governance documents. 

* * * * * 

■ 6. Amend § 1273.8 by revising 

paragraphs (b) and (d) to read as 

follows: 

§ 1273.8 General duties of the OF board of 

directors. 

* * * * * 

(b) Meetings and quorum–(1) Meeting 

frequency. The OF board of directors 

shall conduct its business by majority 

vote of its members at meetings 

convened in accordance with its bylaws, and shall hold no fewer than six 

meetings annually, which may be 

conducted in-person, through video 

conferencing or teleconferencing, or in a 

hybrid format, provided that all 

directors have an opportunity to 

communicate and have access to all 

written documents and presentations. 

(2) Meeting location. The OF shall not 

hold board or committee meetings in 

any location that is not within a State, 

as defined by 12 CFR 1201.1. A director 

must be located within a State when 

attending a meeting remotely through 

videoconferencing or teleconferencing. 

(3) Notice. Due notice shall be given 

to FHFA by the Chair prior to each 

meeting. 

(4) Quorum. A quorum, for purposes 

of meetings of the OF board of directors, 

shall require a majority of sitting board 

members, which must include a 

majority of sitting Independent 

Directors. 

* * * * * 

(d) Other duties. The OF board of 

directors shall: 

(1) Set policies for management and 

operation of the OF; 

(2) Approve a strategic business plan 

for the OF in accordance with the 

provisions of 12 CFR 1239.14, as 

appropriate; 

(3) Select, employ, determine the 

compensation for, and assign the duties 

and functions of a CEO of the OF who 

shall— 

(i) Be head of the OF and direct the 

implementation of the OF board of 

directors’ policies; 

(ii) Serve as a member of the 

Directorate of the FICO, pursuant to 

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

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

(iii) Serve as a member of the 

Directorate of the REFCORP, pursuant to 

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

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

(4) Review and approve contracts of 

the OF, as specified in OF governance 

documents; and 

(5) Assume any other responsibilities 

that may from time to time be assigned 

to it by FHFA. 

* * * * * 

Sandra L. Thompson, 

Director, Federal Housing Finance Agency. 

[FR Doc. 2024–24767 Filed 11–1–24; 8:45 am] 

BILLING CODE 8070–01–P 


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