Source: https://www.federalregister.gov/documents/2014/10/08/2014-23799/federal-home-loan-bank-capital-stock-and-capital-plans
Timestamp: 2018-02-24 05:17:46
Document Index: 205566041

Matched Legal Cases: ['arts 931', 'art 1277', 'ART 933', 'arts 931', 'art 1277', 'art 931', 'art 933', 'art 1277', 'arts 931', 'art 1277', 'art 931', 'art 1277', '§\u2009931', '§\u2009931', '§\u20091263', '§\u20091277', '§\u20091277', 'art 933', 'art 1277', '§\u2009933', '§\u2009933', 'art 933', 'art 1277', '§\u2009931', '§\u2009933', '§\u20091277', '§\u20091277', '§\u20091277', 'art 933', '§\u20091277', '§\u2009933', 'arts 931', 'art 1277', 'art 931', 'art 933', 'art 1277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091261', '§\u20091277', '§\u20091277', '§\u20091277', '§\u20091277', 'arts 931', 'art 932', 'art 1277', '§\u20091277', '§\u20091277']

Federal Register :: Federal Home Loan Bank Capital Stock and Capital Plans
A Proposed Rule by the Federal Housing Finance Board and the Federal Housing Finance Agency on 10/08/2014
79 FR 60783
60783-60789 (7 pages)
2590-AA71
B. Creation of the Federal Housing Finance Agency
C. Bank Capital Stock and Capital Plans
12 CFR Parts 931 and 933
12 CFR Part 1277
PART 933—[REMOVED]
https://www.federalregister.gov/d/2014-23799 https://www.federalregister.gov/d/2014-23799
The proposed rule would transfer existing parts 931 and 933 of the Federal Housing Finance Board (Finance Board) regulations, which address requirements for Federal Home Loan Bank (Bank) capital stock and capital plans, to new Part 1277 of the Federal Housing Finance Agency (FHFA) regulations. The proposed rule would not make any substantive changes to these requirements, but would delete certain provisions that applied only to the one-time conversion of Bank stock to the new capital structure required by the Gramm-Leach-Bliley Act (GLB Act). It would also make certain clarifying changes so that the rules would more precisely reflect long-standing practices and requirements with regard to transactions in Bank stock. Most significantly, the proposed rule would add appropriate references to “former members” to clarify when former Bank members can be required to maintain investment in Bank capital stock after withdrawal from the Bank.
You may submit your comments on the proposed rule, identified by regulatory information number (RIN) 2590-AA71 by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. If you submit your comments to the Federal eRulemaking Portal, please also send it by email to FHFA at RegComments@FHFA.gov to ensure timely receipt by the agency. Please include “RIN 2590-AA71” in the subject line of the message.
Hand Delivery/Courier: The hand delivery address is: Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA71, Federal Housing Finance Agency, Constitution Center, (OGC) Eighth Floor, 400 Seventh Street SW., Washington, DC 20024. The package should be delivered to the Seventh Street entrance Guard Desk, First Floor, on business days between 9 a.m. and 5 p.m.
U.S. Mail, United Parcel Service, Federal Express, or Other Mail Service: The mailing address for comments is: Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA71, Federal Housing Finance Agency, Constitution Center, (OGC) Eighth Floor, 400 Seventh Street SW., Washington, DC 20024.
Julie Paller, Senior Financial Analyst, Julie.Paller@FHFA.gov, 202-649-3201 (this is not a toll-free number), Division of Federal Home Loan Bank Regulation; or Thomas E. Joseph, Associate General Counsel, Thomas.Joseph@FHFA.gov, 202-649-3076 (this is not a toll-free number), Office of General Counsel (OGC), Federal Housing Finance Agency, Constitution Center, 400 Seventh Street SW., Washington, DC 20024. The telephone number for the Telecommunications Device for the Hearing Impaired is 800-877-8339.
Section 553 of the Administrative Procedure Act generally requires an Start Printed Page 60784agency to publish a proposed rule in the Federal Register and provide the public an opportunity to comment on it.[1] Such notice and public comment, however, may be dispensed with if they are unnecessary.[2] In this case, FHFA believes that notice and comment would be unnecessary because the proposed rule would transfer existing regulation without substantive change, deleting provisions that clearly have no continuing applicability. Nonetheless, FHFA desires the benefit of public comment and has therefore decided to publish this proposed rule with a 60-day comment period and invites comments on all aspects of the proposal. After considering the comments, FHFA will develop a final regulation.
Copies of all comments received by the deadline will be posted without change on the FHFA Web site at http://www.fhfa.gov, and will include any personal information you provide, such as your name, address, email address and telephone number. Copies of all comments timely received will be available for public inspection and copying on government-business days between the hours of 10 a.m. and 3 p.m. at the Federal Housing Finance Agency, Constitution Center, 400 7th Street SW., Washington, DC 20024. To make an appointment to inspect comments please call the Office of General Counsel at (202) 649-3804.
Effective July 30, 2008, the Housing and Economic Recovery Act of 2008 (HERA) [3] created FHFA as a new independent agency of the Federal Government, and transferred to FHFA the supervisory and oversight responsibilities of the Office of Federal Housing Enterprise Oversight (OFHEO) over the Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation (collectively, the Enterprises), the oversight responsibilities of the Finance Board over the Banks and the Office of Finance (OF) (which acts as the Banks' fiscal agent) and certain functions of the Department of Housing and Urban Development.[4] Under the legislation, the Enterprises, the Banks, and the OF continue to operate under regulations promulgated by OFHEO and the Finance Board until such regulations are superseded by regulations issued by FHFA.[5] While FHFA has amended and/or re-adopted and transferred most of the former Finance Board regulations, certain Finance Board regulations, including those which address Bank capital, have not yet been transferred by FHFA, although they continue to apply to the Banks.
The twelve Banks are instrumentalities of the United States organized under the Federal Home Loan Bank Act (Bank Act).[6] The Banks are cooperatives; only members of a Bank may purchase the capital stock of a Bank, and only members or certain eligible housing associates (such as state housing finance agencies) may obtain access to secured loans, known as advances, or other products provided by a Bank.[7] Each Bank is managed by its own board of directors and serves the public interest by enhancing the availability of residential mortgage and community lending credit through its member institutions.[8]
In 1999, the GLB Act [9] amended the Bank Act to replace the capital structure of the Bank Systems. Under the GLB Act, the Banks became subject to risk-based and leverage capital requirements similar to those applicable to depository institutions and other housing GSEs. The GLB Act also directed the Finance Board to adopt regulations prescribing uniform capital standards applicable to each Bank. It also required the Banks to replace their existing capital stock with new classes of capital stock that would have different terms from the stock then-held by Bank System members. Specifically, the GLB Act authorized the Banks to issue new Class A stock, which the GLB Act defined as redeemable six months after filing of a notice by a member, and Class B stock, defined as redeemable five years after filing of a notice by a member. The GLB Act allowed Banks to issue Class A and Class B stock in any combination and to establish terms and preferences for each class or subclass of stock issued, consistent with Finance Board regulations and the Bank Act.[10]
As part of the process for converting the “old” capital stock to the new GLB Act Class A and Class B stock, the GLB Act required each Bank to adopt and maintain a capital plan that established the rights, terms and preferences of each class or subclass of capital stock that it would issue.[11] The GLB Act also required that each Bank's capital plan establish the minimum investment in capital stock required for its members to maintain membership and to conduct business with the Bank. Such minimum investment requirements needed to be sufficient for the Bank to meet its new minimum regulatory capital requirements. The GLB Act provided each Bank's board of directors the discretion to develop and implement a capital plan that it determined was best suited for the conditions and operations of the Bank and the interests of the Bank's members.[12] It also required Finance Board approval of each Bank's capital plan prior to it taking effect.
Under the Finance Board regulations, each Bank had discretion as to when it would convert to the new capital structure. The Finance Board regulations also addressed in detail the process for the one-time conversion to the new capital structure, including requirements for disclosure to be given to members prior to the conversion. Since the Finance Board originally adopted these regulations in 2001, all Banks have converted to the GLB Act capital structure. The original Finance Board regulations have not yet been amended, however, to remove provisions that applied only to the initial conversion process.[13]
When promulgating regulations relating to the Banks, section 1313(f) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (Safety and Soundness Act) requires the Director of FHFA (Director) to consider the differences between the Banks and the Enterprises with respect to the Banks' cooperative ownership structure; mission of providing liquidity to members; affordable housing and community development mission; capital structure; and joint and several liability.[14] This requirement does not apply to regulations of the Finance Board that the Director reissues. The changes proposed in this rulemaking are clarifying and conforming in nature and apply exclusively to the Banks. Apart from those changes, the substance of the Start Printed Page 60785proposed rule is the same as that of the existing Finance Board regulations. Accordingly, the proposed rule does not trigger this statutory requirement. Nonetheless, FHFA, in preparing this proposed rule, considered the differences between the Banks and the Enterprises as they relate to the above factors. FHFA requests comments from the public about whether these differences should result in any revisions to the proposed rule.
The proposed rule would transfer the Finance Board Bank capital stock regulations from 12 CFR part 931 and the Bank capital plan regulations from 12 CFR part 933 to subparts C and D of new part 1277 of FHFA regulations, respectively. Relevant definitions for parts 931 and 933 would be transferred to subpart A of new part 1277.[15] As part of this transfer, FHFA also proposes to make certain non-substantive, clarifying and conforming changes to these provisions and to remove requirements which applied only to the Banks' initial conversion to the GLB Act capital structure.
Definitions. FHFA proposes to replace definitions for “regulatory risk-based capital requirement” and “regulatory total capital requirement” with a new single definition for “regulatory capital requirements.” The proposed rule would define this new term as the minimum amounts of permanent and total capital that a Bank is required to maintain under section 6(a) of the Bank Act (12 U.S.C. 1426(a)) and any related regulations, as such requirements may be modified by the Director, or any similar requirement established for a Bank by regulation, order, written agreement or other action. FHFA would replace various references to “minimum capital requirement” or “capital requirement” with a reference to “regulatory capital requirements” in the text of the transferred regulations.
FHFA also proposes to define the term “former member” as an institution whose membership in a Bank has been terminated, but which continues to hold stock in the Bank as required by the Bank's capital plan, and includes any successor to such institution that continues to hold the Bank's stock that had been issued to the acquired institution. As discussed more fully below, FHFA proposes to add various references to “former member” in the regulatory text to clarify that under the Bank Act and existing regulations, such institutions can be required to hold Bank stock in certain situations after termination of their Bank membership.
Capital Stock Provisions. FHFA proposes to transfer current 12 CFR part 931 to new subpart C of part 1277. Most of these provisions will be transferred without change, beyond necessary conforming changes. FHFA, however, proposes to delete current § 931.9 which addresses various transition requirements related to the Banks' conversion to the GLB Act capital structure. Given that all Banks have successfully completed this process, § 931.9 has no future applicability and can be removed.
As already noted, FHFA also proposes to clarify in various provisions that former members can be required to hold Bank stock, or otherwise engage in stock transactions, after withdrawal. For example, an institution is not required upon withdrawal to pay off all outstanding advances or other activity, but instead, a Bank can allow such institution to liquidate such indebtedness in an orderly manner. See 12 U.S.C. 1426(d)(3). Under current rules, such institution must retain sufficient stock to fulfill any stock purchase requirement established by the Bank's capital plan related to the outstanding activity. See 12 CFR § 1263.29(b). Some, but not all, Banks' capital plans also may require former members to buy additional Bank stock if a Bank increases the relevant activity stock purchase requirement during the orderly liquidation period.[16]
In other situations, a Bank may not be required to purchase a former member's stock upon withdrawal because the relevant redemption periods have not been completed on such date.[17] A Bank also may be prohibited by regulation or FHFA order from redeeming a former member's stock upon its withdrawal, so that the institution must continue to hold the stock beyond the date that membership terminates.[18]
To account for such situations, FHFA proposes to add relevant references to former members in a number of provisions, including proposed §§ 1277.21, 1277.22, 1277.25, 1277.26, and 1277.28(d)(4). Because FHFA generally has continued the Finance Board's approach and interpreted references to “member” in these regulations to include a former member, when appropriate, FHFA views these changes as clarifying in nature.[19]
FHFA also proposes to add clarifying language to § 1277.23. The new language provides that any provision in a Bank's capital plan related to stockholder rights in a liquidation, merger or consolidation of the Bank cannot limit FHFA's authority under the Bank Act or the Safety and Soundness Act to issue a regulation or order or to take any other action that may affect or otherwise alter the rights or privileges of stock holders in these situations. FHFA believes that the proposed language is consistent to wording that already has been incorporated into each Bank's approved capital plan and therefore will not alter the scope of current approved capital plan provisions that address the Bank's liquidation, merger or consolidation.
Capital Plan Requirements. FHFA proposes to transfer relevant provisions in current part 933 to subpart D of new part 1277. As part of this process, it proposes to remove those provisions that relate only to the Banks' initial conversion to the GLB Act capital structure, given that the provisions have no continuing applicability. The provisions FHFA proposes to delete include, provisions in current § 933.1 that relate only to the initial submission of capital plans by the Banks for approval, and §§ 933.2(d), (e) and (h), 933.3, 933.4, and 933.5. Other provisions in part 933 will be carried over to subpart D of part 1277 with necessary conforming changes.
FHFA also proposes not to reissue duplicative provisions related to the calculation and application of a member's, or former member's, minimum investment requirements. These requirements are now contained in both § 931.3 of the rules, which sets forth requirements for the minimum stock investment, and § 933.2(a), which sets forth the requirements for a Bank's capital plan related to the minimum Start Printed Page 60786investment. Instead, the proposed rule would provide that a Bank's capital plan should specify the manner for calculating the minimum investment and require a member, and if applicable a former member, to purchase and maintain such investment in accordance with proposed § 1277.22. The change would incorporate by reference the requirements governing the calculation and maintenance of the minimum investment set forth in proposed § 1277.22 and, thus, would not alter the current capital plan requirements in any substantive manner.
FHFA also proposes to add to subpart D new § 1277.29 to address amendments to approved Bank capital plans. The current part 933 rules do not specifically address the process for submitting capital plan amendments for FHFA approval, although the Bank Act allows Banks to amend their capital plans with such approval.[20] FHFA proposes to incorporate in this new section requirements that reflect the process that long has been applied to the submission and approval of Bank capital plan amendments, including applicable Finance Board guidance, first provided to the Banks in 2003, on information that a Bank should submit with any approval request. FHFA also proposes to carry over in proposed § 1277.29(c), current language from § 933.1(c) that would allow the Director to approve an amendment to a capital plan subject to specific conditions.
The information collection, entitled “Capital Requirements for the Federal Home Loan Banks,” contained in the current 12 CFR parts 931 and 933 of the regulations that would be transferred to 12 CFR part 1277 by this proposed rule, has been assigned control number 2590-0002 by the Office of Management and Budget (OMB). The proposed rule if adopted as a final rule would not substantively or materially modify the current, approved information collection.
The proposed rule applies only to the Banks, which do not come within the meaning of small entities as defined in the Regulatory Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance with section 605(b) of the RFA, FHFA certifies that this proposed rule, if adopted as a final rule, would not have significant economic impact on a substantial number of small entities.
Accordingly, for reasons stated in the Preamble and under the authority of 12 U.S.C. 1426, 1436, 1440, 1443, 1446, 4511, 4513, 4526, FHFA proposes to amend subchapter E of chapter IX and subchapter D of chapter XII of title 12 of the Code of Federal Regulations as follows:
1. Remove part 931.
2. Remove part 933.
3. Add part 1277 to subchapter D to read as follows:
Subpart B—[Reserved] Subpart C—Bank Capital Stock
Liquidation, merger, or consolidation.
Bank capital plans.
Amendments to a Bank's capital plan.
§ 1277.1
Class A stock means capital stock issued by a Bank, including subclasses, that has the characteristics specified by § 1277.20(a) of this part.
Class B stock means capital stock issued by a Bank, including subclasses, that has the characteristics specified by § 1277.20(b) of this part.
Minimum investment means the minimum amount of stock that an institution is required to own in order to be a member of a Bank and in order to obtain advances and to engage in other business activities with the Bank in accordance with § 1277.22 of this part.
Start Printed Page 60787
§ 1277.20
(4) Confer an ownership interest in the retained earnings, surplus, undivided profits, and equity reserves of the Bank; and
§ 1277.21
A Bank may issue either one or both classes of its capital stock (including subclasses), as authorized by § 1277.20, and shall not issue any other class of capital stock. A Bank shall issue its stock only to its members, or to former members to the extent those institutions are required to maintain a minimum stock investment for existing activities under the capital plan, and only in book-entry form. The Bank shall act as its own transfer agent. All capital stock shall be issued in accordance with the Bank's capital plan.
§ 1277.22
§ 1277.23
§ 1277.24
The respective rights of the Class A and Class B stockholders, in the event that the Bank is liquidated, or is merged or otherwise consolidated with another Bank, shall be determined in accordance with the capital plan of the Bank, provided, however, that nothing in the capital plan shall be construed to limit any rights or authority granted FHFA under the Bank Act or the Safety and Soundness Act to issue any regulation or order or to take any other action that may affect or otherwise alter the rights or privileges of stock holders in a liquidation, merger or consolidation of a Bank.
§ 1277.25
§ 1277.26
(a) Redemption. (1) A member or former member may have its stock in a Bank redeemed by providing written notice to the Bank in accordance with this section. A member or former member shall provide six-months written notice for Class A stock and five-years written notice for Class B stock. The notice shall indicate the number of shares of Bank stock that are to be redeemed. No more than one notice of redemption may be outstanding at one time for the same shares of Bank stock. At the expiration of the applicable notice period, the Bank shall pay to the member or other institution holding the stock the stated par value of that stock in cash.Start Printed Page 60788
(c) Limitation. In no event may a Bank redeem or repurchase any stock if, following the redemption or repurchase, the Bank would fail to meet its regulatory capital requirements, or if the member or former member would fail to maintain its minimum investment in the stock of the Bank, as required by § 1277.22 of this part.
§ 1277.27
§ 1277.28
(a) Minimum investment. (1) The capital plan shall require each member, and if applicable each former member, to purchase and maintain a minimum investment in the capital stock of the Bank and prescribe the manner for calculating the minimum investment, in accordance with § 1277.22 of this part.
(b) Classes of capital stock. The capital plan shall specify the class or classes of stock (including subclasses, if any) that the Bank will issue, and shall establish the par value, rights, terms, and preferences associated with each class (or subclass) of stock. A Bank may establish preferences relating to, but not limited to, the dividend, voting, or liquidation rights for each class or subclass of Bank stock. Any voting preferences established by the Bank pursuant to § 1261.6 of this chapter shall expressly state the voting rights of each class of stock with regard to the election of Bank directors. The capital plan shall provide that the owners of the Class B stock own the retained earnings, surplus, undivided profits, and equity reserves of the Bank, but shall have no right to receive any portion of those items, except through declaration of a dividend or capital distribution approved by the board of directors or through the liquidation of the Bank.
(1) Shall provide that the Bank may not issue stock other than in accordance with § 1277.21 of this part;
(3) Shall specify whether the stock of the Bank may be transferred, as allowed Start Printed Page 60789under § 1277.25 of this part, and, if such transfer is allowed, shall specify the procedures to effect such transfer, and provide that the transfer shall be undertaken only in accordance with § 1277.25;
§ 1277.29
Dated: September 30, 2104.
2. Id. at 553(b)(B).
3. Pub. Law 110-289, 122 Stat. 2654.
4. See 12 U.S.C. 4511.
5. See 12 U.S.C. 4511, note.
6. See 12 U.S.C. 1423 and 1432(a). The twelve Banks are located in: Boston, New York, Pittsburgh, Atlanta, Cincinnati, Indianapolis, Chicago, Des Moines, Dallas, Topeka, San Francisco, and Seattle.
7. See 12 U.S.C. 1426(a)(4), 1430(a), and 1430b.
8. See 12 U.S.C. 1427.
9. Pub. Law 106-102, 113 Stat. 1338 (Nov. 12, 1999).
10. See 12 U.S.C. 1426, and 12 CFR parts 931 and 933.
12. See 12 U.S.C. 1426(b)(1).
13. See Final Rule: Capital Requirements for Federal Home Loan Banks, 66 FR 8262 (Jan. 30, 2001); and Final Rule: Capital Requirements for Federal Home Loan Banks, 66 FR 54097 (Oct. 26, 2001) (amending capital requirements).
14. See 12 U.S.C. 4513 (as amended by section 1201 Pub. L. 110-289, 122 Stat. 2782-83).
15. As part of a separate and future rulemaking, FHFA intends to amend and transfer the existing Bank capital regulations from part 932 of the Finance Board regulations to subpart B of new part 1277.
16. FHFA does not intend any of its proposed changes in this rulemaking to imply that a Bank must require former members to buy stock as a result of an increase in a relevant stock purchase requirement while activity remains outstanding. Instead, FHFA seeks to clarify that such a requirement is possible as long as a Bank specifies such a requirement in its approved capital plan.
17. A Bank is only required to redeem a member's, or former member's, stock upon expiration of the relevant redemption period, and then only if the stock is not needed to meet any applicable stock purchase requirement or Bank regulatory capital requirement. See 12 CFR 931.7 (proposed § 1277.26).
18. For example, a Bank cannot redeem any stock if it would fail to meet any regulatory capital requirement after the redemption. See 12 U.S.C. 1426(f) and 12 CFR 931.7(c) (proposed § 1277.26(c)).
19. In this respect, both the Finance Board and FHFA have approved Bank capital plans that apply stock transaction or stock holding provisions specifically to former members, even though current, relevant regulations refer only to members.
20. See 12 U.S.C. 1426(b)(2).
[FR Doc. 2014-23799 Filed 10-7-14; 8:45 am]