[Federal Register Volume 64, Number 157 (Monday, August 16, 1999)]
[Proposed Rules]
[Pages 44444-44446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21059]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 935

[No. 99-41]
RIN 3069-AA80


Advance Participations; Sales of Whole Advances

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 regulation governing Federal Home Loan Bank (Bank) 
advances to approve the sale of whole advances between Banks under 
certain limited circumstances. The amendment is consistent with the 
Finance Board's efforts to devolve ministerial and routine business 
matters to the Federal Home Loan Banks.

DATES: The Finance Board will accept comments in writing on or before 
September 15, 1999.

ADDRESSES: Send comments to Elaine L. Baker, Secretary to the Board, by 
electronic mail at [email protected], or by regular mail at the Federal 
Housing Finance Board, 1777 F Street, N.W., Washington, DC 20006. 
Comments will be available for public inspection at this address.

FOR FURTHER INFORMATION CONTACT: Jonathan Curtis, Senior Financial 
Analyst, Office of Policy, Research and Analysis, by telephone (202) 
408-2866 or by electronic mail at [email protected]; Jane S. Converse, 
Attorney-Advisor, Office of General Counsel, by telephone at (202) 408-
2976 or by electronic mail at [email protected]; or Neil R. Crowley, 
Deputy General Counsel, Office of General Counsel, by telephone (202) 
408-2990 or electronic mail at [email protected], Federal Housing 
Finance Board, 1777 F Street, N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    Section 10(d) of the Federal Home Loan Bank Act (Bank Act) 
authorizes any Bank to sell whole advances, or participations in 
advances, to any other Bank, subject to Finance Board approval. See 12 
U.S.C. 1430(d).

[[Page 44445]]

    The Finance Board has approved the sale and purchase of 
participation interests in Bank advances through the adoption of 
Sec. 935.16. See 12 CFR 935.16. The Finance Board has not similarly 
approved the sale and purchase of whole advances between Banks, which 
has meant that such transactions still must be submitted to the Finance 
Board for approval.
    Requests for Finance Board approval of the sales of whole advances 
between Banks have resulted from the merger or consolidation of members 
in different Bank districts, and the resultant cancellation of the 
charter and membership of the non-surviving member or members. 
Consequently, the surviving institution, which is a member of one Bank, 
typically has advances outstanding from two Banks. The Bank to which 
the disappearing member formerly belonged can retain the advance until 
it matures. The member, however, usually prefers the advance to be sold 
to its current Bank, because as long as the advance remains outstanding 
with the other Bank, the member must maintain collateral and stock at 
both Banks. While not required to call the advances, the Bank of the 
former member usually is willing to sell them to the other Bank. It is 
in this context that all recent requests for Finance Board approval 
have occurred. Such sales and purchases of advances have involved no 
safety and soundness issues, and the Banks that have participated in 
these transactions have negotiated the terms of the sales without 
Finance Board involvement.
    Finance Board approval of such sale and purchase of whole advances 
has been granted routinely, typically through a Chairman's Order. In 
processing these requests, Finance Board staff has required that Banks 
provide certain information as a condition of approval. The information 
required includes the submission of a Sale, Purchase and Consent 
Agreement, or similar document, signed by both Banks and the acquiring 
member. In addition, the Banks must submit a listing, identification, 
and description of the advance or advances to be sold and a short 
history recounting the merger or other consolidation activity.
    Prior to this year, the Finance Board would receive, on average, 
one or two advance sale and purchase requests per year. However, due to 
the increasing consolidation of the financial services industry, such 
requests have increased. Four were processed during the first six 
months of this year. The Finance Board expects to receive additional 
requests before the year's end, and is certain that the number of sale 
and purchase transactions will continue to increase.
    Therefore, the Finance Board is proposing to approve by regulation 
any sale and purchase of advances between Banks that meets the 
conditions set forth in the regulation, which are much the same 
conditions as those that are currently imposed during case-by-case 
review. Any other advances transfers still must be submitted to the 
Finance Board for approval.

II. Analysis of the Proposed Rule

    For the reasons discussed above, the Finance Board proposes to 
amend Sec. 935.16 to approve the sale of advances between Banks under 
certain conditions. In addition, the section will be retitled and the 
current provisions regarding participations shall be redesignated as a 
separate paragraph.
    A new paragraph (b) will be added to set forth specific criteria 
which would approve the sale and purchase of advances between Banks 
that occur as a consequence of a merger or other business combination 
of two or more members of different Banks, or where a member has become 
a member of another Bank, such as through a relocation of its principal 
place of business. Although the requests received to date have arisen 
as a result of mergers, it is possible for a member to redesignate, its 
principal place of business to another district in certain 
circumstances. See 12 CFR 933.18(c). In that case, the issues about a 
transfer of the outstanding advances would be much the same as those in 
a merger. Accordingly, the Finance Board requests comment on whether 
the regulation should apply to such transfers of Bank membership and, 
if so, whether any conditions other than those that apply in a merger 
context should be included.
    Paragraph (b) also sets forth the following requirements that the 
sale and purchase transaction must meet in order for it to be approved 
by the Finance Board pursuant to the regulation: the sale and purchase 
of the advance(s) must be conducted pursuant to a written agreement 
between the Banks that identifies the advance(s) to be sold and sets 
forth the terms and conditions of the sale and purchase; the board of 
directors of each Bank must approve the sale and purchase and the terms 
of the agreement; the advance(s) must remain fully secured by eligible 
collateral at all times; the member of the Bank to which the advance(s) 
is being sold must purchase not less than the minimum amount of stock 
of the Bank required to support the advance.
    Sales and purchases of Affordable Housing Program (AHP) advances 
made pursuant to Part 960 of the Finance Board regulations, 12 CFR Part 
960, may also be approved pursuant to the regulation, provided that the 
written agreement includes an additional provision that all parties to 
the sale agree to comply with the requirements of Part 960, including 
the project monitoring requirements. The Finance Board believes that 
the Banks involved in the transaction are best able to assign 
responsibility for AHP compliance, but requests comment on whether the 
regulation should be revised to require a particular Bank assume that 
responsibility.
    The proposal would add a new paragraph (c) which would make it 
clear that sales and purchases of advances that do not meet the 
requirements for approval pursuant to the regulation must be approved 
by the Finance Board.
    In addition, the Finance Board requests comment on whether there 
are other circumstances to which the approval by regulation could be 
extended appropriately.

III. Regulatory Flexibility Act

    This proposed rule is not expected to have a significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601, et. seq.

IV. Paperwork Reduction Act

    This proposed rule does not contain any collections of information 
pursuant to the Paperwork Reduction Act of 1995. See 44 U.S.C. 3501, et 
seq. Therefore, the Finance Board has not submitted any information to 
the Office of Management and Budget for review.

List of Subjects in 12 CFR Part 935

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

Accordingly, the Finance Board hereby amends 12 CFR PART 935 as 
follows:

PART 935-ADVANCES

    1. The authority citation for part 935 continues to read as 
follows:

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1426, 1429, 1430, 
1430b, 1431.

    2. Amend Sec. 935.16 by revising the section heading designating 
the existing text as paragraph (a) and adding the heading 
Participations, and adding new paragraphs (b) and (c) to read as 
follows:


Sec. 935.16  Advance participations; sales of whole advances.

    (a) Participations. * * *
    (b) Sales of whole advances. A Bank may sell a whole advance to 
another Bank, and such other Bank may

[[Page 44446]]

purchase a whole advance, if the following conditions are met:
    (1) The member to which the advance(s) was made originally has 
ceased to exist as a result of a merger or other business combination 
with and into a member of the purchasing Bank, or has become a member 
of the purchasing Bank;
    (2) The sale and purchase of the advance(s) is done pursuant to a 
written agreement between the Banks that identifies the advance(s) to 
be sold and sets forth the terms and conditions of the sale and 
purchase;
    (3) The board of directors of each Bank has approved the sale and 
purchase and the terms of the agreement described in paragraph (b)(2) 
of this section;
    (4) The advance(s) remains fully secured by eligible collateral at 
all times;
    (5) The member of the purchasing Bank maintains not less than the 
minimum amount of stock of that Bank required to support the advance; 
and
    (6) If the advance(s) being sold was made pursuant to part 960 of 
this chapter as an Affordable Housing Program advance, the agreement 
described in paragraph (b)(2) of this section must provide that the 
parties will ensure that the advance remains in compliance with all of 
the requirements of part 960 of this chapter, including monitoring 
requirements, after the sale.
    (c) Finance Board approval. Any proposed sale and purchase of an 
advance that does not meet the requirements of paragraph (b) of this 
section must be approved by the Finance Board pursuant to section 10(d) 
of the Bank Act.

    Dated: August 6, 1999.

    By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.
[FR Doc. 99-21059 Filed 8-13-99; 8:45 am]
BILLING CODE 6725-01-P