26532 Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules

FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 922, 931, 932, 933, 934,

and 941

[No. 98–11]

RIN 3069–AA55

Election of Federal Home Loan Bank

Directors

AGENCY: Federal Housing Finance

Board.

ACTION: Proposed rule.

SUMMARY: The Federal Housing Finance

Board (Finance Board) is proposing to

amend its regulations on the election of

Federal Home Loan Bank (Bank)

directors. The rule would devolve

responsibility for determining the

eligibility of elective directors and

administering the Bank director election

process from the Finance Board to the

Banks. The proposed rule is part of the

Finance Board’s continuing effort to

transfer management and governance

responsibilities to the Banks and is

consistent with the goals of the

Regulatory Reinvention Initiative of the

National Performance Review.

DATES: The Finance Board will accept

comments on the proposed rule in

writing on or before June 29, 1998.

ADDRESSES: Mail comments to Elaine L.

Baker, Secretary to the Board, Federal

Housing Finance Board, 1777 F Street,

N.W., Washington, D.C. 20006.

Comments will be available for public

inspection at this address.

FOR FURTHER INFORMATION CONTACT:

Patricia L. Sweeney, Program Analyst,

Compliance Assistance Division, Office

of Policy, 202/408–2872, or Roy S.

Turner, Jr., Attorney-Advisor, Office of

General Counsel, 202/408–2512, Federal

Housing Finance Board, 1777 F Street,

N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

Pursuant to section 7 of the Federal

Home Loan Bank Act (Act), which sets

forth the eligibility requirements and

the procedures for electing and

appointing Bank directors, and

regulations promulgated thereunder, the

Finance Board’s predecessor, the former

Federal Home Loan Bank Board

(FHLBB), determined the eligibility of

all Bank directors, administered the

Bank director elections, and appointed

public interest directors. See 12 U.S.C.

1427 (1989); 12 CFR part 522 (1989).

After Congress abolished the FHLBB in

1989, see Financial Institutions Reform,

Recovery, and Enforcement Act of 1989

(FIRREA), Pub.L. 101–73, sec. 401, 103

Stat. 183 (Aug. 9, 1989), the Finance

Board adopted the FHLBB regulations

on Bank directors, without change. See

54 FR 36757 (Sept. 5, 1989), codified at

12 CFR part 932. The Finance Board

subsequently amended its regulations to

implement the changes FIRREA made to

the eligibility requirements for, and to

apply the conflicts of interest

limitations FIRREA imposed on, Bank

directors. 55 FR 1393 (Jan. 16, 1990); 56

FR 55205 (Oct. 25, 1991); see FIRREA,

secs. 707, 710(b)(4), 103 Stat. 417, 418,

codified at 12 U.S.C. 1427.

Since the enactment of FIRREA the

Finance Board has determined the

eligibility of all Bank directors, has

administered the election of Bank

directors, and has appointed public

interest directors. As part of the Finance

Board’s continuing effort to devolve

management and governance

responsibilities to the Banks, the

Finance Board believes it appropriate to

transfer the administration of the

elections, including the responsibility to

determine the eligibility of elective

directors, to the Banks. The proposal

would not affect the appointment of

public interest directors, which remains

within the sole discretion of the Finance

Board.

The proposed rule would amend,

redesignate, or eliminate various

provisions of part 932, and would

include conforming amendments to

parts 931, 933, 934, and 941. The

Finance Board also is proposing to

revise the current conflicts of interest

and financial disclosure requirements

established by part 922 of its regulations

for appointed members of the Board of

Directors of the Finance Board. All of

the proposed changes are consistent

with the goals of the Regulatory

Reinvention Initiative of the National

Performance Review. See E.O. 12861, 58

FR 48255 (Sept. 11, 1993).

II. Analysis of the Proposed Rule

The proposal would include a

separate definition section for the

election regulations, the principal

provisions of which are described

below.

A. Definitions—§ 932.1

1. ‘‘Bona Fide Resident’’— § 932.1

Both the Act and current regulation

use the term ‘‘bona fide resident’’ to

identify individuals eligible to serve as

a director of a Bank. See 12 U.S.C.

1427(a); 12 CFR 932.18(a)(2) (1997).

Neither the Act nor the regulation,

however, defines the term. The

proposed rule would define ‘‘bona fide

resident’’ of a Bank district. The

definition would include alternative

means of being considered a ‘‘bona fide

resident’’ of a Bank district.

First, an individual would be a ‘‘bona

fide resident’’ if he or she maintains a

principal place of residence within the

Bank’s district. The concept of a

principal place of residence generally

requires both physical presence and

intent to remain, or an intent to return

after an absence. An individual’s

principal place of residence usually is

the same as the permanent residence

reported to the Internal Revenue

Service.

There have been some instances in

which an officer or director of a member

located in one state maintains a

principal residence in an adjacent state,

which happens to be in another Bank

district. In such cases, the individual

would not be eligible to serve as Bank

director under a ‘‘principal residence’’

test. By interpretation, and on a case-bycase basis, the Finance Board has

allowed such individuals to serve as

Bank directors, provided they own or

lease a residence, other than their

principal residence, in the district.

As a second means of being deemed

a ‘‘bona fide resident,’’ the proposal

would codify this interpretation. The

rule would deem an individual to be a

‘‘bona fide resident’’ if he or she owns

or leases in his or her name a residence

within the Bank’s district, and

maintains a requisite employment

nexus, i.e., if an elective director, he or

she also is a director or officer of a

member located within the district or, if

an appointive director, he or she is

employed within the Bank district.

Qualifying residences might include

vacation homes, or other homes used

seasonally or on a part-time basis, that

the individual owns or leases in his or

her name. For elective directors, a

person is eligible to serve only as a

representative of the state in which the

principal place of business of his or her

employer (the member) is located,

although the residence, whether

principal or otherwise, may be in any

state within the district.

2. ‘‘Docket Number’’—§ 932.1

Various provisions of the current

regulations require a Bank to identify its

members by name, city or county and

state. As a matter of practice, the

Finance Board assigns a docket number

to each new member, which is used by

the Finance Board and the Banks to

identify that member. The proposed rule

would define ‘‘docket number’’ as the

number assigned by the Finance Board

and used by the Finance Board and the

Banks to identify a particular member.

The term is used in several provisions

of the proposed regulation and is
Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules 26533

intended to assist staff of the Banks in

administering the elections by

distinguishing between members that

have the same or similar names.

3. ‘‘Member’’—§ 932.1

Section 2(4) of the Act defines

‘‘member’’ as an institution that has

subscribed for stock in a Bank. 12 U.S.C.

1422(4). For purposes of the election of

directors, section 7(b) of the Act defines

the term ‘‘member’’ as ‘‘a member of a

Federal Home Loan Bank which was a

member of such bank at the end of’’ the

calendar year preceding the election. 12

U.S.C. 1427(b). The proposed rule

would define ‘‘member’’ as an

institution admitted to membership and

owning capital stock in a Bank, which

tracks the general definition of

‘‘member.’’ To conform to the section 7

definition of ‘‘member,’’ the proposal

would include textual references to the

‘‘record date’’ where appropriate.

4. ‘‘Record Date’’—§ 932.1

The proposed rule defines December

31 of the year preceding the election as

the ‘‘record date’’ for the Bank director

elections.

5. ‘‘Voting State’’—§ 932.1

The proposed rule would define a

‘‘voting state’’ to mean the District of

Columbia, Puerto Rico, or state in the

United States in which a member’s

principal place of business is located as

of the record date. Puerto Rico would be

designated as the voting state for

members whose principal place of

business is located in the Virgin Islands,

which conforms to current practice.

Hawaii would be designated as the

voting state for members whose

principal place of business is located in

Guam, which conforms to current

practice, as well as for members whose

principal place of business is located in

American Samoa and the

Commonwealth of Northern Marina

Islands, which is new.

B. Dates—§ 932.2

Section 932.14(f) of the current

regulation provides that if a date

prescribed in the regulations falls on

Saturday, Sunday or holiday, the next

business day shall be included in the

time allowed. See 12 CFR

932.14(f)(1997). The proposed rule

would amend this provision by

substituting ‘‘federal holiday’’ for

‘‘holiday’’ and expanding it to include

dates set by the Banks pursuant to the

proposal, as well as those specified in

the regulations.

C. Director Elections—§ 932.3

1. Responsibilities of the Banks

Under the existing regulation, the

Finance Board is solely responsible for

the conduct and administration of the

director elections. Proposed § 932.3

would transfer this responsibility to the

Banks and would require them to

administer and conduct an annual

election to fill those directorships, the

terms of which have been designated by

the Finance Board as commencing on

January 1 of the following year. That

would include existing directorships

that have been designated as continuing,

plus any newly designated seats. The

disinterested members of the board of

directors, or a committee of

disinterested directors, would have the

responsibility for administering the

election, which would allow their

oversight and approval of the process,

and would not preclude the use of staff

as well. The proposal would provide

that the term of each elective

directorship shall commence on January

1 of the year immediately following the

election. Each Bank would have the

discretion to determine the dates for the

various stages of the election process, so

long as the Bank completes the process

in sufficient time to allow newly elected

directors to assume their seats on

January 1 of the year following the

election.

2. Designation of Elective Directorships

Section 7(a) of the Act provides that

the board of directors of each Bank shall

have a minimum of fourteen members:

eight elective directors and six

appointive directors. See 12 U.S.C.

1427(a). Section 7(b) of the Act requires

the Finance Board to designate the

number of elective directorships

representing the members of each state

in a Bank district. See id. 1427(b). The

Act also requires the Finance Board to

allocate the elective directorship seats

among the states within the Bank

district based upon the ratio of the

required Bank stock held by members in

the state to the total required Bank stock

in the district, ensuring that ‘‘in the case

of each state such number shall not be

less than one and shall be not more than

six.’’ See id. 1427(c).

Section 932.3(b) of the proposed rule

carries forward the requirements of

sections 7(a), 7(b) and 7(c) of the Act,

requiring the Finance Board annually to

designate the number of elective

directorships for each Bank district. The

proposed rule would specify the

methodology by which the Finance

Board would make the required

allocation of directors. The process

would begin by allocating one elective

directorship to each state within a Bank

district. If the number of elective

directorships so allocated is less than

eight, the proposed rule § 932.3(b)(2)

would require the Finance Board to

allocate the remaining directorships by

using the method of equal proportions,

until the total number allocated for the

district equals eight. The method of

equal proportions is the formula used by

Congress to apportion congressional

seats among the fifty states. The Act

does not prescribe details of the Finance

Board’s allocation, and the Finance

Board is proposing to adopt this method

because it believes that the method is a

reasonable means of implementing

congressional intent on how Bank

director seats should be allocated.

The Act also includes a grandfather

provision, which guarantees that each

state is entitled to at least the number

of elective directorships that it had on

December 31, 1960. See 12 U.S.C.

1427(c). Section 932.3(b)(3) carries this

requirement forward in the proposed

rule, requiring the Finance Board to

allocate any additional elective

directorships necessary to comply with

the grandfather provision.

Section 7(e) of the Act authorizes the

Finance Board to add an elective seat to

the board of the Bank of the district in

which Puerto Rico is located if at the

time the district has fewer than five

states. See 12 U.S.C 1427(e). Section

932.9 of the current regulation allocates

one additional elective directorship to

the Bank of New York, representing the

Commonwealth of Puerto Rico. Section

923.3(b)(4) of the proposal would

implement this requirement.

The Act also provides the Finance

Board with the discretionary authority

to increase the number of elective

directorships up to thirteen, and the

number of appointive directorships up

to three-fourths of the number of

elective directorships, in any district

with five or more states. See 12 U.S.C.

1427(a). The proposal would include

this provision, and would provide that

in creating any additional appointive

directorships the Finance Board may

round up to the nearest whole number.

Section 932.3(c) of the proposed rules

would require the Finance Board to

notify each Bank, by May 10 of each

year, of the total number of elective

directorships established for the Bank

and the number of elective directorships

representing the members in each state

in the district. The proposal also would

codify current practice of allowing

incumbent directors to retain their seats

for the remainder of their term in the

event that the Finance Board were to

reduce the number of seats allocated to

a particular state as part of the annual
26534 Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules

designation of seats. The proposal also

would include a transition provision,

making clear that these amendments do

not affect the current terms of office of

the elective directors, and precluding

the Banks from altering the

commencement or termination dates of

those terms. Thus, the proposal would

retain the current staggering of elective

directorship terms at each Bank.

D. Capital Stock Report—§ 932.4

Section 932.12 of the existing

regulation requires each Bank to submit

to the Finance Board by April 15 a

report detailing the number of shares of

Bank stock each of its members was

required to hold at the end of the

preceding calendar year. See 12 CFR

932.12 (1997). Proposed § 932.4 would

continue this requirement, but would

require submission of the report by

April 10. Each Bank’s report must

include the following information for its

district: the number of members within

each voting state and the number of

shares of capital stock required to be

held by each member as of the record

date and the aggregate total number of

shares of capital stock required to be

held by all members in each voting state

as of the record date. The number of

shares of stock is to be the greater of

either the advances-to capital stock

requirement or the minimum capital

stock requirement. If a member has

elected to purchase its minimum capital

stock holding in installments, the

number of shares of capital stock the

member would be deemed to own for

these purposes would be the cumulative

total of shares actually purchased as of

the record date.

As is currently the practice, the

Finance Board would rely upon

information from the capital stock

report to designate elective

directorships among the states in each

Bank district. Each Bank also must

notify each of its members of its

minimum capital holdings pursuant to

§ 933.22(b)(1) and must certify to the

Finance Board that it has done so and

that to the best of its knowledge, the

information within the capital stock

report is accurate and complete.

Proposed § 932.4 would permit a

member to object to its required capital

holdings pursuant to § 933.22(b)(1),

provided it does so in writing to the

Finance Board within 15 days after the

date on which it receives that

information. The Finance Board then

must promptly resolve any differences

about the data, after which the Finance

Board’s determination would be final.

E. Determination of Member Votes—

§ 932.5

Section 7(b) of the Act provides that

in electing directors, each member may

cast a number of votes equal to the

number of shares of capital stock in the

Bank the member was required to hold

as of the record date, which may not

exceed the average number of shares

required to be held by all of the

members as of the record date. See 12

U.S.C. 1427. At present, the Finance

Board determines the number of votes

each member may cast. Under the

proposal, the Banks would assume this

responsibility.

There are a number of provisions in

the current regulations terminating

voting rights on the basis of events

occurring after the record date, such as

a merger, withdrawal from membership

or receivership. See 12 CFR §§ 933.24–

933.28 (1997). By keying the existence

of voting rights exclusively to the

number of shares held as of the record

date, the proposal would allow the legal

successor to any such member to

exercise whatever voting rights the

member could have exercised in the

election. In years subsequent to such a

transaction, the successor’s right to vote,

if any, would be determined by its own

membership status.

F. Elective Director Nominations—

§ 932.6

1. Election Announcement

Section 932.13 of the existing

regulation requires the Finance Board to

provide a written election

announcement to the members by June

15 and to allow members until July 15

to submit nominating certificates. See

12 CFR 932.13(a), (b) (1997). Under

proposed § 932.6, the Banks would

provide to each member a written

announcement of the upcoming annual

director election, and would be required

to do so within a reasonable time in

advance of the election. The election

announcement must include: (1) the

number of elective directorships

designated as representing the members

in each voting state in the Bank district;

(2) the name of each Bank director, the

name and city or county and state of the

member each elective director serves as

an officer or director or the organization

with which each appointive director is

affiliated, if any, and the expiration date

of each director’s term of office, (3) an

attachment indicating the name and

city, county and state of every member

in the member’s voting state, and the

number of votes each such member may

cast in the election; and (4) a

nominating certificate for the

appropriate voting state. If there is no

election in a state, the Bank need not

provide the attachment and the

nominating certificate.

2. Nominations

Consistent with section 7(b) of the

Act, proposed § 932.6(b) authorizes any

member eligible to vote in an election to

nominate a qualified individual to run

for election for any open elective

directorship in its voting state. See

U.S.C. 1427(b). In order to do so, a

member must submit to its Bank, before

a deadline to be designated by the Bank,

a nominating certificate that has been

duly adopted or certified by its

governing body or by an individual with

authority to act on behalf of its

governing body. The certificate must

include the name of the nominee and

the name, location and docket number

of the member at which the nominee

serves as an officer or director. A

member may submit only one

nominating certificate for each open

directorship. Unlike the current rule,

members would submit nominating

certificates exclusively to their Bank;

the Finance Board would no longer

receive or review the certificates.

To provide members with sufficient

time to complete and submit

nominating certificates, proposed

§ 932.6(b)(3) requires the Banks to set a

deadline for submissions to the Bank,

which must be at least 30 days after the

date on which the Bank mails the notice

of the election. The Bank may not

consider nominating certificates

received after the deadline. To facilitate

compliance reviews by Finance Board

examiners, proposed § 932.6(b)(3)

requires a Bank to retain all nominating

certificates it receives for at least two (2)

years after the date of election.

3. Accepting Nominations

Proposed § 932.6(c) requires each

Bank, upon receiving a nomination, to

notify the nominee in writing. The Bank

will notify the nominee once regardless

of the number of nominations received

by the nominee. To accept a

nomination, the nominee must submit

an executed Form E–1 (See Appendix A

to the Preamble) to the Bank prior to a

deadline established by the Bank, which

must be at least 30 days after the date

of the notice of the nomination. A

nominee may decline the nomination by

advising the Bank in writing or by

failing to submit the Form E–1 before

the deadline.

G. Eligibility Requirements for Elective

Directors—§ 932.7

Proposed § 932.7 would require the

Banks to verify that nominees meet

statutory and regulatory eligibility
Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules 26535

requirements for elective directors

before placing their names on the

ballots. See 12 U.S.C. 1427. Under the

current rule, the Finance Board makes

the determination regarding eligibility.

See 12 CFR 932.14 (1997).

The Banks must determine that each

elective director-nominee is a citizen of

the United States and a bona fide

resident of the Bank’s district. In

addition, the nominee must be an officer

or director of a member that is located

in the voting state to be represented by

the elective directorship and was a

member as of the record date. The

member also must meet the minimum

capital requirements of its appropriate

federal or state regulator.

The proposed rule would require

information concerning state regulatory

requirements only if the member is not

subject to supervision by a federal

regulator. If a member is subject to

regulation by both a state and federal

regulator, i.e., state-chartered financial

institution insured by the Federal

Deposit Insurance Corporation, the

individual need only submit

information concerning the federal

regulator’s capital requirements. The

term ‘‘appropriate federal regulator’’ has

the same meaning as the term

‘‘appropriate Federal banking agency’’

in section 2[3] of the Federal Deposit

Insurance Act, and, for federally insured

credit unions, means the National Credit

Union Administration. See 12 U.S.C.

1813(q); 12 CFR 931.26 (1997). The

proposed regulation would continue to

define the term ‘‘appropriate state

regulator’’ to mean any state officer,

agency, supervisor or other entity that

has regulatory authority over, or is

empowered to institute enforcement

action against, a member. See 12 CFR

933.1(f) (1997).

Under the proposed rule, the Banks

would (as the Finance Board has done)

verify a nominee’s eligibility by relying

on the information each nominee

provides on Form E–1. The proposed

rule does not provide for any review of

an adverse decision on a particular

nominee’s eligibility. The Finance

Board considered establishing some

such mechanism, but has opted not to

do so, principally due to the time

constraints involved and the relatively

straightforward nature of the eligibility

requirements. Moreover, the procedures

adopted for making such determinations

will be subject to the scrutiny of the

Finance Board’s examiners. The Finance

Board specifically requests comments

on the need for such a provision.

To assist the Banks in their eligibility

determinations, the proposed rule

includes three provisions describing

situations in which a nominee would

not be eligible to be a director. Each of

these provisions is based on a statutory

prohibition. Specifically, a nominee is

not eligible to become an elective

director if he or she is currently an

elective director, unless the current term

of office would expire before the

commencement of the new term of

office. In addition, a nominee’s

prospective service must not be barred

by the term limit provisions of the Act,

and a nominee may not be an

incumbent appointive director. The

term limit provision makes ineligible

any person who has been elected to, and

served all or part of, each of three

consecutive full terms of office as an

elective director, if less than two years

have passed since the expiration of the

last term. See 12 U.S.C. 1427(d)(term

limit provision). Any such individual

would be eligible to run for an elective

directorship that begins two years after

the end of that director’s third term.

H. Election Process—§ 932.8

1. Ballots

Similar to the current process

conducted by the Finance Board, the

proposed rule would require the Bank to

prepare a ballot for each voting state

with a directorship to be filled in the

election, and to mail the ballot to all

members located in that state that were

members as of the record date. An

institution that becomes a member after

the record date is not eligible to vote in

that year’s election, and a Bank may not

provide any such institution with a

ballot or allow it to vote during that

year. The ballot must include certain

minimum information, including an

alphabetical listing of the names of each

nominee, the name, location and docket

number of the member at which each

nominee serves, the nominee’s title or

position with the member, and the

number of elective directorships to be

filled. The Bank must prepare and mail

the ballot promptly after verifying the

eligibility of the nominees, and must

include on the ballot a statement that

write-in candidates are not permitted

and a confidentiality statement that the

Bank will not disclose how the member

voted, which is intended to maintain

ballot secrecy.

The rule would allow a Bank to

include other relevant information on

the ballot, at its discretion, such as the

number of votes that the respective

member may cast. The proposed rule

permits Banks to conduct a 30-day

balloting period, at a minimum.

2. Lack of Nominees

In those instances where the number

of nominations received for an open

elective directorship in any state is less

than or equal to the number of

directorships to be filled in the

elections, the proposed § 932.8(b)

requires a Bank to declare elected any

eligible nominee. The Bank also must

notify the members in the affected

voting state that the directorships have

been filled without an election due to a

lack of nominees. If there is no nominee

for a particular seat, the Bank shall

declare the seat vacant and the Bank’s

board of directors shall fill the vacancy

by majority vote, in accordance with the

provision regarding vacant Bank

directorships. Any person chosen to fill

a vacancy must meet all of the eligibility

requirements for that seat, which means

that it could not be filled by a director

or officer of a member located in

another state, or by a person barred by

the term limits provisions from serving

as an elective director.

3. Voting

The proposed rule provides that a

member may cast a number of votes

equal to the amount of stock required to

be held as of the record date. The rule

also would provide that a member may

not pool its votes for a single nominee,

when there are two or more open

elective directorships to be filled; any

nominee selected will receive only the

number of votes that the member is

entitled to cast. Proposed § 932.8(c) also

would prohibit a member from splitting

its votes among the nominees for a

single open elective directorship.

Proposed § 932.8(c) further requires a

member to vote for only one nominee

for each available elective directorship.

Each nominee shall receive all of the

votes the member is entitled to cast. The

member must execute the ballot by

resolution of its governing body or by an

individual with authority to act on

behalf of its governing body, and deliver

it to the Bank before the closing date

established by the Bank. The closing

date must be at least 30 days after the

ballots are mailed to the members. A

member may not change a ballot after it

has been delivered to the Bank, and any

ballots not cast in accordance with these

requirements will be void.

4. Counting Ballots

Proposed § 936.8(d) provides that a

Bank may not open any ballot until after

the closing date and may not include

any ballot delivered after the closing

date. Promptly after the polls close, each

Bank must tabulate the votes cast in

accordance with the regulatory

requirements and declare elected the

nominee who received the highest

number of votes. If more than one

elective directorship is to be filled, the
26536 Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules

Bank must declare elected the nominee

who received the next highest number

of votes and so on until all open elective

directorships are filled. In the event of

a tie for the last available seat, the

proposed rule requires the board of

directors of the Bank, by majority vote,

to declare elected one of the nominees

for whom the number of votes cast was

tied. Proposed § 932.8(d)(3) requires the

Bank to retain all ballots for at least two

(2) years after the date of the election,

and bars it from disclosing the way in

which a particular member voted.

5. Report of Election

Promptly following the election,

proposed § 932.8(e) requires each Bank

to provide written notice of the election

results to the Finance Board, all

members in its district, and each

nominee. The report of the election

must include: (1) the name of the newly

elected director, the name and location

of the member at which he or she serves

and his or her title or position at the

member; (2) the voting state the newly

elected director represents; (3) the

expiration date of the new director’s

term of office; (4) the number of

members voting in the election and the

number of votes actually cast, each

reported by voting state; and (5) the

number of votes cast for each nominee.

I. Prohibition on Actions to Influence

Director Elections—§ 932.9

1. Prohibition

Section 932.9 of the proposed rule

revises and restates the coverage of the

prohibition on actions to influence the

election of Bank directors contained in

§ 931.15 of the current rule. See 12 CFR

931.15 (1997). Proposed § 932.5(a)(1)

would prohibit any director, officer,

attorney, employee, or agent of the

Finance Board or of a Bank from

directly or indirectly communicating, in

any form, support for the nomination or

election of a particular individual for an

elective directorship, or from taking any

other action to influence the votes for

the directorship. Proposed § 932.9

would extend to members the

prohibition on communications

indicating that any official of the

Finance Board or of a Bank supports a

particular candidate, but members

would not be subject to the ‘‘take any

other action’’ element of the prohibition.

In effect, the provision would allow

members to express opinions about

director nominees so long as they do not

suggest that the Finance Board or the

Bank endorses a particular candidate.

2. Exception for Incumbent Bank

Directors

Proposed § 932.9(b) would provide an

exception from the prohibition on

actions to influence the election. The

exception would permit an incumbent

Bank director acting in his or her

personal capacity to support the

nomination or election of any

individual, provided that the director

does not purport to represent the views

of the Bank, the Finance Board, or any

director, officer, attorney, employee or

agent of the Bank or of the Finance

Board. The use of the word ‘‘any’’ is

intended to allow a director to promote

his or her own candidacy, as well as

that of other persons. The reference to

‘‘personal capacity’’ is intended to

preclude the use of a director’s official

title, position, or authority associated

with the position of Bank director, such

as through use of Bank stationery, to

endorse a candidate.

J. Selection of Appointive Directors—

§ 932.10

1. Selection

Consistent with section 7(a) of the

Act, proposed § 932.10 would provide

that the Finance Board has sole

discretion to select all appointive

directors. See 12 U.S.C. 1427(a). For

ease of administration and to ensure

uniform treatment and rigorous review,

the Finance Board will continue to rely

upon Form A–1 (See Appendix A to the

Preamble), the Appointive Director

Eligibility Certification Form, to elicit

the information it requires to determine

whether prospective and incumbent

appointive directors meet all of the

statutory eligibility requirements. In

order to reduce the reporting burden,

the Finance Board has revised Form A–

1 and is proposing to eliminate Form A–

2.

2. Term of Office

Proposed § 932.10 designates January

1 as the commencement date for

appointive directors’ terms of office.

K. Conflicts of Interest Policy for Bank

Directors—§ 932.11

1. Adoption of Conflicts of Interest

Policy

To prevent conflicts of interest that

may affect a Bank director in the

performance of his or her official duties,

the proposed rule includes a conflicts of

interest provision that would replace

the financial disclosure requirements

and the prohibitions on service,

financial interests, financial

relationships, and gifts in the current

regulation. See 12 CFR 932.18(b)–(d),

932.21(b)–(c) (1997). The proposal

would require the board of directors of

each Bank to adopt a written conflicts

of interest policy, and would specify its

minimum contents. The Finance Board

intends the proposed provisions, which

are somewhat more general in nature

and afford more latitude to the Banks,

to more closely parallel the

requirements of general corporate

practices.

Under proposed § 932.11(a), the

conflicts of interest policy each Bank

adopts, at a minimum, must:

(1) Require the directors to administer

the affairs of the Bank fairly and

impartially and without discrimination

in favor of or against any member or

nonmember borrower, See 12 U.S.C.

1427(j);

(2) Prohibit the use of a director’s

official position for personal gain;

(3) Require directors to disclose actual

or apparent conflicts of interest, and

establish procedures for addressing such

conflicts;

(4) Provide internal controls to ensure

that reports are filed and the conflicts

are disclosed and resolved in

accordance with the conflicts of interest

requirements; and

(5) Establish procedures to monitor

compliance with the conflicts of interest

policy.

2. Disclosure and Recusal

Proposed § 932.11(b) requires a

director to inform promptly the board of

directors of any and all situations where

the director or any immediate family

member has a financial interest in a

matter before the board of directors.

This disclosure also applies to any

financial interest the director may have

in any organization or any individual

doing business with the Bank, excluding

any interest relating to the member at

which the director serves. The proposed

rule also requires each director to

refrain from participating in

deliberations, determinations or voting

concerning any matter, that directly or

indirectly affects the financial or other

personal interests of the director or a

member of his or her immediate family,

or that would result in a detriment to

the Bank or unfair advantage to the

Bank or its members. For example, this

prohibition would preclude a director

from serving as a consultant to his or

her Bank. All directors also are required

to provide any additional information

required by the board or its designee to

consider and resolve any conflicts of

interest.

The proposed rule also would

prohibit directors from disclosing or

using any confidential information the

director acquires in the course of official

duties, to obtain a financial benefit for
Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules 26537

themselves, their immediate family, or

their member.

3. Gifts

Section 932.11(c) of the proposed

regulation would prohibit a director or

immediate family member from

accepting any substantial gift that the

recipient has reason to believe is given

in order to influence a director’s actions,

or where acceptance of the gift could

have the appearance of influencing the

director’s performance of his or her

official duties. For purposes of this

provision, § 932.11(e) defines the term

‘‘substantial gift’’ to mean gifts of more

than token value; (ii) entertainment or

hospitality the cost of which is in excess

of what considered reasonable,

customary, and accepted business

practice; (iii) any other items or services

for which a director pays less than

market value.

4. Compensation

Section 931.11(d) of the proposed

regulation would prohibit a director

from accepting compensation for

services performed for the Bank from

any source other than the Bank for

which the services are performed.

5. Definitions

Proposed § 932 defines terms that are

used in the conflicts of interest section

of the regulation.

Section 932.11(e)(1) of the proposed

rule defines ‘‘immediate family

member’’ to mean a Bank director’s

parent, sibling, spouse, child, or

dependent or any other relative sharing

the same residence as the director.

Section 932.11(e)(2) defines the term

‘‘financial interest’’ to mean a direct or

indirect interest in any activity,

transaction, property, or relationship

that involves receiving or providing

something of monetary value, and

includes, but is not limited to: (i) Any

contractual right to the payment of

money, whether contingent or fixed; (ii)

ownership or control of 10 percent or

more of any class of equity security, or

any security, including subordinated

debt; (iii) employment in a policy

making position; or (iv) service as an

officer, director, partner, or as a trustee

or in a similar fiduciary capacity.

L. Reporting Requirements for Bank

Directors—§ 932.12

1. Annual Report

Under §§ 932.18(f) and 932.21(g) of

the current rules, every appointive and

elective director must annually submit

to his or her Bank either an executed

form A–1 (appointive directors) or E–1

(elective directors). The Finance Board

believes that the current annual

reporting requirements may be

unnecessarily burdensome and

duplicative when there have been no

changes since the director last

submitted such information. Therefore,

under § 932.12(a) of the proposed rule,

if there have been no changes since a

director last submitted the requested

information, a director need only

annually submit a certification stating

that no changes have occurred. The

director must make this certification by

signing section A of the appropriate

parts of Form E–1, for elective directors,

or A–1, for appointive directors. If

changes have occurred, proposed

§ 932.12(a) would require the director to

complete the appropriate parts of either

Form E–1 or A–1. Under the proposed

rule, both elective and appointive

directors would submit their annual

reports to their Bank, but the Banks

would be required to forward a copy of

the Form A–1 to the Finance Board.

2. Report of Noncompliance

Proposed § 932.12(b) carries forward

the requirements of the existing

regulation that appointive and elective

directors who know or have reason to

believe at any time they no longer meet

the statutory or regulatory eligibility

requirements, must report the facts

causing the loss of eligibility in writing

within 30 days of first discovering those

facts. See 12 CFR 932.18(f); 12 CFR

932.21(g)(2)(1997). Under the current

regulation, such reports are filed only

with the Finance Board; the proposal

would require all directors to notify the

Bank, but appointive directors also

would be required to forward a copy to

the Finance Board.

M. Ineligible Bank Directors—§ 932.13

Consistent with section 7(f) of the Act,

§ 932.13 of the proposed rule provides

that a directorship (whether elective or

appointive) will immediately become

vacant upon the determination by the

Finance Board or the Bank (for elective

directors) or by the Finance Board (for

appointive directors) that the director

no longer meets any of the statutory or

regulatory eligibility requirements, or

has failed to comply with the reporting

requirements under proposed § 932.12.

See 12 U.S.C. 1427(f). As is the case

under the existing regulation, an

elective director who has been

determined to be ineligible or to have

failed to comply with the reporting

requirements may not continue to act as

a director. See 12 U.S.C. 1427(f)(3); 12

CFR 932.21(f) (1997). Also, consistent

with the existing regulation an

appointive director who has been

determined to be ineligible or who has

failed to comply with the reporting

requirements may continue to serve as

a director until a successor assumes the

appointive directorship or the term of

office expires, whichever occurs first.

See 12 U.S.C. 1427(f)(2); 12 CFR

932.18(e)(1). The Finance Board, in its

sole discretion, would retain the

authority to grant an appointive director

a period of time, not longer than ninety

(90) days, to come into compliance with

the eligibility or reporting requirements.

N. Vacant Bank Directorships—§ 932.14

1. Vacant Elective Directorships

Proposed § 932.14 implements the

provisions of section 7(f) of the Act that

concern vacant elective directorships.

See 12 U.S.C. 1427(f)(1), (3). Under the

proposed rule, as soon as practicable

after a vacancy occurs, a Bank must fill

the unexpired term of office of a vacant

elective directorship by a majority vote

of the remaining directors, and may do

so regardless of whether the remaining

directors constitute a quorum of the

board. A person filling a vacancy must

satisfy all of the statutory and regulatory

eligibility requirements for elective

directors, which the Bank must verify

before allowing the person to assume

the office. Promptly after verifying the

individual’s eligibility, the Bank must

provide a written notice to the Finance

Board and each of its members that

includes the name of the new elective

director, the name and location of the

member for which the new director

serves, the new director’s title or

position with the member, the voting

state the new director represents, and

the expiration date of the new director’s

term of office.

2. Vacant Appointive Directorships

Proposed § 932.14(b) implements the

provisions of section 7(f) of the Act that

concern vacant appointive

directorships. See 12 U.S.C. 1427(f)(1),

(2). Under the proposed rule, as soon as

practicable after a vacancy occurs, the

Finance Board must fill the unexpired

term of office of a vacant appointive

directorship in the same manner it fills

open appointive directorships. Promptly

after filling a vacant appointive

directorship, the Finance Board must

provide a written notice to the

appropriate Bank that includes the

name of the new appointive director,

the name and location of the

organization with which the new

director is affiliated, if any, the new

director’s title or position with such

organization, and the expiration date of

the new director’s term of office. The

Bank, in turn, must promptly provide

this information to each of the members

within its district.
26538 Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules

O. Minimum Number of Elective

Directorships—§ 932.15

Proposed § 932.15 redesignates the

list of grandfathered directorships and

revises it to identify only those states

that were entitled to more than one

elective directorship on December 31,

1960. The substance of the grandfather

provision for the remaining states is

preserved through the proposed

designation provision, which would

allocate a minimum of one seat to each

state.

P. Technical Changes to Part 932

Additional changes to provisions of

part 932 that concern Bank directors are

intended to eliminate obsolete

references and reorganize provisions

that appear in the current regulation.

Accordingly, the Finance Board is

proposing to redesignate the following

provisions of Part 932 without change:

§ 932.26, concerning the location of

Bank board of directors and committee

meetings, redesignated to § 932.16 of

subpart B; § 932.27, concerning the

compensation and expenses of Bank

directors, to § 932.17 of subpart B;

§ 932.40, concerning selection by the

Bank of officers and employees, to

§ 932.18 of subpart C; and § 932.41,

concerning compensation of Bank

officers and employees, to § 932.19 of

subpart C. The Finance Board is

proposing to eliminate provisions of

part 932 that would be rendered

obsolete by the proposed changes. See

12 CFR 932.23, 932.28–29, 932.50–51,

932.60–62.

Q. Part 922

The Finance Board has identified the

financial and service prohibitions and

reporting requirements applicable to the

four Finance Board directors appointed

by the President, by and with the advice

of the Senate (appointed Finance Board

directors) as unnecessarily burdensome

or duplicative. See 12 U.S.C.

1422a(b)(1)(B); 12 CFR part 922.

Accordingly, the Finance Board

proposes to eliminate part 922 of its

regulations. Repeal of part 922 is

consistent with the goal of the

Regulatory Reinvention Initiative of the

National Performance Review to reduce

the total number of regulations of

executive agencies.

Section 2A(b)(1)(B) of the Act requires

appointed Finance Board directors to be

citizens of the United States. See 12

U.S.C. 1422a(b)(1)(B). Because an

individual appointed Finance Board

director must satisfy all statutory

conditions, § 922.2, which essentially

reiterates the statutory requirements is

unnecessary.

Section 2A(b)(2)(C) imposes conflicts

of interest limitations on appointed

Finance Board directors, including a

prohibition on serving as a director or

officer of any Bank or any member of

any Bank, or holding shares of, or any

other financial interest in, any member

of any Bank. See 12 U.S.C.

1422a(b)(2)(C). Under the Ethics in

Government Act of 1978, as amended, 5

U.S.C. App. 101 et seq., and the

implementing regulations promulgated

by the Office of Government Ethics

(OGE), 5 CFR parts 2635 and 2636,

appointed Finance Board directors are

subject to conflicts of interest

limitations that are more exacting than,

and encompass the prohibitions

imposed by, section 2A of the Act. OGE

regulations also require appointed

Finance Board directors to disclose as a

part of the Senate confirmation process

and annually thereafter in writing to the

Finance Board’s designated agency

ethics official and OGE, detailed

information regarding financial interests

that may pose conflicts of interest. See

5 U.S.C. App. 101(c); 5 CFR 2634.201,

2634.202 (1997). Therefore, the conflicts

of interest provisions contained in

§§ 922.3 through 922.5, essentially

duplicate existing reporting

requirements, and thus are unnecessary.

R. Parts 931, 933, 934, and 941

The Finance Board is proposing to

make conforming changes to parts 931,

933, 934, and 941 of its regulations. See

12 CFR parts 931, 933, 934, and 941.

The Finance Board is proposing to

eliminate definitions of terms that

appear currently in part 932 but would

no longer be used under the proposal.

See id. §§ 931.13–40.

Section 932.3 of the current rule

concerns Bank dividends which the

Finance Board is proposing to

redesignate without change to part 934

of the Finance Board’s regulations,

which concerns the operations of the

Banks. See id. part 934.

Part 933 of the Finance Board’s

regulations concern membership in the

Banks. See id. part 933. The proposed

changes to part 932 would conflict with

certain provisions of the membership

rule that concern voting rights.

Accordingly, the Finance Board is

proposing to eliminate all references to

voting rights that appear in § 933.18 and

§§ 933.24 through 933.28.

III. Regulatory Flexibility Act

The proposed rule implements

statutory requirements binding on all

Banks, all Bank members, and all

prospective and incumbent Bank

directors. The Finance Board is not at

liberty to make adjustments in those

requirements to accommodate small

entities. The Finance Board has not

imposed any additional regulatory

requirements that will have a

disproportionate impact on small

entities. In addition, in an effort to

reduce the reporting burden on

prospective and incumbent Bank

directors, the Finance Board has

streamlined Form E–1, the Elective

Director Eligibility Certification Form,

and Form A–1, the Appointive Director

Eligibility Certification Form,

eliminated Forms E–2 and A–2, and will

allow individuals to certify that no

changes have occurred since they last

submitted required information rather

than completing anew the entire form.

Thus, in accordance with the provisions

of the Regulatory Flexibility Act, the

Finance Board hereby certifies that this

proposed rule, if promulgated as a final

rule, will not have a significant

economic impact on a substantial

number of small entities. 5 U.S.C.

605(b).

IV. Paperwork Reduction Act

The Finance Board has submitted to

the Office of Management and Budget

(OMB) an analysis of the collection of

information contained in Forms E–1 and

A–1 and the proposed rule, described

more fully in part II of the

Supplementary Information. The

Finance Board will use the information

collection to determine whether

prospective and incumbent appointive

directors satisfy the statutory and

regulatory eligibility and reporting

requirements. Only individuals meeting

these requirements may serve as

appointive Bank directors. See 12 U.S.C.

1427(a), (f)(2). The Banks and, where

appropriate, the Finance Board, will use

the information collection to determine

whether prospective and incumbent

elective directors satisfy the statutory

and regulatory eligibility and reporting

requirements. Only individuals meeting

these requirements may serve as elective

Bank directors. See id. 1427(a), (b),

(f)(3). Responses are required to obtain

or retain a benefit. See id. 1427. The

Finance Board and Banks will maintain

the confidentiality of information

obtained from respondents pursuant to

the collection of information as required

by applicable statute, regulation, and

agency policy. Books or records relating

to this collection of information must be

retained as provided in the regulation.

Likely respondents and/or

recordkeepers will be the Banks, Bank

members, and prospective and

incumbent Bank directors. Potential

respondents are not required to respond

to the collection of information unless

the regulation collecting the information
Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules 26539

displays a currently valid control

number assigned by the OMB. See 44

U.S.C. 3512(a).

The estimated annual reporting and

recordkeeping hour burden is:

a. Number of respondents ..... 3,442

b. Total annual responses ..... 3,442

Percentage of these responses collected electronically ..................... 0

c. Total annual hours requested ................................ 1,172

d. Current OMB inventory .... 376

e. Difference ........................... 796

The estimated annual reporting and

recordkeeping cost burden is:

a. Total annualized capital/startup

costs ............................................... $180,000.00

b. Total annual costs (O&M) ............ 24,000.00

c. Total annualized cost requested .. 0

d. Current OMB inventory ............... 0

e. Difference ...................................... $204,000.00

Comments concerning the accuracy of

the burden estimates and suggestions for

reducing the burden may be submitted

to the Finance Board in writing at the

address listed above.

The Finance Board has submitted the

collection of information to OMB for

review in accordance with section

3507(d) of the Paperwork Reduction Act

of 1995, codified at 44 U.S.C. 3507(d).

Comments regarding the proposed

collection of information may be

submitted in writing to the Office of

Information and Regulatory Affairs of

the Office of Management and Budget,

Attention: Desk Officer for Federal

Housing Finance Board, Washington,

D.C. 20503 by June 29, 1998.

List of Subjects

12 CFR Part 922

Conflict of interests.

12 CFR Part 931

Banks, banking, Federal home loan

banks.

12 CFR Part 932

Banks, banking, Conflict of interests,

Elections, Ethical conduct, Federal

home loan banks, Financial disclosure,

Reporting and recordkeeping

requirements.

12 CFR Part 933

Credit, Federal home loan banks,

Reporting and recordkeeping

requirements.

12 CFR Part 934

Federal home loan banks, Securities,

Surety bonds.

12 CFR Part 941

Federal home loan banks,

Organization and functions

(Government agencies).

Accordingly, the Federal Housing

Finance Board hereby proposes to

amend chapter IX, title 12, parts 922,

931, 932, 933, 934, and 941 of the Code

of Federal Regulations as follows:

PART 922—[REMOVED]

1. Under the authority in 12 U.S.C.

1422a and 1422b, remove part 922.

PART 931—DEFINITIONS

1. The authority citation for part 931

continues to read as follows:

Authority: 12 U.S.C. 1422a and 1422b.

§§ 931.13 through 931.40 [Removed]

2. Remove §§ 931.13 through 931.40.

§§ 931.11 and 931.12 [Redesignated as

§§ 931.5 and 931.6]

3. Redesignate §§ 931.11 and 931.12

as §§ 931.5 and 931.6, respectively.

PART 934—OPERATIONS OF THE

BANKS

1. The authority citation for part 934

continues to read as follows:

Authority: 12 U.S.C. 1422a, 1422b, 1431(g),

1432(a), and 1442.

§ 932.3 [Redesignated as § 934.17]

2. Redesignate § 932.3 as § 934.17.

PART 932—DIRECTORS, OFFICERS,

AND EMPLOYEES OF THE BANKS

1. Revise the heading of part 932 to

read as set forth above.

2. Revise the authority citation for

part 932 to read as follows:

Authority: 12 U.S.C. 1422a(a)(3), 1422b(a),

1426, and 1427; 42 U.S.C. 8101 et seq.

3. Revise the table of contents of part

932 to read as follows:

Subpart A—Definitions

Sec.

932.1 Definitions.

932.2 Dates.

Subpart B—Bank Directors

932.3 Director Elections.

932.4 Capital Stock Report.

932.5 Determinations of member votes.

932.6 Elective director nominations.

932.7 Eligibility requirements for elective

directors.

932.8 Elections process.

932.9 Prohibition on actions to influence

director elections.

932.10 Selection of appointive directors.

932.11 Conflicts of interest policy for Bank

directors.

932.12 Reporting requirements for Bank

directors.

932.13 Ineligible Bank directors.

932.14 Vacant Bank directorships.

932.15 Minimum number of elective

directorships.

932.16 Site of board of directors and

committee meetings.

932.17 Compensation and expenses of Bank

directors.

Subpart C—Selection of Bank Officers and

Employees.

932.18 Selection of Bank officer and

employees.

932.19 Compensation of Bank officers and

employees.

4. Designate §§ 932.1 and 932.2 as

subpart A and add a subpart heading to

read as follows:

Subpart A—Definitions

5. Revise § 932.1 to read as follows:

§ 932.1 Definitions.

For purposes of this part:

Act means the Federal Home Loan

Act, as amended (12 U.S.C. 1421 et

seq.).

Bank or Banks means a Federal Home

Loan Bank or the Federal Home Loan

Banks.

Bona fide resident of a Bank district

means an individual who:

(1) Maintains a principal residence

within the Bank district; or

(2) Owns or leases in his or her own

name a residence within the Bank

district and, if serving as an elective

director, is an officer or director of a

member located in a voting state within

the Bank district; or

(3) If serving as an appointive

director, is employed within a voting

state within the Bank district.

Docket Number means the number

assigned to each member by the Finance

Board and used by the Finance Board

and the Banks to identify a particular

member.

Finance Board means the agency

established as the Federal Housing

Finance Board.

Member means an institution

admitted to membership and owning

capital stock in a Bank.

Record date means December 31 of

the calendar year immediately

preceding the election year.

Voting state means the District of

Columbia, Puerto Rico, or the state of

the United States in which a member’s

principal place of business, as

determined in accordance with part 933

of this chapter, 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 shall be

Puerto Rico, and the voting state of a

member with a principal place of

business located in American Samoa,
26540 Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules

Guam, or the Commonwealth of the

Northern Mariana Islands as of the

record date shall be Hawaii.

6. Add § 932.2 to subpart A to read as

follows:

§ 932.2 Dates.

If any date specified in this part, or

specified by a Bank pursuant to this

part, falls on a Saturday, Sunday, or

federal holiday, the relevant time period

shall be deemed to include the next

business day.

7. Designate §§ 932.3 through 932.17

as subpart B and add a subpart heading

to read as follows:

Subpart B—Bank Directors

8. Add § 932.3 to subpart B to read as

follows:

§ 932.3 Director elections.

(a) Responsibilities of the Banks. Each

Bank annually shall conduct an election

the purpose of which is to fill all

elective directorships designated by the

Finance Board as commencing on

January 1 of the calendar year

immediately following the year of the

election. Subject to the provisions of the

Act and in accordance with the

requirements of this part, the

disinterested members of the board of

directors of each Bank, or a committee

of disinterested directors, shall

administer and conduct the annual

election of directors. The term of office

of each elective directorship shall be

two years and shall commence on

January 1 of the calendar year

immediately following the year in

which the election is held. Each Bank

shall complete the election in sufficient

time to allow newly elected directors to

assume their seats on January 1 of the

year immediately following the election.

(b) Designation of elective

directorships. The Finance Board

annually shall establish the number of

elective directorships for each Bank,

which are to be allocated as follows:

(1) One elective directorship shall be

allocated to each state within the Bank

district;

(2) If the total number of elective

directorships allocated pursuant to

paragraph (b)(1) of this section is less

than eight, the Finance Board shall

allocate additional elective

directorships among the states, using

the method of equal proportions, until

the total allocated for the Bank equals

eight;

(3) If the number of elective

directorships allocated to any state

pursuant to paragraphs (b)(1) and (2) of

this section is less than the number

allocated to that state on December 31,

1960, as specified in § 932.15, the

Finance Board shall allocate such

additional elective directorships to that

state until the total allocated equals the

number allocated to the Bank on

December 31, 1960;

(4) Pursuant to section 7(e) of the Act,

the Federal Home Loan Bank of New

York is hereby allocated one additional

elective directorship, which is

designated as representing the members

in the Commonwealth of Puerto Rico;

(5) Pursuant to section 7(a) of the Act,

in any Bank district that includes five or

more states, the Finance Board may

increase the number of elective

directorships up to thirteen, and the

number of appointive directorships up

to three-fourths of the number of

elective directorships. In determining

the number of appointive directorships,

the Finance Board may round up to the

nearest whole number.

(c) Notification. On or before May 10

of each year, the Finance Board shall

notify each Bank in writing of the total

number of elective directorships

established for the Bank and the number

of elective directorships designated as

representing the members in each voting

state in the Bank district. If the Finance

Board’s annual designation of elective

directorships for a particular state

would result in a decrease in the

number of seats allocated to that state

for the following year, the decrease shall

not require any incumbent director to

surrender his or her directorship prior

to the expiration of the full term of

office.

(d) Transition. The term of office of

each elective directorship existing on

the effective date of this section shall

continue to its scheduled expiration

date, and the Banks may not thereafter

alter the commencement or expiration

date for any elective directorship in

conducting the annual election of

directors.

9. Add § 932.4 to subpart B to read as

follows:

§ 932.4 Capital Stock Report.

(a) On or before April 10 of each year,

each Bank shall submit to the Finance

Board, for its use in designating the

elective directorships, and to each

member a capital stock report that

indicates, as of the record date, the

number of members in each voting state

in the Bank’s district, and the number

of shares of capital stock required to be

held by each member (identified by

docket number), and the aggregate total

number of shares of capital stock

required to be held by all members in

each voting state in the Bank’s district.

The Bank shall certify to the Finance

Board 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 holdings pursuant

to § 933.22(b)(1) of this chapter. A

member may object to its required

capital holdings determined under

§ 933.22(b)(1) of this chapter by

notifying the Finance Board and its

Bank in writing within 15 days after the

date on which the member receives that

information. The Finance Board shall

promptly resolve any differences, which

determination by the Finance Board

shall be final.

(b) A Bank shall determine the

number of shares of capital stock each

member is required to hold as of the

record date in the following manner:

(1) The number of shares of capital

stock shall be equal to the greater of the

advances-to-capital stock requirement

under § 935.15(a) of this chapter, or the

minimum capital stock requirement

under § 933.20(a) of this chapter.

(2) If a member has elected to

purchase its minimum required capital

stock in installments under

§ 933.20(b)(2) of this chapter, the

number of shares of capital stock

required to be held as of the record date

shall be the cumulative total of shares

of capital stock actually purchased as of

the record date.

10. Add § 932.5 to subpart B to read

as follows:

§ 932.5 Determination of member votes.

(a) Authority. The Bank shall

determine, in accordance with this

section, the number of votes each

member of the Bank may cast in the

election of directors.

(b) Determination. The number of

votes a member may cast for any

elective director nominee shall be the

lesser of the number of shares of capital

stock the member was required to hold

as of the record date, as determined in

accordance with § 932.4(b), or the

average number of shares of capital

stock required to be held by all of the

members in its voting state as of the

record date.

11. Add § 932.6 to subpart B read as

follows:

§ 932.6 Elective director nominations.

(a) Election announcement. Within a

reasonable time in advance of an

election, a Bank shall provide to each

member in its district a written notice

of the election that includes:

(1) The number of elective

directorships designated as representing

the members in each voting state in the

Bank district;

(2) The name of each incumbent Bank

director, the name and location of the

member at which each elective director
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serves, and the name and location of the

organization with which each

appointive director is affiliated, if any,

and the expiration date of each Bank

director’s term of office;

(3) An attachment indicating the

name, location, and docket number of

every member in the member’s voting

state, and the number of votes each such

member may cast in the election, as

determined in accordance with

§ 932.5(b); and

(4) A nominating certificate.

(b) Nominations. (1) Any member that

is entitled to vote in the election may

nominate an eligible individual to fill

each available elective directorship for

its voting state by submitting to its

Bank, prior to a deadline to be

established by the Bank, a nominating

certificate duly adopted by the

member’s governing body or by an

individual authorized to act on behalf of

the member’s governing body.

(2) The nominating certificate shall

include the name of the nominee and

the name, location, and docket number

of the member at which the nominee

serves as an officer or director.

(3) The Bank shall establish a

deadline for submitting nominating

certificates, which shall be no earlier

than 30 calendar days after the date on

which the Bank mails the notice

required by paragraph (a) of this section,

and the Bank shall not accept

certificates received after that deadline.

The Bank shall retain all nominating

certificates for at least two years after

the date of the election.

(c) Accepting nominations. A Bank

shall notify in writing any person

nominated for an elective directorship

promptly upon receipt of the

nominating certificate. A person may

accept the nomination only by

submitting an executed Form E–1 to the

Bank prior to the deadline established

by the Bank. (Form E–1 is available

pursuant to § 900.51 of this chapter). A

Bank shall allow each nominee at least

30 calendar days after the date of the

notice of nomination within which to

submit the executed form. A nominee

may decline the nomination by so

advising the Bank in writing, or by

failing to submit the Form E–1 prior to

the deadline. Each Bank shall retain all

information received under this

paragraph for at least two years after the

date of the election.

12. Add § 932.7 to subpart B read as

follows:

§ 932.7 Eligibility requirements for elective

directors.

(a) Eligibility verification. A Bank

shall verify that each nominee meets all

of the eligibility requirements for

elective directors set forth in the Act

and this part before placing that

nominee on the ballot prepared by the

Bank under § 932.8(a).

(b) Eligibility requirements. Each

elective director, and each nominee,

shall be:

(1) A citizen of the United States;

(2) A bona fide resident of the Bank

district; and

(3) An officer or director of a member

that is located in the voting state to be

represented by the elective directorship,

was a member of the Bank as of the

record date, and meets all minimum

capital requirements established by its

appropriate federal regulator or

appropriate state regulator. For purposes

of this paragraph (b)(3), the term

appropriate federal regulator has the

same meaning as the term ‘‘appropriate

Federal banking agency’’ in section 2[3]

of the Federal Deposit Insurance Act (12

U.S.C. 1813(q)), and, for federally

insured credit unions, shall mean the

National Credit Union Administration,

and the term appropriate state regulator

means any state officer, agency,

supervisor, or other entity that has

regulatory authority over, or is

empowered to institute enforcement

action against, a member.

(c) Restrictions. A nominee is not

eligible if he or she:

(1) Is an incumbent elective director,

unless:

(i) The incumbent director’s term of

office would expire before the new term

of office would begin; and

(ii) The new term of office would not

be barred by the term limit provision of

section 7(d) of the Act.

(2) Is a former elective director whose

service would be barred by the term

limit provision of section 7(d) of the

Act.

(3) Is an incumbent appointive

director.

13. Revise § 932.8 to read as follows:

§ 932.8 Election process.

(a) Ballots. Promptly after verifying

the eligibility of all nominees in

accordance with § 932.7(a), a Bank shall

prepare a ballot for each voting state for

which an elective directorship is to be

filled and shall mail the ballot to all

members within that state that were

members as of the record date. A ballot

shall include at least the following

provisions:

(1) An alphabetical listing of the

names of each nominee for the

member’s voting state, the name,

location, and docket number of the

member at which each nominee serves,

the nominee’s title or position with the

member, and the number of elective

directorships to be filled by members in

that voting state in the election;

(2) A statement that write-in

candidates are not permitted; and

(3) A confidentiality statement

prohibiting the Bank from disclosing

how a member voted.

(b) Lack of nominees. If, for any voting

state, the number of nominees is equal

to or less than the number of elective

directorships to be filled in the election,

the Bank shall not prepare or distribute

a ballot, and shall declare elected any

eligible nominee, declare vacant any

elective directorship that lacks an

eligible nominee, and notify the

members in the affected voting state in

writing that the directorships have been

filled without an election due to a lack

of nominees. If necessary, as soon

thereafter as practicable, the board of

directors shall fill, by a majority vote,

any elective directorship that has been

declared vacant for a lack of a nominee,

in accordance with § 932.14(a).

(c) Voting. For each directorship to be

filled, a member may cast the number of

votes determined by the Bank pursuant

to § 932.5. A member may not split its

votes among multiple nominees for a

single directorship, nor, where there are

multiple directorships to be filled for a

voting state, may it cumulatively vote

for a single nominee. To vote, a member

shall:

(1) Mark on the ballot the name of not

more than one of the nominees for each

elective directorship to be filled in the

member’s voting state. Each nominee so

selected shall receive all of the votes

that the member is eligible to cast.

(2) Execute the ballot by resolution of

the member’s governing body, or by an

appropriate writing signed by an

individual authorized to act on behalf of

the governing body.

(3) Deliver the executed ballot to the

Bank on or before the closing date that

has been established by the Bank, which

shall be no earlier than 30 calendar days

after the date the ballots are mailed in

accordance with paragraph (b) of this

section. A member may not change a

ballot after it has been delivered to the

Bank.

(4) Any ballots cast in violation of this

subsection shall be void.

(d) Counting ballots. A Bank shall not

open any ballot until after the closing

date, and may not include in the

election results any ballot received after

the closing date. Promptly after the

closing date, each Bank shall tabulate,

by each voting state, the votes cast in

accordance with paragraph (c) of this

section, and shall declare elected the

nominee receiving the highest number

of votes.

(1) If more than one elective

directorship is to be filled in a voting

state, the Bank shall declare elected
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each successive nominee receiving the

next highest number of votes until all

open elective directorships for that

voting state are filled.

(2) In the event of a tie for the last

available seat, the incumbent board of

directors of the Bank shall, by a majority

vote, declare elected one of the

nominees for whom the number of votes

cast was tied.

(3) The Bank shall retain all ballots it

receives for at least two years after the

date of the election, and shall not

disclose how any member voted.

(e) Report of election. Promptly

following the election, each Bank shall

provide written notice to its members,

to each nominee, and to the Finance

Board of the following:

(1) The name of each director-elect,

the name and location of the member at

which he or she serves, and his or her

title or position at the member;

(2) The voting state represented by

each director-elect;

(3) The expiration date of the term of

office of each director-elect;

(4) The number of members voting in

the election and the total number of

votes cast, both reported by states; and

(5) The number of votes cast for each

nominee.

14. Revise § 932.9 to read as follows:

§ 932.9 Prohibition on actions to influence

director elections.

(a) Prohibition. Except as provided in

paragraph (b) of this section:

(1) No director, officer, attorney,

employee, or agent of the Finance Board

or of a Bank may:

(i) Communicate in any manner that

a director, officer, attorney, employee,

or agent of the Finance Board or of a

Bank, directly or indirectly, supports

the nomination or election of a

particular individual for an elective

directorship; or

(ii) Take any other action to influence

votes for a directorship.

(2) No member may take any action

prohibited by paragraph (a)(1)(i) of this

section.

(b) Exception for incumbent Bank

directors. A Bank director acting in his

or her personal capacity may support

the nomination or election of any

individual for an elective directorship,

provided that no Bank director shall

purport to represent the views of the

Bank, the Finance Board, any other

director, or any officer, attorney,

employee, or agent of the Bank or of the

Finance Board concerning the

nomination or election of a particular

individual for an elective directorship.

15. Revise § 932.10 to read as follows:

§ 932.10 Selection of appointive directors.

(a) Selection. In accordance with the

Act, the Finance Board, in its sole

discretion, shall select all appointive

directors.

(b) Term of office. The term of office

of each appointive directorship shall

commence on January 1.

16. Revise § 932.11 to read as follows:

§ 932.11 Conflict of interests policy for

Bank directors.

(a) Adoption of conflict of interests

policy. Each Bank shall adopt a written

conflict of interests policy that shall

apply to all Bank 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 or

nonmember borrower;

(2) Prohibit the use of a director’s

official position for personal gain;

(3) Require directors to disclose actual

or apparent conflict of interests and

establish procedures for addressing such

conflicts;

(4) Provide internal controls to ensure

that reports are filed and that conflicts

are disclosed and resolved in

accordance with this section; and

(5) Establish procedures to monitor

compliance with the conflict of interests

policy.

(b) Disclosure and recusal. (1) A

director shall promptly inform the board

of directors whenever he or she, or any

immediate family member, has any

financial interest in any matter before

the board. Directors also shall disclose

any financial interest in any

organizations or with any individuals

doing business with the Bank, other

than an interest relating to the member

at which the director serves. All

directors shall refrain from considering,

or voting on, any issue before the board

that could result in a conflict, selfdealing, or any other circumstances that

would result in a detriment to the Bank

or in a noncompetitive, favored, unfair

advantage either to the Bank or its

members.

(2) All directors promptly shall

provide to the full board of directors,

audit committee of the board of

directors, or to such other committee as

the board of directors may establish for

this purpose, any information relating to

conflicts or potential conflicts of

interests.

(3) Directors shall not disclose or use

confidential information received by

them solely by reason of their position

with the Bank to obtain a financial

interest for themselves or their

immediate family members or member

institutions of which they are an officer

or director.

(c) Gifts. Directors and their

immediate family members shall not

accept any substantial gift where the

recipient has reason to believe that the

gift is given in order to influence the

director’s actions as a member of the

Bank’s board of directors, or where

acceptance of such gift gives the

appearance of influencing the director’s

actions as a member of the board.

(d) Compensation. Directors shall not

accept compensation for services

performed for the Bank from any source

other than the Bank for whom the

services are performed.

(e) Definitions. For purposes of this

section:

(1) Immediate family member means

parent, sibling, spouse, child, or

dependent, or any other relative sharing

the same residence as the director.

(2) 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:

(i) Any contractual right to the

payment of money, whether contingent

or fixed;

(ii) Ownership or control of ten

percent or more of any class of equity

security, or any security, including

subordinated debt;

(iii) Employment in a policy making

position; or

(iv) Service as an officer, director,

partner, or as a trustee or in a similar

fiduciary capacity.

(3) Substantial Gifts includes:

(i) Gifts of more than token value;

(ii) Entertainment or hospitality, the

cost of which is in excess of what is

considered reasonable, customary, and

accepted business practices; or

(iii) Any other items or services for

which a director pays less than market

value.

17. Revise § 932.12 to read as follows:

§ 932.12 Reporting requirements for Bank

directors.

(a) Annual reporting. On or before

March 1 of each year, each director shall

submit to his or her Bank an executed

Form E–1 (for elective directors) or an

executed Form A–1 (for appointive

directors), as appropriate. (Form A–1 is

available pursuant to § 900.51 of this

chapter). The Bank shall promptly

forward a copy of each Form A–1 to the

Finance Board.

(b) Report of noncompliance. If an

elective or appointive director knows or

has reason to believe that he or she no

longer meets the eligibility requirements

set forth in the Act or this part, the
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director shall so inform the Bank in

writing within 30 calendar days of first

learning of the facts causing the loss of

eligibility. An appointive director also

shall inform the Finance Board at the

same time, and in the same manner, that

he or she informs the Bank.

18. Revise § 932.13 to read as follows:

§ 932.13 Ineligible Bank directors.

(a) Elective directors. Upon a

determination by the Finance Board or

a Bank that an elective director no

longer satisfies the eligibility

requirements set forth in the Act or this

part, or has failed to comply with the

reporting requirements of § 932.12, the

elective directorship shall immediately

become vacant. Any elective director

that is determined to have failed to

comply with the eligibility or reporting

requirements shall not continue to act as

a Bank director.

(b) Appointive directors. Except as

provided herein, upon a determination

by the Finance Board that an appointive

director no longer satisfies the eligibility

requirements set forth in the Act, or has

failed to comply with the reporting

requirements of § 932.12, the appointive

directorship shall immediately become

vacant. Notwithstanding the vacancy, an

appointive director may continue to

serve until a successor assumes the

directorship or the term of office

expires, whichever occurs first, and the

Finance Board, in its sole discretion,

may allow an appointive director up to

90 calendar days to comply with the

eligibility or reporting requirements.

19. Revise § 932.14 to read as follows:

§ 932.14 Vacant Bank directorships.

(a) Vacant elective directorships. (1)

As soon as practicable after a vacancy

occurs, a Bank shall fill the unexpired

term of office of a vacant elective

directorship by a majority vote of the

remaining Bank directors regardless of

whether the remaining Bank directors

constitute a quorum of the Bank’s board

of directors.

(2) An individual so selected to fill a

vacant elective directorship shall satisfy

all of the eligibility requirements for

elective directors set forth in the Act

and this part, and shall provide to the

Bank an executed Form E–1. The Bank

shall verify the individual’s eligibility in

accordance with § 932.7(a) before

allowing the individual to assume the

directorship, and shall retain the

information it receives in accordance

with § 932.6(c).

(3) Promptly after verifying the

individual’s eligibility under paragraph

(a)(2) of this section, a Bank shall notify

the Finance Board and each member

located in the Bank’s district in writing

of the following:

(i) The name of the new elective

director, the name and location of the

member (identified by docket number)

at which the new director serves, and

the new director’s title or position with

the member;

(ii) The voting state that the new

elective director represents; and

(iii) The expiration date of the new

elective director’s term of office.

(b) Vacant appointive directorships.

(1) As soon as practicable after a

vacancy occurs, the Finance Board shall

fill the unexpired term of office of a

vacant appointive directorship.

(2) Promptly after filling a vacant

appointive directorship, the Finance

Board shall notify the new appointive

director’s Bank in writing of the

following:

(i) The name of the new appointive

director, the name and location of the

organization with which the new

director is affiliated, if any, and the new

director’s title or position with such

organization; and

(ii) The expiration date of the new

appointive director’s term of office.

(2) Promptly after receiving the notice

required by paragraph (b)(2) of this

section, a Bank shall provide each of its

members with the information

described in paragraphs (b)(2)(i) and (ii)

of this section.

§§ 932.15 through 932.19 [Removed]

20. Remove §§ 932.15 through 932.19.

§ 932.20 [Redesignated as § 932.15]

21. Redesignate § 932.20 as § 932.15

and revise the second sentence and

table to read as follows:

§ 932.15 Minimum number of elective

directorships.

* * * The following list sets forth

the states whose members held more

than one (1) seat on December 31, 1960:

State

No. of elective directorships on

Dec. 31,

1960

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

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

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

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

Iowa .......................................... 2

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

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

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

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

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

Minnesota ................................. 2

Missouri ..................................... 2

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

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

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

State

No. of elective directorships on

Dec. 31,

1960

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

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

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

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

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

§§ 932.21 through 932.25 [Removed]

22. Remove §§ 932.21 through 932.25.

§ 932.26 [Redesignated as § 932.16]

23. Redesignate § 932.26 as § 932.16 of

subpart B.

§ 932.27 [Redesignated as § 932.17]

24. Redesignate § 932.27 as § 932.17 of

subpart B.

§§ 932.28 through 932.39 [Removed]

25. Remove §§ 932.28 through 932.39.

26. Designate §§ 932.18 and 932.19 as

subpart C and add a subpart heading to

read as follows:

Subpart C—Selection of Bank Officers

and Employees

§ 932.40 [Redesignated as § 932.18]

27. Redesignate § 932.40 as § 932.18 of

subpart C, remove paragraph (d), and

revise the section heading and

paragraph (a) introductory text to read

as follows:

§ 932.18 Selection of Bank officers and

employees.

(a) Bank presidents. The board of

directors of each Bank may appoint a

president, who shall be the chief

executive officer of the Bank, subject to

the following limitations:

* * * * *

§ 932.41 [Redesignated as § 932.19]

28. Redesignate § 932.41 as § 932.19 of

subpart C and revise the section heading

to read as follows:

§ 932.19 Compensation of Bank officers

and employees.

* * * * *

§§ 932.42 through 932.62 [Removed]

29. Remove §§ 932.42 through 932.62.

PART 933—MEMBERS OF THE BANKS

1. The authority citation for part 933

continues to read as follows:

Authority: 12 U.S.C. 1422, 1422a, 1422b,

1423, 1424, 1426, 1430, 1442.

2. Amend § 933.18 by revising

paragraph (e) to read as follows:

§ 933.18 Determination of appropriate

Bank district for membership.

* * * * *
26544 Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules

(e) Effect of transfer. A transfer of

membership pursuant to this section

shall be effective for all purposes, but

shall not affect voting rights in the year

of the transfer and shall not be subject

to the provisions on termination of

membership set forth in section 6 of the

Act or §§ 933.27, 933.28, and 933.30,

including the restriction on reacquiring

Bank membership set forth in § 933.31.

* * * * *

§ 933.24 [Amended]

3. Amend § 933.24 by removing

paragraph (b)(4).

§ 933.25 [Amended]

4. Amend § 933.25 by removing

paragraph (f).

§ 933.26 [Amended]

5. Amend § 933.26 by removing

paragraph (e).

§ 933.27 [Amended]

6. Amend § 933.27 by removing

paragraph (g).

§ 933.28 [Amended]

7. Amend § 933.28 by removing

paragraph (d).

PART 941—OPERATIONS OF THE

OFFICE OF FINANCE

1. The authority citation for part 941

continues to read as follows:

Authority: 12 U.S.C. 1422b, 1431.

2. Amend § 941.7 by revising

paragraph (f)(2) to read as follows:

§ 941.7 Office of Finance Board of

Directors.

* * * * *

(f) * * *

(2) Private Citizen member. The Office

of Finance shall pay compensation and

expenses to the Private Citizen member

of the OF board of directors in

accordance with the requirements for

payment of compensation and expenses

to Bank directors set forth in § 932.17 of

this chapter, except that, for these

purposes:

(i) The Office of Finance policy on

director compensation must be

approved by the board of directors of

the Finance Board;

(ii) Section 932.15(a)(3) and (c)(1)(ii)

of this chapter shall not apply; and

(iii) The terms ‘‘average compensation

per director’’ and ‘‘ACPD,’’ as used in

§ 932.15 of this chapter, shall be deemed

to mean ‘‘maximum compensation of

the Private Citizen member’’.

Note: The following Appendix will not

appear in the Code of Federal Regulations

Appendix A to Preamble—Director Eligibility

Certification Forms A–1 and E–1

BILLING CODE 6725–01–U
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26550 Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules
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26552 Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules
Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules 26553
26554 Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules
Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules 26555
26556 Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules
Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules 26557
26558 Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules
Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules 26559
26560 Federal Register / Vol. 63, No. 92 /Wednesday, May 13, 1998 / Proposed Rules

By the Board of Directors of the Federal

Housing Finance Board.

Dated: March 25, 1998.

Bruce A. Morrison,

Chairperson.

[FR Doc. 98–12651 Filed 5–12–98; 8:45 am]

BILLING CODE 6725–01–C