39872 Federal Register / Vol. 63, No. 142 / Friday, July 24, 1998 / Notices

1At December 31, 1997, consolidated obligations

outstanding exceeded $304 billion, and the amount

of consolidated obligations issued in 1997 exceeded

$2.1 trillion.

for reporting and drawing funds: 83.537,

Community Disaster Loans; 83.538, Cora

Brown Fund Program; 83.539, Crisis

Counseling; 83.540, Disaster Legal Services

Program; 83.541, Disaster Unemployment

Assistance (DUA); 83.542, Fire Suppression

Assistance; 83.543, Individual and Family

Grant (IFG) Program; 83.544, Public

Assistance Grants; 83.545, Disaster Housing

Program; 83.548, Hazard Mitigation Grant

Program)

Lacy E. Suiter,

Executive Associate Director, Response and

Recovery Directorate.

[FR Doc. 98–19823 Filed 7–23–98; 8:45 am]

BILLING CODE 6718–02–P

FEDERAL HOUSING FINANCE BOARD

[No. 98–27]

Statement of Policy: Disclosures in the

Combined Annual and Quarterly

Financial Reports of the Federal Home

Loan Bank System

AGENCY: Federal Housing Finance

Board.

ACTION: Final Policy Statement.

SUMMARY: The Board of Directors of the

Federal Housing Finance Board

(Finance Board) is adopting a statement

of policy entitled ‘‘Disclosures in the

Combined Annual and Quarterly

Financial Reports of the Federal Home

Loan Bank System.’’ The policy

statement will generally require that the

combined annual and quarterly

financial reports of the Federal Home

Loan Bank (FHLBank) System be

prepared in a manner that is consistent,

in the judgment of the Finance Board,

with the financial and other disclosure

requirements promulgated by the

Securities and Exchange Commission

(SEC).

EFFECTIVE DATE: August 24, 1998.

FOR FURTHER INFORMATION CONTACT:

Joseph A. McKenzie, Director, Financial

Analysis and Reporting Division, Office

of Policy, 202–408–2845, or Deborah F.

Silberman, General Counsel, Office of

General Counsel, 202–408–2570,

Federal Housing Finance Board, 1777 F

Street, NW, Washington, DC 20006.

SUPPLEMENTARY INFORMATION: The

FHLBank Act (12 U.S.C. 1431(c))

authorizes the Finance Board to issue

consolidated obligations (COs) that are

the joint-and-several obligations of the

FHLBanks. As issuer of the COs the

Finance Board has assumed the

responsibility of preparing combined

FHLBank System annual and quarterly

financial reports that are used in

conjunction with the issuance of the

COs.

Until now, the Finance Board has

established no formal policies as to the

scope and content of the information

presented in the FHLBank System

combined annual and quarterly

financial reports. Since the

establishment of the Finance Board in

1989, the combined annual report has

grown in length as the disclosures have

become more detailed and more

comprehensive. Current disclosure

practices represent an evolution of

generally accepted accounting

principles (GAAP) and industry

disclosure standards, and reflect a

consensus among Finance Board staff,

FHLBank staff, the independent outside

accountant for the combined financial

report, and outside bond counsel.

The scope, form, and content of the

combined FHLBank System annual and

quarterly financial reports closely

resemble reports issued by both

corporate securities issuers that are

required to register their securities with

the SEC under the Securities Exchange

Act of 1934, 15 U.S.C. 78a et seq., (1934

Act), and by other Government

Sponsored Enterprises (GSEs) that are,

like the FHLBank System, exempt from

such requirements.

The Finance Board is adopting this

final policy statement about financial

and other disclosures in the combined

annual and quarterly financial reports

for two reasons. First, the Finance Board

will address a significant policy matter

on how the FHLBanks provide

disclosures and raise debt in the capital

markets. The Finance Board believes

that, as one of the largest issuers of debt

securities in the U.S. capital markets, it

has an obligation to provide purchasers

of FHLBank System debt with adequate

and accurate financial disclosure that is

consistent with industry standards. One

of the statutory responsibilities of the

Finance Board is to ensure that the

FHLBanks remain able to raise funds in

the capital markets (see 12 U.S.C. 1422a

(a)(3)(b)(iii)).1 The Finance Board

believes that the rules promulgated by

the SEC pursuant to the Federal

securities laws represent ‘‘best

practice,’’ and that financial and other

disclosure concerning the FHLBank

System should conform to this standard

to the greatest extent practicable.

Second, the Finance Board believes

that adoption of the final policy

statement and final rule should address

Congressional concerns about FHLBank

System disclosure, as described in the

notice of the proposed policy statement,

63 FR 5381 at 5382 (Feb. 2, 1998).

The Finance Board published the

proposed policy statement for notice

and comment on February 2, 1998 (63

FR 5381, Feb. 2, 1998). In response to

this proposal and a related proposed

regulation on financial disclosures by

the FHLBanks, the Finance Board

received a total of six comments. Four

of the comments were from or on behalf

of FHLBanks, one comment was from a

trade association, and one comment was

from a public accounting firm. With

respect to the proposed policy

statement, the comments addressed the

following major issues: the method of

applying SEC reporting and disclosure

requirements; disclosures about

derivatives; Federal preemption of State

securities laws; and implementation

date.

Analysis of Comments Received

Method of Applying SEC Reporting and

Disclosure Requirements

The proposed policy statement

provided that the combined annual and

quarterly reports of the FHLBank

System would follow SEC requirements

with certain exceptions. Several

commenters urged that, instead of

enumerating exceptions, the Finance

Board specify the areas in which the

FHLBank System would follow the SEC

requirements in place at the time that

the policy statement was adopted. The

commenters expressed concern that the

Bank System would automatically be

subject to yet-unwritten SEC rules if the

policy statement were adopted in the

proposed form. The commenters

preferred the approach of formal

adoption by the Finance Board each

time the SEC changes its reporting and

disclosure rules.

The Finance Board is adopting the

procedure outlined in the proposed

policy statement without change. The

final policy statement enumerates areas

for which no disclosure or modified

disclosure will be made of information

that, in the judgment of the Finance

Board, would otherwise be required by

the SEC’s rules to be disclosed in a

particular way. This will make clear that

the Finance Board fully intends to

provide disclosure on an ongoing basis

that is consistent to the extent

practicable and in the judgment of the

Finance Board with the SEC’s reporting

and disclosure requirements, even if the

SEC changes its rules. In addition, the

Finance Board will not have to take

formal action each time the SEC

modifies its reporting and disclosure

requirements to render the Finance
Federal Register / Vol. 63, No. 142 / Friday, July 24, 1998 / Notices 39873

Board’s policies consistent with those of

the SEC.

The policy statement makes it clear

that consistency with the SEC’s

reporting and disclosure rules as they

affect the combined annual and

quarterly financial reports of the

FHLBank System will be determined

solely by the Finance Board.

Derivatives

In February 1997, the SEC amended

its rules by adding new disclosure and

reporting requirements about

derivatives. These requirements are

codified as Item 305(b) of Regulation

S–K (17 CFR 229.305) (Derivatives

Rule). In general, the Derivatives Rule

requires registrants to provide

qualitative information about their use

of derivatives, their strategies using

derivatives, and any limits the entity

places on derivatives. In addition, Item

305(a) of Regulation S–K requires

registrants to present certain

quantitative information about

derivatives. The Derivatives Rule gives

registrants a number of options on how

best to present this information. The

qualitative and quantitative information

about derivatives is not part of the

entity’s financial statements, and,

accordingly, the entity’s independent

outside accountant does not have to

attest to the statements made.

The proposed policy statement on

financial disclosure indicated that the

Finance Board would provide the

qualitative disclosures required by the

Derivatives Rule in the 1997 combined

FHLBank System annual financial

report, but would defer making the

quantitative disclosures until the 1998

combined FHLBank System annual

financial report.

Two commenters recommended

deferring the qualitative disclosures

until 1998 because of a concern that any

disclosures made in 1997 may not be

consistent with disclosures made when

the Finance Board fully implements the

rule in 1998. However, one of the

commenters recommended that the

Finance Board ‘‘consider enhancing the

section 305-affected disclosures [that

appeared in the 1996 annual financial

report] only where they are not

dependent on the yet to be determined

quantitative disclosures.’’

The Finance Board has expanded the

discussion of risk management that

appeared in the 1996 combined annual

financial report, and this expanded

discussion appears in the 1997

combined annual financial report. The

Finance Board believes that this

expanded discussion meets all the

qualitative derivative disclosure

requirements by the Derivatives Rule,

but the disclosure is in no way

dependent on the prospective

quantitative disclosures.

Federal Preemption

A number of commenters

recommended that the Finance Board

state explicitly in both the policy

statement and the regulation that the

FHLBank Act and any regulations

promulgated by the Finance Board

thereunder occupy the field and

preempt State law in matters related to

the issuance of CO’s. These commenters

expressed concern that the Finance

Board should explicitly express its

intention to exercise its preemptive

authority over State law so that the

Finance Board and the FHLBanks may

limit their liability and avoid attempts

by States to impose their laws or

regulations on the Finance Board’s

issuance of COs.

The Finance Board believes that such

statements are unnecessary and

inappropriate for the purposes of the

policy statement and the regulation, and

therefore has not included such a

statement in either the policy statement

or the regulation.

Implementation Date. Two

commenters recommended deferring all

derivatives disclosures until the 1998

combined FHLBank System annual

financial report. Two other commenters

recommended deferring the effective

date of the policy statement to the end

of 1999.

Disclosure Standards

In light of the comments received and

based on further analysis, the Finance

Board is adopting the policy statement

with several changes that are addressed

below. These changes do two things.

First, the changes clarify that

consistency with the SEC’s reporting

and disclosure rules as they affect the

combined annual and quarterly

financial reports of the FHLBank System

will be determined solely by the

Finance Board. Second, the final policy

statement enumerates a number of

additional areas that the Finance Board

will carve out from disclosure in the

combined FHLBank System reports

because, in its judgment, the Finance

Board believes such disclosure is either

inapplicable or inappropriate for the

FHLBank System.

The Finance Board believes that the

combined FHLBank System annual and

quarterly financial reports are generally

consistent with SEC disclosure

requirements, with several exceptions.

The final policy statement requires, as a

general matter, that the combined

FHLBank System annual and quarterly

financial reports be prepared in a

manner that is consistent, in the

judgment of the Finance Board, with the

SEC’s regulations to the greatest extent

practicable, with certain noted

exceptions.

The Finance Board intends to comply

with Statement of Financial Accounting

Standards No. 131, ‘‘Disclosures about

Segments of an Enterprise and Related

Information’’ (FASB 131). For purposes

of FASB 131, the Finance Board

considers each FHLBank to be a

segment. In complying with FASB 131,

the Finance Board will provide

combining schedules for the statement

of condition and the statement of

income in the quarterly combined

financial report of the FHLBank System.

The Finance Board already provides

these combining schedules in the

annual combined financial report.

Exceptions to Following SEC Rules

Derivatives

On February 10, 1997, the SEC

published the Derivatives Rule. It

applies to all filings made with the SEC

after June 15, 1997, and encompasses all

types of derivatives—commodity,

currency, equity, and financial. The

Finance Board believes that the only

facet of the FHLBanks’ operations that

meets the threshold test for disclosure

in the Derivatives Rule is the interestrate risk associated with financial

derivatives.

The Derivatives Rule presents only

one issue unique to the FHLBank

System. The System combined financial

report rolls up the financial information

of 12 independent portfolios and

eliminates all material transactions

among the FHLBanks. Many complex

financial organizations fall within the

scope of the rule, but these complex

organizations ultimately report to a

single board of directors. The FHLBanks

report to 12 separate boards of directors,

and each has differing investment

strategies, yet each FHLBank is jointly

and severally liable for the consolidated

obligations of the FHLBank System

issued by the Finance Board.

Information for the System’s

quantitative disclosures would come

from simulation of interest-rate shocks

in the asset-liability management

models of the FHLBanks. The FHLBanks

use different modeling software and

assumptions. Any analysis should first

ensure some uniformity of assumptions

and methodology to make sure the

results will be meaningful and

comparable. Furthermore, there are

conceptual difficulties in how the

Finance Board could combine the

results of these 12 sets of simulations to

present a System derivatives disclosure.
39874 Federal Register / Vol. 63, No. 142 / Friday, July 24, 1998 / Notices

It may not be possible to present a

combined quantitative derivatives

disclosure, and the Finance Board

instead may present separate

quantitative derivatives disclosures in

1998 for each of the FHLBanks.

In light of these complexities, the

Finance Board is making the qualitative

disclosures about derivatives in the

1997 combined financial report, but will

make the quantitative disclosures in the

1998 combined annual financial report.

Finance Board staff will work with

FHLBanks’ staff in developing a

methodology for arriving at a common

set of assumptions for the quantitative

analysis that would appear in the 1998

combined financial report.

Related-Party Transactions

SEC regulations require the disclosure

of any transaction greater than $60,000

between a director and a related party.

Due to the cooperative nature of the

FHLBank System, it is expected that the

FHLBanks will have business dealings

with members whose officers also serve

as directors of the FHLBank. It would be

unwieldy to present full disclosures of

all credit relationships between the

FHLBanks and the members their

directors represent in the combined

annual report. However, the Finance

Board is including in the combined

annual report an aggregate disclosure

about the percentage of advances to

members whose officers serve as

directors of an FHLBank. In addition,

the Finance Board is including a

disclosure in the annual financial report

that shows the 10 largest advance

borrowers in the FHLBank System and

the 5 largest advance borrowers by

FHLBank along with indicating which

of these members had an officer that

also served as an FHLBank director.

Information about Directors and

Officers

The SEC’s regulations require

disclosure of a wide variety of

information about all directors and

executive officers of the registrant. The

required information includes name,

age, current and previous positions with

the registrant, terms of office, family

relationships with the registrant,

business experience, and other

directorships. The Finance Board

believes that presenting biographical

information on all FHLBank directors

and all FHLBank executive officers in

the combined annual report would be

unwieldy and not particularly

enlightening. The FHLBanks may wish

to consider making this disclosure in

their individual annual reports. The

Finance Board has expanded the

biographical information about

members of the Board of Directors of the

Finance Board and FHLBank presidents

by including the age of those persons. In

addition, the Finance Board is providing

similar biographical information about

the managing director of the Office of

Finance and the chairs and vice chairs

of the FHLBanks.

Submission of Matters to a Vote of

Stockholders

The SEC’s regulations require

registrants to provide certain

information about matters submitted to

stockholders for a vote. The only item

that FHLBank stockholders vote upon is

the annual election of directors. For two

reasons, the Finance Board has

determined to exclude election-ofdirector information from the combined

annual financial statements. First,

matters concerning election of directors

can be handled more expeditiously and

efficiently by separate mailings to an

FHLBank’s stockholders as a part of the

election process. The combined

financial report is primarily a disclosure

document for bond holders. Second,

election of directors occurs in the fall,

but the annual combined financial

report is published in late spring,

making it impossible to provide timely

information about the election of

directors in the combined annual report.

Compensation

Item 402 of the SEC’s Regulation S-K

(17 CFR 229.402) sets forth the

requirements for disclosure of

compensation for the chief executive

officer and the four next most highly

compensated executive officers other

than the chief executive officer. The

policy statement will require disclosure

of compensation information only for

the presidents of the 12 FHLBanks and

the managing director of the Office of

Finance.

Exhibits

The policy statement will not require

the FHLBanks to file the exhibits

specified to be filed with the SEC by the

SEC’s regulations.

Per Share Information

The SEC has a number of

requirements that certain financial

information be presented on a per-share

basis. Per share disclosure is not

meaningful or appropriate for the

FHLBank System, because stock in the

FHLBanks is not publicly traded and is

based on statutory requirements. The

amount of shares expands and contracts

as member assets or advances change.

Furthermore, members purchase

FHLBank stock at par and can redeem

it at par.

Ownership of Capital Stock

Item 403 of the SEC’s Regulation S-K

(17 CFR 229.403) requires certain

disclosures about the beneficial

ownership of capital stock. The policy

statement requires, and the annual

FHLBank System 1997 combined

financial report will provide instead, a

listing of the top 10 holders of capital

stock in the FHLBank System and a

listing of the top 5 holders of capital

stock by FHLBank. These listings will

identify all those members and officer of

which serves and an FHLBank director.

Dates

SEC registrants are required to file

their annual reports within 90 days from

the end of their fiscal year, and

quarterly reports are to be filed within

45 days from the end of a fiscal quarter.

Since the Finance Board cannot begin

preparing the combined financial

reports until the FHLBanks finish their

annual and quarterly reports, the time

frames for the publication of the

combined annual and quarterly reports

need to be adjusted accordingly. It is

Finance Board’s intention generally to

make the annual report available by

June 30, and to make the quarterly

reports available within 90 days of the

end of a quarter.

Distribution

While the SEC rules apply to entities

with publicly traded stock, the stock in

the FHLBanks is not publicly traded,

and minimum capital stock holdings are

set in statute. Furthermore, only

members of an FHLBank may own stock

in that FHLBank. Members purchase

stock at its par value, and voluntary

members may redeem stock at its par

value. Nevertheless, the Finance Board

believes that disclosure to the

stockholders of an FHLBank is as

important as disclosure to the

purchasers of FHLBank debt. Therefore,

the Finance Board will distribute a copy

of the annual and quarterly combined

financial reports to each FHLBank

member.

The text of the proposed policy

follows:

Federal Housing Finance Board—

Statement of Policy

Disclosures in the Combined Annual

and Quarterly Financial Reports of the

Federal Home Loan Bank System

1. Policy Objective

The Federal Housing Finance Board

(Finance Board) policy on Disclosures

in the Combined Annual and Quarterly

Financial Reports of the Federal Home

Loan Bank System provides that

purchasers of Federal Home Loan Bank
Federal Register / Vol. 63, No. 142 / Friday, July 24, 1998 / Notices 39875

(FHLBank) System consolidated

obligations receive information

consistent, in the judgment of the

Finance Board and to the extent

practicable, with disclosures required to

be made by Securities and Exchange

Commission (SEC) registrants. The

Finance Board has the explicit statutory

responsibility to ensure that the

FHLBanks are able to raise funds in the

capital markets, and assuring that it is

providing industry-standard disclosures

facilitates the issuance of this debt.

2. General Policy

It is the policy of the Finance Board

that in preparing the combined

FHLBank System annual and quarterly

financial reports the Finance Board will

maintain consistency to the extent

practicable with the requirements of the

SEC’s Regulations S-K and S-X (see 17

CFR Parts 229 and 210). With respect to

the combined FHLBank System annual

and quarterly reports, consistency with

the SEC’s regulations will be

determined solely by the Finance Board.

The Finance Board will comply with

Statement of Financial Accounting

Standards No. 131, ‘‘Disclosures about

Segments of an Enterprise and Related

Information’’ (FASB 131). It will include

in the quarterly combined financial

report the combining schedules required

by FASB 131.

3. Exceptions to the General Policy

a. Derivatives. Item 305, Regulation SK, 17 CFR 229.305, requires certain

registrants to present information about

their derivatives holdings and activities.

The requirement includes a discussion

of accounting policy for derivatives, a

qualitative discussion about derivatives

by management, and an analysis that

presents quantitative information about

derivatives. The presentation of the

quantitative information will be

deferred until the 1998 combined

annual report of the FHLBank System.

b. Related-Party Transactions. Item

404 of Regulation S-K, 17 CFR 229.404,

requires the disclosure of certain

relationships and related party

transactions. In light of the cooperative

nature of the FHLBank System, relatedparty transactions are to be expected,

and a disclosure of all related-party

transactions that meet the threshold

would not be meaningful. Instead, the

combined annual report will provide

disclosures on (1) the percent of

advances to members an officer of

which serves and an FHLBank director,

and (2) a listing of the top 10 holders of

advances in the FHLBank System and

the top 5 holders of advances by

FHLBank, with a further disclosure that

indicates which of these members had

an officer that served as an FHLBank.

c. Biographical Information. The

biographical information required by

Items 401 and 405 of Regulation S-K, 17

CFR 229.401, 229.405, will be provided

only for the members of the Board of

Directors of the Finance Board,

FHLBank presidents, the managing

director of the Office of Finance, and

FHLBank chairs and vice chairs.

d. Compensation. The information on

compensation required by Item 402 of

Regulation S-K, 17 CFR 229.402, will be

provided only for members of the

FHLBank presidents and the managing

director of the Office of Finance. Since

stock in each FHLBank trades at par, the

Finance Board will not include the

performance graph specified in Item

402(l) of Regulation S-K, 17 CFR

229.402(l).

e. Submission of Matters to a Vote of

Stockholders. No information will be

presented on matters submitted to

shareholders for a vote, as otherwise

required by Item 4 of the SEC’s form 10-

K, 17 CFR 249.310. The only item

shareholders vote upon is the annual

election directors.

f. Exhibits. The exhibits required by

Item 601 of Regulation S-K, 17 CFR

229.601, are not applicable and will not

be provided.

g. Per Share Information. The

statement of financial information as

required by Items 301 and 302 of Rule

S-K , 17 CFR 229.301 and 302, is

inapplicable because the shares of the

FHLBanks are subscription capital that

trades at par, and the shares expand or

contract with changes in member assets

or advance levels.

h. Beneficial Ownership. Item 403 of

Rule S-K, 17 CFR 229.403, requires the

disclosure of security ownership of

certain beneficial owners and

management. The combined financial

report will provide a listing of the 10

largest holders of capital stock and a

listing of the 5 largest holders of capital

stock by FHLBank. This listing will also

indicate which members had an officer

that served as a director of an FHLBank.

i. Dates. The Finance Board generally

intends to make the annual combined

financial report available within 180

days from the end of the previous year.

It plans to make quarterly reports

available 90 days from the end of the

previous quarter.

4. Distribution

The Finance Board will distribute a

copy of the annual and quarterly

combined financial reports to each

FHLBank member.

Dated: June 24, 1998.

By the Board of Directors of the Federal

Housing Finance Board.

Bruce A. Morrison,

Chairperson.

[FR Doc. 98–19809 Filed 7–23–98; 8:45 am]

BILLING CODE 6725–01–P

FEDERAL RESERVE SYSTEM

Change in Bank Control Notices;

Acquisitions of Shares of Banks or

Bank Holding Companies; Correction

This notice corrects a notice (FR Doc.

98-19292) published on page 38836 of

the issue for Monday, July 20, 1998.

Under the Federal Reserve Bank of

Chicago heading, the entry for State

Financial Services Corporation, Hales

Corners, Wisconsin, is revised to read as

follows:

A. Federal Reserve Bank of Chicago

(Philip Jackson, Applications Officer)

230 South LaSalle Street, Chicago,

Illinois 60690-1413:

1. State Financial Services

Corporation, Hales Corners, Wisconsin;

to acquire Home Bancorp of Elgin, Inc.,

Elgin, Illinois, a savings and loan

holding company, and indirectly

acquire Home Federal Savings and Loan

Association of Elgin, Elgin, Illinois,

pursuant to § 225.28 (b)(4)(ii) of

Regulation Y.

Comments on this application must

be received by August 13, 1998.

Board of Governors of the Federal Reserve

System, July 20, 1998.

Robert deV. Frierson,

Associate Secretary of the Board.

[FR Doc. 98–19709 Filed 7–23–98; 8:45 am]

BILLING CODE 6210–01–F

FEDERAL RESERVE SYSTEM

Change in Bank Control Notices;

Acquisitions of Shares of Banks or

Bank Holding Companies

The notificants listed below have

applied under the Change in Bank

Control Act (12 U.S.C. 1817(j)) and §

225.41 of the Board’s Regulation Y (12

CFR 225.41) to acquire a bank or bank

holding company. The factors that are

considered in acting on the notices are

set forth in paragraph 7 of the Act (12

U.S.C. 1817(j)(7)).

The notices are available for

immediate inspection at the Federal

Reserve Bank indicated. The notices

also will be available for inspection at

the offices of the Board of Governors.

Interested persons may express their

views in writing to the Reserve Bank

indicated for that notice or to the offices

of the Board of Governors. Comments