[Federal Register Volume 63, Number 92 (Wednesday, May 13, 1998)]
[Proposed Rules]
[Pages 26532-26560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-12651]



[[Page 26532]]

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FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 922, 931, 932, 933, 934, and 941

[No. 98-11]
RIN 3069-AA55


Election of Federal Home Loan Bank Directors

AGENCY: Federal Housing Finance Board.

ACTION: Proposed rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is proposing 
to amend its regulations on the election of Federal Home Loan Bank 
(Bank) directors. The rule would devolve responsibility for determining 
the eligibility of elective directors and administering the Bank 
director election process from the Finance Board to the Banks. The 
proposed rule is part of the Finance Board's continuing effort to 
transfer management and governance responsibilities to the Banks and is 
consistent with the goals of the Regulatory Reinvention Initiative of 
the National Performance Review.

DATES: The Finance Board will accept comments on the proposed rule in 
writing on or before June 29, 1998.

ADDRESSES: Mail comments to Elaine L. Baker, Secretary to the Board, 
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: Patricia L. Sweeney, Program Analyst, 
Compliance Assistance Division, Office of Policy, 202/408-2872, or Roy 
S. Turner, Jr., Attorney-Advisor, Office of General Counsel, 202/408-
2512, Federal Housing Finance Board, 1777 F Street, N.W., Washington, 
D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    Pursuant to section 7 of the Federal Home Loan Bank Act (Act), 
which sets forth the eligibility requirements and the procedures for 
electing and appointing Bank directors, and regulations promulgated 
thereunder, the Finance Board's predecessor, the former Federal Home 
Loan Bank Board (FHLBB), determined the eligibility of all Bank 
directors, administered the Bank director elections, and appointed 
public interest directors. See 12 U.S.C. 1427 (1989); 12 CFR part 522 
(1989). After Congress abolished the FHLBB in 1989, see Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), 
Pub.L. 101-73, sec. 401, 103 Stat. 183 (Aug. 9, 1989), the Finance 
Board adopted the FHLBB regulations on Bank directors, without change. 
See 54 FR 36757 (Sept. 5, 1989), codified at 12 CFR part 932. The 
Finance Board subsequently amended its regulations to implement the 
changes FIRREA made to the eligibility requirements for, and to apply 
the conflicts of interest limitations FIRREA imposed on, Bank 
directors. 55 FR 1393 (Jan. 16, 1990); 56 FR 55205 (Oct. 25, 1991); see 
FIRREA, secs. 707, 710(b)(4), 103 Stat. 417, 418, codified at 12 U.S.C. 
1427.
    Since the enactment of FIRREA the Finance Board has determined the 
eligibility of all Bank directors, has administered the election of 
Bank directors, and has appointed public interest directors. As part of 
the Finance Board's continuing effort to devolve management and 
governance responsibilities to the Banks, the Finance Board believes it 
appropriate to transfer the administration of the elections, including 
the responsibility to determine the eligibility of elective directors, 
to the Banks. The proposal would not affect the appointment of public 
interest directors, which remains within the sole discretion of the 
Finance Board.
    The proposed rule would amend, redesignate, or eliminate various 
provisions of part 932, and would include conforming amendments to 
parts 931, 933, 934, and 941. The Finance Board also is proposing to 
revise the current conflicts of interest and financial disclosure 
requirements established by part 922 of its regulations for appointed 
members of the Board of Directors of the Finance Board. All of the 
proposed changes are consistent with the goals of the Regulatory 
Reinvention Initiative of the National Performance Review. See E.O. 
12861, 58 FR 48255 (Sept. 11, 1993).

II. Analysis of the Proposed Rule

    The proposal would include a separate definition section for the 
election regulations, the principal provisions of which are described 
below.

A. Definitions--Sec. 932.1

1. ``Bona Fide Resident''-- Sec. 932.1
    Both the Act and current regulation use the term ``bona fide 
resident'' to identify individuals eligible to serve as a director of a 
Bank. See 12 U.S.C. 1427(a); 12 CFR 932.18(a)(2) (1997). Neither the 
Act nor the regulation, however, defines the term. The proposed rule 
would define ``bona fide resident'' of a Bank district. The definition 
would include alternative means of being considered a ``bona fide 
resident'' of a Bank district.
    First, an individual would be a ``bona fide resident'' if he or she 
maintains a principal place of residence within the Bank's district. 
The concept of a principal place of residence generally requires both 
physical presence and intent to remain, or an intent to return after an 
absence. An individual's principal place of residence usually is the 
same as the permanent residence reported to the Internal Revenue 
Service.
    There have been some instances in which an officer or director of a 
member located in one state maintains a principal residence in an 
adjacent state, which happens to be in another Bank district. In such 
cases, the individual would not be eligible to serve as Bank director 
under a ``principal residence'' test. By interpretation, and on a case-
by-case basis, the Finance Board has allowed such individuals to serve 
as Bank directors, provided they own or lease a residence, other than 
their principal residence, in the district.
    As a second means of being deemed a ``bona fide resident,'' the 
proposal would codify this interpretation. The rule would deem an 
individual to be a ``bona fide resident'' if he or she owns or leases 
in his or her name a residence within the Bank's district, and 
maintains a requisite employment nexus, i.e., if an elective director, 
he or she also is a director or officer of a member located within the 
district or, if an appointive director, he or she is employed within 
the Bank district. Qualifying residences might include vacation homes, 
or other homes used seasonally or on a part-time basis, that the 
individual owns or leases in his or her name. For elective directors, a 
person is eligible to serve only as a representative of the state in 
which the principal place of business of his or her employer (the 
member) is located, although the residence, whether principal or 
otherwise, may be in any state within the district.
2. ``Docket Number''--Sec. 932.1
    Various provisions of the current regulations require a Bank to 
identify its members by name, city or county and state. As a matter of 
practice, the Finance Board assigns a docket number to each new member, 
which is used by the Finance Board and the Banks to identify that 
member. The proposed rule would define ``docket number'' as the number 
assigned by the Finance Board and used by the Finance Board and the 
Banks to identify a particular member. The term is used in several 
provisions of the proposed regulation and is

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intended to assist staff of the Banks in administering the elections by 
distinguishing between members that have the same or similar names.
3. ``Member''--Sec. 932.1
    Section 2(4) of the Act defines ``member'' as an institution that 
has subscribed for stock in a Bank. 12 U.S.C. 1422(4). For purposes of 
the election of directors, section 7(b) of the Act defines the term 
``member'' as ``a member of a Federal Home Loan Bank which was a member 
of such bank at the end of'' the calendar year preceding the election. 
12 U.S.C. 1427(b). The proposed rule would define ``member'' as an 
institution admitted to membership and owning capital stock in a Bank, 
which tracks the general definition of ``member.'' To conform to the 
section 7 definition of ``member,'' the proposal would include textual 
references to the ``record date'' where appropriate.
4. ``Record Date''--Sec. 932.1
    The proposed rule defines December 31 of the year preceding the 
election as the ``record date'' for the Bank director elections.
5. ``Voting State''--Sec. 932.1
    The proposed rule would define a ``voting state'' to mean the 
District of Columbia, Puerto Rico, or state in the United States in 
which a member's principal place of business is located as of the 
record date. Puerto Rico would be designated as the voting state for 
members whose principal place of business is located in the Virgin 
Islands, which conforms to current practice. Hawaii would be designated 
as the voting state for members whose principal place of business is 
located in Guam, which conforms to current practice, as well as for 
members whose principal place of business is located in American Samoa 
and the Commonwealth of Northern Marina Islands, which is new.

B. Dates--Sec. 932.2

    Section 932.14(f) of the current regulation provides that if a date 
prescribed in the regulations falls on Saturday, Sunday or holiday, the 
next business day shall be included in the time allowed. See 12 CFR 
932.14(f)(1997). The proposed rule would amend this provision by 
substituting ``federal holiday'' for ``holiday'' and expanding it to 
include dates set by the Banks pursuant to the proposal, as well as 
those specified in the regulations.

C. Director Elections--Sec. 932.3

1. Responsibilities of the Banks
    Under the existing regulation, the Finance Board is solely 
responsible for the conduct and administration of the director 
elections. Proposed Sec. 932.3 would transfer this responsibility to 
the Banks and would require them to administer and conduct an annual 
election to fill those directorships, the terms of which have been 
designated by the Finance Board as commencing on January 1 of the 
following year. That would include existing directorships that have 
been designated as continuing, plus any newly designated seats. The 
disinterested members of the board of directors, or a committee of 
disinterested directors, would have the responsibility for 
administering the election, which would allow their oversight and 
approval of the process, and would not preclude the use of staff as 
well. The proposal would provide that the term of each elective 
directorship shall commence on January 1 of the year immediately 
following the election. Each Bank would have the discretion to 
determine the dates for the various stages of the election process, so 
long as the Bank completes the process in sufficient time to allow 
newly elected directors to assume their seats on January 1 of the year 
following the election.
2. Designation of Elective Directorships
    Section 7(a) of the Act provides that the board of directors of 
each Bank shall have a minimum of fourteen members: eight elective 
directors and six appointive directors. See 12 U.S.C. 1427(a). Section 
7(b) of the Act requires the Finance Board to designate the number of 
elective directorships representing the members of each state in a Bank 
district. See id. 1427(b). The Act also requires the Finance Board to 
allocate the elective directorship seats among the states within the 
Bank district based upon the ratio of the required Bank stock held by 
members in the state to the total required Bank stock in the district, 
ensuring that ``in the case of each state such number shall not be less 
than one and shall be not more than six.'' See id. 1427(c).
    Section 932.3(b) of the proposed rule carries forward the 
requirements of sections 7(a), 7(b) and 7(c) of the Act, requiring the 
Finance Board annually to designate the number of elective 
directorships for each Bank district. The proposed rule would specify 
the methodology by which the Finance Board would make the required 
allocation of directors. The process would begin by allocating one 
elective directorship to each state within a Bank district. If the 
number of elective directorships so allocated is less than eight, the 
proposed rule Sec. 932.3(b)(2) would require the Finance Board to 
allocate the remaining directorships by using the method of equal 
proportions, until the total number allocated for the district equals 
eight. The method of equal proportions is the formula used by Congress 
to apportion congressional seats among the fifty states. The Act does 
not prescribe details of the Finance Board's allocation, and the 
Finance Board is proposing to adopt this method because it believes 
that the method is a reasonable means of implementing congressional 
intent on how Bank director seats should be allocated.
    The Act also includes a grandfather provision, which guarantees 
that each state is entitled to at least the number of elective 
directorships that it had on December 31, 1960. See 12 U.S.C. 1427(c). 
Section 932.3(b)(3) carries this requirement forward in the proposed 
rule, requiring the Finance Board to allocate any additional elective 
directorships necessary to comply with the grandfather provision.
    Section 7(e) of the Act authorizes the Finance Board to add an 
elective seat to the board of the Bank of the district in which Puerto 
Rico is located if at the time the district has fewer than five states. 
See 12 U.S.C 1427(e). Section 932.9 of the current regulation allocates 
one additional elective directorship to the Bank of New York, 
representing the Commonwealth of Puerto Rico. Section 923.3(b)(4) of 
the proposal would implement this requirement.
    The Act also provides the Finance Board with the discretionary 
authority to increase the number of elective directorships up to 
thirteen, and the number of appointive directorships up to three-
fourths of the number of elective directorships, in any district with 
five or more states. See 12 U.S.C. 1427(a). The proposal would include 
this provision, and would provide that in creating any additional 
appointive directorships the Finance Board may round up to the nearest 
whole number.
    Section 932.3(c) of the proposed rules would require the Finance 
Board to notify each Bank, by May 10 of each year, of the total number 
of elective directorships established for the Bank and the number of 
elective directorships representing the members in each state in the 
district. The proposal also would codify current practice of allowing 
incumbent directors to retain their seats for the remainder of their 
term in the event that the Finance Board were to reduce the number of 
seats allocated to a particular state as part of the annual

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designation of seats. The proposal also would include a transition 
provision, making clear that these amendments do not affect the current 
terms of office of the elective directors, and precluding the Banks 
from altering the commencement or termination dates of those terms. 
Thus, the proposal would retain the current staggering of elective 
directorship terms at each Bank.

D. Capital Stock Report--Sec. 932.4

    Section 932.12 of the existing regulation requires each Bank to 
submit to the Finance Board by April 15 a report detailing the number 
of shares of Bank stock each of its members was required to hold at the 
end of the preceding calendar year. See 12 CFR 932.12 (1997). Proposed 
Sec. 932.4 would continue this requirement, but would require 
submission of the report by April 10. Each Bank's report must include 
the following information for its district: the number of members 
within each voting state and the number of shares of capital stock 
required to be held by each member as of the record date and the 
aggregate total number of shares of capital stock required to be held 
by all members in each voting state as of the record date. The number 
of shares of stock is to be the greater of either the advances-to 
capital stock requirement or the minimum capital stock requirement. If 
a member has elected to purchase its minimum capital stock holding in 
installments, the number of shares of capital stock the member would be 
deemed to own for these purposes would be the cumulative total of 
shares actually purchased as of the record date.
    As is currently the practice, the Finance Board would rely upon 
information from the capital stock report to designate elective 
directorships among the states in each Bank district. Each Bank also 
must notify each of its members of its minimum capital holdings 
pursuant to Sec. 933.22(b)(1) and must certify to the Finance Board 
that it has done so and that to the best of its knowledge, the 
information within the capital stock report is accurate and complete.
    Proposed Sec. 932.4 would permit a member to object to its required 
capital holdings pursuant to Sec. 933.22(b)(1), provided it does so in 
writing to the Finance Board within 15 days after the date on which it 
receives that information. The Finance Board then must promptly resolve 
any differences about the data, after which the Finance Board's 
determination would be final.

E. Determination of Member Votes--Sec. 932.5

    Section 7(b) of the Act provides that in electing directors, each 
member may cast a number of votes equal to the number of shares of 
capital stock in the Bank the member was required to hold as of the 
record date, which may not exceed the average number of shares required 
to be held by all of the members as of the record date. See 12 U.S.C. 
1427. At present, the Finance Board determines the number of votes each 
member may cast. Under the proposal, the Banks would assume this 
responsibility.
    There are a number of provisions in the current regulations 
terminating voting rights on the basis of events occurring after the 
record date, such as a merger, withdrawal from membership or 
receivership. See 12 CFR Secs. 933.24-933.28 (1997). By keying the 
existence of voting rights exclusively to the number of shares held as 
of the record date, the proposal would allow the legal successor to any 
such member to exercise whatever voting rights the member could have 
exercised in the election. In years subsequent to such a transaction, 
the successor's right to vote, if any, would be determined by its own 
membership status.

F. Elective Director Nominations--Sec. 932.6

1. Election Announcement
    Section 932.13 of the existing regulation requires the Finance 
Board to provide a written election announcement to the members by June 
15 and to allow members until July 15 to submit nominating 
certificates. See 12 CFR 932.13(a), (b) (1997). Under proposed 
Sec. 932.6, the Banks would provide to each member a written 
announcement of the upcoming annual director election, and would be 
required to do so within a reasonable time in advance of the election. 
The election announcement must include: (1) the number of elective 
directorships designated as representing the members in each voting 
state in the Bank district; (2) the name of each Bank director, the 
name and city or county and state of the member each elective director 
serves as an officer or director or the organization with which each 
appointive director is affiliated, if any, and the expiration date of 
each director's term of office, (3) an attachment indicating the name 
and city, county and state of every member in the member's voting 
state, and the number of votes each such member may cast in the 
election; and (4) a nominating certificate for the appropriate voting 
state. If there is no election in a state, the Bank need not provide 
the attachment and the nominating certificate.
2. Nominations
    Consistent with section 7(b) of the Act, proposed Sec. 932.6(b) 
authorizes any member eligible to vote in an election to nominate a 
qualified individual to run for election for any open elective 
directorship in its voting state. See U.S.C. 1427(b). In order to do 
so, a member must submit to its Bank, before a deadline to be 
designated by the Bank, a nominating certificate that has been duly 
adopted or certified by its governing body or by an individual with 
authority to act on behalf of its governing body. The certificate must 
include the name of the nominee and the name, location and docket 
number of the member at which the nominee serves as an officer or 
director. A member may submit only one nominating certificate for each 
open directorship. Unlike the current rule, members would submit 
nominating certificates exclusively to their Bank; the Finance Board 
would no longer receive or review the certificates.
    To provide members with sufficient time to complete and submit 
nominating certificates, proposed Sec. 932.6(b)(3) requires the Banks 
to set a deadline for submissions to the Bank, which must be at least 
30 days after the date on which the Bank mails the notice of the 
election. The Bank may not consider nominating certificates received 
after the deadline. To facilitate compliance reviews by Finance Board 
examiners, proposed Sec. 932.6(b)(3) requires a Bank to retain all 
nominating certificates it receives for at least two (2) years after 
the date of election.
3. Accepting Nominations
    Proposed Sec. 932.6(c) requires each Bank, upon receiving a 
nomination, to notify the nominee in writing. The Bank will notify the 
nominee once regardless of the number of nominations received by the 
nominee. To accept a nomination, the nominee must submit an executed 
Form E-1 (See Appendix A to the Preamble) to the Bank prior to a 
deadline established by the Bank, which must be at least 30 days after 
the date of the notice of the nomination. A nominee may decline the 
nomination by advising the Bank in writing or by failing to submit the 
Form E-1 before the deadline.

G. Eligibility Requirements for Elective Directors--Sec. 932.7

    Proposed Sec. 932.7 would require the Banks to verify that nominees 
meet statutory and regulatory eligibility

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requirements for elective directors before placing their names on the 
ballots. See 12 U.S.C. 1427. Under the current rule, the Finance Board 
makes the determination regarding eligibility. See 12 CFR 932.14 
(1997).
    The Banks must determine that each elective director-nominee is a 
citizen of the United States and a bona fide resident of the Bank's 
district. In addition, the nominee must be an officer or director of a 
member that is located in the voting state to be represented by the 
elective directorship and was a member as of the record date. The 
member also must meet the minimum capital requirements of its 
appropriate federal or state regulator.
    The proposed rule would require information concerning state 
regulatory requirements only if the member is not subject to 
supervision by a federal regulator. If a member is subject to 
regulation by both a state and federal regulator, i.e., state-chartered 
financial institution insured by the Federal Deposit Insurance 
Corporation, the individual need only submit information concerning the 
federal regulator's capital requirements. The term ``appropriate 
federal regulator'' has the same meaning as the term ``appropriate 
Federal banking agency'' in section 2[3] of the Federal Deposit 
Insurance Act, and, for federally insured credit unions, means the 
National Credit Union Administration. See 12 U.S.C. 1813(q); 12 CFR 
931.26 (1997). The proposed regulation would continue to define the 
term ``appropriate state regulator'' to mean any state officer, agency, 
supervisor or other entity that has regulatory authority over, or is 
empowered to institute enforcement action against, a member. See 12 CFR 
933.1(f) (1997).
    Under the proposed rule, the Banks would (as the Finance Board has 
done) verify a nominee's eligibility by relying on the information each 
nominee provides on Form E-1. The proposed rule does not provide for 
any review of an adverse decision on a particular nominee's 
eligibility. The Finance Board considered establishing some such 
mechanism, but has opted not to do so, principally due to the time 
constraints involved and the relatively straightforward nature of the 
eligibility requirements. Moreover, the procedures adopted for making 
such determinations will be subject to the scrutiny of the Finance 
Board's examiners. The Finance Board specifically requests comments on 
the need for such a provision.
    To assist the Banks in their eligibility determinations, the 
proposed rule includes three provisions describing situations in which 
a nominee would not be eligible to be a director. Each of these 
provisions is based on a statutory prohibition. Specifically, a nominee 
is not eligible to become an elective director if he or she is 
currently an elective director, unless the current term of office would 
expire before the commencement of the new term of office. In addition, 
a nominee's prospective service must not be barred by the term limit 
provisions of the Act, and a nominee may not be an incumbent appointive 
director. The term limit provision makes ineligible any person who has 
been elected to, and served all or part of, each of three consecutive 
full terms of office as an elective director, if less than two years 
have passed since the expiration of the last term. See 12 U.S.C. 
1427(d)(term limit provision). Any such individual would be eligible to 
run for an elective directorship that begins two years after the end of 
that director's third term.

H. Election Process--Sec. 932.8

1. Ballots
    Similar to the current process conducted by the Finance Board, the 
proposed rule would require the Bank to prepare a ballot for each 
voting state with a directorship to be filled in the election, and to 
mail the ballot to all members located in that state that were members 
as of the record date. An institution that becomes a member after the 
record date is not eligible to vote in that year's election, and a Bank 
may not provide any such institution with a ballot or allow it to vote 
during that year. The ballot must include certain minimum information, 
including an alphabetical listing of the names of each nominee, the 
name, location and docket number of the member at which each nominee 
serves, the nominee's title or position with the member, and the number 
of elective directorships to be filled. The Bank must prepare and mail 
the ballot promptly after verifying the eligibility of the nominees, 
and must include on the ballot a statement that write-in candidates are 
not permitted and a confidentiality statement that the Bank will not 
disclose how the member voted, which is intended to maintain ballot 
secrecy.
    The rule would allow a Bank to include other relevant information 
on the ballot, at its discretion, such as the number of votes that the 
respective member may cast. The proposed rule permits Banks to conduct 
a 30-day balloting period, at a minimum.
2. Lack of Nominees
    In those instances where the number of nominations received for an 
open elective directorship in any state is less than or equal to the 
number of directorships to be filled in the elections, the proposed 
Sec. 932.8(b) requires a Bank to declare elected any eligible nominee. 
The Bank also must notify the members in the affected voting state that 
the directorships have been filled without an election due to a lack of 
nominees. If there is no nominee for a particular seat, the Bank shall 
declare the seat vacant and the Bank's board of directors shall fill 
the vacancy by majority vote, in accordance with the provision 
regarding vacant Bank directorships. Any person chosen to fill a 
vacancy must meet all of the eligibility requirements for that seat, 
which means that it could not be filled by a director or officer of a 
member located in another state, or by a person barred by the term 
limits provisions from serving as an elective director.
3. Voting
    The proposed rule provides that a member may cast a number of votes 
equal to the amount of stock required to be held as of the record date. 
The rule also would provide that a member may not pool its votes for a 
single nominee, when there are two or more open elective directorships 
to be filled; any nominee selected will receive only the number of 
votes that the member is entitled to cast. Proposed Sec. 932.8(c) also 
would prohibit a member from splitting its votes among the nominees for 
a single open elective directorship.
    Proposed Sec. 932.8(c) further requires a member to vote for only 
one nominee for each available elective directorship. Each nominee 
shall receive all of the votes the member is entitled to cast. The 
member must execute the ballot by resolution of its governing body or 
by an individual with authority to act on behalf of its governing body, 
and deliver it to the Bank before the closing date established by the 
Bank. The closing date must be at least 30 days after the ballots are 
mailed to the members. A member may not change a ballot after it has 
been delivered to the Bank, and any ballots not cast in accordance with 
these requirements will be void.
4. Counting Ballots
    Proposed Sec. 936.8(d) provides that a Bank may not open any ballot 
until after the closing date and may not include any ballot delivered 
after the closing date. Promptly after the polls close, each Bank must 
tabulate the votes cast in accordance with the regulatory requirements 
and declare elected the nominee who received the highest number of 
votes. If more than one elective directorship is to be filled, the

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Bank must declare elected the nominee who received the next highest 
number of votes and so on until all open elective directorships are 
filled. In the event of a tie for the last available seat, the proposed 
rule requires the board of directors of the Bank, by majority vote, to 
declare elected one of the nominees for whom the number of votes cast 
was tied. Proposed Sec. 932.8(d)(3) requires the Bank to retain all 
ballots for at least two (2) years after the date of the election, and 
bars it from disclosing the way in which a particular member voted.
5. Report of Election
    Promptly following the election, proposed Sec. 932.8(e) requires 
each Bank to provide written notice of the election results to the 
Finance Board, all members in its district, and each nominee. The 
report of the election must include: (1) the name of the newly elected 
director, the name and location of the member at which he or she serves 
and his or her title or position at the member; (2) the voting state 
the newly elected director represents; (3) the expiration date of the 
new director's term of office; (4) the number of members voting in the 
election and the number of votes actually cast, each reported by voting 
state; and (5) the number of votes cast for each nominee.

I. Prohibition on Actions to Influence Director Elections--Sec. 932.9

1. Prohibition
    Section 932.9 of the proposed rule revises and restates the 
coverage of the prohibition on actions to influence the election of 
Bank directors contained in Sec. 931.15 of the current rule. See 12 CFR 
931.15 (1997). Proposed Sec. 932.5(a)(1) would prohibit any director, 
officer, attorney, employee, or agent of the Finance Board or of a Bank 
from directly or indirectly communicating, in any form, support for the 
nomination or election of a particular individual for an elective 
directorship, or from taking any other action to influence the votes 
for the directorship. Proposed Sec. 932.9 would extend to members the 
prohibition on communications indicating that any official of the 
Finance Board or of a Bank supports a particular candidate, but members 
would not be subject to the ``take any other action'' element of the 
prohibition. In effect, the provision would allow members to express 
opinions about director nominees so long as they do not suggest that 
the Finance Board or the Bank endorses a particular candidate.
2. Exception for Incumbent Bank Directors
    Proposed Sec. 932.9(b) would provide an exception from the 
prohibition on actions to influence the election. The exception would 
permit an incumbent Bank director acting in his or her personal 
capacity to support the nomination or election of any individual, 
provided that the director does not purport to represent the views of 
the Bank, the Finance Board, or any director, officer, attorney, 
employee or agent of the Bank or of the Finance Board. The use of the 
word ``any'' is intended to allow a director to promote his or her own 
candidacy, as well as that of other persons. The reference to 
``personal capacity'' is intended to preclude the use of a director's 
official title, position, or authority associated with the position of 
Bank director, such as through use of Bank stationery, to endorse a 
candidate.

J. Selection of Appointive Directors--Sec. 932.10

1. Selection
    Consistent with section 7(a) of the Act, proposed Sec. 932.10 would 
provide that the Finance Board has sole discretion to select all 
appointive directors. See 12 U.S.C. 1427(a). For ease of administration 
and to ensure uniform treatment and rigorous review, the Finance Board 
will continue to rely upon Form A-1 (See Appendix A to the Preamble), 
the Appointive Director Eligibility Certification Form, to elicit the 
information it requires to determine whether prospective and incumbent 
appointive directors meet all of the statutory eligibility 
requirements. In order to reduce the reporting burden, the Finance 
Board has revised Form A-1 and is proposing to eliminate Form A-2.
2. Term of Office
    Proposed Sec. 932.10 designates January 1 as the commencement date 
for appointive directors' terms of office.

K. Conflicts of Interest Policy for Bank Directors--Sec. 932.11

1. Adoption of Conflicts of Interest Policy
    To prevent conflicts of interest that may affect a Bank director in 
the performance of his or her official duties, the proposed rule 
includes a conflicts of interest provision that would replace the 
financial disclosure requirements and the prohibitions on service, 
financial interests, financial relationships, and gifts in the current 
regulation. See 12 CFR 932.18(b)-(d), 932.21(b)-(c) (1997). The 
proposal would require the board of directors of each Bank to adopt a 
written conflicts of interest policy, and would specify its minimum 
contents. The Finance Board intends the proposed provisions, which are 
somewhat more general in nature and afford more latitude to the Banks, 
to more closely parallel the requirements of general corporate 
practices.
    Under proposed Sec. 932.11(a), the conflicts of interest policy 
each Bank adopts, at a minimum, must:
    (1) Require the directors to administer the affairs of the Bank 
fairly and impartially and without discrimination in favor of or 
against any member or nonmember borrower, See 12 U.S.C. 1427(j);
    (2) Prohibit the use of a director's official position for personal 
gain;
    (3) Require directors to disclose actual or apparent conflicts of 
interest, and establish procedures for addressing such conflicts;
    (4) Provide internal controls to ensure that reports are filed and 
the conflicts are disclosed and resolved in accordance with the 
conflicts of interest requirements; and
    (5) Establish procedures to monitor compliance with the conflicts 
of interest policy.
2. Disclosure and Recusal
    Proposed Sec. 932.11(b) requires a director to inform promptly the 
board of directors of any and all situations where the director or any 
immediate family member has a financial interest in a matter before the 
board of directors. This disclosure also applies to any financial 
interest the director may have in any organization or any individual 
doing business with the Bank, excluding any interest relating to the 
member at which the director serves. The proposed rule also requires 
each director to refrain from participating in deliberations, 
determinations or voting concerning any matter, that directly or 
indirectly affects the financial or other personal interests of the 
director or a member of his or her immediate family, or that would 
result in a detriment to the Bank or unfair advantage to the Bank or 
its members. For example, this prohibition would preclude a director 
from serving as a consultant to his or her Bank. All directors also are 
required to provide any additional information required by the board or 
its designee to consider and resolve any conflicts of interest.
    The proposed rule also would prohibit directors from disclosing or 
using any confidential information the director acquires in the course 
of official duties, to obtain a financial benefit for

[[Page 26537]]

themselves, their immediate family, or their member.
3. Gifts
    Section 932.11(c) of the proposed regulation would prohibit a 
director or immediate family member from accepting any substantial gift 
that the recipient has reason to believe is given in order to influence 
a director's actions, or where acceptance of the gift could have the 
appearance of influencing the director's performance of his or her 
official duties. For purposes of this provision, Sec. 932.11(e) defines 
the term ``substantial gift'' to mean gifts of more than token value; 
(ii) entertainment or hospitality the cost of which is in excess of 
what considered reasonable, customary, and accepted business practice; 
(iii) any other items or services for which a director pays less than 
market value.
4. Compensation
    Section 931.11(d) of the proposed regulation would prohibit a 
director from accepting compensation for services performed for the 
Bank from any source other than the Bank for which the services are 
performed.
5. Definitions
    Proposed Sec. 932 defines terms that are used in the conflicts of 
interest section of the regulation.
    Section 932.11(e)(1) of the proposed rule defines ``immediate 
family member'' to mean a Bank director's parent, sibling, spouse, 
child, or dependent or any other relative sharing the same residence as 
the director.
    Section 932.11(e)(2) defines the term ``financial interest'' to 
mean a direct or indirect interest in any activity, transaction, 
property, or relationship that involves receiving or providing 
something of monetary value, and includes, but is not limited to: (i) 
Any contractual right to the payment of money, whether contingent or 
fixed; (ii) ownership or control of 10 percent or more of any class of 
equity security, or any security, including subordinated debt; (iii) 
employment in a policy making position; or (iv) service as an officer, 
director, partner, or as a trustee or in a similar fiduciary capacity.

L. Reporting Requirements for Bank Directors--Sec. 932.12

1. Annual Report
    Under Secs. 932.18(f) and 932.21(g) of the current rules, every 
appointive and elective director must annually submit to his or her 
Bank either an executed form A-1 (appointive directors) or E-1 
(elective directors). The Finance Board believes that the current 
annual reporting requirements may be unnecessarily burdensome and 
duplicative when there have been no changes since the director last 
submitted such information. Therefore, under Sec. 932.12(a) of the 
proposed rule, if there have been no changes since a director last 
submitted the requested information, a director need only annually 
submit a certification stating that no changes have occurred. The 
director must make this certification by signing section A of the 
appropriate parts of Form E-1, for elective directors, or A-1, for 
appointive directors. If changes have occurred, proposed Sec. 932.12(a) 
would require the director to complete the appropriate parts of either 
Form E-1 or A-1. Under the proposed rule, both elective and appointive 
directors would submit their annual reports to their Bank, but the 
Banks would be required to forward a copy of the Form A-1 to the 
Finance Board.
2. Report of Noncompliance
    Proposed Sec. 932.12(b) carries forward the requirements of the 
existing regulation that appointive and elective directors who know or 
have reason to believe at any time they no longer meet the statutory or 
regulatory eligibility requirements, must report the facts causing the 
loss of eligibility in writing within 30 days of first discovering 
those facts. See 12 CFR 932.18(f); 12 CFR 932.21(g)(2)(1997). Under the 
current regulation, such reports are filed only with the Finance Board; 
the proposal would require all directors to notify the Bank, but 
appointive directors also would be required to forward a copy to the 
Finance Board.

M. Ineligible Bank Directors--Sec. 932.13

    Consistent with section 7(f) of the Act, Sec. 932.13 of the 
proposed rule provides that a directorship (whether elective or 
appointive) will immediately become vacant upon the determination by 
the Finance Board or the Bank (for elective directors) or by the 
Finance Board (for appointive directors) that the director no longer 
meets any of the statutory or regulatory eligibility requirements, or 
has failed to comply with the reporting requirements under proposed 
Sec. 932.12. See 12 U.S.C. 1427(f). As is the case under the existing 
regulation, an elective director who has been determined to be 
ineligible or to have failed to comply with the reporting requirements 
may not continue to act as a director. See 12 U.S.C. 1427(f)(3); 12 CFR 
932.21(f) (1997). Also, consistent with the existing regulation an 
appointive director who has been determined to be ineligible or who has 
failed to comply with the reporting requirements may continue to serve 
as a director until a successor assumes the appointive directorship or 
the term of office expires, whichever occurs first. See 12 U.S.C. 
1427(f)(2); 12 CFR 932.18(e)(1). The Finance Board, in its sole 
discretion, would retain the authority to grant an appointive director 
a period of time, not longer than ninety (90) days, to come into 
compliance with the eligibility or reporting requirements.

N. Vacant Bank Directorships--Sec. 932.14

1. Vacant Elective Directorships
    Proposed Sec. 932.14 implements the provisions of section 7(f) of 
the Act that concern vacant elective directorships. See 12 U.S.C. 
1427(f)(1), (3). Under the proposed rule, as soon as practicable after 
a vacancy occurs, a Bank must fill the unexpired term of office of a 
vacant elective directorship by a majority vote of the remaining 
directors, and may do so regardless of whether the remaining directors 
constitute a quorum of the board. A person filling a vacancy must 
satisfy all of the statutory and regulatory eligibility requirements 
for elective directors, which the Bank must verify before allowing the 
person to assume the office. Promptly after verifying the individual's 
eligibility, the Bank must provide a written notice to the Finance 
Board and each of its members that includes the name of the new 
elective director, the name and location of the member for which the 
new director serves, the new director's title or position with the 
member, the voting state the new director represents, and the 
expiration date of the new director's term of office.
2. Vacant Appointive Directorships
    Proposed Sec. 932.14(b) implements the provisions of section 7(f) 
of the Act that concern vacant appointive directorships. See 12 U.S.C. 
1427(f)(1), (2). Under the proposed rule, as soon as practicable after 
a vacancy occurs, the Finance Board must fill the unexpired term of 
office of a vacant appointive directorship in the same manner it fills 
open appointive directorships. Promptly after filling a vacant 
appointive directorship, the Finance Board must provide a written 
notice to the appropriate Bank that includes the name of the new 
appointive director, the name and location of the organization with 
which the new director is affiliated, if any, the new director's title 
or position with such organization, and the expiration date of the new 
director's term of office. The Bank, in turn, must promptly provide 
this information to each of the members within its district.

[[Page 26538]]

O. Minimum Number of Elective Directorships--Sec. 932.15

    Proposed Sec. 932.15 redesignates the list of grandfathered 
directorships and revises it to identify only those states that were 
entitled to more than one elective directorship on December 31, 1960. 
The substance of the grandfather provision for the remaining states is 
preserved through the proposed designation provision, which would 
allocate a minimum of one seat to each state.

P. Technical Changes to Part 932

    Additional changes to provisions of part 932 that concern Bank 
directors are intended to eliminate obsolete references and reorganize 
provisions that appear in the current regulation. Accordingly, the 
Finance Board is proposing to redesignate the following provisions of 
Part 932 without change: Sec. 932.26, concerning the location of Bank 
board of directors and committee meetings, redesignated to Sec. 932.16 
of subpart B; Sec. 932.27, concerning the compensation and expenses of 
Bank directors, to Sec. 932.17 of subpart B; Sec. 932.40, concerning 
selection by the Bank of officers and employees, to Sec. 932.18 of 
subpart C; and Sec. 932.41, concerning compensation of Bank officers 
and employees, to Sec. 932.19 of subpart C. The Finance Board is 
proposing to eliminate provisions of part 932 that would be rendered 
obsolete by the proposed changes. See 12 CFR 932.23, 932.28-29, 932.50-
51, 932.60-62.

Q. Part 922

    The Finance Board has identified the financial and service 
prohibitions and reporting requirements applicable to the four Finance 
Board directors appointed by the President, by and with the advice of 
the Senate (appointed Finance Board directors) as unnecessarily 
burdensome or duplicative. See 12 U.S.C. 1422a(b)(1)(B); 12 CFR part 
922. Accordingly, the Finance Board proposes to eliminate part 922 of 
its regulations. Repeal of part 922 is consistent with the goal of the 
Regulatory Reinvention Initiative of the National Performance Review to 
reduce the total number of regulations of executive agencies.
    Section 2A(b)(1)(B) of the Act requires appointed Finance Board 
directors to be citizens of the United States. See 12 U.S.C. 
1422a(b)(1)(B). Because an individual appointed Finance Board director 
must satisfy all statutory conditions, Sec. 922.2, which essentially 
reiterates the statutory requirements is unnecessary.
    Section 2A(b)(2)(C) imposes conflicts of interest limitations on 
appointed Finance Board directors, including a prohibition on serving 
as a director or officer of any Bank or any member of any Bank, or 
holding shares of, or any other financial interest in, any member of 
any Bank. See 12 U.S.C. 1422a(b)(2)(C). Under the Ethics in Government 
Act of 1978, as amended, 5 U.S.C. App. 101 et seq., and the 
implementing regulations promulgated by the Office of Government Ethics 
(OGE), 5 CFR parts 2635 and 2636, appointed Finance Board directors are 
subject to conflicts of interest limitations that are more exacting 
than, and encompass the prohibitions imposed by, section 2A of the Act. 
OGE regulations also require appointed Finance Board directors to 
disclose as a part of the Senate confirmation process and annually 
thereafter in writing to the Finance Board's designated agency ethics 
official and OGE, detailed information regarding financial interests 
that may pose conflicts of interest. See 5 U.S.C. App. 101(c); 5 CFR 
2634.201, 2634.202 (1997). Therefore, the conflicts of interest 
provisions contained in Secs. 922.3 through 922.5, essentially 
duplicate existing reporting requirements, and thus are unnecessary.

R. Parts 931, 933, 934, and 941

    The Finance Board is proposing to make conforming changes to parts 
931, 933, 934, and 941 of its regulations. See 12 CFR parts 931, 933, 
934, and 941. The Finance Board is proposing to eliminate definitions 
of terms that appear currently in part 932 but would no longer be used 
under the proposal. See id. Secs. 931.13-40.
    Section 932.3 of the current rule concerns Bank dividends which the 
Finance Board is proposing to redesignate without change to part 934 of 
the Finance Board's regulations, which concerns the operations of the 
Banks. See id. part 934.
    Part 933 of the Finance Board's regulations concern membership in 
the Banks. See id. part 933. The proposed changes to part 932 would 
conflict with certain provisions of the membership rule that concern 
voting rights. Accordingly, the Finance Board is proposing to eliminate 
all references to voting rights that appear in Sec. 933.18 and 
Secs. 933.24 through 933.28.

III. Regulatory Flexibility Act

    The proposed rule implements statutory requirements binding on all 
Banks, all Bank members, and all prospective and incumbent Bank 
directors. The Finance Board is not at liberty to make adjustments in 
those requirements to accommodate small entities. The Finance Board has 
not imposed any additional regulatory requirements that will have a 
disproportionate impact on small entities. In addition, in an effort to 
reduce the reporting burden on prospective and incumbent Bank 
directors, the Finance Board has streamlined Form E-1, the Elective 
Director Eligibility Certification Form, and Form A-1, the Appointive 
Director Eligibility Certification Form, eliminated Forms E-2 and A-2, 
and will allow individuals to certify that no changes have occurred 
since they last submitted required information rather than completing 
anew the entire form. Thus, in accordance with the provisions of the 
Regulatory Flexibility Act, 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. 
5 U.S.C. 605(b).

IV. Paperwork Reduction Act

    The Finance Board has submitted to the Office of Management and 
Budget (OMB) an analysis of the collection of information contained in 
Forms E-1 and A-1 and the proposed rule, described more fully in part 
II of the Supplementary Information. The Finance Board will use the 
information collection to determine whether prospective and incumbent 
appointive directors satisfy the statutory and regulatory eligibility 
and reporting requirements. Only individuals meeting these requirements 
may serve as appointive Bank directors. See 12 U.S.C. 1427(a), (f)(2). 
The Banks and, where appropriate, the Finance Board, will use the 
information collection to determine whether prospective and incumbent 
elective directors satisfy the statutory and regulatory eligibility and 
reporting requirements. Only individuals meeting these requirements may 
serve as elective Bank directors. See id. 1427(a), (b), (f)(3). 
Responses are required to obtain or retain a benefit. See id. 1427. The 
Finance Board and Banks will maintain the confidentiality of 
information obtained from respondents pursuant to the collection of 
information as required by applicable statute, regulation, and agency 
policy. Books or records relating to this collection of information 
must be retained as provided in the regulation.
    Likely respondents and/or recordkeepers will be the Banks, Bank 
members, and prospective and incumbent Bank directors. Potential 
respondents are not required to respond to the collection of 
information unless the regulation collecting the information

[[Page 26539]]

displays a currently valid control number assigned by the OMB. See 44 
U.S.C. 3512(a).
    The estimated annual reporting and recordkeeping hour burden is:

a. Number of respondents..................................         3,442
b. Total annual responses.................................         3,442
    Percentage of these responses collected electronically             0
                                                           -------------
c. Total annual hours requested...........................         1,172
d. Current OMB inventory..................................           376
                                                           -------------
e. Difference.............................................           796
                                                           =============
                                                                        

    The estimated annual reporting and recordkeeping cost burden is:

a. Total annualized capital/startup costs.................   $180,000.00
b. Total annual costs (O&M)...............................     24,000.00
c. Total annualized cost requested........................             0
d. Current OMB inventory..................................             0
                                                           -------------
e. Difference.............................................   $204,000.00
                                                           =============
                                                                        

    Comments concerning the accuracy of the burden estimates and 
suggestions for reducing the burden may be submitted to the Finance 
Board in writing at the address listed above.
    The Finance Board has submitted the collection of information to 
OMB for review in accordance with section 3507(d) of the Paperwork 
Reduction Act of 1995, codified at 44 U.S.C. 3507(d). Comments 
regarding the proposed collection of information may be submitted in 
writing to the Office of Information and Regulatory Affairs of the 
Office of Management and Budget, Attention: Desk Officer for Federal 
Housing Finance Board, Washington, D.C. 20503 by June 29, 1998.

List of Subjects

12 CFR Part 922

    Conflict of interests.

12 CFR Part 931

    Banks, banking, Federal home loan banks.

12 CFR Part 932

    Banks, banking, Conflict of interests, Elections, Ethical conduct, 
Federal home loan banks, Financial disclosure, Reporting and 
recordkeeping requirements.

12 CFR Part 933

    Credit, Federal home loan banks, Reporting and recordkeeping 
requirements.

12 CFR Part 934

    Federal home loan banks, Securities, Surety bonds.

12 CFR Part 941

    Federal home loan banks, Organization and functions (Government 
agencies).

    Accordingly, the Federal Housing Finance Board hereby proposes to 
amend chapter IX, title 12, parts 922, 931, 932, 933, 934, and 941 of 
the Code of Federal Regulations as follows:

PART 922--[REMOVED]

    1. Under the authority in 12 U.S.C. 1422a and 1422b, remove part 
922.

PART 931--DEFINITIONS

    1. The authority citation for part 931 continues to read as 
follows:

    Authority: 12 U.S.C. 1422a and 1422b.


Secs. 931.13 through 931.40  [Removed]

    2. Remove Secs. 931.13 through 931.40.


Secs. 931.11 and 931.12  [Redesignated as Secs. 931.5 and 931.6]

    3. Redesignate Secs. 931.11 and 931.12 as Secs. 931.5 and 931.6, 
respectively.

PART 934--OPERATIONS OF THE BANKS

    1. The authority citation for part 934 continues to read as 
follows:

    Authority: 12 U.S.C. 1422a, 1422b, 1431(g), 1432(a), and 1442.


Sec. 932.3  [Redesignated as Sec. 934.17]

    2. Redesignate Sec. 932.3 as Sec. 934.17.

PART 932--DIRECTORS, OFFICERS, AND EMPLOYEES OF THE BANKS

    1. Revise the heading of part 932 to read as set forth above.
    2. Revise the authority citation for part 932 to read as follows:

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, and 1427; 42 
U.S.C. 8101 et seq.

    3. Revise the table of contents of part 932 to read as follows:

Subpart A--Definitions

Sec.
932.1  Definitions.
932.2  Dates.

Subpart B--Bank Directors

932.3  Director Elections.
932.4  Capital Stock Report.
932.5  Determinations of member votes.
932.6  Elective director nominations.
932.7  Eligibility requirements for elective directors.
932.8  Elections process.
932.9  Prohibition on actions to influence director elections.
932.10  Selection of appointive directors.
932.11  Conflicts of interest policy for Bank directors.
932.12  Reporting requirements for Bank directors.
932.13  Ineligible Bank directors.
932.14  Vacant Bank directorships.
932.15  Minimum number of elective directorships.
932.16  Site of board of directors and committee meetings.
932.17  Compensation and expenses of Bank directors.

Subpart C--Selection of Bank Officers and Employees.

932.18  Selection of Bank officer and employees.
932.19  Compensation of Bank officers and employees.

    4. Designate Secs. 932.1 and 932.2 as subpart A and add a subpart 
heading to read as follows:

Subpart A--Definitions

    5. Revise Sec. 932.1 to read as follows:


Sec. 932.1  Definitions.

    For purposes of this part:
    Act means the Federal Home Loan Act, as amended (12 U.S.C. 1421 et 
seq.).
    Bank or Banks means a Federal Home Loan Bank or the Federal Home 
Loan Banks.
    Bona fide resident of a Bank district means an individual who:
    (1) Maintains a principal residence within the Bank district; or
    (2) Owns or leases in his or her own name a residence within the 
Bank district and, if serving as an elective director, is an officer or 
director of a member located in a voting state within the Bank 
district; or
    (3) If serving as an appointive director, is employed within a 
voting state within the Bank district.
    Docket Number means the number assigned to each member by the 
Finance Board and used by the Finance Board and the Banks to identify a 
particular member.
    Finance Board means the agency established as the Federal Housing 
Finance Board.
    Member means an institution admitted to membership and owning 
capital stock in a Bank.
    Record date means December 31 of the calendar year immediately 
preceding the election year.
    Voting state means the District of Columbia, Puerto Rico, or the 
state of the United States in which a member's principal place of 
business, as determined in accordance with part 933 of this chapter, is 
located as of the record date. The voting state of a member with a 
principal place of business located in the U.S. Virgin Islands as of 
the record date shall be Puerto Rico, and the voting state of a member 
with a principal place of business located in American Samoa,

[[Page 26540]]

Guam, or the Commonwealth of the Northern Mariana Islands as of the 
record date shall be Hawaii.
    6. Add Sec. 932.2 to subpart A to read as follows:


Sec. 932.2  Dates.

    If any date specified in this part, or specified by a Bank pursuant 
to this part, falls on a Saturday, Sunday, or federal holiday, the 
relevant time period shall be deemed to include the next business day.
    7. Designate Secs. 932.3 through 932.17 as subpart B and add a 
subpart heading to read as follows:

Subpart B--Bank Directors

    8. Add Sec. 932.3 to subpart B to read as follows:


Sec. 932.3  Director elections.

    (a) Responsibilities of the Banks. Each Bank annually shall conduct 
an election the purpose of which is to fill all elective directorships 
designated by the Finance Board as commencing on January 1 of the 
calendar year immediately following the year of the election. Subject 
to the provisions of the Act and in accordance with the requirements of 
this part, the disinterested members of the board of directors of each 
Bank, or a committee of disinterested directors, shall administer and 
conduct the annual election of directors. The term of office of each 
elective directorship shall be two years and shall commence on January 
1 of the calendar year immediately following the year in which the 
election is held. Each Bank shall complete the election in sufficient 
time to allow newly elected directors to assume their seats on January 
1 of the year immediately following the election.
    (b) Designation of elective directorships. The Finance Board 
annually shall establish the number of elective directorships for each 
Bank, which are to be allocated as follows:
    (1) One elective directorship shall be allocated to each state 
within the Bank district;
    (2) If the total number of elective directorships allocated 
pursuant to paragraph (b)(1) of this section is less than eight, the 
Finance Board shall allocate additional elective directorships among 
the states, using the method of equal proportions, until the total 
allocated for the Bank equals eight;
    (3) If the number of elective directorships allocated to any state 
pursuant to paragraphs (b)(1) and (2) of this section is less than the 
number allocated to that state on December 31, 1960, as specified in 
Sec. 932.15, the Finance Board shall allocate such additional elective 
directorships to that state until the total allocated equals the number 
allocated to the Bank on December 31, 1960;
    (4) Pursuant to section 7(e) of the Act, the Federal Home Loan Bank 
of New York is hereby allocated one additional elective directorship, 
which is designated as representing the members in the Commonwealth of 
Puerto Rico;
    (5) Pursuant to section 7(a) of the Act, in any Bank district that 
includes five or more states, the Finance Board may increase the number 
of elective directorships up to thirteen, and the number of appointive 
directorships up to three-fourths of the number of elective 
directorships. In determining the number of appointive directorships, 
the Finance Board may round up to the nearest whole number.
    (c) Notification. On or before May 10 of each year, the Finance 
Board shall notify each Bank in writing of the total number of elective 
directorships established for the Bank and the number of elective 
directorships designated as representing the members in each voting 
state in the Bank district. If the Finance Board's annual designation 
of elective directorships for a particular state would result in a 
decrease in the number of seats allocated to that state for the 
following year, the decrease shall not require any incumbent director 
to surrender his or her directorship prior to the expiration of the 
full term of office.
    (d) Transition. The term of office of each elective directorship 
existing on the effective date of this section shall continue to its 
scheduled expiration date, and the Banks may not thereafter alter the 
commencement or expiration date for any elective directorship in 
conducting the annual election of directors.
    9. Add Sec. 932.4 to subpart B to read as follows:


Sec. 932.4  Capital Stock Report.

    (a) On or before April 10 of each year, each Bank shall submit to 
the Finance Board, for its use in designating the elective 
directorships, and to each member a capital stock report that 
indicates, as of the record date, the number of members in each voting 
state in the Bank's district, and the number of shares of capital stock 
required to be held by each member (identified by docket number), and 
the aggregate total number of shares of capital stock required to be 
held by all members in each voting state in the Bank's district. The 
Bank shall certify to the Finance Board that to the best of its 
knowledge the information provided in the capital stock report is 
accurate and complete, and that it has notified each member of its 
minimum capital holdings pursuant to Sec. 933.22(b)(1) of this chapter. 
A member may object to its required capital holdings determined under 
Sec. 933.22(b)(1) of this chapter by notifying the Finance Board and 
its Bank in writing within 15 days after the date on which the member 
receives that information. The Finance Board shall promptly resolve any 
differences, which determination by the Finance Board shall be final.
    (b) A Bank shall determine the number of shares of capital stock 
each member is required to hold as of the record date in the following 
manner:
    (1) The number of shares of capital stock shall be equal to the 
greater of the advances-to-capital stock requirement under 
Sec. 935.15(a) of this chapter, or the minimum capital stock 
requirement under Sec. 933.20(a) of this chapter.
    (2) If a member has elected to purchase its minimum required 
capital stock in installments under Sec. 933.20(b)(2) of this chapter, 
the number of shares of capital stock required to be held as of the 
record date shall be the cumulative total of shares of capital stock 
actually purchased as of the record date.
    10. Add Sec. 932.5 to subpart B to read as follows:


Sec. 932.5  Determination of member votes.

    (a) Authority. The Bank shall determine, in accordance with this 
section, the number of votes each member of the Bank may cast in the 
election of directors.
    (b) Determination. The number of votes a member may cast for any 
elective director nominee shall be the lesser of the number of shares 
of capital stock the member was required to hold as of the record date, 
as determined in accordance with Sec. 932.4(b), or the average number 
of shares of capital stock required to be held by all of the members in 
its voting state as of the record date.
    11. Add Sec. 932.6 to subpart B read as follows:


Sec. 932.6  Elective director nominations.

    (a) Election announcement. Within a reasonable time in advance of 
an election, a Bank shall provide to each member in its district a 
written notice of the election that includes:
    (1) The number of elective directorships designated as representing 
the members in each voting state in the Bank district;
    (2) The name of each incumbent Bank director, the name and location 
of the member at which each elective director

[[Page 26541]]

serves, and the name and location of the organization with which each 
appointive director is affiliated, if any, and the expiration date of 
each Bank director's term of office;
    (3) An attachment indicating the name, location, and docket number 
of every member in the member's voting state, and the number of votes 
each such member may cast in the election, as determined in accordance 
with Sec. 932.5(b); and
    (4) A nominating certificate.
    (b) Nominations. (1) Any member that is entitled to vote in the 
election may nominate an eligible individual to fill each available 
elective directorship for its voting state by submitting to its Bank, 
prior to a deadline to be established by the Bank, a nominating 
certificate duly adopted by the member's governing body or by an 
individual authorized to act on behalf of the member's governing body.
    (2) The nominating certificate shall include the name of the 
nominee and the name, location, and docket number of the member at 
which the nominee serves as an officer or director.
    (3) The Bank shall establish a deadline for submitting nominating 
certificates, which shall be no earlier than 30 calendar days after the 
date on which the Bank mails the notice required by paragraph (a) of 
this section, and the Bank shall not accept certificates received after 
that deadline. The Bank shall retain all nominating certificates for at 
least two years after the date of the election.
    (c) Accepting nominations. A Bank shall notify in writing any 
person nominated for an elective directorship promptly upon receipt of 
the nominating certificate. A person may accept the nomination only by 
submitting an executed Form E-1 to the Bank prior to the deadline 
established by the Bank. (Form E-1 is available pursuant to Sec. 900.51 
of this chapter). A Bank shall allow each nominee at least 30 calendar 
days after the date of the notice of nomination within which to submit 
the executed form. A nominee may decline the nomination by so advising 
the Bank in writing, or by failing to submit the Form E-1 prior to the 
deadline. Each Bank shall retain all information received under this 
paragraph for at least two years after the date of the election.
    12. Add Sec. 932.7 to subpart B read as follows:


Sec. 932.7  Eligibility requirements for elective directors.

    (a) Eligibility verification. A Bank shall verify that each nominee 
meets all of the eligibility requirements for elective directors set 
forth in the Act and this part before placing that nominee on the 
ballot prepared by the Bank under Sec. 932.8(a).
    (b) Eligibility requirements. Each elective director, and each 
nominee, shall be:
    (1) A citizen of the United States;
    (2) A bona fide resident of the Bank district; and
    (3) An officer or director of a member that is located in the 
voting state to be represented by the elective directorship, was a 
member of the Bank as of the record date, and meets all minimum capital 
requirements established by its appropriate federal regulator or 
appropriate state regulator. For purposes of this paragraph (b)(3), the 
term appropriate federal regulator has the same meaning as the term 
``appropriate Federal banking agency'' in section 2[3] of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(q)), and, for federally insured 
credit unions, shall mean the National Credit Union Administration, and 
the term appropriate state regulator means any state officer, agency, 
supervisor, or other entity that has regulatory authority over, or is 
empowered to institute enforcement action against, a member.
    (c) Restrictions. A nominee is not eligible if he or she:
    (1) Is an incumbent elective director, unless:
    (i) The incumbent director's term of office would expire before the 
new term of office would begin; and
    (ii) The new term of office would not be barred by the term limit 
provision of section 7(d) of the Act.
    (2) Is a former elective director whose service would be barred by 
the term limit provision of section 7(d) of the Act.
    (3) Is an incumbent appointive director.
    13. Revise Sec. 932.8 to read as follows:


Sec. 932.8  Election process.

    (a) Ballots. Promptly after verifying the eligibility of all 
nominees in accordance with Sec. 932.7(a), a Bank shall prepare a 
ballot for each voting state for which an elective directorship is to 
be filled and shall mail the ballot to all members within that state 
that were members as of the record date. A ballot shall include at 
least the following provisions:
    (1) An alphabetical listing of the names of each nominee for the 
member's voting state, the name, location, and docket number of the 
member at which each nominee serves, the nominee's title or position 
with the member, and the number of elective directorships to be filled 
by members in that voting state in the election;
    (2) A statement that write-in candidates are not permitted; and
    (3) A confidentiality statement prohibiting the Bank from 
disclosing how a member voted.
    (b) Lack of nominees. If, for any voting state, the number of 
nominees is equal to or less than the number of elective directorships 
to be filled in the election, the Bank shall not prepare or distribute 
a ballot, and shall declare elected any eligible nominee, declare 
vacant any elective directorship that lacks an eligible nominee, and 
notify the members in the affected voting state in writing that the 
directorships have been filled without an election due to a lack of 
nominees. If necessary, as soon thereafter as practicable, the board of 
directors shall fill, by a majority vote, any elective directorship 
that has been declared vacant for a lack of a nominee, in accordance 
with Sec. 932.14(a).
    (c) Voting. For each directorship to be filled, a member may cast 
the number of votes determined by the Bank pursuant to Sec. 932.5. A 
member may not split its votes among multiple nominees for a single 
directorship, nor, where there are multiple directorships to be filled 
for a voting state, may it cumulatively vote for a single nominee. To 
vote, a member shall:
    (1) Mark on the ballot the name of not more than one of the 
nominees for each elective directorship to be filled in the member's 
voting state. Each nominee so selected shall receive all of the votes 
that the member is eligible to cast.
    (2) Execute the ballot by resolution of the member's governing 
body, or by an appropriate writing signed by an individual authorized 
to act on behalf of the governing body.
    (3) Deliver the executed ballot to the Bank on or before the 
closing date that has been established by the Bank, which shall be no 
earlier than 30 calendar days after the date the ballots are mailed in 
accordance with paragraph (b) of this section. A member may not change 
a ballot after it has been delivered to the Bank.
    (4) Any ballots cast in violation of this subsection shall be void.
    (d) Counting ballots. A Bank shall not open any ballot until after 
the closing date, and may not include in the election results any 
ballot received after the closing date. Promptly after the closing 
date, each Bank shall tabulate, by each voting state, the votes cast in 
accordance with paragraph (c) of this section, and shall declare 
elected the nominee receiving the highest number of votes.
    (1) If more than one elective directorship is to be filled in a 
voting state, the Bank shall declare elected

[[Page 26542]]

each successive nominee receiving the next highest number of votes 
until all open elective directorships for that voting state are filled.
    (2) In the event of a tie for the last available seat, the 
incumbent board of directors of the Bank shall, by a majority vote, 
declare elected one of the nominees for whom the number of votes cast 
was tied.
    (3) The Bank shall retain all ballots it receives for at least two 
years after the date of the election, and shall not disclose how any 
member voted.
    (e) Report of election. Promptly following the election, each Bank 
shall provide written notice to its members, to each nominee, and to 
the Finance Board of the following:
    (1) The name of each director-elect, the name and location of the 
member at which he or she serves, and his or her title or position at 
the member;
    (2) The voting state represented by each director-elect;
    (3) The expiration date of the term of office of each director-
elect;
    (4) The number of members voting in the election and the total 
number of votes cast, both reported by states; and
    (5) The number of votes cast for each nominee.
    14. Revise Sec. 932.9 to read as follows:


Sec. 932.9  Prohibition on actions to influence director elections.

    (a) Prohibition. Except as provided in paragraph (b) of this 
section:
    (1) No director, officer, attorney, employee, or agent of the 
Finance Board or of a Bank may:
    (i) Communicate in any manner that a director, officer, attorney, 
employee, or agent of the Finance Board or of a Bank, directly or 
indirectly, supports the nomination or election of a particular 
individual for an elective directorship; or
    (ii) Take any other action to influence votes for a directorship.
    (2) No member may take any action prohibited by paragraph (a)(1)(i) 
of this section.
    (b) Exception for incumbent Bank directors. A Bank director acting 
in his or her personal capacity may support the nomination or election 
of any individual for an elective directorship, provided that no Bank 
director shall purport to represent the views of the Bank, the Finance 
Board, any other director, or any officer, attorney, employee, or agent 
of the Bank or of the Finance Board concerning the nomination or 
election of a particular individual for an elective directorship.
    15. Revise Sec. 932.10 to read as follows:


Sec. 932.10  Selection of appointive directors.

    (a) Selection. In accordance with the Act, the Finance Board, in 
its sole discretion, shall select all appointive directors.
    (b) Term of office. The term of office of each appointive 
directorship shall commence on January 1.
    16. Revise Sec. 932.11 to read as follows:


Sec. 932.11  Conflict of interests policy for Bank directors.

    (a) Adoption of conflict of interests policy. Each Bank shall adopt 
a written conflict of interests policy that shall apply to all Bank 
directors. At a minimum, the conflicts of interest policy of each Bank 
shall:
    (1) Require the directors to administer the affairs of the Bank 
fairly and impartially and without discrimination in favor of or 
against any member or nonmember borrower;
    (2) Prohibit the use of a director's official position for personal 
gain;
    (3) Require directors to disclose actual or apparent conflict of 
interests and establish procedures for addressing such conflicts;
    (4) Provide internal controls to ensure that reports are filed and 
that conflicts are disclosed and resolved in accordance with this 
section; and
    (5) Establish procedures to monitor compliance with the conflict of 
interests policy.
    (b) Disclosure and recusal. (1) A director shall promptly inform 
the board of directors whenever he or she, or any immediate family 
member, has any financial interest in any matter before the board. 
Directors also shall disclose any financial interest in any 
organizations or with any individuals doing business with the Bank, 
other than an interest relating to the member at which the director 
serves. All directors shall refrain from considering, or voting on, any 
issue before the board that could result in a conflict, self-dealing, 
or any other circumstances that would result in a detriment to the Bank 
or in a noncompetitive, favored, unfair advantage either to the Bank or 
its members.
    (2) All directors promptly shall provide to the full board of 
directors, audit committee of the board of directors, or to such other 
committee as the board of directors may establish for this purpose, any 
information relating to conflicts or potential conflicts of interests.
    (3) Directors shall not disclose or use confidential information 
received by them solely by reason of their position with the Bank to 
obtain a financial interest for themselves or their immediate family 
members or member institutions of which they are an officer or 
director.
    (c) Gifts. Directors and their immediate family members shall not 
accept any substantial gift where the recipient has reason to believe 
that the gift is given in order to influence the director's actions as 
a member of the Bank's board of directors, or where acceptance of such 
gift gives the appearance of influencing the director's actions as a 
member of the board.
    (d) Compensation. Directors shall not accept compensation for 
services performed for the Bank from any source other than the Bank for 
whom the services are performed.
    (e) Definitions. For purposes of this section:
    (1) Immediate family member means parent, sibling, spouse, child, 
or dependent, or any other relative sharing the same residence as the 
director.
    (2) Financial interest means a direct or indirect financial 
interest in any activity, transaction, property, or relationship that 
involves receiving or providing something of monetary value, and 
includes, but is not limited to:
    (i) Any contractual right to the payment of money, whether 
contingent or fixed;
    (ii) Ownership or control of ten percent or more of any class of 
equity security, or any security, including subordinated debt;
    (iii) Employment in a policy making position; or
    (iv) Service as an officer, director, partner, or as a trustee or 
in a similar fiduciary capacity.
    (3) Substantial Gifts includes:
    (i) Gifts of more than token value;
    (ii) Entertainment or hospitality, the cost of which is in excess 
of what is considered reasonable, customary, and accepted business 
practices; or
    (iii) Any other items or services for which a director pays less 
than market value.
    17. Revise Sec. 932.12 to read as follows:


Sec. 932.12  Reporting requirements for Bank directors.

    (a) Annual reporting. On or before March 1 of each year, each 
director shall submit to his or her Bank an executed Form E-1 (for 
elective directors) or an executed Form A-1 (for appointive directors), 
as appropriate. (Form A-1 is available pursuant to Sec. 900.51 of this 
chapter). The Bank shall promptly forward a copy of each Form A-1 to 
the Finance Board.
    (b) Report of noncompliance. If an elective or appointive director 
knows or has reason to believe that he or she no longer meets the 
eligibility requirements set forth in the Act or this part, the

[[Page 26543]]

director shall so inform the Bank in writing within 30 calendar days of 
first learning of the facts causing the loss of eligibility. An 
appointive director also shall inform the Finance Board at the same 
time, and in the same manner, that he or she informs the Bank.
    18. Revise Sec. 932.13 to read as follows:


Sec. 932.13  Ineligible Bank directors.

    (a) Elective directors. Upon a determination by the Finance Board 
or a Bank that an elective director no longer satisfies the eligibility 
requirements set forth in the Act or this part, or has failed to comply 
with the reporting requirements of Sec. 932.12, the elective 
directorship shall immediately become vacant. Any elective director 
that is determined to have failed to comply with the eligibility or 
reporting requirements shall not continue to act as a Bank director.
    (b) Appointive directors. Except as provided herein, upon a 
determination by the Finance Board that an appointive director no 
longer satisfies the eligibility requirements set forth in the Act, or 
has failed to comply with the reporting requirements of Sec. 932.12, 
the appointive directorship shall immediately become vacant. 
Notwithstanding the vacancy, an appointive director may continue to 
serve until a successor assumes the directorship or the term of office 
expires, whichever occurs first, and the Finance Board, in its sole 
discretion, may allow an appointive director up to 90 calendar days to 
comply with the eligibility or reporting requirements.
    19. Revise Sec. 932.14 to read as follows:


Sec. 932.14  Vacant Bank directorships.

    (a) Vacant elective directorships. (1) As soon as practicable after 
a vacancy occurs, a Bank shall fill the unexpired term of office of a 
vacant elective directorship by a majority vote of the remaining Bank 
directors regardless of whether the remaining Bank directors constitute 
a quorum of the Bank's board of directors.
    (2) An individual so selected to fill a vacant elective 
directorship shall satisfy all of the eligibility requirements for 
elective directors set forth in the Act and this part, and shall 
provide to the Bank an executed Form E-1. The Bank shall verify the 
individual's eligibility in accordance with Sec. 932.7(a) before 
allowing the individual to assume the directorship, and shall retain 
the information it receives in accordance with Sec. 932.6(c).
    (3) Promptly after verifying the individual's eligibility under 
paragraph (a)(2) of this section, a Bank shall notify the Finance Board 
and each member located in the Bank's district in writing of the 
following:
    (i) The name of the new elective director, the name and location of 
the member (identified by docket number) at which the new director 
serves, and the new director's title or position with the member;
    (ii) The voting state that the new elective director represents; 
and
    (iii) The expiration date of the new elective director's term of 
office.
    (b) Vacant appointive directorships. (1) As soon as practicable 
after a vacancy occurs, the Finance Board shall fill the unexpired term 
of office of a vacant appointive directorship.
    (2) Promptly after filling a vacant appointive directorship, the 
Finance Board shall notify the new appointive director's Bank in 
writing of the following:
    (i) The name of the new appointive director, the name and location 
of the organization with which the new director is affiliated, if any, 
and the new director's title or position with such organization; and
    (ii) The expiration date of the new appointive director's term of 
office.
    (2) Promptly after receiving the notice required by paragraph 
(b)(2) of this section, a Bank shall provide each of its members with 
the information described in paragraphs (b)(2)(i) and (ii) of this 
section.


Secs. 932.15 through 932.19  [Removed]

    20. Remove Secs. 932.15 through 932.19.


Sec. 932.20  [Redesignated as Sec. 932.15]

    21. Redesignate Sec. 932.20 as Sec. 932.15 and revise the second 
sentence and table to read as follows:


Sec. 932.15  Minimum number of elective directorships.

     * * * The following list sets forth the states whose members held 
more than one (1) seat on December 31, 1960:

------------------------------------------------------------------------
                                                               No. of   
                                                              elective  
                          State                            directorships
                                                            on Dec. 31, 
                                                                1960    
------------------------------------------------------------------------
California...............................................             3 
Colorado.................................................             2 
Illinois.................................................             4 
Indiana..................................................             5 
Iowa.....................................................             2 
Kansas...................................................             3 
Kentucky.................................................             2 
Louisiana................................................             2 
Massachusetts............................................             3 
Michigan.................................................             3 
Minnesota................................................             2 
Missouri.................................................             2 
New Jersey...............................................             4 
New York.................................................             4 
Ohio.....................................................             4 
Oklahoma.................................................             2 
Pennsylvania.............................................             6 
Tennessee................................................             2 
Texas....................................................             3 
Wisconsin................................................             4 
------------------------------------------------------------------------

Secs. 932.21 through 932.25  [Removed]

    22. Remove Secs. 932.21 through 932.25.


Sec. 932.26  [Redesignated as Sec. 932.16]

    23. Redesignate Sec. 932.26 as Sec. 932.16 of subpart B.


Sec. 932.27  [Redesignated as Sec. 932.17]

    24. Redesignate Sec. 932.27 as Sec. 932.17 of subpart B.


Secs. 932.28 through 932.39  [Removed]

    25. Remove Secs. 932.28 through 932.39.
    26. Designate Secs. 932.18 and 932.19 as subpart C and add a 
subpart heading to read as follows:

Subpart C--Selection of Bank Officers and Employees


Sec. 932.40  [Redesignated as Sec. 932.18]

    27. Redesignate Sec. 932.40 as Sec. 932.18 of subpart C, remove 
paragraph (d), and revise the section heading and paragraph (a) 
introductory text to read as follows:


Sec. 932.18  Selection of Bank officers and employees.

    (a) Bank presidents. The board of directors of each Bank may 
appoint a president, who shall be the chief executive officer of the 
Bank, subject to the following limitations:
* * * * *


Sec. 932.41  [Redesignated as Sec. 932.19]

    28. Redesignate Sec. 932.41 as Sec. 932.19 of subpart C and revise 
the section heading to read as follows:


Sec. 932.19  Compensation of Bank officers and employees.

* * * * *


Secs. 932.42 through 932.62  [Removed]

    29. Remove Secs. 932.42 through 932.62.

PART 933--MEMBERS OF THE BANKS

    1. The authority citation for part 933 continues to read as 
follows:

    Authority: 12 U.S.C. 1422, 1422a, 1422b, 1423, 1424, 1426, 1430, 
1442.

    2. Amend Sec. 933.18 by revising paragraph (e) to read as follows:

Sec. 933.18  Determination of appropriate Bank district for membership.

* * * * *

[[Page 26544]]

    (e) Effect of transfer. A transfer of membership pursuant to this 
section shall be effective for all purposes, but shall not affect 
voting rights in the year of the transfer and shall not be subject to 
the provisions on termination of membership set forth in section 6 of 
the Act or Secs. 933.27, 933.28, and 933.30, including the restriction 
on reacquiring Bank membership set forth in Sec. 933.31.
* * * * *


Sec. 933.24  [Amended]

    3. Amend Sec. 933.24 by removing paragraph (b)(4).


Sec. 933.25  [Amended]

    4. Amend Sec. 933.25 by removing paragraph (f).


Sec. 933.26  [Amended]

    5. Amend Sec. 933.26 by removing paragraph (e).


Sec. 933.27  [Amended]

    6. Amend Sec. 933.27 by removing paragraph (g).


Sec. 933.28  [Amended]

    7. Amend Sec. 933.28 by removing paragraph (d).

PART 941--OPERATIONS OF THE OFFICE OF FINANCE

    1. The authority citation for part 941 continues to read as 
follows:

    Authority: 12 U.S.C. 1422b, 1431.

    2. Amend Sec. 941.7 by revising paragraph (f)(2) to read as 
follows:


Sec. 941.7  Office of Finance Board of Directors.

* * * * *
    (f) * * *
    (2) Private Citizen member. The Office of Finance shall pay 
compensation and expenses to the Private Citizen member of the OF board 
of directors in accordance with the requirements for payment of 
compensation and expenses to Bank directors set forth in Sec. 932.17 of 
this chapter, except that, for these purposes:
    (i) The Office of Finance policy on director compensation must be 
approved by the board of directors of the Finance Board;
    (ii) Section 932.15(a)(3) and (c)(1)(ii) of this chapter shall not 
apply; and
    (iii) The terms ``average compensation per director'' and ``ACPD,'' 
as used in Sec. 932.15 of this chapter, shall be deemed to mean 
``maximum compensation of the Private Citizen member''.

    Note: The following Appendix will not appear in the Code of 
Federal Regulations Appendix A to Preamble--Director Eligibility 
Certification Forms A-1 and E-1

BILLING CODE 6725-01-U

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    By the Board of Directors of the Federal Housing Finance Board.

    Dated: March 25, 1998.
Bruce A. Morrison,
Chairperson.
[FR Doc. 98-12651 Filed 5-12-98; 8:45 am]
BILLING CODE 6725-01-C