[Federal Register Volume 60, Number 243 (Tuesday, December 19, 1995)]
[Proposed Rules]
[Pages 65249-65254]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30581]



=======================================================================
-----------------------------------------------------------------------

FEDERAL RESERVE SYSTEM

5 CFR Chapter LVIII

12 CFR Part 264

[Docket No. R-0900]
RIN 3209-AA15


Supplemental Standards of Ethical Conduct for Employees of the 
Board of Governors of the Federal Reserve System

AGENCY: Board of Governors of the Federal Reserve System (Board).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Board of Governors of the Federal Reserve System, with the 
concurrence of the Office of Government Ethics (OGE), proposes to issue 
regulations for the officers and employees of the Board that supplement 
the Standards of Ethical Conduct for Employees of the Executive Branch 
issued by OGE. The proposed regulation is a necessary supplement to the 
Executive Branch-wide Standards because it addresses ethical issues 
unique to the Board. The regulation as proposed would establish rules 
relating to: financial interests and transactions; borrowing and 
extensions of credit; employment relationships of immediate family 
members; and outside employment. The Board is also proposing to replace 
its old employee conduct regulation with a residual cross-reference to 
the new provisions.

DATES: Comments are invited and must be received on or before February 
20, 1996.

ADDRESSES: Comments should refer to Docket No. R-0900, and may be 
mailed to Williams W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC 20551. Comments also may be delivered to Room B-2222 of 
the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the 
guard station in the Eccles Building courtyard on 20th Street, NW. 
(between Constitution Avenue and C Street) at any time. Comments 
received will be available for inspection in Room MP-500 of the Martin 
Building between 9:00 a.m. and 5:00 p.m. weekdays, except as provided 
in 12 CFR 261.8 of the Board's rules regarding availability of 
information.

FOR FURTHER INFORMATION CONTACT: Cary Williams, Managing Senior 
Counsel, Legal Division, Board of Governors of the Federal Reserve 
System, telephone (202) 452-3295, FAX (202) 452-3101. For the hearing 
impaired only, Telecommunications Device for the Deaf, Dorothea 
Thompson (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

    On August 7, 1992, OGE published the Standards of Ethical Conduct 
for Employees in the Executive Branch. See 57 FR 35006-35067, as 
corrected at 57 FR 48557 and 57 FR 52583, with additional grace period 
extensions at 59 FR 4779-4780 and 60 FR 6390-6391. The Executive 
Branch-wide Standards are now codified at 5 CFR part 2635. Effective 
February 3, 1993, they established uniform ethical conduct standards 
applicable to all executive branch personnel.
    With the concurrence of OGE, 5 CFR 2635.105 authorizes executive 
agencies to publish agency-specific supplemental regulations necessary 
to implement their respective ethics programs. The Board, with OGE's 
concurrence, has determined that the following proposed supplemental 
regulations are necessary to implement the Board's ethics program 
successfully, in light of the Board's unique programs and operations. 
The proposed supplemental rule addresses issues relevant to the Board's 
roles with respect to monetary policy and banking regulation. The Board 
is also proposing to delete the existing provisions of 12 CFR part 264 
that its supplemental regulation, once finally adopted, and the 
Executive Branch-wide Standards supersede and to add in their place a 
residual cross-reference to the current provisions.

II. Analysis of the Proposed Regulations

Section 6801.101  General

    Section 6801.101 explains that the proposed regulations contained 
in the rule would apply to all Board employees, including Board 
members, and are supplemental to the Executive Branch-wide Standards. 

[[Page 65250]]


Section 6801.102  Definitions

    For purposes of interpreting the provisions in this part, 
Sec. 6801.102 sets forth a proposed definition of the terms 
``affiliate,'' ``debt or equity interest,'' ``dependent child,'' 
``depository institution,'' ``employee'' and ``primary government 
securities dealer'' and ``supervisory employee.''
    Proposed Sec. 6801.102 would include as an affiliate companies that 
control, are controlled by, or are under common control with, a 
depository institution. This definition was taken from the Bank Holding 
Company Act of 1956 and is intended to include any holding companies, 
subsidiaries or other affiliated companies of depository institutions.
    The term debt or equity interest as proposed would include 
``secured and unsecured bonds, debentures, notes, securitized assets, 
commercial paper, and preferred and common stock.'' It would extend to 
any right to acquire or dispose of any such debt or equity interest and 
to beneficial or legal interests derived from a trust. The proposed 
term does not, however, include deposit accounts, future interests 
created by someone other than the employee or the employee's spouse or 
dependent, or any right as a beneficiary of an estate that has not been 
settled.
    The term dependent child is to be given the same meaning as in 
OGE's financial disclosure regulation at 5 CFR 2635.105(d).
    The term depository institution is defined in proposed 
Sec. 6801.102 as any institution that accepts deposits. This would 
include thrifts and foreign banks.
    The term employee would include all Board employees, including 
Board members, but would not include special Government employees.
    The term primary government securities dealer as proposed is 
defined as a firm with which the Federal Reserve conducts its open 
market operations.
    The term supervisory employee would encompass Board members, all 
professional staff in the Division of Banking Supervision and 
Regulation, and professional staff in other divisions who participate 
substantially in supervisory matters involving depository institutions.

Section 6801.103  Prohibited Financial Interests

    Section 6801.103(a) as proposed would prohibit a Board employee, 
and the spouse and minor child of a Board employee, from owning or 
controlling any debt or equity interest in a depository institution or 
its affiliates or of a primary government securities dealer or its 
affiliates. Under 5 CFR 2635.403(a), an agency may, by supplemental 
regulation, prohibit or restrict the holding of a financial interest by 
its employees and the spouses and minor children of those employees 
based on the agency's determination that the acquisition or holding of 
such financial interest would cause a reasonable person to question the 
impartiality and objectivity with which agency programs are 
administered. The Board has determined that, in light of the Board's 
sensitive bank regulatory and monetary policy functions, the 
restriction is necessary to: (1) Maintain public confidence in the 
impartiality and objectivity with which the Board executes its 
regulatory and monetary policy functions; (2) eliminate any concern 
that sensitive information provided to the Board might be misused for 
private gain; and (3) avoid the wide-spread disqualification of 
employees from official matters that might result in the Board's 
inability to fulfill its mission.
    The Board's current rule prohibits employees from holding equity 
interests in banks or their affiliates. 12 CFR 264.735-6(d). This rule 
does not apply to debt interests in banks, such as bonds, or to equity 
interests in thrifts. The proposed prohibition in Sec. 6801.103(a) 
would extend to debt and equity interests in all depository 
institutions regardless of whether the depository institution is 
regulated by the Board. The Board believes that this is appropriate in 
light of the Board's broad regulatory and supervisory authority. For 
example, the Board is responsible for setting reserve requirements for 
all depository institutions, and the Federal Reserve System provides 
liquidity to all depository institutions through the discount window. 
In connection with a discount window advance, the Board is authorized 
to examine any depository institution.
    The Board's current rule also prohibits employees from holding 
equity interests in government securities dealers. 12 CFR 264.735-6(d). 
The proposed rule would clarify and expand this prohibition by 
extending to debt and equity interests in primary government securities 
dealers and their affiliates. The Federal Reserve conducts business 
with primary government securities dealers, which in turn are expected 
to facilitate the Federal Reserve's open market operations and to 
provide the Federal Reserve with information to assist it in performing 
its duties. Primary government securities dealers are required to 
submit reports reflecting their activities to the Federal Reserve on a 
regular basis, and must meet qualification requirements of the System 
and the Treasury Department
    The proposed prohibition in Sec. 6801.103(a) would apply to the 
spouse and minor children of a Board employee. In the past, spouses and 
minor children of Board employees have not been subject to the Board's 
rule on prohibited financial interests. As a result, there has been a 
need to disqualify employees from official matters in order to avoid 
violations of the criminal laws (18 U.S.C. 208) and in order to 
maintain public confidence in the objectivity and impartiality with 
which Board programs are carried out. Under 5 CFR 2635.403(a), any 
restriction on the holdings of financial interests by the spouses or 
minor children of agency employees must be based on the agency's 
determination that there is a direct and appropriate nexus between the 
restriction as applied to spouses and minor children and the efficiency 
of the service. Based on the experiences outlined above, and in order 
to avoid the potential appearance that an employee's spouse could trade 
on information obtained through the employee's position with the Board, 
the Board has determined that such a nexus exists.
    Section 6801.103(b) as proposed would provide several exceptions to 
the proposed prohibition in Sec. 6801.103(a) on financial interests. 
The proposed exceptions are intended to ease the restrictions on the 
financial interests of Board employees, their spouses and minor 
children, and to permit interests of a character unlikely to raise 
questions regarding the objective or impartial performance of Board 
employees' official duties or the possible misuse of their positions. 
The exception proposed for nonbanking holding companies would permit an 
employee to own stock in an automobile manufacturer or a retail 
company, for example, that owned a credit card bank or other depository 
institution, provided the company's principal line of business was not 
banking. The next two proposed exceptions would permit employees to own 
interests in depository institutions indirectly through investments in 
a publicly traded or available mutual fund (so long as it does not have 
a stated policy of concentrating in the financial services industry), 
or in a widely held, diversified pension plan.
    Section 6801.103(c) of the proposed rule would authorize the 
Board's Designated Agency Ethics Official (DAEO), in consultation with 
Division 

[[Page 65251]]
management, to waive the prohibition in Sec. 6801.103(a) under certain 
limited circumstances. In general, a request for a waiver could be 
considered if the prohibited interest is acquired without specific 
intent, particularly if the owner of the interest is the employee's 
spouse or minor child. However, the standards for granting a waiver 
would be based, in part, on the policies of each division and, 
therefore, could vary among divisions. For example, because of the 
greater potential for an actual conflict of interest arising from 
depository institution stock ownership, the Board's Division of Banking 
Supervision and Regulation could be less inclined to consider a waiver 
request for these interests than another division having no regulatory 
responsibilities.
    Proposed Sec. 6801.103(d) would require employees to consult with 
the DAEO concerning the need for recusal as a result of holding any 
debt or equity interest based on an exception or a waiver exception in 
6801.103(b)(1) or (c).

Section 6801.104  Speculative Dealings [Reserved]

    A provision of the Board's current ethics rules prohibits Board 
employees from engaging in speculative dealings. See 12 CFR 264.735-
6(d)(iii). The Office of Government Ethics has voiced concern regarding 
this provision's lack of notice to employees as to what constitutes 
speculative dealings. The Board is in discussion with OGE about this 
rule and may amend its supplemental rule, once it is adopted as a final 
rule, to include a provision on speculation at some point in the 
future. Board employees continue to be prohibited by the Standards of 
Ethical Conduct from engaging in a financial transaction using, or 
appearing to use, nonpublic information to further their own private 
interests or those of another. 5 CFR 2635.101(b)(14) and 2635.703.

Section 6801.105  Prohibition on Preferential Terms From Regulated 
Institutions

    Proposed Sec. 6801.105 would prohibit a Board employee from 
entering into a financial relationship with an entity regulated by the 
Board if such relationship is governed by terms more favorable than 
those available in like circumstances to members of the public. This 
provision has always been a part of the Board's ethics regulation (12 
CFR 264.735-6(b)(2)(i)), and the Board has found that it has helped to 
remind employees of their responsibility to avoid receiving 
preferential treatment in their personal dealings with regulated 
entities.

Section 6801.106  Prohibition on Supervisory Employees From Seeking 
Credit From Institutions Involved in Work Assignments

    Section 6801.106 as proposed would apply only to ``supervisory 
employees.'' The term ``supervisory employee'' is defined in proposed 
Sec. 6801.102(g) as all professional staff at the Board with 
responsibilities in the area of banking supervision and regulation. 
This would include all professional staff in the Division of Banking 
Supervision and Regulation, the Legal Division, and the Division of 
Consumer and Community Affairs; professional staff in the Division of 
Research and Statistics who have responsibility for applications; 
professional staff in the Office of the Inspector General who are 
involved in evaluating the Supervision and Regulation function; and the 
Board members.
    Section 6801.106(a) as proposed would prohibit a supervisory 
employee from seeking credit from, or renegotiating or rolling over 
existing credit with, a depository institution if the employee is 
assigned to a matter affecting that institution or if the employee is 
aware of the pendency of the matter and knows that he or she will 
participate in the matter. This prohibition would also apply for three 
months after the employee's participation in the matter has ended. In 
addition, proposed Sec. 6801.106(b) provides that a supervisory 
employee must be disqualified from a matter if he or she learns that 
his or her spouse or other related persons or entities have borrowed 
from a depository institution that is a party to the matter while the 
matter is pending. Section 6801.106(c) provides a proposed exception to 
the application of these provisions with respect to borrowing through 
the use of a credit card on terms and conditions available to the 
general public, or to borrowing through overdraft protection. The 
Board's DAEO may grant a waiver of these provisions. The proposed 
temporary ban on seeking credit is necessary to prevent the potential 
appearance that supervisory employees might use their official position 
or their contacts with a depository institution resulting from their 
work on a matter involving that institution, to obtain loans or 
extensions of credit on favorable terms. The Board's current rule does 
not contain restrictions in this area.

Section 6801.107  Disqualification of Supervisory Employees From 
Matters Involving Lenders

    A supervisory employee would be restricted by proposed 
Sec. 6801.107 from participating in any matter in which a depository 
institution or an affiliate of a depository institution is a party if 
the supervisory employee or the spouse or dependent child of the 
supervisory employee, or certain related entities are indebted to the 
depository institution or its affiliate. Typical consumer credit, such 
as home mortgage loans and credit card debt, would not give rise to the 
disqualification requirement.
    Section 6801.107 would supplement Sec. 2635.502 of the Executive 
Branch-wide Standards. The restriction is necessitated by the frequent 
contact that supervisory employees have with lending institutions. The 
restriction as proposed is designed to ensure that supervisory 
employees do not benefit or appear to benefit from their official 
positions and do not lose or appear to lose their impartiality.
    Exceptions to the proposed restriction related to borrowing 
relationships are set forth in Sec. 6801.107(b). Under the exceptions, 
a supervisory employee could participate in matters involving 
depository institutions to which the supervisory employee, or the 
supervisory employee's spouse or dependent child, is indebted under one 
of the conditions indicated in subsection (b)(1)(i)-(iv) as proposed. 
The exceptions proposed in Sec. 6801.107(b) are intended to ease the 
restrictions on supervisory employees' participation in particular 
matters in situations where a loan or extension of credit is unlikely 
to raise issues regarding the motivation of the lender or the objective 
or impartial performance of official duties by supervisory employees.
    Proposed Sec. 6801.107(c) would give the Board's DAEO authority to 
grant a written waiver from the prohibitions in Sec. 6801.107 in 
accordance with 5 CFR 2635.502(d).

Section 6801.108  Restrictions Resulting From Employment of Family 
Members

    Section 6801.108(a) as proposed would require a supervisory 
employee (as defined in Sec. 6801.101(b)(2)) to report the employment 
of an immediate family member (spouse, child, parent or sibling) if the 
immediate family member is employed by a depository institution or a 
depository institution affiliate. The reporting requirement would be 
triggered immediately upon the 

[[Page 65252]]
supervisory employee's discovery of the employment relationship.
    Under proposed Sec. 6801.108(c), a supervisory employee would be 
disqualified from participating in any matter involving an immediate 
family member's employer unless the supervisory employee received the 
appropriate authorization pursuant to the standard in Sec. 2635.502(d) 
of the Executive Branch-wide Standards. This proposed requirement would 
eliminate the potential for any appearance of preferential treatment in 
those instances where employment of a family member would be likely to 
raise questions regarding the appropriateness of actions taken by the 
employee.

Section 6801.109  Prior Approval for Compensated Outside Employment

    5 CFR 2635.803 provides that an agency may, by supplemental 
regulations, require its employees to obtain prior approval before 
engaging in outside employment when it has determined that such a 
requirement is necessary or desirable for the purpose of administering 
its ethics program. The Board's current regulation at 12 CFR 264.735-
6(c) imposes a requirement for prior approval for outside business and 
teaching. Based on its finding that this requirement has helped to 
ensure that employees' outside activities conform to applicable 
statutes and regulations, the Board has determined to continue this 
requirement in a somewhat modified form. The proposed provision 
requires prior written approval before engaging in any compensated 
outside employment, a defined term that may provide more specific 
guidance to employees than ``outside business or teaching,'' the scope 
of which has not always been clear.

III. Proposed Repeal of the Board's Regulations on Employee 
Responsibilities and Conduct

    The Board is also proposing to repeal its regulations on the 
Responsibilities and Conduct of Board Employees, 12 CFR part 264, and 
to add a residual cross-reference to the new provisions.

IV. Matters of Regulatory Procedure

Administrative Procedure Act

    This proposed rulemaking is in compliance with the Administrative 
Procedure Act (5 U.S.C. 553) and allows for a 60 -day comment period.

Regulatory Flexibility Act

    The Board has determined under the Regulatory Flexibility Act (5 
U.S.C. chapter 6) that this regulation will not have a significant 
economic impact on a substantial number of small business entities 
because it affects only Board employees.

Paperwork Reduction Act

    The Board has determined that the Paperwork Reduction Act (44 
U.S.C. chapter 35) does not apply because this regulation does not 
contain any information collection requirements that require the 
approval of the Office of Management and Budget.

List of Subjects

5 CFR Part 6801

    Conflict of interests, Government employees.

12 CFR Part 264

    Conflict of interests, Federal Reserve System.

    Dated: November 3, 1995.
William W. Wiles,
Secretary, Board of Governors of the Federal Reserve System.

    Approved: November 13, 1995.
Stephen D. Potts,
Director, Office of Government Ethics.

    For the reasons set forth in the preamble, the Board, with the 
concurrence with the Office of Government Ethics, is proposing to amend 
title 5 and chapter II of title 12 of the Code of Federal Regulations 
as follows:

TITLE 5--[AMENDED]

    1. A new chapter LVIII, consisting of part 6801, is added to title 
5 of the Code of Federal Regulations to read as follows:
CHAPTER LVIII--BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

PART 6801--SUPPLEMENTAL STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES 
OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Sec.
6801.101  Purpose.
6801.102  Definitions.
6801.103  Prohibited financial interests.
6801.104  Speculative dealings. [Reserved]
6801.105  Prohibition on preferential terms from regulated 
institutions.
6801.106  Prohibition on supervisory employees' seeking credit from 
institutions involved in work assignments.
6801.107  Disqualification of supervisory employees from matters 
involving lenders.
6801.108  Restrictions resulting from employment of family members.
6801.109  Prior approval for compensated outside employment.

    Authority: 5 U.S.C. 7301; 5 U.S.C. App. (Ethics in Government 
Act of 1978); 12 U.S.C. 244, 248; E.O. 12674, 54 FR 15159, 3 CFR, 
1989 Comp., p.215, as modified by E.O. 12731, 55 FR 42547, 3 CFR, 
1990 Comp., p.306; 5 CFR 2635.105, 2635.403(a), 2635.502, 2635.803.


Sec. 6801.101  Purpose.

    In accordance with 5 CFR 2635.105, the regulations in this part 
supplement the Standards of Ethical Conduct for Employees of the 
Executive Branch found at 5 CFR part 2635. They apply to members and 
other employees of the Board of Governors of the Federal Reserve System 
(``Board'').


Sec. 6801.102  Definitions.

    For purposes of this part:
    (a) Affiliate means any company that controls, is controlled by, or 
is under common corporate control with another company.
    (b) (1) Debt or equity interest includes secured and unsecured 
bonds, debentures, notes, securitized assets, commercial paper, and 
preferred and common stock. The term encompasses both current and 
contingent ownership interests therein; any such beneficial or legal 
interest derived from a trust; any right to acquire or dispose of any 
long or short position in debt or equity interests; any interests 
convertible into debt or equity interests; and any options, rights, 
warrants, puts, calls, straddles, and derivatives with respect thereto.
    (2) Debt or equity interest does not include deposits; credit union 
shares; any future interest created by someone other than the employee, 
his or her spouse, or dependent; or any right as a beneficiary of an 
estate that has not been settled.
    (c) Dependent child means an employee's son, daughter, stepson, or 
stepdaughter if:
    (1) Unmarried, under the age of 21, and living in the employee's 
household; or
    (2) Claimed as a ``dependent'' on the employee's income tax return.
    (d) Depository institution means a bank, trust company, thrift 
institution, or any institution that accepts deposits, including a bank 
chartered under the laws of a foreign country.
    (e) Employee means an officer or employee of the Board, including a 
Board member. It does not include a special Government employee.
    (f) Primary government securities dealer means a firm with which 
the Federal Reserve conducts its open market operations.
    (g) Supervisory employee means an employee who is a member of the 
professional staff at the Board with responsibilities in the area of 
banking supervision and regulation. 

[[Page 65253]]



Sec. 6801.103  Prohibited financial interests.

    (a) Prohibited interests. Except as permitted by this section, an 
employee, or an employee's spouse or minor child, shall not own or 
control, directly or indirectly, any debt or equity interest in:
    (1) A depository institution or any of its affiliates; or
    (2) A primary government securities dealer or any of its 
affiliates.
    (b) Exceptions. The prohibition in paragraph (a) of this section 
does not apply to the ownership or control of a debt or equity interest 
in the following:
    (1) Nonbanking holding companies. A publicly traded holding company 
that:
    (i) Owns a bank and either the holding company or the bank is 
exempt under the Bank Holding Company Act of 1956, 12 U.S.C. 1841 et 
seq., (for example, a credit card bank, a nonbank bank or a 
grandfathered bank holding company), and the holding company's 
predominant activity is not the ownership or operation of banks and 
thrifts;
    (ii) Owns a thrift and its predominant activity is not the 
ownership or operation of banks and thrifts; or
    (iii) Owns a primary government securities dealer and its 
predominant activity is not the ownership and operation of banks, 
thrifts or securities firms.
    (2) Mutual funds. A publicly traded or publicly available mutual 
fund or other collective investment fund if:
    (i) The fund does not have a stated policy of concentration in the 
financial services industry; and
    (ii) Neither the employee nor the employee's spouse exercises or 
has the ability to exercise control over the financial interests held 
by the fund or their selection.
    (3) Pension plans. A widely held, diversified pension or other 
retirement fund that is administered by an independent trustee.
    (c) Waivers. The Board's Designated Agency Ethics Official, in 
consultation with Division management, may grant a written waiver 
permitting the employee to own or control a debt or equity interest 
prohibited by paragraph (a) of this section if:
    (1) Extenuating circumstances exist, such as that ownership or 
control was acquired:
    (i) Through inheritance, gift, merger, acquisition, or other change 
in corporate structure, or otherwise without specific intent on the 
part of the employee, spouse, or minor child to acquire the debt or 
equity interest; or
    (ii) By an employee's spouse as part of a compensation package in 
connection with the spouse's employment or prior to marriage to the 
employee;
    (2) The employee makes a prompt and complete written disclosure of 
the interest;
    (3) The employee's disqualification from participating in any 
particular matter having a direct and predictable effect on the 
institution or any of its affiliates does not unduly interfere with the 
full performance of the employee's duties; and
    (4) Granting the waiver would be consistent with Division policy.
    (d) Disqualification. If an employee or an employee's spouse or 
minor child holds an interest in a holding company under paragraph 
(b)(1) or (c) of this section, the employee must consult the Designated 
Agency Ethics Official in order to determine whether the employee must 
be disqualified from participating in any particular matter involving 
that holding company or affiliate under the conflicts of interest rules 
of the Office of Government Ethics.


Sec. 6801.104  Speculative dealings. [Reserved]


Sec. 6801.105  Prohibition on preferential terms from regulated 
institutions.

    An employee may not accept a loan from, or enter into any other 
financial relationship with, an institution regulated by the Board, if 
the loan or financial relationship is governed by terms more favorable 
than would be available in like circumstances to members of the public.


Sec. 6801.106  Prohibition on supervisory employees' seeking credit 
from institutions involved in work assignments.

    (a) Prohibition on supervisory employee's seeking credit. (1) A 
supervisory employee may not, on his or her own behalf, or on behalf of 
his or her spouse or child or anyone else (including any business or 
nonprofit organization), seek or accept credit from, or renew or 
renegotiate credit with, a depository institution or any of its 
affiliates if the institution or affiliate is a party to an 
application, enforcement action, investigation, or other particular 
matter involving specific parties pending before the Board and:
    (i) The supervisory employee is assigned to the matter; or
    (ii) The supervisory employee is aware of the pendency of the 
matter and knows that he or she will participate in the matter by 
action, advice or recommendation.
    (2) The prohibition in paragraph (a)(1) of this section also 
applies for three months after the supervisory employee's participation 
in the matter has ended.
    (b) Credit sought by spouse and other related persons. A 
supervisory employee must disqualify himself or herself from 
participating (by action, advice or recommendation) in any application, 
enforcement action, investigation or other particular matter involving 
specific parties to which a depository institution or any of its 
affiliates is a party as soon as the supervisory employee learns that 
any of the following related persons are seeking or have sought or 
accepted credit from, or have renewed or renegotiated credit with, the 
depository institution or any of its affiliates while the matter is 
pending before the Board:
    (1) The employee's spouse or dependent child;
    (2) A company or business if the employee or the employee's spouse 
or dependent child owns or controls more than 10 percent of its equity; 
or
    (3) A partnership if the employee, or the employee's spouse or 
dependent child is a general partner.
    (c) Exception. The prohibition in paragraph (a) of this section and 
the disqualification requirement in paragraph (b) of this section do 
not apply with respect to credit obtained through the use of a credit 
card or overdraft protection on terms and conditions available to the 
public.
    (d) Waivers. The Board's Designated Agency Ethics Official, after 
consulting with the relevant division director, may grant a written 
waiver from the prohibition in paragraph (a) of this section, or the 
disqualification requirement in paragraph (b) of this section, based on 
a determination that participation in matters otherwise prohibited by 
this section would not create an appearance of loss of impartiality or 
use of public office for private gain, and would not otherwise be 
inconsistent with the Office of Government Ethics' Standards of Ethical 
Conduct for Employees of the Executive Branch (5 CFR part 2635) or 
prohibited by law.


Sec. 6801.107  Disqualification of supervisory employees from matters 
involving lenders.

    (a) Disqualification required. A supervisory employee may not 
participate by action, advice or recommendation in any application, 
enforcement action, investigation, or other particular matter involving 
specific parties to which a depository institution or its affiliate is 
a party if any of the following are indebted to the depository 
institution or any of its affiliates:
    (1) The employee;
    (2) The spouse or dependent child of the employee; 
    
[[Page 65254]]

    (3) A company or business if the employee or the employee's spouse 
or dependent child owns or controls more than 10 percent of its equity; 
or
    (4) A partnership if the employee or the employee's spouse or 
dependent child is a general partner.
    (b) Exceptions--(1) Consumer credit on nonpreferential terms. 
Disqualification of a supervisory employee is not required by paragraph 
(a) of this section for the following types of indebtedness if payment 
on the indebtedness is current and the indebtedness is on terms and 
conditions offered to the public:
    (i) Credit extended through the use of a credit card;
    (ii) Credit extended through use of an overdraft protection line;
    (iii) Amortizing consumer credit (e.g., home mortgage loans, 
automobile loans); and
    (iv) Credit extended under home equity lines of credit.
    (2) Indebtedness of a spouse or dependent child. Disqualification 
is not required with respect to any indebtedness of the employee's 
spouse or dependent child, or a company, business or partnership in 
which the spouse or dependent child has an interest described in 
paragraphs (a)(3) and (a)(4) of this section, if:
    (i) The indebtedness represents the sole financial interest or 
responsibility of the spouse, child, company, business or partnership 
and is not derived from the employee's income, assets or activities; 
and
    (ii) The employee has no knowledge of the identity of the lender.
    (c) Waivers. The Board's Designated Agency Ethics Official, after 
consulting with the relevant division director, may grant a written 
waiver from the disqualification requirement in paragraph (a) of this 
section using the authorization process set forth in the Office of 
Government Ethics' Standards of Ethical Conduct at 5 CFR 2635.502(d).


Sec. 6801.108  Restrictions resulting from employment of family 
members.

    (a) Reporting certain employment relationships. A supervisory 
employee who has knowledge that his or her spouse, child, parent or 
sibling is employed by a depository institution or its holding company 
shall report such employment to his or her supervisor and the Ethics 
Office within thirty days of the commencement of the supervisory 
employee's employment at the Board or promptly upon learning of the 
employment relationship.
    (b) Disqualification. A supervisory employee may not participate in 
any particular matter to which a depository institution or its 
affiliate is a party if the depository institution or affiliate employs 
his or her spouse, child, parent or sibling unless the supervising 
officer, with the concurrence of the Board's Designated Agency Ethics 
Official, has authorized the employee to participate in the matter 
using the authorization process set forth in the Office of Government 
Ethics' Standards of Ethical Conduct at 5 CFR 2635.502(d).


Sec. 6801.109  Prior approval for compensated outside employment.

    (a) Approval requirement. An employee shall obtain prior written 
approval from his or her division director (or the division director's 
designee) and the concurrence of the Board's Designated Agency Ethics 
Official before engaging in compensated outside employment.
    (b) Standard for approval. Approval will be granted unless a 
determination is made that the prospective outside employment is 
expected to involve conduct prohibited by statute or Federal 
regulation, including 5 CFR part 2635 and this part.
    (c) Definition of employment. For purposes of this section, the 
term compensated outside employment means any form of compensated non-
Federal employment or business relationship involving the provision of 
personal services by the employee. It includes, but is not limited to, 
personal services as an officer, director, employee, agent, attorney, 
consultant, contractor, general partner, trustee, teacher or speaker.

TITLE 12--BANKS AND BANKING

CHAPTER II--FEDERAL RESERVE SYSTEM

    2. 12 CFR part 264 is revised to read as follows:

PART 264--EMPLOYEE RESPONSIBILITIES AND CONDUCT


Sec. 264.101  Cross-reference to employees' ethical conduct standards 
and financial disclosure regulations.

    Employees of the Board of Governors of the Federal Reserve System 
(Board) are subject to the executive branch-wide standards of ethical 
conduct at 5 CFR part 2635 and the Board's regulation at 5 CFR part 
6801, which supplements the executive branch-wide standards, and the 
executive branch-wide financial disclosure regulation at 5 CFR part 
2634.

    Authority: 5 U.S.C. 7301; 12 U.S.C. 244.

[FR Doc. 95-30581 Filed 12-18-95; 8:45 am]
BILLING CODE 6210-01-P