[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