[Federal Register Volume 66, Number 47 (Friday, March 9, 2001)]
[Proposed Rules]
[Pages 14093-14094]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-5802]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 66, No. 47 / Friday, March 9, 2001 / Proposed 
Rules  

[[Page 14093]]



FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 915, 917, 925, 930, 931, 932, 933, 956, 966

[No. 2001-05]
RIN 3069-AB06


Capital Requirements for Federal Home Loan Banks

AGENCY: Federal Housing Finance Board.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: On December 20, 2000, the Federal Housing Finance Board 
(Finance Board) approved regulations to implement a new capital 
structure for the Federal Home Loan Banks (Banks) as required by the 
Gramm-Leach-Bliley Act. At that time, the Finance Board recognized 
that, as the Banks begin to determine their capital plans, unforeseen 
issues may arise that would require the Finance Board to refine, 
clarify or otherwise amend the final capital regulations to assure that 
each Bank can successfully develop and implement the new capital 
structure. Accordingly, to better consider the potential need for 
amendments to the final capital regulations, the Finance Board is 
seeking information and comment on the specific issues discussed in 
this Advanced Notice of Proposed Rulemaking (ANPR), as well as any 
other unforeseen issues or uncertainties that were not resolved in the 
final capital rule or that have arisen as the Banks have begun to 
develop their capital plans and could affect the development or 
implementation of the Banks' required capital plans.

DATES: The Finance Board will consider written comments on the advance 
notice of proposed rulemaking that are received on or before April 9, 
2001.

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

FOR FURTHER INFORMATION CONTACT: James L. Bothwell, Managing Director, 
(202) 408-2821; Scott L. Smith, Acting Director, (202) 408-2991; Ellen 
Hancock, Senior Financial Analyst, (202) 408-2906; or Julie Paller, 
Senior Financial Analyst, (202) 408-2842, Office of Policy, Research 
and Analysis; or Deborah F. Silberman, General Counsel, (202) 408-2570; 
Neil R. Crowley, Deputy General Counsel, (202) 408-2990; Thomas F. 
Hearn, Senior Attorney-Advisor, (202) 408-2976; or Thomas E. Joseph, 
Attorney-Advisor, (202) 408-2512, Office of General Counsel, Federal 
Housing Finance Board, 1777 F Street, NW., Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

Background

    The Gramm-Leach-Bliley Act, Pub. Law No. 106-102, 133 Stat. 1338 
(Nov. 12, 1999) (GLB Act), amended the Federal Home Loan Bank Act (Bank 
Act) to change, among other things, the capital structure of the Banks 
from a ``subscription'' structure to one that includes both risk-based 
and minimum leverage requirements. The GLB Act also required the 
Finance Board to prescribe uniform capital standards for the Banks and 
required each Bank to adopt and implement a capital plan consistent 
with provisions of the GLB Act and Finance Board regulations. Under the 
GLB Act, each Bank must submit a capital plan to the Finance Board for 
approval within 270 days after the publication of the final capital 
regulations, in other words by no later than October 29, 2001. See 66 
FR 8262. (Jan. 30, 2001) (publication of final capital rule).
    In addition to approving the new capital regulations, the Finance 
Board adopted on December 20, 2000 a resolution directing its staff to 
develop an ANPR that would seek comment on any issues that could arise 
in the capital planning process, actions of other regulatory bodies or 
other events in the general economy that could affect the capital 
development of the Banks, and could require further action by the 
Finance Board. Accordingly, the Finance Board is issuing this ANPR to 
help identify issues or uncertainties that were not contemplated by, or 
fully addressed in, the final capital rule or that have arisen only 
after the Banks have begun to develop their capital plans.
    This ANPR does not alter or delay the statutory deadline of October 
29, 2001 by which the Banks must submit their capital plans to the 
Finance Board for approval. If the Finance Board determines that it 
should amend the capital regulations as a result of this ANPR, it would 
do so in accordance with the Administrative Procedures Act, either 
through a full notice and comment rulemaking or by interim final rule, 
depending on the nature and urgency of the change. Therefore, to best 
assure that any needed amendments will take effect by a date reasonably 
prior to the October 29 deadline, the Finance Board has established a 
30-day comment period for the ANPR and intends to review comments 
received during the ANPR comment period expeditiously. For similar 
reasons, the Finance Board requests that commenters be as specific as 
possible in describing potential problems that could arise under the 
final capital regulations, discuss with specificity changes to the 
regulation that the commenters believe are needed to address such 
problems, and provide a legal analysis detailing the Finance Board's 
authority to adopt these suggested rule amendments, where applicable. 
The specific issues on which the Finance Board requests comment and 
discussion are described below.

Dividends on Class A Stock

    As was discussed as part of the final rule, the decision by 
Congress to confer on the Class B stockholders an ownership interest in 
the retained earnings of the Banks has created some uncertainty as to 
the ability of a Bank to pay dividends to its Class A stockholders. 
Briefly stated, the language of the GLB Act that created the ownership 
interest in favor of the Class B stockholders might be interpreted as 
creating a property interest for the Class B stockholders that would 
effectively preclude that property from being used as a source for 
dividends on the Class A stock. Further discussion of this issue is set 
out in some detail in the SUPPLEMENTARY INFORMATION section of the 
adopting release for the final rule. See 66 FR 8272, 8777-78 (Jan. 30, 
2001). Rather than address the issue as part of the final rule, the 
Finance Board at that

[[Page 14094]]

time decided to defer consideration of this issue until it could have 
an opportunity to solicit comments. Nonetheless, because it is unlikely 
that the Congress intended the GLB Act to preclude the payment of 
dividends on the Class A stock, the Finance Board is inclined to 
propose an amendment to its capital regulations to make clear that a 
Bank that issues Class A stock will be permitted to pay dividends on 
that stock as determined by the board of directors of the Bank. Before 
issuing such a proposed rule, however, the Finance Board requests 
comments on how best to address the issue of payment of dividends on 
the Class A stock.

Capitalizing Out-of-District Assets

    The investment by one Bank in the assets of another Bank (such as 
through the purchase of a participation interest) or in transactions 
that originated with the member of another Bank has been increasing in 
recent years. Such ``out-of-district'' assets may include Acquired 
Member Assets (AMA) and, as allowed under a recently adopted Finance 
Board rule, advances originated by another Bank or a participation 
interest in such advances. See 65 FR 43969, 43981 (July 18, 2000), as 
corrected by 65 FR 46049 (July 26, 2000) (adopting 12 CFR 950.25). 
Because the GLB Act and Finance Board regulations require a Bank to 
sell its stock only to its members, however, these out-of-district 
assets may present special problems to the extent that a Bank 
contemplated acquiring the incremental capital necessary to support 
these transactions through an activity-based stock purchase 
requirement. See 12 U.S.C. 1426(c)(5)(A), as amended; and 12 CFR 
933.2(e)(2) as adopted at 66 FR 8320.
    In addition, the GLB Act defines permanent capital specifically to 
``include the amounts paid for [C]lass B stock and the retained 
earnings of the [B]ank (as determined in accordance with generally 
accepted accounting principles) * * *.'' 12 U.S.C. 1426(a)(5)(A), as 
amended. Further, under both the GLB Act and the capital regulations, 
only permanent capital can be used to satisfy a Bank's minimum risk-
based capital requirement. See id. at 1426(a)(3), and 66 FR 8313 
(adopting 12 CFR 932.3). Thus, the Finance Board is limited in its 
ability to define additional sources of permanent capital to meet the 
incremental risk-based capital requirements associated with new out-of-
district assets. By contrast, the GLB Act provides that total capital 
may include an amount from any source that is available to absorb 
losses incurred by a Bank and that has been determined by the Finance 
Board to be appropriately included in total capital. 12 U.S.C. 
1426(a)(5)(B), as amended. Thus, the Finance Board has greater 
flexibility to define sources of total capital that could be used to 
satisfy the Banks' minimum leverage requirements. See id. at 1426(a)(2) 
and 66 FR 8813 (adopting 12 CFR 932.2).
    The Finance Board did not address the issue of capitalizing out-of-
district assets in the final capital rule.\1\ The Finance Board is 
soliciting comment on how the Banks may capitalize their out-of-
district assets, such as by use of subordinated debt. It seeks 
discussion on whether there is merit in considering the concept of 
capitalizing out-of-district assets at all, assistance in identifying 
problems that may hinder a Bank in implementing its capital plan or in 
meeting its capital requirements, and, if problems are identified, 
suggestions for solutions to such problems (including legal analysis to 
support the adoption of the suggested approach).
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    \1\ In the SUPPLEMENTARY INFORMATION section of the proposing 
release for the capital rule, the Finance Board did request comment 
on the concept of the issuance of joint or pooled stock by Banks 
that were jointly managing assets as one solution to the problem of 
capitalizing out-of-district assets. See 65 FR 43408, 43412 (July 
13, 2000). Commenters' responses to this proposal were mixed, and in 
the whole did not provide the Finance Board with a sufficient basis 
for designing a practical solution to the problem.
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Other Unresolved Matters

    In addition to the specific issues discussed above, the Finance 
Board seeks comments and discussion on other unforeseen issues that 
were not resolved in the final rule and that may introduce uncertainty 
or impediments into the process of developing and implementing the 
required capital plans. In particular, the Finance Board is interested 
in any tax or accounting issues or other regulatory issues that may 
have come to light as the Banks have begun development of their capital 
plans. The Finance Board requests that commenters be as specific as 
possible in describing any problems or potential problems arising under 
the capital rule and provide a complete analysis, including any 
supporting legal analysis, of any proposed solutions to these problems.

    Dated: March 2, 2001.

    By the Board of Directors of the Federal Housing Finance Board.
Allan I. Mendelowitz,
Chairman.
[FR Doc. 01-5802 Filed 3-8-01; 8:45 am]
BILLING CODE 6725-01-P