Source: http://www.federalregister.com/Browse/Document/usa/na/fr/2009/8/4/e9-18567
Timestamp: 2019-02-22 03:26:11
Document Index: 576672483

Matched Legal Cases: ['arts 985', '§ 1101', '§ 1102', '§ 1302', 'art 925', 'art 941', '§ 1204', 'arts 12', 'arts 966', '§ 1201', '§ 1273', 'ART 985', 'ART 989', 'ART 1273', 'art 1273', 'art 1273', 'ART 1274']

74 FR 148 pgs. 38564-38572 - Board of Directors of Federal Home Loan Bank System Office of Finance
Years > 2009 > August, 2009 > Tuesday, August 4, 2009
Type: PRORULEVolume: 74Number: 148Pages: 38564 - 38572
FR document: [FR Doc. E9-18567 Filed 8-3-09; 8:45 am]
12 CFR Parts 985, 989
Governed by the Federal Housing Finance Agency's (FHFA) regulations, the Federal Home Loan Bank System's (System) Office of Finance, issues debt ("consolidated obligations") on which the Federal Home Loan Banks (Banks) are jointly and severally liable and publishes combined financial reports on the Banks so that investors in the consolidated obligations can assess the strength of the System that stands behind them. The Office of Finance (OF) is governed by a board of directors, the composition and functions of which are determined by FHFA's regulations. The FHFA's experience with the System and with the OF's combined financial reports during the recent period of market stress suggests that the OF and the System could benefit from a reconstituted and strengthened board. This proposed regulation is intended to achieve that.
• 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-AA30, Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552.
• Hand Delivery/Courier: The hand delivery address is: Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA30, Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The package should be logged at the Guard Desk, First Floor, on business days between 9 a.m. and 5 p.m.
• E-mail: Comments to Alfred M. Pollard, General Counsel may be sent by e-mail at RegComments@FHFA.gov. Please include "RIN 2590-AA30" in the subject line of the message.
Effective July 30, 2008, the Housing and Economic Recovery Act of 2008 (HERA), Public Law 110-289, 122 Stat. 2654, transferred the supervisory and oversight responsibilities of the Office of Federal Housing Enterprise Oversight (OFHEO) over the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the Enterprises), the oversight responsibilities of the Federal Housing Finance Board (FHFB or 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 to a new independent executive branch agency, the FHFA. See id. at § 1101, 122 Stat. 2661-62 ( amending 12 U.S.C. 4511). The FHFA is responsible for ensuring that the Enterprises and the Banks operate in a safe and sound manner, including that they maintain adequate capital and internal controls, that their activities foster liquid, efficient, competitive and resilient national housing finance markets, and that they carry out their public policy missions through authorized activities. See id. at § 1102, 122 Stat. 2663-64. The Enterprises, the Banks, and the OF continue to operate under regulations promulgated by OFHEO and the FHFB until the FHFA issues its own regulations. See id. at §§ 1302, 1313, 122 Stat. 2795, 2798.
The twelve Banks are instrumentalities of the United States organized under the Federal Home Loan Bank Act (Bank Act).1 See 12 U.S.C. 1423, 1432(a). 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. See 12 U.S.C. 1426(a)(4), 1430(a), 1430b. 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. See 12 U.S.C. 1427. Any eligible institution (generally a Federally insured depository institution or State-regulated insurance company) may become a member of a Bank if it satisfies certain criteria and purchases a specified amount of the Bank's capital stock. See 12 U.S.C. 1424; 12 CFR part 925.
1 Each Bank is generally referred to by the name of the city in which it is located. The twelve Banks are located in: Boston, New York, Pittsburgh, Atlanta, Cincinnati, Indianapolis, Chicago, Des Moines, Dallas, Topeka, San Francisco, and Seattle.
As government-sponsored enterprises (GSEs), the Banks are granted certain privileges under Federal law. In light of those privileges and their status as GSEs, the Banks typically can borrow funds at spreads over the rates on U.S. Treasury securities of comparable maturity lower than most other entities. The Banks pass along a portion of their GSE funding advantage to their members-and ultimately to consumers-by providing advances and other financial services at rates that would not otherwise be available to their members. Consolidated obligations (COs), consisting of bonds and discount notes, are the principal funding source for the Banks. The OF issues all COs on behalf of the twelve Banks. Although each Bank is primarily liable for the portion of consolidated obligations corresponding to the proceeds received by that Bank, each Bank is also jointly and severally liable with the other eleven Banks for the payment of principal and interest on all COs. See 12 CFR 966.9.
In 1989, as part of the amendments made to the Bank Act by the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA),2all joint offices of the Bank System other than the OF were abolished. The FHLBB was also abolished and its regulatory authority over the Bank System, including OF, was transferred to the Finance Board. The FHLBB's regulations were also transferred to the Finance Board. Id. In 1992, the Finance Board reorganized the OF as fiscal agent of the Finance Board for issuing COs under section 11(c) of the Bank Act, and set forth other duties for OF.3 See 57 FR 11429 (Apr. 3, 1992) ( adopting 12 CFR part 941). The regulation also instituted a three-member board of directors for the oversight and management of the OF, made up of two Bank presidents and a private United States citizen with demonstrated expertise in financial markets. Id.
2 Public Law 101-73, 103 Stat. 183 (Aug. 9, 1989).
3 As it existed in 1992, section 11(c) of the Bank Act provided the Finance Board authority to issue the debt on which the Banks were jointly and severally liable. 12 U.S.C. 1431(c)(1992). HERA recently amended this provision and removed authority from the regulator to issue such debt on behalf of the Banks and provided the OF as agent for the Banks with authority to issue the COs. See § 1204(3)(B), Public Law 110-289, 122 Stat. 2786.
The Finance Board also believed that "[a]s a natural and necessary adjunct to the issuance of COs, the Banks also should be responsible for the preparation of the disclosure documents that facilitate CO issuance and for the periodic combined financial statements for the Bank System." Id. at 325. The Finance Board therefore proposed that OF, as the only joint Bank System office and existing agent for CO issuance, be assigned the duty of preparing the Bank System's combined financial reports. Id. The Finance Board also proposed to codify disclosure standards in the regulation, many of which had been set forth in a Finance Board policy statement. Other duties related to debt issuance and management were also proposed to be assigned to OF.
In light of the expanded duties assigned to OF as well as amendments to the Bank Act that had recently been made by the Gramm-Leach-Bliley Act (GLB Act),4the Finance Board also thought it was appropriate to alter both the size and composition of the OF board. Id. at 326. The Finance Board had two main goals in proposing its changes. First, it wanted to build on the governance structure in the Bank Act by which the Banks should be provided greater autonomy to manage their affairs. Second, it wanted to assure each Bank had representation on the OF board to help achieve operational goals and wanted to assure that the OF board itself had directors with experience and qualification to help OF meet the evolving needs of the Bank System.
4 Public Law 106-102, 113 Stat. 1338 (Nov. 12, 1999).
After consideration of the comments on the proposed regulation, the Finance Board adopted many of the changes including those authorizing the Banks to issue COs under section 11(a) of the Bank Act and assigning to OF the function of preparing the Bank System's combined financial reports, along with additional duties. See 65 FR 36290 (June 7, 2000) ( adopting among other parts 12 CFR parts 966 and 985). The Finance Board did not, however, adopt the proposed changes to the OF board structure or composition. Instead, the new regulation incorporated the prior three-person board structure. The Finance Board also specified some additional duties for the OF board consistent with the additional functions that had been assigned to OF over the years. Since the 2000 rulemaking, no significant changes to the regulations governing the OF have been proposed.
Section 1201 of HERA requires the Director, when promulgating regulations relating to the Banks, to consider the following differences between the Banks and the Enterprises: Cooperative ownership structure; Mission of providing liquidity to members; Affordable housing and community development mission; capital structure; and Joint and several liability. See § 1201 Public Law 110-289, 122 Stat. 2782-83 ( amending 12 U.S.C. 4513). The Director also may consider any other differences that are deemed appropriate. In preparing this proposed regulation, the FHFA considered the differences between the Banks and the Enterprises as they relate to the above factors. The FHFA requests comments from the public about whether differences related to these factors should result in any revisions to the proposal.
The new structure being proposed for the OF board of directors is set forth in proposed § 1273.7. Under this provision, the OF board of directors would be composed of 15 to17 part-time members-the twelve Bank presidents and three to five independent directors. The independent directors would be required to be citizens of the United States and none could be an officer, employee, or director of any Bank or Bank System member, nor could the independent director have any substantial financial interest in a Bank System member. Persons affiliated with or having substantial financial interests in any CO seller or dealer group member under contract with OF would not qualify to be an independent director. The proposed regulation would also require the independent directors, as a group, to have substantial experience in financial and accounting matters.
The proposed regulation does not contain any collections of information pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ). Therefore, the FHFA has not submitted any information to the Office of Management and Budget for review.
Subchapter K-Office of Finance
PART 985-THE OFFICE OF FINANCE
PART 989-FINANCIAL STATEMENT OF THE BANKS
PART 1273-OFFICE OF FINANCE
Sec. 1273.1 Definitions.1273.2 Authority of the OF.1273.3 Functions of the OF.1273.4 FHFA oversight.1273.5 Funding of the OF.1273.6 Debt management duties of the OF.1273.7 Structure of the OF board of directors.1273.8 General duties of the OF board of directors.1273.9 Audit committee.Appendix A to Part 1273-Exceptions to the General Disclosure Standards
Safety and Soundness Act means the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq. ), as amended.
(2)(i) Three to five Independent Directors who each shall be a citizen of the United States and who, as a group, shall have substantial experience in financial and accounting matters. Such Independent Directors may not be officers, directors, or employees of any Bank or Bank System member, be affiliated with any consolidated-obligations selling or dealer group member under contract with OF, or hold shares or any other financial interest in any member of a Bank or in any such dealer group member in an amount greater than the lesser of-
(4) Require that COs shall be issued efficiently and at the lowest all-in funding costs over time, consistent with-
(4) Select, employ, determine the compensation for, and assign the duties and functions of a Chief Executive Officer of the OF who shall-
(4) To the extent possible the Audit Committee shall operate consistent with-
Appendix A to Part 1273-Exceptions to the General Disclosure Standards
PART 1274-FINANCIAL STATEMENTS OF THE BANKS
Sec. 1274.1 Definitions.1274.2 Audit requirements.1274.3 Requirements to provide financial and other information to the FHFA and the OF.