[Federal Register Volume 62, Number 228 (Wednesday, November 26, 1997)]
[Notices]
[Pages 63178-63180]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30964]


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FEDERAL HOUSING FINANCE BOARD

[No: 97-70]


Pilot Procedures and Pilot Proposal Initial Submission Guidelines

    Whereas, the Federal Housing Finance Board (Finance Board) 
considers it appropriate to adopt a policy that provides procedures for 
processing and analyzing pilot programs proposed by the Federal Home 
Loan Banks;
    Now therefore be it resolved that, the Finance Board hereby adopts 
the Pilot Procedures and Pilot Proposal Initial Submission Guidelines 
attached hereto.

    Dated: November 12, 1997.

    By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.

    The text of the Pilot Procedures and Pilot Proposal Initial 
Submission Guidelines follows:

Policy and Procedures For Pilot Proposals That Support Housing and 
Community Investment

    Purpose: To establish procedures to be followed by staff of the 
Federal Housing Finance Board (Finance Board) in the processing and 
analysis of proposed Federal Home Loan Bank (Bank) pilot programs 
through which the Banks would make other investments that support 
housing and community development. These procedures shall apply also to 
the processing and analysis of proposed amendments to existing pilot 
programs. In establishing these procedures, it is the Finance Board's 
intent that the pilot review process proceed in an efficient, 
expeditious fashion at all stages.
    Introduction: The Federal Home Loan Bank Act (Bank Act) provides 
that certain assets of each Bank not required for advances to members, 
may be invested in certain specified securities and investments. The 
Finance Board has implemented the investment provisions of the Bank Act 
through its regulations and the Financial Management Policy (FMP). 
Under Section 934.1 of the Finance Board's regulations and Section 
II.B.12 of the FMP, certain Bank investments that support housing and 
community development, and that are not specifically authorized under 
the FMP or otherwise, may be submitted to the Finance Board for 
approval. This policy establishes general procedures to be followed by 
Finance Board staff in reviewing pilot proposals or pilot amendment 
proposals (Proposal) for compliance with the statutory, regulatory, and 
FMP requirements.
    References: 12 U.S.C. Sections 1431(g), 1431(h), and 1436(a); 12 
CFR Section 934.1, of the Finance Board regulations; and Section 
II.B.12 of the FMP.

Procedures for Review of Proposals

    I. Receipt of Proposal. Copies of a Proposal shall be distributed 
to Finance Board Directors and appropriate Finance Board staff.
    II. Review of Proposal. The Office of Policy and the Office of 
General Counsel shall review the Proposal to ensure that it is complete 
and to determine whether there is evidence of a market for the proposal 
and whether it prima facie satisfies the FMP requirements (detailed 
below) and responds to the Finance Board's Pilot Proposal Submission 
Guidelines (Attachment).
    III. FMP Requirements. Section II of the FMP specifies certain 
types of assets as permissible investments to the extent they are 
specifically authorized under 12 U.S.C. 1431(g), 1431(h), or 1436(a), 
or to the extent a Bank has determined that they are securities in 
which fiduciary or trust funds may be invested under the laws of the 
State in which the Bank is located. Other investments that support 
housing and community development are permitted, provided that the 
Bank:
    A. Ensures the appropriate levels of expertise, establishes 
policies, procedures, and controls, and provides for any reserves 
required to effectively limit and manage risk exposure and preserve the 
Bank's and the Federal Home Loan Bank System's triple-A rating;
    B. Ensures that the Bank's involvement in such investment activity 
assists in providing housing and community development financing that 
is not generally available, or that is available at lower levels or 
under less attractive terms;
    C. Ensures that such investment activity promotes (or at the very 
least, does not detract from) the cooperative nature of the System;
    D. Provides a complete description of the contemplated investment 
activity (including a comprehensive analysis of how the above three 
requirements are fulfilled) to the Finance Board; and
    E. Receives written confirmation from the Finance Board, prior to 
entering into such investments, that the above investment eligibility 
standards and requirements have been satisfied.
    IV. The Office of Policy and the Office of General Counsel shall 
identify any policy or legal issues or questions, identify and discuss 
with the Office of Supervision the management of any potential risks 
involved in the Proposal, discuss the Proposal with other staff as

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necessary, call Bank personnel to clarify any uncertain or unclear 
aspects, and discuss issues or questions with the Director of the 
Office of Policy and the General Counsel, as appropriate.
    V. If the Office of Policy and the Office of General Counsel deem 
the Proposal incomplete, staff shall contact the Bank and afford Bank 
officials the opportunity to submit the necessary additional 
information.
    VI. If the Proposal is deemed complete by the Office of Policy and 
the Office of General Counsel but is not believed to meet the 
requirements of the FMP, the Director of the Office of Policy shall 
notify the Bank, either formally or informally, and afford the Bank the 
opportunity either to withdraw, modify, or insist upon the Proposal, as 
structured, being published for comment.
    VII. If the Office of Policy and the Office of General Counsel 
determine that the Proposal is complete and appears to address the 
requirements of the FMP and all issues or questions are satisfactorily 
resolved, the Office of Policy and the Office of General Counsel shall 
draft a Notice for publication in the Federal Register. The Notice 
shall be a summary of the Proposal that is sufficiently detailed to 
allow meaningful comments from interested parties through a comment 
period. However, it need not contain the staff's analysis of whether or 
how the proposal meets the FMP requirements. Publication of a Notice 
does not imply any level of approval or support of the Proposal by the 
Finance Board. The Board of Directors of the Finance Board will not 
review and render a decision on the Proposal until after public 
comments received on the Proposal are reviewed and analyzed by staff, 
as is discussed below.
    VIII. Prior to publication, the Office of Policy shall provide the 
Bank a copy of the section of the Notice that describes the Proposal 
and solicit the Bank's comments on the accuracy and completeness of the 
section.
    IX. The Notice must be approved by the Director of the Office of 
Policy and the Office of General Counsel, with copies provided to the 
Directors of the Office of Supervision and the Office of Public 
Affairs, prior to going to the Executive Secretariat and then to the 
Managing Director for signature.
    X. After publication of the Notice in the Federal Register, the 
Office of Policy and the Office of General Counsel shall respond to 
calls from the general public concerning the Proposal. The Office of 
Policy may answer questions about the program but requests for written 
information should be referred to the Office of General Counsel.
    XI. The Office of Policy and the Office of General Counsel shall 
analyze comments received and discuss them with other Finance Board 
staff as necessary.
    XII. To the extent necessary and appropriate, the Office of Policy 
or the Office of General Counsel shall contact the Bank and request a 
response to the issues or questions raised by commenters.
    XIII. Following publication of the Notice, the Bank shall submit to 
the Finance Board proposed policies and procedures to address risks 
inherent in its proposed pilot program (e.g., credit risk, market risk, 
interest rate risk, and other risks).
    XIV. Prior to Finance Board consideration, the Office of Policy and 
the Office of General Counsel shall review the proposed policies and 
procedures submitted by the Bank; the Bank's identification of, and 
plans for, managing risk; and the adequacy of expertise and number of 
staff planned by the Bank for its proposed pilot program. If necessary, 
staff may request additional information, clarification, etc.
    XV. Following review and analysis of the Proposal, public comments 
received, and the above three factors, the Office of Policy and the 
Office of General Counsel, in consultation with the Office of 
Supervision, shall make a determination as to whether to recommend 
approval or disapproval to the Board of Directors of the Finance Board. 
The following shall result from this determination:
    A. A briefing shall be held for Finance Board Directors regarding 
the Proposal and staff's recommendation.
    B. A Board package shall be prepared for the Proposal and include 
the staff's recommendation and a summary of public comments.
    C. Finance Board staff shall present the Proposal and their 
recommendation to the Board of Directors of the Finance Board.
    XVI. The Board of Directors of the Finance Board will take action 
on the Proposal. If approved, the Board resolution approving the 
Proposal shall indicate that the approval is subject to the pilot 
program passing a safety and soundness examination conducted by the 
Office of Supervision.
    XVII. The Office of Policy shall prepare a letter for signature by 
the Chairman or Managing Director to inform the Bank of the Finance 
Board's decision on the Proposal.
    XVIII. If the Board of Directors has approved the Proposal, program 
implementation shall be contingent upon confirmation by the Office of 
Supervision that the appropriate program policies, procedures, and 
controls have been implemented by the FHLBank.

Pilot Proposal Initial Submission Guidelines

    The following criteria should be addressed and included in a Bank's 
pilot proposal or pilot amendment proposal (Proposal) submitted to the 
Finance Board for approval.
    1. Board Resolution: A resolution from the Bank's board of 
directors approving the Proposal and authorizing its submission to the 
Finance Board.
    2. Description of Proposal: A complete description and discussion 
of the Proposal, including each of the following:

    a. Overall goals and objectives
    b. Pilot size and basis for determination
    c. Pilot operations
    d. Profitability goals and timeline
    e. The marketplace: Potential competitors (size, sophistication, 
typical staffing, expertise, etc.) typical margins, historical loss 
experience, and whether marketplace is expanding or contracting and 
why.
    f. Discuss which components of the program the Bank will have to 
create, hire, etc. This could include personnel, management, 
policies, procedures, hardware, software, facilities, etc.
    g. How the Proposal would benefit membership
    h. Expected benefits for the end user of the pilot product
    i. Identification and management of potential risks
    j. Explanation/basis for loan loss or risk reserves anticipated

    3. Compliance Authorization Criteria: Explanation of how the 
Proposal meets the requirements of Section II B.12 of the Finance 
Board's Financial Management Policy. Please provide specific responses 
for each subpart. This should also include a legal opinion that the 
proposed activity may be legally authorized by the Finance Board.
    4. Pilot Documentation, Support and Reporting: Discussion of 
anticipated program documentation, support, and reporting, including 
each of the following:
    a. Evidence of a market for the pilot product. This could include 
letters of support from anticipated participants, market surveys, etc., 
and should include anticipated participants' estimates of the dollar 
volume of their participation within the first three years of the 
program.
    b. Examples of required documentation between the Bank, members and 
other related counterparties, as well as any legal agreements drafted 
for the pilot.

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    c. The management structure for operating the pilot program. 
Identify the management, staff and directors who will be assigned to 
oversee and operate the pilot and discuss their expertise. Their 
resumes should be included with the Proposal. Discuss what additional 
personnel will need to be hired.
    d. A listing, description, and examples of management reports 
necessary to adequately monitor ongoing pilot activities.
    5. Measurement of Pilot Success: A discussion of criteria the Bank 
intends to utilize to measure the success of the program, such as:
    a. When the Bank anticipates reviewing the program and making a 
decision on whether to seek permanent or other status for the pilot.
    b. The existence of a sunset provision.
    c. The factors or conditions that might trigger a decision to 
terminate the pilot.

[FR Doc. 97-30964 Filed 11-25-97; 8:45 am]
BILLING CODE 6725-01-P