[Federal Register Volume 66, Number 211 (Wednesday, October 31, 2001)]
[Rules and Regulations]
[Pages 54916-54918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-27389]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 918

[No. 2001-25]
RIN 3069-AB05


Maintenance of Effort--Minimum Number of Annual Bank Board of 
Directors Meetings

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is adopting 
as final, without change, the interim final rule that amended the 
maintenance of effort provision of its regulations to eliminate the 
three-year averaging requirement and to reduce the required minimum 
number of in-person board of directors meetings that a Federal Home

[[Page 54917]]

Loan Bank (Bank) must hold annually to six meetings.

DATES: This final rule shall become effective on November 30, 2001.

FOR FURTHER INFORMATION CONTACT: Scott L. Smith, Acting Director, at 
(202) 408-2991, Patricia L. Sweeney, Program Analyst, at (202) 408-
2872, Office of Policy, Research, and Analysis; or Sharon B. Like, 
Senior Attorney-Advisor, at (202) 408-2930, or Thomas Hearn, Senior 
Attorney-Advisor, at (202) 408-2976, Office of the General Counsel; or 
by regular mail at the Federal Housing Finance Board, 1777 F Street, 
NW., Washington, DC 20006. A telecommunications device for deaf persons 
(TDD) is available at (202) 408-2579.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    On December 21, 1999, the Finance Board published an interim final 
rule implementing the specific limits on annual compensation for the 
Chairperson, Vice Chairperson, and other members of a Bank's board of 
directors imposed by section 7(i) of the Federal Home Loan Bank Act, as 
amended by the Gramm-Leach-Bliley Act (GLB Act) (section 606(b)), Pub. 
L. No. 106-102, 113 Stat. 1338 (November 12, 1999). See 64 FR 71275 
(December 21, 1999). The interim final rule required each Bank's board 
of directors, notwithstanding the compensation limits, to continue to 
maintain its level of oversight of the management of the Bank 
(maintenance of effort standard). Consistent with this maintenance of 
effort standard, the interim final rule required that each Bank's board 
of directors hold no fewer in-person meetings in any year than it held 
on average over the immediately preceding three years (three-year 
averaging requirement).
    The Finance Board finalized the interim final rule on March 14, 
2000. See 65 FR 13663 (March 14, 2000). The final rule revised the 
minimum meetings requirement in Sec. 918.7(a) to the lesser of: (1) 
Nine; or (2) the three-year averaging requirement. See id. This change 
was made in order to avoid the vagaries of timing of the pure averaging 
requirement and reflect the operational reality at the Banks regarding 
the average number of meetings held over the preceding three years. In 
addition, Sec. 918.7(b) of the final rule clarified that a Bank could 
apply to the Finance Board for a waiver of the minimum meetings 
requirement pursuant to the procedures of 12 CFR part 907. See id.
    Based on subsequent experience with the minimum meetings 
requirement, on May 14, 2001, the Finance Board published a second 
interim final rule that further amended the maintenance of effort 
provision to eliminate the three-year averaging requirement and to 
reduce the required minimum number of in-person board of directors 
meetings that a Bank must hold annually to six meetings. See 66 FR 
24263 (May 14, 2001). The May 2001 interim final rule also removed the 
waiver provision of Sec. 918.7(b), because the ability to request a 
waiver of Finance Board regulatory provisions is already provided for 
in 12 CFR part 907. See id.
    As discussed in the SUPPLEMENTARY INFORMATION section of the May 
2001 interim final rule, these changes were made based on arguments by 
the Banks that they would be able to conduct their business more 
efficiently and effectively by holding only six annual in-person board 
meetings. The Banks indicated that they would be able to continue to 
maintain their level of oversight over the management of the Banks by 
conducting more business at fewer, but longer, board meetings, and/or 
placing greater reliance on board committees for the conduct of certain 
board business. The Banks noted that the three-year averaging 
requirement created a standard that varied among the Banks, with, for 
example, one Bank, based on the standard, already holding only six in-
person board meetings annually.
    The Finance Board also determined, based on a survey of the number 
of board of directors meetings held in 1999 by a number of financial 
institution holding companies and housing Government-Sponsored 
Enterprises (GSEs), that requiring at least six in-person Bank board of 
directors meetings in any year is within the range of the number of 
annual board meetings held by such holding companies and GSEs. Further, 
providing the boards of the Banks with greater discretion in 
determining the number of board meetings to hold annually is consistent 
with the GLB Act's emphasis on devolving governance issues to the 
Banks.
    The May 2001 interim final rule provided for a 30-day comment 
period, which closed on June 13, 2001. The Finance Board received 
comment letters from two Banks, which are discussed below.

II. Analysis of Final Rule

    The final rule adopts Sec. 918.7 of the May 2001 interim final rule 
without change. Section 918.7 states:

    Notwithstanding the limits on annual directors' compensation 
established by section 7(i) of the [Bank] Act, as amended, the board 
of directors of each Bank shall continue to maintain its level of 
oversight of the management of the Bank. In maintaining its level of 
oversight, the board of directors of a Bank shall hold at least six 
in-person meetings in any year.

12 CFR 918.7.
    One commenter interpreted the changes to the maintenance of effort 
requirement as a conclusion by the Finance Board that six in-person 
board meetings each year will fully enable the directors of a Bank to 
fulfill their fiduciary duties to the Bank's members. This comment 
misinterprets the maintenance of effort requirement. Section 918.7 
requires that, in maintaining its level of oversight of the management 
of the Bank, the Bank shall hold at least six in-person board meetings 
in any year. As the SUPPLEMENTARY INFORMATION section of the May 2001 
interim final rule explains, if a Bank's board intends to hold fewer 
annual in-person board meetings than it has held in past years, it 
would be in the board's best interest to document how it will continue 
to meet the maintenance of effort standard and its fiduciary duties 
regarding the Bank's safety and soundness. If the Bank cannot continue 
to maintain its level of oversight over Bank management with six board 
meetings in a given year, then it would need to hold more board 
meetings per year. See 66 FR at 24264.
    The other commenter contended that the Finance Board should only be 
concerned that a Bank's board of directors has established sound 
governing processes, and should not pre-determine what governance 
practices are absolutely required for all Banks in all circumstances. 
As discussed in the SUPPLEMENTARY INFORMATION section of the March 2000 
final rule, the minimum meetings requirement was adopted for safety and 
soundness reasons. While the Finance Board acknowledges that decisions 
on the number of Bank board meetings generally should be within the 
purview of the corporate governance responsibilities of the Banks' 
boards, the Finance Board believes that its safety and soundness 
concerns with respect to the Bank boards' level of oversight of Bank 
management warrant a regulatory response. Accordingly, the Finance 
Board is retaining the minimum meetings requirement in the final rule.

III. Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required for this final 
rule, the provisions of the Regulatory Flexibility Act, 5 U.S.C. 601 et 
seq., do not apply. Moreover, the final rule applies only to the Banks, 
which do not come within the meaning of ``small

[[Page 54918]]

entities'' as defined in the Regulatory Flexibility Act. See id. 
section 601(6).

IV. Paperwork Reduction Act

    This final rule does not contain any collections of information 
pursuant to the Paperwork Reduction Act of 1995. See 44 U.S.C. 3501 et 
seq. Therefore, the Finance Board has not submitted any information to 
the Office of Management and Budget for review.
    Accordingly, the interim final rule amending 12 CFR part 918, 
published at 66 FR 24263 (May 14, 2001), is adopted by the Federal 
Housing Finance Board as final without change.

    Dated: October 24, 2001.

    By the Board of Directors of the Federal Housing Finance Board.
J. Timothy O'Neill,
Chairman.
[FR Doc. 01-27389 Filed 10-30-01; 8:45 am]
BILLING CODE 6725-01-P