[Federal Register Volume 61, Number 155 (Friday, August 9, 1996)]
[Proposed Rules]
[Pages 41535-41537]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20212]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 934
[No. 96-53]
Amendment of Budgets Regulation
AGENCY: Federal Housing Finance Board.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Federal Housing Finance Board (Finance Board) is proposing
to amend its regulation governing approval of Federal Home Loan Bank
(FHLBank) budgets by removing the requirement that the FHLBanks'
budgets be approved by the Finance Board. In order to ensure sufficient
data to carry out its supervisory responsibility to ensure the safety
and soundness of FHLBank operations, the Finance Board is further
proposing to establish specific requirements for the FHLBanks'
preparation and reporting of both budget and other financial
information to the Finance Board. Certain of these reporting
requirements are derived and streamlined from the Finance Board's
current practice for budget and financial information reporting by the
FHLBanks. The proposed rule is in keeping with the Finance Board's
continuing effort to devolve corporate governance authority to the
FHLBanks. It also is consistent with the goals of the Regulatory
Reinvention Initiative of the National Performance Review.
DATES: Comments on this proposed rule must be received in writing on or
before September 9, 1996.
ADDRESSES: Send comments to Elaine L. Baker, Executive Secretary,
Federal Housing Finance Board, 1777 F Street, N.W., Washington, D.C.
20006. Comments will be available for public inspection at this
address.
FOR FURTHER INFORMATION CONTACT: John C. Waters or Christina T.
Muradian, Office of Policy, (202) 408-2860 or 408-2584, or Sharon B.
Like, Senior Attorney-Advisor, Office of General Counsel, (202) 408-
2930, Federal Housing Finance Board.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
Section 934.6 of the Finance Board's existing regulations provides:
As prescribed by the [Finance] Board or its designee, each Bank
shall prepare and submit to the Board for its approval a budget.
Each Bank will operate within such budget as approved or as it may
be amended by the Bank's board of directors within limits set by the
Board. Any amendment beyond such limits must be submitted to the
Board for approval. The Board's designee, may approve amendments
within limits set by the Board.
See 12 CFR 934.6.
The substance of Sec. 934.6 previously appeared at Sec. 524.6 of
the regulations of the Finance Board's predecessor, the Federal Home
Loan Bank Board (FHLBB). See 12 CFR 524.6 (1989). (redesignated). The
Financial Institutions Reform, Recovery, and Enforcement Act of 1989
(FIRREA), Pub. L. No. 101-73, 103 Stat. 183 (Aug. 9, 1989), amended the
Federal Home Loan Bank Act (Bank Act), 12 U.S.C. 1421 to 1449, by
creating the Finance Board and transferring from the FHLBB to the
Finance Board the responsibility for the supervision and regulation of
the twelve FHLBanks. See id. Secs. 1422a(a), 1422b(a)(1). Section 524.6
subsequently was redesignated as Sec. 934.6 of the Finance Board's
regulations. See 54 FR 36757 (Sept. 5, 1989).
The Bank Act does not provide explicitly for Finance Board approval
of Bank budgets. See 12 U.S.C. 1432(a). Such approval authority is
derived from the Finance Board's general powers and duties to supervise
the FHLBanks under sections 2A(a)(3) and 2B(a)(1) of the Bank Act, as
well as the Finance Board's authority to approve corporate powers
granted to the FHLBanks under section 12(a) of the Bank Act. See id.
Secs. 1422a(a)(3), 1422b(a)(1), 1432(a).
II. Analysis of the Proposed Rule
A. Current Practice and Basis For Proposed Amendment
In approving the FHLBanks' budgets under current Sec. 934.6, the
Finance Board's practice, which is not codified in the regulation, has
been to request from each FHLBank a report on the FHLBank's annual
budget approved by its board of directors, including the following
information: projected balance sheet; projected income statement
(including FHLBank board-approved operating expense budget and staffing
levels); FHLBank board-approved capital expenditures budget;
supplemental information as requested by the Finance Board; strategic/
business plan; organizational chart; FHLBank board-approved budget
resolution; and management discussion of the FHLBank's expected
financial performance and underlying assumptions and comparisons with
the financial performance from the prior year.
The Finance Board reviews this information and, pursuant to
Sec. 934.6, approves each FHLBank's operating expense and capital
expenditures budget. Generally, budgets have been approved by the
Finance Board as submitted by the FHLBanks. The Finance Board also
reviews and approves, pursuant to Sec. 934.6, amendments to the
FHLBanks' budgets to exceed previously approved limits.
In addition, Finance Board practice has been to require each
FHLBank to submit quarterly reports that evaluate year-to-date actual
performance results relative to the original approved budget
projections, and reforecasted financial projections for the remainder
of the year relative to the original approved budget projections. Each
FHLBank also submits an annual report that evaluates the actual
performance results for the year relative to the original approved
budget projections.
The Finance Board has been considering ways to transfer a variety
of
[[Page 41536]]
governance responsibilities it exercises to the FHLBanks since the
completion of studies by the Congressional Budget Office, General
Accounting Office, Department of the Treasury, Department of Housing
and Urban Development, and Finance Board, which were required by the
Housing and Community Development Act of 1992, Pub. L. No. 102-550, 106
Stat. 3672 (Oct. 28, 1992). These studies recommended that the
governance and regulatory responsibilities for the FHLBanks be
separated, with the FHLBanks carrying out the management functions, and
the Finance Board exercising regulatory oversight over the FHLBanks.
The Finance Board already has taken actions to devolve some governance
functions to the FHLBanks, including its recently adopted final rule
transferring responsibility for all FHLBank membership approvals from
the Finance Board to the FHLBanks. See Final Membership Rule, adopted
July 3, 1996, no. 96-43 (to be codified at 12 CFR part 933).
Approval of the FHLBanks' budgets is a management responsibility
which the Finance Board believes is best administered by the FHLBanks'
respective boards of directors. The Finance Board believes that Finance
Board approval of FHLBank budgets is unnecessary because incentives
exist at the FHLBank board level to encourage efficient FHLBank
operations: e.g., increased operating expenses reduce shareholder
dividends, and since FHLBank elected board members represent FHLBank
shareholders, they have an incentive to effectively manage operating
expenses. Moreover, over the past few years, FHLBank System operations
have become increasingly efficient, with the ratio of operating
expenses to total assets declining from 17 basis points in 1990 to 8
basis points in 1995.
In addition, the fact that the Finance Board generally has approved
the budgets as submitted by the FHLBanks indicates that Finance Board
approval of the budgets is unnecessary.
The Finance Board would continue to exercise its supervisory
responsibility to ensure that the FHLBanks are operating in a safe and
sound manner by requiring and reviewing FHLBank budget and other
financial information, and conducting on-site examinations of the
FHLBanks. As further discussed below, the reporting requirements in the
proposed rule would codify and streamline current reporting practice.
B. Section-by-Section Analysis of the Proposed Rule
1. Adoption of Annual FHLBank Budget--Sec. 934.6(a).
Under the proposed rule, Finance Board approval of FHLBank
operating expense and capital expenditures budgets no longer would be
required. Proposed Sec. 934.6(a)(1) provides that each FHLBank's board
of directors shall be responsible for the adoption of an annual
operating expense and capital expenditures budget for the FHLBank, and
any subsequent amendments thereto, consistent with the requirements of
the Bank Act, proposed Sec. 934.6, and other regulations and policies
of the Finance Board. Implicit in these requirements are the
requirements that the FHLBanks operate in a financially safe and sound
manner and carry out their housing finance mission to the extent
consistent with the former. See 12 U.S.C. 1422a(a)(3).
The extent to which a FHLBank is operating efficiently pursuant to
its approved budget limits may impact on its safety and soundness and
ability to carry out its housing finance mission. The proposed rule
does not establish a specific ``efficiency'' standard as part of the
overall safety and soundness and housing finance mission requirements.
The Finance Board specifically requests comments on whether such a
standard should be included in the rule, and if so, what that standard
should be.
Proposed Sec. 934.6(a)(2) provides that the board of directors of a
FHLBank may not delegate the authority to approve the annual budget, or
any subsequent amendments thereto, to FHLBank officers or other FHLBank
employees.
Proposed Sec. 934.6(a)(3) requires that each FHLBank's annual
budget be prepared based upon an interest rate scenario provided by the
Finance Board. This is consistent with current Finance Board practice.
The Finance Board specifically requests comments on whether an
alternative approach, such as requiring the use of reported interest
rates as of a fixed date specified in the regulation, would be
preferable to the current approach.
Proposed Sec. 934.6(a)(4) provides that a FHLBank may not exceed
its annual budget limits without prior approval by the FHLBank's board
of directors of an amendment to such budget.
2. Annual Budget Report--Sec. 934.6(b)
Proposed Sec. 934.6(b) establishes specific FHLBank reporting
requirements, certain of which are codified and streamlined from the
Finance Board's current practice for FHLBank reporting.
Specifically, the FHLBanks would be required to submit to the
Finance Board, by January 31 of each year, in accordance with reporting
formats and as further prescribed by the Finance Board, a report
containing such FHLBank budget and other financial information as the
Finance Board shall require, which may include the following: (1)
balance sheet projections; (2) income statement projections, including
operating expense budget data and staffing levels; (3) capital
expenditures budget data; (4) management discussion of expected
financial performance; (5) strategic or business plan, and (6) a copy
of the FHLBank's board of directors resolution adopting the FHLBank's
annual operating expense and capital expenditures budget.
3. Report on Amendments to Annual Budget--Sec. 934.6(c)
Proposed Sec. 934.6(c) requires a FHLBank to submit promptly to the
Finance Board a copy of the FHLBank's board of directors resolution
adopting any amendment to the FHLBank's annual budget.
4. Mid-year Reforecasting Report--Sec. 934.6(d)
Rather than requiring the current quarterly reports from the
FHLBanks of reforecasted projections for the year relative to original
budget projections, proposed Sec. 934.6(d) requires each FHLBank to
submit only a mid-year report containing a balance sheet and income
statement setting forth reforecasted projections for the year relative
to the original budget for that year, including a management discussion
explaining any significant changes from the original budget.
5. Annual Actual Performance Results Report--Sec. 934.6(e)
Rather than requiring the current quarterly reports from the
FHLBanks, which analyze actual performance results for the period
relative to original budget projections, proposed Sec. 934.6(e)
requires each FHLBank to submit only an annual report containing a
balance sheet and income statement setting forth actual performance
results for the year relative to the original budget for that year,
including a management discussion explaining any significant changes
from the original budget.
III. Regulatory Flexibility Act
This proposed rule applies only to the FHLBanks, which do not come
within the meaning of ``small entities,'' as defined in the Regulatory
Flexibility Act. See 5 U.S.C. 601(6). Therefore, in
[[Page 41537]]
accordance with 5 U.S.C. 605(b), the Finance Board hereby certifies
that this proposed rule, if promulgated as a final rule, will not have
a significant economic impact on a substantial number of small
entities.
List of Subjects in 12 CFR Part 934
Federal home loan banks, Securities, Surety bonds.
Accordingly, the Federal Housing Finance Board hereby proposes to
amend title 12, chapter IX, subchapter B, part 934, of the Code of
Federal Regulations, as follows:
PART 934--OPERATIONS OF THE BANKS
1. The authority citation for part 934 is revised to read as
follows:
Authority: 12 U.S.C. 1422a, 1422b, 1442.
2. Section 934.6 is revised to read as follows:
Sec. 934.6 Budget preparation and reporting requirements.
(a) Adoption of annual Bank budget. (1) Each Bank's board of
directors shall be responsible for the adoption of an annual operating
expense and capital expenditures budget for the Bank, and any
subsequent amendments thereto, consistent with the requirements of the
Act, this section, and other regulations and policies of the Board.
(2) A Bank's board of directors may not delegate the authority to
approve the Bank's annual budget, or any subsequent amendments thereto,
to Bank officers or other Bank employees.
(3) A Bank's annual budget shall be prepared based upon an interest
rate scenario provided by the Board.
(4) A Bank may not exceed its annual budget limits without prior
approval by the Bank's board of directors of an amendment to such
budget.
(b) Annual budget report. Each Bank shall submit to the Board, by
January 31 of each year, in accordance with reporting formats and as
further prescribed by the Board, a report containing such Bank budget
and other financial information as the Board shall require, which may
include the following:
(1) Balance sheet projections;
(2) Income statement projections, including operating expense
budget data and staffing levels;
(3) Capital expenditures budget data;
(4) Management discussion of expected financial performance;
(5) Strategic or business plan; and
(6) A copy of the FHLBank's board of directors resolution adopting
the FHLBank's annual operating expense and capital expenditures budget.
(c) Report on amendments to annual budget. A Bank shall submit
promptly to the Board a copy of the Bank's board of directors
resolution adopting any amendment to the Bank's annual budget.
(d) Mid-year reforecasting report. Each Bank shall submit to the
Board, by July 31 of each year, in accordance with reporting formats
and as further prescribed by the Board, a report containing a balance
sheet and income statement setting forth reforecasted projections for
the year relative to the original budget for that year, including a
management discussion explaining any significant changes in the
reforecasted projections from the original budget.
(e) Annual actual performance results report. Each Bank shall
submit to the Board, by January 31 of each year, in accordance with
reporting formats and as further prescribed by the Board, a report
containing a balance sheet and income statement setting forth the
actual performance results for the prior year relative to the original
budget for that year, including a management discussion explaining any
significant changes in the actual performance results from the original
budget.
Dated: July 25, 1996.
By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.
[FR Doc. 96-20212 Filed 8-8-96; 8:45 am]
BILLING CODE 6725-01-P