[Federal Register Volume 65, Number 46 (Wednesday, March 8, 2000)]
[Rules and Regulations]
[Pages 12064-12070]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-5435]
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DEPARTMENT OF THE TREASURY
12 CFR Part 1510
RIN 1505-AA79
Resolution Funding Corporation Operations
AGENCY: Department of the Treasury.
ACTION: Interim final rule with request for comments.
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SUMMARY: The Secretary of the Treasury (Secretary) is revising the
Treasury Department's regulation governing the operations of the
Resolution Funding Corporation (Funding Corporation). The Funding
Corporation is a mixed-ownership government corporation under the
supervision of the Secretary. The operations regulation currently
governs matters such as how the Funding Corporation raises capital,
issues and services its debt, and pays its administrative expenses. The
revisions in the interim final rule implement recent statutory changes
affecting these activities. In addition, the revisions eliminate
certain provisions in the operations regulation relating to activities
the Funding Corporation no longer performs and streamline the remaining
provisions.
DATES: The interim final rule is effective on March 8, 2000. Written
comments on the interim final rule may be submitted to the Treasury
Department on or before April 7, 2000.
ADDRESSES: Mail comments to: Office of the Assistant General Counsel
(Banking and Finance), Attention: Comment Record, Room 2026, Department
of the Treasury, 1500 Pennsylvania Ave., NW 20220. Comments will be
available for public inspection by appointment only at the Reading Room
of the Treasury Library. To make an appointment, call (202) 622-0990.
FOR FURTHER INFORMATION CONTACT: Brandon B. Straus, Attorney-Advisor,
Office of the Assistant General Counsel (Banking and Finance), (202)
622-1964, or Matthew Green, Financial Analyst, Office of Financial
Institutions Policy, Department of the Treasury, (202) 622-2157.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
A. Statutory Requirements
In 1989, Congress enacted the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 (FIRREA). See Public Law 101-73,
103 Stat. 183 (1989). One of the purposes of FIRREA was to resolve a
large number of insolvent savings associations. In furtherance of this
purpose, FIRREA added a new section 21A to the Federal Home Loan Bank
Act (Act) creating the Resolution Trust Corporation (RTC), a mixed
ownership government corporation charged with containing, managing, and
resolving failed savings associations. In order to fund the RTC's
activities, FIRREA added a new section 21B to the Act creating the
Funding Corporation.
Section 21B(f) of the Act authorizes the Funding Corporation to
issue up to $30 billion of debt obligations and to transfer the net
proceeds of the debt issuance to the RTC through the purchase of RTC
capital certificates. Prior to issuing any obligations, the Funding
Corporation is required to establish a Principal Fund to defease the
principal amount of the obligations. The Act requires the Federal Home
Loan Banks (Banks) and depository institutions whose deposits are
insured by the Savings Association Insurance Fund (SAIF members) to
capitalize the Principal Fund through the purchase of nonvoting stock
of the Funding Corporation. The Principal Fund is to be invested in
noninterest bearing direct obligations of the United States having
equal maturity value with the principal amount of the Funding
Corporation's obligations. Upon the maturity of the Funding
Corporation's obligations, the securities in the Principal Fund are to
be liquidated to repay the obligations.
Section 21B(f) of the Act directs the Funding Corporation to pay
interest on its obligations with funds obtained from up to five
sources, which are specified in the statute. The Funding Corporation is
to obtain funds from these sources in succession, to the extent that
funds from
[[Page 12065]]
the previous source or sources are insufficient to cover the entire
amount of the interest payment due. As further discussed below, these
sources are: (1) Earnings on Funding Corporation assets not invested in
the Principal Fund; (2) certain funds of the RTC; (3) a portion of the
net earnings of the Banks; (4) funds from the Federal Savings and Loan
Insurance Corporation Resolution Fund (FSLIC Resolution Fund) and (5)
the Secretary.
The Act also governs matters such as the Funding Corporation's
investments, administrative expenses, and management. The Funding
Corporation is managed by a three-member Directorate, consisting of the
Director of the Office of Finance of the Federal Home Loan Bank System
(Office of Finance) and two of the 12 Bank presidents, who serve on a
rotating basis. Day-to-day operations of the Funding Corporation are
carried out by employees of the Office of Finance.
From 1989 to 1998, the Funding Corporation operated under the
supervision of the Thrift Depositor Protection Oversight Board (Board).
Congress abolished the Board in 1998 and transferred its oversight
authority for the Funding Corporation to the Secretary. See Public Law
105-216, section 14, 112 Stat. 909 (1998).
B. Regulatory Requirements
The Board initially issued the operations regulation in 1989 to
implement the statutory provisions discussed above. See 54 FR 41950
(Oct. 13, 1989) (codified at 12 CFR part 1510). After the Board was
abolished in 1998, the Secretary transferred the operations regulation
to the Treasury Department. See 63 FR 57236 (Oct. 27, 1998). The
Secretary did not at that time, however, revise the operations
regulation to delete references to the Board or make other changes to
update the regulation.
As discussed in detail below in the Analysis of the Interim Final
Rule section, this interim final rule revises the operations regulation
to reflect the transfer of oversight authority to the Secretary. The
interim final rule also updates the regulation to take into account
developments affecting the funding of interest payments on Funding
Corporation obligations, such as the termination of the RTC in 1995 and
changes made by the Gramm-Leach-Bliley Act of 1999 (GLBA), Public Law
106-102 (1999). In the course of making these changes, the Secretary is
streamlining the regulation by eliminating provisions that no longer
need to be embodied in regulation. The interim final rule also revises
the language and the overall structure of the operations regulation to
comply with the President's Memorandum of June 1, 1998 requiring the
use of plain language in agency regulations.
II. Analysis of the Interim Final Rule
The operations regulation currently contains provisions
implementing each of the Funding Corporation's three main statutory
functions discussed above: (1) Raising capital for the Principal Fund;
(2) issuing debt obligations; and (3) paying interest on the
obligations. The operations regulation also implements certain
administrative functions such as the payment of the Funding
Corporation's administrative expenses and the investment of its surplus
funds. As further discussed below, it is no longer necessary to
implement the first two statutory functions--capitalization and debt
issuance--by regulation. Consequently, the interim final rule
eliminates existing provisions of the operations regulation related to
these functions. The interim final rule also retains, streamlines, and
updates the provisions of the operations regulation that implement the
Funding Corporation's third main function--paying interest on its
debt--as well as its administrative functions.
A. Elimination of Existing Provisions on Debt Issuance
From 1989 to 1991, the Funding Corporation undertook a series of
debt issuances totaling $29,995,180,000, in the form of noncallable
bonds with 30- and 40-year maturities. Consequently, of the Funding
Corporation's $30 billion debt issuance authority, only $4.82 million
remains unused.
The statutory requirements regarding the use of the Funding
Corporation's debt issuance proceeds make it highly unlikely that the
Funding Corporation will ever use its remaining $4.82 million of
issuance authority. Specifically, section 21B(f)(4) of the Act provides
that the Funding Corporation must use the proceeds of any debt issuance
for one of two purposes: (1) To purchase RTC capital certificates; or
(2) to refund previously issued Funding Corporation obligations.
The RTC terminated on December 31, 1995, pursuant to section 21A(m)
of the Act. Therefore, the Funding Corporation can no longer transfer
funds to the RTC through the purchase of RTC capital certificates.
Accordingly, any new debt issuance could not fulfill the first
statutory purpose cited above. Furthermore, since the Funding
Corporation's outstanding obligations are noncallable, the Funding
Corporation is contractually bound not to repay them prior to maturity.
Therefore, the Funding Corporation would not issue new obligations for
the second statutory purpose.
In sum, the primary purpose of the Funding Corporation's debt
issuance function--to raise funds to finance the resolution activities
of the RTC--was fulfilled by 1991, and the circumstances under which a
new debt issuance would be warranted are remote. Consequently,
provisions in the operations regulation at existing Sec. 1510.4,
entitled ``Authority to issue obligations'', and existing Sec. 1510.8,
entitled ``Issuance expenses'', are no longer necessary and may be
removed. The elimination of these regulatory provisions, however, does
not affect the Funding Corporation's underlying statutory authority to
issue obligations or the Secretary's authority to regulate their
issuance. These authorities remain in effect under the Act.
B. Elimination of Existing Provisions on Capitalization of the
Principal Fund
The Principal Fund is a segregated custodial account held by the
Funding Corporation's fiscal agent, the Federal Reserve Bank of New
York. The sole purpose of the Principal Fund is to defease the
aggregate principal amount of the debt obligations issued by the
Funding Corporation. Under the Act, the Funding Corporation may not
issue any new obligations unless there are amounts in the Principal
Fund sufficient to defease the principal amount of the new obligations.
The Principal Fund currently contains non-marketable zero-coupon
Treasury bonds with total face amounts sufficient to defease fully the
aggregate principal amount of outstanding Funding Corporation
obligations.
As discussed above, the Funding Corporation used all but $4.82
million of its debt issuance authority by 1991. Therefore, since 1991,
the Funding Corporation has needed no new capital for the Principal
Fund. Furthermore, since it is unlikely that the Funding Corporation
will issue any additional obligations, the Secretary is removing
provisions in the operations regulation relating to capitalization of
the Funding Corporation. These provisions currently appear in
Sec. 1510.9, entitled ``Capitalization of Funding Corporation'' and
Sec. 1510.10, entitled ``Funding Corporation Principal Fund Reserve
Account''.
Existing Sec. 1510.9 generally requires the Funding Corporation to
make quarterly projections of the amount of funds necessary to
capitalize the Principal Fund and pay interest on outstanding Funding
Corporation obligations, as well as projections on
[[Page 12066]]
how it will raise those funds from the Banks. Section 1510.9 also
contains a procedure for the collection of capital payments from the
Banks, SAIF members, and the FSLIC Resolution Fund.
Existing Sec. 1510.10 implements statutory provisions governing the
situation where one or more ``deficient'' Banks are unable to provide
the Funding Corporation with the amounts required to capitalize the
Principal Fund. The Act and the regulation require that the
``remaining'' Banks provide funds on behalf of the ``deficient'' Banks
and later receive reimbursement.
The interim final rule removes the provisions in existing
Sec. 1510.9 requiring the Funding Corporation to project amounts
required to capitalize the Principal Fund and to raise those funds. The
interim final rule retains and transfers to a new section the
provisions in Sec. 1510.9 requiring the Funding Corporation to make
quarterly projections of amounts available to cover interest payments
on Funding Corporation obligations. The interim final rule removes in
its entirety Sec. 1510.10, regarding the Principal Fund Reserve
Account.
As in the case of the Funding Corporation's debt issuance
authority, the elimination of regulatory provisions governing
capitalization of the Funding Corporation does not affect the Funding
Corporation's underlying statutory authority to raise capital or the
Secretary's authority to regulate this activity. Moreover, much of
existing Secs. 1510.9 and 1510.10 merely repeat or cross reference
provisions of the Act. Consequently, removal of these regulatory
provisions will not deprive the Funding Corporation, the Banks, or the
public of interpretive guidance that elaborates on the provisions of
the Act.
C. Section-by-Section Analysis of the Interim Final Rule
1. Section 1510.1--Authority, Purpose, and Scope
Section 1510.1 of the interim final rule cites the statutory
authority under which the Secretary may issue the operations regulation
and explains the purpose and scope of the regulation. Interim
Sec. 1510.1(b) makes clear that the operations regulation does not
implement all aspects of the Funding Corporation's statutory authority.
It states that the purpose of Part 1510 is to provide direction to the
Funding Corporation in carrying out its statutory mandate to make
interest payments on its obligations and to provide guidance to the
Funding Corporation in paying its administrative expenses. Interim
Sec. 1510.1 also makes clear that the Secretary may provide any
necessary direction to the Funding Corporation in carrying out any of
its other statutory authorities.
Interim Sec. 1510.1(c) carries forward the substance of existing
Sec. 1510.2, entitled ``General authority''. Existing Sec. 1510.2
generally provides that the Funding Corporation may exercise the
authority granted under the Act and its bylaws, whether or not that
authority is implemented by regulation, subject to the direction of the
Board. Interim Sec. 1510.1(c) similarly makes clear that the absence of
specific regulations implementing the Funding Corporation's statutory
authority does not diminish the Funding Corporation's ability to
exercise that authority in accordance with its bylaws, subject to the
oversight of the Secretary.
2. Section 1510.2--Definitions
Section 1510.2 of the interim final rule largely carries forward
the definitions in existing Sec. 1510.1 of the operations regulation,
with some exceptions. The interim final rule eliminates the definition
referring to the now abolished Thrift Deposit Protection Oversight
Board. It also eliminates definitions related to the capitalization of
the Funding Corporation and the issuance of Funding Corporation
obligations, including: ``Deficient bank'', ``Excess amount'',
``Remaining bank'', ``Financing Corporation'', and ``Issuance costs''.
Although the term ``Issuance costs'' is defined in the Act to include
the ongoing expenses associated with servicing Funding Corporation
obligations, the Funding Corporation has prepaid its fiscal agent for
these expenses. Therefore, the Funding Corporation currently has no
issuance costs and will not incur issuance costs absent a new debt
issuance.
The interim final rule revises the definition of ``Administrative
expenses'' by deleting a reference to issuance costs, which are no
longer incurred, as well as a reference to redemption premiums, which
would be incurred only through a refunding of existing obligations.
The interim final rule also revises the definition of the ``Net
earnings'' of a Bank by deleting the reference to payments made for the
purchase of Funding Corporation capital stock. In addition, the interim
final rule deletes the reference to purchases of Financing Corporation
stock because the Banks no longer undertake such purchases. The interim
final rule adds language regarding deductions for operating expenses
and expenses related to the Banks' Affordable Housing Programs,
pursuant to section 607 of the GLBA, which clarifies the definition of
``net earnings'' for purposes of determining the amount of each Bank's
payment to cover the interest on Funding Corporation obligations.
Interim Sec. 1510.2 adds a definition referring to the Secretary of
the Treasury, consistent with transfer of the oversight authority for
the Funding Corporation to the Secretary. The interim final rule also
adds a definition referring to the Federal Housing Finance Board,
which, as discussed further below, now has a statutory role in
determining the availability of funds from the Banks for payment of
interest on Funding Corporation obligations. In order to simplify the
language of the regulation, the interim final rule adds definitions of
two new terms: ``obligations'', which refers to Funding Corporation
obligations, and ``interest payment due date'', which refers to the
date on which the next quarterly interest payments on such obligations
are due.
3. Section 1510.3--How Does the Funding Corporation Pay Administrative
Expenses?
Section 1510.3 of the interim final rule requires the Funding
Corporation to develop an annual budget for its administrative
expenses, submit the budget by November 15 to the Secretary for
approval, and collect funds from the Banks in order to pay the
administrative expenses. Interim Sec. 1510.3 largely carries forward
and streamlines the requirements of existing Sec. 1510.6, entitled
``Budget and expenses'', and Sec. 1510.7, entitled ``Billing of
administrative expenses''.
The dollar amount of the Funding Corporation's administrative
budget has changed little or not at all from year to year. In order to
streamline the budget approval process, interim Sec. 1510.3(b) provides
that the administrative budget submitted to the Secretary by the
Funding Corporation is deemed to be approved by the Secretary unless
the Secretary disapproves it within 45 days of the date submitted.
Interim Sec. 1510.3(d) carries forward requirements in existing
Sec. 1510.7 that provide for each Bank to pay a portion of the Funding
Corporation's administrative expenses, calculated according to the
formula set forth in section 21B(c)(7)(B) of the Act. For purposes of
increased clarity, the interim final rule replaces the reference to the
Act with a description of the formula. It provides that the amount of
each Bank's payment must be pro rated according to the percentage of
the total
[[Page 12067]]
outstanding Funding Corporation capital stock owned by the Bank.
4. Section 1510.4--Who May Act as the Depositary and Fiscal Agent for
the Funding Corporation?
Section 1510.4 of the interim final rule carries forward and
consolidates the provisions in existing Sec. 1510.5 of the operations
regulation, entitled ``Federal Reserve banks to be depositaries and
fiscal agents''. Interim Sec. 1510.4(b) adds new language clarifying
that the Funding Corporation may use a demand deposit account at a
federally insured depository institution only as a means of managing
funds used to pay administrative expenses. This change conforms the
operations regulation to the Funding Corporation's current practice, as
approved by the former Board.
5. Section 1510.5--How Does the Funding Corporation Make Interest
Payments on Its Obligations?
The payment of interest on outstanding Funding Corporation
obligations is now the Funding Corporation's primary activity. Under
section 21B(f) of the Act, the Funding Corporation is to make interest
payments with funds obtained from the following sources: (1) Earnings
on Funding Corporation assets not invested in the Principal Fund; (2)
certain funds of the RTC; (3) a portion of the net earnings of the
Banks; (4) any net proceeds from the sale of assets received from the
RTC by the FSLIC Resolution Fund; and (5) the Secretary. The Funding
Corporation is to tap these sources in succession, to the extent that
funds from the previous source or sources are insufficient to cover the
entire amount of the interest payment due.
Interest on the Funding Corporation's obligations comes due
quarterly. Consequently, the operations regulation sets forth a
procedure under which the Funding Corporation makes quarterly
projections of the funds available from these sources and then collects
the funds on a quarterly basis.
Section 1510.5 of the interim final rule carries forward provisions
relating to funding projections in existing Sec. 1510.9(a), entitled
``Capitalization of Funding Corporation''; provisions relating to the
payment of interest in existing Sec. 1510.11, entitled ``Interest
payments and interest reserve account''; and provisions in existing
Sec. 1510.12, entitled ``Request for funds for interest payments''. In
addition, interim Sec. 1510.5 adds new provisions to reflect statutory
and other changes discussed below.
Section 1510.5(a) of the interim final rule carries forward
existing provisions that direct the Funding Corporation to obtain funds
for interest payments from sources designated in section 21B(f)(2) of
the Act. Interim Sec. 1510.5(a) also reflects two changes from the
existing operations regulation.
First, interim Sec. 1510.5(a) removes reference to certain funds of
the RTC as a funding source for interest payments (although, as
explained below, proceeds from assets once held by the RTC remain
available for interest payments). Section 21B(f)(2)(B) of the Act
designates the RTC as the second of the five funding sources for
interest payments on Funding Corporation obligations. The Act provides
that to the extent that amounts from the first funding source--earnings
on assets of the Funding Corporation not invested in the Principal
Fund--are insufficient to cover interest payments due, the RTC must pay
to the Funding Corporation: (i) The liquidating dividends and payments
made on claims received by the RTC from receiverships to the extent
such proceeds are determined by the Board to be in excess of funds
presently necessary for resolution costs; and (ii) any proceeds from
warrants and participations acquired by the RTC.
Pursuant to section 21A(m)(2) of the Act, the RTC ceased to exist
on December 31, 1995. Upon its termination, all the RTC's assets and
liabilities were transferred to the FSLIC Resolution Fund, including
the RTC's claims on receiverships as well as any warrants and
participations it held. Furthermore, after the RTC terminated, the
Board's authority with respect to the RTC terminated. The Board no
longer had the authority described in section 21B(f)(2)(B) of the Act
to direct the RTC--defunct after 1995--to transfer to the Funding
Corporation any liquidating dividends and payments made on receivership
claims. Nor did the Board have any authority to direct the FSLIC
Resolution Fund to make payments to the Funding Corporation, including
payments from assets of the former RTC. Finally, the Board was
abolished in 1998, and the Secretary succeeded to the Board's remaining
programmatic function: oversight of the Funding Corporation.
In sum, the funds described in section 21B(f)(2)(B) of the Act are
no longer held by the RTC and both the RTC and the regulatory agency
that would direct RTC to make payments to the Funding Corporation have
ceased to exist. For these reasons, section 21B(f)(2)(B) is no longer
operative. Therefore, interim Sec. 1510.5(a), which lists the funding
sources for interest payments on Funding Corporation obligations, does
not make reference to the RTC funds described in section 21B(f)(2)(B).
Nonetheless, the former RTC's assets remain available to fund
interest payments on the Funding Corporation's obligations. Section
21B(f)(2)(D) of the Act designates the net proceeds from the sale of
these assets--now held by the FSLIC Resolution Fund--as the fourth
designated funding source for the Funding Corporation's interest
payments. Interim Sec. 1510.5(a)(3) makes reference to this funding
source.
Second, interim Sec. 1510.5(a)(2) revises the language describing
the amount of the payments the Funding Corporation must obtain from the
Banks. Prior to the enactment of the GLBA, the Act required the Banks
as a group to pay an aggregate amount of $300,000,000 per year to fund
interest on Funding Corporation obligations. This aggregate amount was
allocated among the Banks pursuant to a requirement that each Bank pay
an equal percentage of its annual net earnings up to 20 percent. If the
Banks were required to pay more than 20 percent in a given year to
reach the aggregate $300,000,000 payment, the amounts over 20 percent
were allocated among the Banks according to a statutory formula.
Section 607 of the GLBA amended the Act by eliminating the
$300,000,000 cap on the Banks' annual payment and requiring each Bank
to pay the Funding Corporation a fixed 20 percent of its annual net
earnings after deducting expenses related to the Banks' Affordable
Housing Programs and operating expenses. Section 607 also added a new
provision requiring the Banks' regulator, the Finance Board, to extend
or shorten the period during which the Banks must continue to make
payments to the Funding Corporation, based on a method described in
section 607. Interim Sec. 1510.5(a)(2) reflects these statutory
changes.
Section 1510.5(b) of the interim final rule requires the Funding
Corporation on a quarterly basis to obtain information on the Banks'
net earnings as well as projections from the FSLIC Resolution Fund in
order to determine amounts that the Funding Corporation can expect to
obtain from those entities to fund the next four quarterly interest
payments.
Section 1510.5(c) of the interim final rule requires the Funding
Corporation to submit to the Secretary for approval a report showing
the amounts of the next four quarterly interest payments due and the
amounts projected to be available to make those payments from earnings
on Funding Corporation assets not invested in the Principal Fund,
[[Page 12068]]
payments from the Banks, and amounts transferred from the FSLIC
Resolution Fund.
Section 1510.5(d) of the interim final rule carries forward
provisions in existing Sec. 1510.11 and Sec. 1510.12 of the operations
regulation regarding the coordination of payments from the Banks, the
FSLIC Resolution Fund, and the Secretary to the Funding Corporation to
cover interest on its obligations.
Interim Sec. 1510.5(d) also adds new provisions dealing with funds
transferred from the FSLIC Resolution Fund. The existing regulation
does not specifically address the procedure under which the Funding
Corporation is to obtain funds from the FSLIC Resolution Fund. In the
past, specific procedures were not necessary because the FSLIC
Resolution Fund had no funds to transfer. Now that the FSLIC Resolution
Fund has received the assets and liabilities from the former RTC, there
may be net proceeds from the sale of those assets available to fund
interest payments on Funding Corporation obligations. Consequently, the
Funding Corporation must have a procedure in place under which it
requests any funds available from the FSLIC Resolution Fund after
requesting funds from the Banks but before requesting funds from the
Secretary.
Under an existing arrangement with the Secretary, the Funding
Corporation must request funds from the Secretary at least five
business days before the Funding Corporation's quarterly interest
payments are due. As part of its request, the Funding Corporation must
certify as to the amounts available from the prior funding sources.
Consequently, the Funding Corporation must have a process in place that
allows it to meet the timing requirements of its arrangement with the
Secretary while having a relatively high degree of certainty as to the
amounts available from the other funding sources. Interim
Sec. 1510.5(d) establishes a procedure for this process.
Amounts available from the first statutorily designated funding
source--earnings on Funding Corporation assets not invested in the
Principal Fund--are under the direct control of the Funding
Corporation. Therefore, interim Sec. 1510.5(d) does not provide a
procedure for obtaining funds from this source.
As to the second funding source--the Banks--interim
Sec. 1510.5(d)(1) provides that as soon as practicable after the end of
each quarter, the Funding Corporation must obtain from each Bank a
report of its actual net earnings for that quarter. Not less than six
business days prior to the interest payment due date, the Funding
Corporation must notify each Bank in writing of the interest payment
due date and the amount of the payment due from the Bank.
Interim Sec. 1510.5(d)(2) provides that on the day the Funding
Corporation notifies the Banks of the payments due from them, the
Funding Corporation must notify the FSLIC Resolution Fund of: (1) The
interest payment due date; (2) the aggregate amount of the quarterly
interest payment due on that date; and (3) the amount of the quarterly
interest payment that will be funded by the two prior funding sources.
In addition, the Funding Corporation must request that the FSLIC
Resolution Fund transfer available funds to the Funding Corporation by
noon on the fifth business day prior to the interest payment due date.
Section 1510.5(d)(3) of the interim final rule provides that no
less than five business days prior to the interest payment due date,
the Funding Corporation must request any payment that may be necessary
from the Secretary by providing a certification, in a form satisfactory
to the Secretary, stating the total amounts of the quarterly interest
payment to be paid by the Funding Corporation from sources other than
the Secretary and the amounts necessary to make up the deficiency.
Consistent with section 21B(f)(2)(E) of the Act, the interim final rule
provides that any amount paid by the Secretary becomes a liability of
the Funding Corporation to be repaid to the Secretary upon the
dissolution of the Funding Corporation, to the extent of its remaining
assets.
6. Section 1510.6--What Must the Funding Corporation Do With Surplus
Funds?
Section 1510.6 of the interim final rule streamlines and carries
forward without substantive change the provisions in existing
Sec. 1510.3 of the operations regulation, entitled ``Authorization of
establishment of investment policies and procedures''.
7. Section 1510.7--What Are the Funding Corporation's Reporting
Requirements?
Section 1510.7 of the interim final rule consolidates provisions in
existing Sec. 1510.13, entitled ``Reports to Board'', and Sec. 1510.14,
entitled ``Reports to Congress''. Existing Sec. 1510.13 requires the
Funding Corporation to provide a quarterly report to the Board of
specific items of information dealing with the capitalization of the
Principal Fund and the issuance of Funding Corporation obligations.
Most of the items required to be in the report are no longer relevant
to the ongoing oversight of the Funding Corporation. Therefore, the
interim final rule removes the quarterly reporting requirement in
existing Sec. 1510.13, but adds a new provision in interim Sec. 1510.7
under which the Funding Corporation must provide the Secretary such
reports as the Secretary may require.
8. Section 1510.8--What Are the Audit Requirements for the Funding
Corporation?
Existing Sec. 1510.15 of the operations regulation provides that an
office designated by the Board shall review the books and records of
the Funding Corporation at least annually to determine whether the
Funding Corporation is performing its functions in accordance with the
provisions of section 21B of the Act and the operations regulation. The
Funding Corporation currently complies with this provision by obtaining
an annual audit by an independent external auditor. In addition, the
Funding Corporation is audited annually as part of the internal audit
of the Office of Finance. Under section 21B(h)(3) of the Act and
section 105 of the Government Corporation Control Act, see 31 U.S.C.
9105, the Comptroller General reviews the workpapers associated with
the annual external audit. Interim Sec. 1510.8 carries forward and
streamlines existing Sec. 1510.15 and conforms its provisions to
reflect the Funding Corporation's current practice of obtaining an
annual external audit.
The Secretary requests comment on all aspects of the interim final
rule.
III. Administrative Procedure Act
This rule makes technical amendments to the regulation governing
the operations of the Funding Corporation that conform the regulation
to changes in the law and that do not affect the general public. For
this reason, it has been determined that publishing this rule with
notice and an opportunity for public comment is unnecessary pursuant to
5 U.S.C. 553(b). The Treasury Department, however, will consider any
public comments on the interim final rule received on or before April
7, 2000. For the same reasons, pursuant to 5 U.S.C. 553(d), it is
determined that there is good cause for the interim final rule to
become effective immediately upon publication.
IV. Regulatory Flexibility Act
Because no notice of proposed rulemaking is required for this
interim final rule, the provisions of the
[[Page 12069]]
Regulatory Flexibility Act, 5 U.S.C. 601 et seq., do not apply.
V. Executive Order 12866
This interim final rule is not a ``significant regulatory action''
for purposes of Executive Order 12866. Accordingly, a regulatory
assessment is not required.
List of Subjects
12 CFR Part 1510
Federal home loan banks, Federal Reserve System, Resolution Funding
Corporation, Securities.
Authority and Issuance
For the reasons set out in the preamble 12 CFR part 1510 is revised
to read as follows:
PART 1510--RESOLUTION FUNDING CORPORATION OPERATIONS
Sec.
Sec. 1510.1 Authority, purpose, and scope.
Sec. 1510.2 Definitions.
Sec. 1510.3 How does the Funding Corporation pay administrative
expenses?
Sec. 1510.4 Who may act as the depositary and fiscal agent for the
Funding Corporation?
Sec. 1510.5 How does the Funding Corporation make interest
payments on its obligations?
Sec. 1510.6 What must the Funding Corporation do with surplus
funds?
Sec. 1510.7 What are the Funding Corporation's reporting
requirements?
Sec. 1510.8 What are the audit requirements for the Funding
Corporation?
Authority: 12 U.S.C. 1441b; Sec. 14(d), Pub. L. 105-216, 112
Stat. 910.
Sec. 1510.1 Authority, purpose, and scope.
(a) Authority. This part is issued under the authority of section
14(d) of the Homeowners Protection Act of 1998 (Public Law 105-216, 112
Stat. 910) and section 21B(l) of the Federal Home Loan Bank Act (12
U.S.C. 1441b(l)).
(b) Purpose and scope. The purpose of this part is to provide
direction to the Funding Corporation in carrying out its statutory
mandate to make interest payments on its outstanding debt obligations.
This part also provides direction to the Funding Corporation regarding
funding the administrative costs of its operations. This part does not
provide direction to the Funding Corporation, however, on activities
that the Funding Corporation is authorized to carry out under the Act,
but that it previously has completed or is not likely to undertake in
the future, such as raising capital and issuing obligations. Although
the Funding Corporation continues to have statutory authority to
undertake these activities, the circumstances under which it would do
so are limited. If such circumstances were to arise, the Secretary has
the authority to provide any necessary direction to the Funding
Corporation.
(c) Authority of the Funding Corporation. The Funding Corporation
may exercise all authority granted to it by the Act in accordance with
its bylaws, whether or not specifically implemented by regulation,
subject to the requirements of this part and such other regulations,
orders and directions as the Secretary may prescribe.
Sec. 1510.2 Definitions.
The following definitions apply to terms used in this part unless
the context requires otherwise:
Act means the Federal Home Loan Bank Act (12 U.S.C. 1421 et seq.).
Administrative expenses means costs incurred as necessary to carry
out the functions of the Funding Corporation, including custodian fees,
but does not include any interest on obligations.
Bank means a Federal Home Loan Bank established under the authority
of the Act.
Custodian fee means any fee incurred by the Funding Corporation in
connection with the transfer of any security to, or the maintenance of
any security in, the Funding Corporation Principal Fund and any other
expense incurred in connection with the establishment or maintenance of
the Funding Corporation Principal Fund.
Directorate means the Directorate of the Funding Corporation
established pursuant to section 21B(c) of the Act (12 U.S.C. 1421b(c)).
FDIC means the Federal Deposit Insurance Corporation established
pursuant to section 1 of the Federal Deposit Insurance Act (12 U.S.C.
1811, et seq.).
Finance Board means the Federal Housing Finance Board established
pursuant to section 2A(a)(1) of the Act.
FSLIC Resolution Fund means the Federal Savings and Loan Insurance
Corporation Resolution Fund established pursuant to section 11A(a)(1)
of the Federal Deposit Insurance Act (12 U.S.C. 1811, et seq.).
Funding Corporation means the Resolution Funding Corporation
established pursuant to section 21B(b) of the Act.
Funding Corporation Principal Fund means the separate account
established under section 21B(g)(2) of the Act.
Interest payment due date means the date on which the next
quarterly interest payments on obligations are due.
Net earnings means net earnings after deducting expenses relating
to section 10(j) of the Act (Affordable Housing Program) and operating
expenses, but without reduction for chargeoffs and payments to fund
interest payments on obligations.
Obligations means bonds issued by the Funding Corporation under
section 21B(f) of the Act.
RTC means the Resolution Trust Corporation established pursuant to
section 21A(b)(1)(A) of the Act and which terminated on December 31,
1995, pursuant to section 21A(m) of the Act.
Secretary means the Secretary of the Treasury or the designee of
the Secretary of the Treasury.
Sec. 1510.3 How does the Funding Corporation pay administrative
expenses?
(a) The Directorate proposes a budget. By November 15 of each year,
the Directorate must approve and submit to the Secretary a proposed
budget for the administrative expenses of the Funding Corporation for
the following year.
(b) The Secretary approves the budget. The Funding Corporation's
budget is subject to the Secretary's prior approval. The proposed
budget submitted by the Directorate shall be deemed to be approved by
the Secretary unless the Secretary disapproves it within 45 days of the
date submitted. The Funding Corporation must transmit a copy of the
approved budget to each Bank.
(c) Budget changes must be approved by the Secretary. If the
Funding Corporation projects or anticipates incurring expenses
exceeding its approved budget, the Directorate must submit an amended
budget to the Secretary for approval.
(d) The Funding Corporation collects funds from the Banks to pay
its administrative expenses. At least semiannually, the Funding
Corporation must request that each Bank submit within 10 business days
of the request payment for a portion of the administrative expenses in
the Funding Corporation's budget for the current calendar year. The
amount of each Bank's payment must be pro rated according to the
percentage of the total outstanding Funding Corporation capital stock
owned by the Bank. The Funding Corporation must adjust the amount of
each Bank's payment as necessary to reflect differences between
aggregate projected and actual administrative expenses incurred during
the calendar year and to reflect any changes in estimated aggregate
administrative expenses for the coming period. The Funding Corporation
must not request payments from the Banks that, in the aggregate, exceed
the administrative expenses in the Funding Corporation's approved
budget.
[[Page 12070]]
Sec. 1510.4 Who may act as the depositary and fiscal agent for the
Funding Corporation?
(a) In general, the Federal Reserve Banks. The Funding Corporation
must use one or more Federal Reserve Banks as depositaries for or
fiscal agents or custodians of the Funding Corporation.
(b) For administrative accounts, insured depository institutions.
Subject to approval by the Secretary, the Funding Corporation may
establish demand deposit accounts at one or more federally insured
depository institutions for the management of funds used to pay
administrative expenses.
Sec. 1510.5 How does the Funding Corporation make interest payments on
its obligations?
(a) The Funding Corporation must obtain funds from up to four
sources. The Funding Corporation must pay the interest due on its
obligations with funds it obtains from the following sources and in the
following order:
(1) Earnings on assets of the Funding Corporation not invested in
the Funding Corporation Principal Fund.
(2) To the extent funds identified in paragraph (a)(1) of this
section are insufficient, the Funding Corporation must obtain from each
Bank in each calendar year payments totaling 20 percent of the net
earnings of the Bank. The Funding Corporation must not obtain funds
from a Bank under this paragraph after the date upon which the term of
the Bank's payment obligation has ended, as determined by the Finance
Board pursuant to section 21B(f)(2)(C)(iii) of the Act.
(3) To the extent funds identified in paragraphs (a)(1) and (2) of
this section are insufficient, the Funding Corporation must obtain from
the FSLIC Resolution Fund amounts available from any net proceeds from
the sale of assets received from the RTC by the FSLIC Resolution Fund.
(4) To the extent that funds from the sources identified in
paragraphs (a)(1) through (3) of this section are insufficient, the
Funding Corporation must obtain from the Secretary the additional
amount due.
(b) The Funding Corporation must obtain projections of funds
availability from the Banks and the FSLIC Resolution Fund. Not later
than March 15, June 15, September 15, and December 15 of each year:
(1) The Funding Corporation must obtain from each Bank a statement
signed by an officer of such Bank containing sufficient information on
the Banks net earnings to enable the Funding Corporation to make
quarterly projections of funds available from the Bank for the current
quarter and the next three quarters; and
(2) The Funding Corporation must obtain from an authorized
representative of the FSLIC Resolution Fund projections of the amount
of funds available in the current quarter and the next three quarters
from the net proceeds from the sale of received from the RTC.
(c) The Funding Corporation must report funding projections to the
Secretary. Not later than March 20, June 20, September 20, and December
20 of each year, the Funding Corporation must submit to the Secretary
for approval a report containing:
(1) The aggregate amounts of each of the next four quarterly
interest payments due on obligations; and
(2) The amounts projected to be available to fund such payments
from:
(i) Earnings on assets of the Funding Corporation not invested in
the Funding Corporation Principal Fund;
(ii) Payments from the Banks; and
(iii) Funds transferred from the FSLIC Resolution Fund.
(d) The Funding Corporation must request funds from the Banks, the
FSLIC Resolution Fund, and the Secretary--(1) Requests to the Banks. As
soon as practicable after the end of each quarter, the Funding
Corporation must obtain from each Bank a report of its actual net
earnings for that quarter. Not less than six business days prior to the
interest payment due date, the Funding Corporation must notify each
Bank in writing of the interest payment due date and the amount of the
payment due from the Bank. To the extent funds identified in paragraph
(a)(1) of this section are insufficient to pay the interest due, the
amount of each Bank's payment must be 20 percent of the Bank's actual
quarterly net earnings, taking into account any adjustment to the
Bank's earnings for any previous quarters. The Funding Corporation must
request the Bank to provide payment through wiring immediately
available and finally collected funds to the Funding Corporation no
later than the interest payment due date.
(2) Request to the FSLIC Resolution Fund. On the day the Funding
Corporation notifies the Banks of the payments due from them under
paragraph (d)(1) of this section, the Funding Corporation must:
(i) Notify the FSLIC Resolution Fund in writing of:
(A) The interest payment due date;
(B) The aggregate amount of the quarterly interest payment due on
that date; and
(C) The amount of the quarterly interest payment that will be
funded by earnings on assets of the Funding Corporation not invested in
the Funding Corporation Principal Fund and payments due from the Banks;
and
(ii) Request that the FSLIC Resolution Fund transfer to the Funding
Corporation by noon on the fifth business day prior to the interest
payment due date any funds available from the net proceeds from the
sale of assets received from the RTC, to the extent funds identified in
paragraphs (a)(1) and (2) of this section are insufficient to pay the
interest due.
(3) Request to the Secretary. No less than five business days prior
to the interest payment due date, the Funding Corporation must request
payment from the Secretary by providing a certification, in a form
satisfactory to the Secretary, stating the total amounts of the
quarterly interest payment to be paid by the Funding Corporation from
sources other than the Secretary and the amounts necessary to make up
the deficiency. Any amount paid by the Secretary becomes a liability of
the Funding Corporation to be repaid to the Secretary upon the
dissolution of the Funding Corporation, to the extent of its remaining
assets.
Sec. 1510.6 What must the Funding Corporation do with surplus funds?
If the Funding Corporation has funds that are not needed for
current interest payments on obligations, it must invest the funds in
obligations of the United States issued by the Secretary, in accordance
with an investment policy approved by the Secretary.
Sec. 1510.7 What are the Funding Corporation's reporting requirements?
In addition to the budget submission required by Sec. 1510.3 and
the funding projection reports required by Sec. 1510.5, the Funding
Corporation must prepare such reports as the Secretary may require,
including reports necessary to assist the Secretary in making the
annual report to Congress and the President on the Funding Corporation
under section 21B(i) of the Act.
Sec. 1510.8 What are the audit requirements for the Funding
Corporation?
The Funding Corporation must obtain an audit of its books and
records by an independent external auditor at least annually.
Dated: February 11, 2000.
Gary Gensler,
Under Secretary of the Treasury.
[FR Doc. 00-5435 Filed 3-7-00; 8:45 am]
BILLING CODE 4810-25-P