[Federal Register Volume 60, Number 222 (Friday, November 17, 1995)]
[Rules and Regulations]
[Pages 57681-57682]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28176]



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 Rules and Regulations
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  Federal Register / Vol. 60, No. 222 / Friday, November 17, 1995 / 
Rules and Regulations  

[[Page 57681]]


FEDERAL HOUSING FINANCE BOARD

12 CFR Part 943

[No. 95-40]


Pricing of Services

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is amending 
its regulation regarding the pricing of item processing services by the 
Federal Home Loan Banks (Banks). The amendment eliminates the 
requirement for Finance Board approval of prices for item-processing 
and other services authorized in this regulation and deletes the 
reference to a specifically designated office to act on behalf of the 
Finance Board regarding this section. The approval requirement is 
eliminated as it constitutes an unnecessary administrative burden.

EFFECTIVE DATE: November 17, 1995.

FOR FURTHER INFORMATION CONTACT: Edwin J. Avila, Financial Analyst, 
(202) 408-2871; Edward J. Reedy, Associate Director, (202) 408-2959, 
Regulatory Oversight Division; or Eric M. Raudenbush, Attorney-Advisor, 
(202) 408-2932, Office of General Counsel; Federal Housing Finance 
Board, 1777 F Street NW., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. General

    Section 11(e)(2)(A) of the Federal Home Loan Bank Act (Bank Act), 
12 U.S.C. 1431(e)(2)(A), authorizes the Banks to engage in the 
collection and settlement of any negotiable or nonnegotiable items or 
instruments of payment drawn on or issued by Bank members or 
institutions eligible to apply for membership under section 4 of the 
Bank Act. Id. section 1424. In order to preclude the Banks' status as 
Government-Sponsored Enterprises from providing a competitive advantage 
over private institutions, section 11(e)(2)(B) of the Bank Act requires 
that the Banks make charges for these item-processing services that are 
to be determined and regulated by the Finance Board consistent with the 
statutory pricing principles established for Federal Reserve Banks. 
Section 943.6 of the Finance Board's regulations implements this 
requirement by providing that, in addition to covering operating 
expenses, service pricing must cover other costs that would have been 
borne, and reflect the imputed rate of return that would have been 
earned, if the Banks were private corporations. See 12 CFR 943.6. As 
currently written, Sec. 943.6(a) requires that Banks charge for item-
processing services in a manner ``approved by the [Finance] Board or 
its designee.'' Id. Sec. 943.6(a). More specifically, Sec. 943.6(c) 
requires that the Director of the Finance Board's District Banks 
Directorate (DBD) at least annually review and approve Banks' prices 
for item-processing services, in accordance with the established 
pricing principles. Id. Sec. 943.6(c). All prices for Bank services 
authorized by Part 943 must be published annually in the Federal 
Register. Id.
    Pursuant to the Bank Act and the regulations, the Finance Board has 
established and promulgated a methodology for allocating the imputed 
costs and rates of return, whereby a cost of capital adjustment factor, 
commonly referred to as the Private Sector Adjustment Factor (PSAF), is 
applied to assets used in providing these services. See 58 FR 59468 
(1993). Under the PSAF Methodology, the FHLBanks are required to impute 
debt, income taxes and a required return on equity (ROE), which are 
based on the average rates from a bank holding company (BHC) sample 
developed by the Federal Reserve Board for use in its PSAF calculation. 
If a Bank's prior year ROE from its item-processing services equals or 
exceeds the average ROE attained by the BHC sample group, then the 
Finance Board considers that Bank's prices for the current year to be 
in compliance with the regulation. Once a Bank's pricing has been 
determined to be in compliance with the regulation, any subsequent 
Finance Board approval is merely perfunctory and, therefore, 
constitutes an unnecessary administrative burden. The Bank Act does not 
require Finance Board ``approval'' of the Banks' prices.
    Under current practice, approval of current prices is contingent 
upon and determined by compliance with the PSAF compliance test. Thus, 
the Finance Board need go no further than monitor for compliance with 
this test. The Finance Board is, therefore, amending Secs. 943.6 (a) 
and (c) of its regulations to eliminate the requirement for approval of 
prices for item-processing and other services authorized in this 
section, although Sec. 943.6(c) will continue to require Finance Board 
``review'' of such prices for compliance with the regulation. Under the 
current PSAF Methodology, if a Bank fails the compliance test, it must 
submit for Finance Board review either: a revised pricing schedule for 
item processing services; a business plan designed to resolve the non-
compliance; or an explanation of the unanticipated or temporary event 
which led to the failure. The Bank's proposal for dealing with the non-
compliance requires the endorsement of the Finance Board or its 
designee prior to implementation. Accordingly, under the regulation as 
revised and the PSAF Methodology, explicit Finance Board approval of 
prices will be required only when a Bank has failed the compliance 
test.
    In addition, the Finance Board is further amending Sec. 943.6(c) to 
eliminate reference to the Director of DBD or his or her designee. Both 
the position and office have been changed since the last publication of 
the rule. The Finance Board finds it to be unnecessarily confusing and 
burdensome to revise the regulation every time the office or official 
changes, and believes that the naming of a specific office serves no 
useful purpose. Hence, the regulation will now refer simply to the 
Finance Board, as opposed to a specifically designated office within 
the agency.

II. Administrative Procedure Act

    This rulemaking simply removes an existing provision of Sec. 943.6 
of the Finance Board regulations that is unnecessary and burdensome to 
both the agency and the Banks and deletes reference to a specifically 
designated office to act on behalf of the Finance Board. No additional 
reporting is required of the Banks. Since the Banks must still comply 
with the pricing 

[[Page 57682]]
principles of the regulation, private providers of item processing 
services will not be adversely impacted. As a result, the Finance Board 
hereby finds that notice and public comment is unnecessary. Therefore, 
for good cause shown under 5 U.S.C. 553(b)(B), this rule is exempt from 
the notice and comment requirements of the Administrative Procedure 
Act, as well as from the 30-day delay in the effective date pursuant to 
5 U.S.C. 553(d)(3).

III. Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required for this 
regulation, the provisions of the Regulatory Flexibility Act, 5 U.S.C. 
601, et. seq., do not apply.

List of Subjects in 12 CFR Part 943

    Federal home loan banks.

    Accordingly, the Federal Housing Finance Board hereby amends 
chapter IX, title 12, Code of Federal Regulations, as set forth below.

PART 943--COLLECTION, SETTLEMENT, AND PROCESSING OF PAYMENT 
INSTRUMENTS

    1. The authority citation for part 943 is revised to read as 
follows:

    Authority: 12 U.S.C. 1430, 1431.

    2. In Section 943.6, paragraphs (a) and (c) are revised to read as 
follows:


Sec. 943.6  Pricing of services.

    (a) General. Federal Home Loan Banks shall charge for services 
authorized in this part in a manner consistent with the principles of 
section 11(A)(c) of the Federal Reserve Act (12 U.S.C. 248a(c)), as 
interpreted by this part.
* * * * *
    (c) Review and publication. The Finance Board shall from time to 
time and at least annually review the cost of capital adjustment factor 
and review prices for services authorized in this part for compliance 
with the principles set forth in paragraphs (a) and (b) of this 
section. All prices for Bank services authorized in this part will be 
published annually in the Federal Register.

    Dated: November 8, 1995.

    By the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.
[FR Doc. 95-28176 Filed 11-16-95; 8:45 am]
BILLING CODE 6725-01-P