[Federal Register Volume 67, Number 43 (Tuesday, March 5, 2002)]
[Rules and Regulations]
[Pages 9897-9919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-5094]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 907 and 908

[No. 2002-03]
RIN 3069-AB03


Rules of Practice and Procedure

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is amending 
its regulations to implement the provisions of Title VI of the Gramm-
Leach-Bliley Act, Pub. L. 106-102 (1999) and to establish rules of 
practice and procedure governing hearings on the record in certain 
administrative enforcement actions. The final rule is intended to 
provide Finance Board personnel, the Federal Home Loan Banks (Banks), 
the Office of Finance (OF) and the directors and executive officers of 
the Banks and OF, as well as any other interested parties, with 
sufficient notice and guidance to fully utilize the procedures. The 
Finance Board is also making certain conforming amendments to its 
existing rules.

EFFECTIVE DATE: April 4, 2002.

FOR FURTHER INFORMATION CONTACT: Charlotte A. Reid, Special Counsel, 
Office of General Counsel, 202/408-2510, [email protected]. Staff also can 
be reached by regular mail at the Federal Housing Finance Board, 1777 F 
Street, NW., Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Background

    Pursuant to the Federal Home Loan Bank Act, as amended, 12 U.S.C. 
1421-1449 (Act), the Federal Housing Finance Board (Finance Board),\1\ 
regulates the twelve Federal Home Loan Banks (Banks).\2\ Section 2A of 
the Act sets forth the duties of the Finance Board and provides that 
the primary duty of the Finance Board is to ensure that the Banks 
operate in a financially safe and sound manner. Consistent with that 
duty, the Act requires the Finance Board to supervise the Banks, ensure 
that they carry out their housing finance mission, and ensure that the 
Banks remain adequately capitalized and able to raise funds in the 
capital markets. 12 U.S.C. 1422a(a)(3)(A), (B). To ensure that the 
Banks operate in a safe and sound manner and comply with applicable 
laws and regulations, section 2B of the Act grants broad authority to 
the Finance Board to supervise the Banks and to promulgate and enforce 
such regulations and orders as are necessary to carry out the 
provisions of the Act. 12 U.S.C. 1422b(a)(1).\3\
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    \1\ The Finance Board, an independent agency in the executive 
branch of the Federal government, was created by the Financial 
Institutions Reform, Recovery and Enforcement Act of 1989, Pub. L. 
101-73, Sec. 702, 103 Stat. 412 (FIRREA). 12 U.S.C. 1422a(a)(2).
    \2\ The Banks, together with the Office of Finance, which is a 
joint office of the Banks as provided in 12 U.S.C. 1422b(2)(b), 
comprise the Federal Home Loan Bank System. 12 CFR 985.1. In 
accordance with section 985.4(a) of the Finance Board's regulations, 
the Finance Board has the same regulatory and enforcement authority 
over the Office of Finance and its officers, directors, employees 
and agents as the agency has with respect to each of the Banks and 
their respective officers, directors, employees and agents. See 12 
CFR 985.4(a).
    \3\ Additionally, section 20 of the Act authorizes the Finance 
Board to conduct examinations of the Banks (12 U.S.C. 1440) and 
section 6 of the Act requires the Finance Board to establish uniform 
capital requirements for the Banks and directs the Banks to submit 
conforming capital plans (12 U.S.C. 1426).
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    In 1999, with the enactment of section 606 of Title VI of the 
Gramm-Leach-Bliley Act,\4\ the Finance Board received substantially 
enhanced civil administrative enforcement powers under section 2B(a)(5) 
of the Act. See 12 U.S.C. 1422b(a)(5). Section 2B(a)(5) of the Act (12 
U.S.C. 1422b(a)(5)) establishes the cease and desist authority of the 
agency, and adopts certain enforcement powers set out in subtitle C of 
Title XIII of the Housing and Community Development Act of 1992, known 
as the Federal Housing Enterprises Financial Safety and Soundness Act 
of 1992 (Safety and Soundness Act),\5\ as well as the authority to 
require affirmative corrective action under paragraphs (6) and (7) of 
section 8(b) of the Federal Deposit Insurance Act, as amended (codified 
at 12 U.S.C. 1818(b)(6) and (7)). Additionally, a new section 2B(a)(7) 
of the Act confers authority on the agency to act in its own name by 
and through its own attorneys to enforce any provision of the Act or 
any regulation promulgated under the Act.\6\
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    \4\ Gramm-Leach-Bliley Act, Pub. L. 106-102, 113 Stat. 1338 
(Nov. 12, 1999) (GLB Act) (Title VI of the GLB Act is known as the 
Federal Home Loan Bank System Modernization Act of 1999).
    \5\ The Subtitle C enforcement powers are codified at 12 U.S.C. 
4631-4641.
    \6\ Section 2B(a)(7) also authorizes the Finance Board to act in 
its own name and through its own attorneys in any action, suit, or 
proceeding to which the Finance Board is a party that involves the 
agency's regulation or supervision of any Bank. 12 U.S.C. 
1422b(a)(7).
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    Section 2B(a)(5) of the Act (12 U.S.C. 1422b(a)(5)) establishes the 
civil administrative enforcement authority of the Finance Board in four 
parts. First, section 2B(a)(5) of the Act expressly authorizes the 
Finance Board to issue and enforce cease and desist orders based upon 
three broad grounds: an unsafe or unsound practice in conducting the 
business of a Bank; any conduct that violates any provision of the Act 
or any law, order, rule, or regulation; or any conduct that violates 
any condition imposed in writing by the Finance Board in connection 
with the granting of any application or other request by a Bank, or any 
written agreement entered into by a Bank with the Finance Board. See 12 
U.S.C. 1422b(a)(5). Thus, among other things, section 2B(a)(5) of the 
Act authorizes the Finance Board to issue a notice of charges if it 
determines that a Bank or an executive officer or director of a Bank 
``is engaging or has engaged in, or the Finance Board has reasonable 
cause to believe that the Bank, executive officer, or director is about 
to engage in an unsafe or unsound practice.'' 12 U.S.C. 1422b(a)(5).
    Second, section 2B(a)(5) of the Act (12 U.S.C. 1422b(a)(5)) adopts 
the procedural provisions for initiating a cease and desist proceeding 
that govern

[[Page 9898]]

the process by which the Office of Federal Housing Enterprises 
Oversight (OFHEO) may issue a cease and desist order, which are set 
forth in sections 1371(c) and (f) of the Safety and Soundness Act.\7\ 
Importantly, these two provisions in section 1371 of the Safety and 
Soundness Act (12 U.S.C. 4631(c) and (f)), which govern the process for 
initiating a cease and desist proceeding, are the only provisions in 
that section that apply to the Finance Board in accordance with section 
2B(a)(5) of the Act (12 U.S.C. 1422b(a)(5)). As stated, the Finance 
Board's cease and desist authority is expressly stated in section 
2B(a)(5) of the Act (12 U.S.C. 1422b(a)(5)). Thus, the Finance Board's 
cease and desist authority is independent of, and unrestricted by, 
OFHEO's cease and desist authority under section 1371 of the Safety and 
Soundness Act (12 U.S.C. 4631).
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    \7\ OFHEO's enforcement powers extend to the Federal National 
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage 
Corporation (Freddie Mac) (enterprises) and their executive officers 
(as defined in 12 U.S.C. 4502(7)). Sections 1371(c) and (f) of the 
Safety and Soundness Act are codified at 12 U.S.C. 4631(c) and (f).
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    Third, section 2B(a)(5) of the Act provides that the Finance Board 
shall have all other powers to enforce the Act that OFHEO has under 
sections 1372 through 1379B of the Safety and Soundness Act, 12 U.S.C. 
4632-4641, including the grounds and authority to issue and enforce 
temporary cease and desist orders (12 U.S.C. 4632) and civil money 
penalty assessment orders (12 U.S.C. 4636), and the authority to issue 
subpoenas and subpoenas duces tecum (12 U.S.C. 4641). To implement this 
authority the provision adopts OFHEO's statutory authority and 
procedures governing hearings on the record, subject matter 
jurisdiction and judicial review of final orders, as well as the 
enforcement of final orders. Finally, section 2B(a)(5) of the Act also 
incorporates the same authority to require affirmative action to 
correct violations and conditions as the appropriate Federal banking 
agencies have with respect to insured depository institutions under 12 
U.S.C. 1818(b)(6) and (7). See 12 U.S.C. 1422b(a)(5).

II. Synopsis of the Final Rule

    On December 18, 2000, the Finance Board published for notice and 
comment a proposed rule (65 FR 78944) to implement the enforcement 
powers set forth in the GLB Act amendments and establish the necessary 
hearing procedures.\8\ The comment period ended on January 17, 2001 and 
the Finance Board received comment letters from seven of the twelve 
Banks. The Banks' comments generally favor adoption of rules of 
practice and procedures consistent with those of other banking 
regulatory agencies. All of the comment letters provide suggestions for 
revising certain provisions in the rule. The proposed rule has been 
revised to respond to certain comments, to improve the organization or 
clarity of the final rule, and to conform the text of subpart B of the 
final rule as closely as possible to the statutory authority upon which 
it is based. By way of example, all of the references in the proposed 
rule to the Office of Finance and its executive officers and directors 
have been deleted from the final rule. A section-by-section analysis of 
the final rule follows.\9\
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    \8\ Section 2B(a)(5) of the Act (12 U.S.C. 1422b(a)(5)) 
incorporates the hearing on the record requirement from section 
1373(a)(3) of the Safety and Soundness Act, 12 U.S.C. 4633(a)(3). 
These procedures serve a dual purpose to both implement and 
supplement the procedural requirements for such hearings provided in 
the Administrative Procedure Act, 5 U.S.C. 551, 553-59, 701-06, 
1305, 3344, 5372, 7521 (APA).
    \9\ The Finance Board's authority to proceed under Part 908 of 
the Finance Board's regulations is distinct from, and is not 
contingent procedurally upon, the internal review procedures set 
forth in Part 907 of the Finance Board's regulations. Thus, no civil 
administrative enforcement proceeding undertaken pursuant to Part 
908 is contingent upon the issuance of an examination finding, any 
order or directive concerning safety and soundness or compliance, or 
any other order of the Finance Board that may be reviewed in 
accordance with part 907.
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    Subpart A of the final rule, which has been revised for improved 
organization prescribes the scope and authority of the regulation, 
defines certain terms appearing in this part, and relates the general 
rules of construction. Some of the commenters suggest that the 
definition of ``violation'' be revised to clarify that ``policy'' means 
``written policy.'' The Finance Board has determined that the term 
``policy,'' which was intended to refer to directives issued pursuant 
the Finance Board's supervisory and enforcement authority under the 
Act, should be deleted in favor of the term ``order'' in the definition 
of ``violation.'' Thus, as used in the final rule, ``violation'' is 
intended to refer to any violation of ``any provision of [the] Act or 
any law, order, rule, or regulation or any condition imposed in writing 
by the Finance Board in connection with the granting of any application 
or other request by the Bank, or any written agreement entered into by 
the Bank with the agency,'' as set forth in section 2B(a)(5) of the 
Act. 12 U.S.C. 1422b(a)(5).
    The proposed definition of ``adjudicatory proceeding or hearing'' 
has been simplified in the final rule to indicate that a hearing means 
an adjudicatory proceeding conducted under part 908. The definition of 
``decisional employee'' has been revised to exclude Finance Board 
employees in the Office of General Counsel to allow for the agency and 
agency head to obtain the assistance of counsel in such proceedings. 
``Notice'' is defined to mean a written notice of charges or a written 
notice of assessment of a civil money penalty, with an exception carved 
out for the common usage of the word in phrases such as `reasonable 
notice.' The definition of ``party'' has been revised to allow for the 
common use of the term in the rule, except that for purposes of 
subparts C through F, party means the Finance Board or respondent. 
Similarly, the definition of ``respondent'' has been revised in the 
final rule to mean any person named in a notice of charges or a notice 
of assessment of a civil money penalty. Consistent with its effort to 
conform the rule to the statutory authority, the Finance Board declines 
to adopt a commenter's request to adopt the definition of ``executive 
officer,'' in section 1303(7) of the Safety and Soundness Act (12 
U.S.C. 4502(7)). The proposed definition, which excludes directors, is 
inconsistent with section 2B(a)(5) of the Act (12 U.S.C. 1422b(a)(5)), 
which expressly provides that the Finance Board shall have such 
enforcement authority over ``any executive officer or director'' of a 
Bank. Finally, several commenters request that the term ``unsafe and 
unsound'' be expressly defined in subpart A. The Finance Board declines 
to do so, for the reasons stated in the discussion of subpart B, below.
    Subpart B of the final rule specifies the scope of the Finance 
Board's enforcement authority with respect to the Banks or any 
executive officer or director of a Bank, including issuing a notice of 
charges or a notice of assessment of a civil money penalty, and 
enforcing cease and desist orders, temporary cease and desist orders, 
assessment of civil money penalty orders. The rule also specifies the 
process for judicial review of final orders and public disclosure of 
final orders. Additionally, the final rule states that there is no 
implied private right of action created by the provision pursuant to 
section 1378 of the Safety and Soundness Act (12 U.S.C. 4638). The 
final rule also provides for the service of a notice of charges on a 
former executive officer or director of a Bank, within two years of the 
person's departure from the Bank, as is provided

[[Page 9899]]

in section 1377 of the Safety and Soundness Act (12 U.S.C. 4637).
    Section 908.4 of the final rule contains the Finance Board's 
authority to issue a notice of charges and the grounds for a cease and 
desist order as set forth in section 2B(a)(5) of the Act (12 U.S.C. 
1422b(a)(5)). Specifically, section 2B(a)(5) states that the Finance 
Board shall have the power to issue and serve a notice of charges upon 
a Bank, or upon any executive officer or director of a Bank, if in the 
determination of the Finance Board, the subject individual or Bank:

    is engaging or has engaged in, or the Finance Board has 
reasonable cause to believe that the Bank, executive officer, or 
director is about to engage in an unsafe or unsound practice in 
conducting the business of the bank, or any conduct that violates 
any provision of this Act or any law, order, rule, or regulation or 
any condition imposed in writing by the Finance Board in connection 
with the granting of any application or other request by the Bank, 
or any written agreement entered into by the Bank with the agency, 
in accordance with the procedures provided in subsection (c) or (f) 
of section 1371 of the Federal Housing Enterprises Financial Safety 
and Soundness Act of 1992 [12 U.S.C. Sec. 4631(c) and (f)].

12 U.S.C. 1422b(a)(5).
    One commenter suggests that the final rule should establish a 
definition of ``unsafe and unsound'' as follows: ``Unsafe or unsound 
practice means a practice that is contrary to prudent standards of 
operation and is likely to have a material adverse impact on the 
financial condition of the Bank or on the ability of any Bank or the OF 
to raise funds in the capital markets.'' The Finance Board has studied 
the issue and concludes that the proposed definition is inconsistent 
with generally accepted interpretations of the meaning of ``unsafe and 
unsound practices.'' First, ``material adverse impact'' would 
unnecessarily establish a higher standard relative to the risk of 
possible loss than traditional definitions of unsafe and unsound 
practices cited by many courts. Second, the concept of ``unsafe and 
unsound,'' by design, is intended to be flexible. Historically, the 
term ``unsafe and unsound'' has been broadly interpreted to adapt to 
the ever-changing nature of banking and finance practices. Finally, the 
fact that the concept is not defined in the Act supports the conclusion 
that the Finance Board, as the agency in which Congress has invested 
exclusive supervisory oversight, is authorized to make judgments 
concerning safety and soundness issues because it best suited to do so 
on a case-by-case basis.
    In 1966, Mr. John Horne, the Chairman of the Federal Home Loan Bank 
Board (FHLBB), the Finance Board's predecessor, provided a useful 
definition of the phrase ``unsafe and unsound practices'' in hearings 
before Congress prior to the adoption of the Financial Institutions 
Supervisory Act of 1966, Pub. L. No. 89-695 (Supervisory Act of 1966). 
Chairman Horne stated: ``Generally speaking, an `unsafe or unsound 
practice' embraces any action, or lack of action, which is contrary to 
generally accepted standards of prudent operation, the possible 
consequences of which, if continued, would be abnormal risk or loss or 
damage to an institution, its shareholders, or the agencies 
administering the insurance funds.'' (Financial Institutions 
Supervisory Act of 1966: Hearings on S. 3158 and S. 3695 before the 
House Committee on Banking and Currency, 89th Cong., 2d Sess. 49-50.) 
The Supervisory Act of 1966 gave the federal banking regulatory 
agencies ``authority to issue cease and desist orders or suspension or 
removal orders * * * as intermediate powers short of conservatorship or 
withdrawal of insurance, in order to prevent violations of law or 
regulations and unsafe and unsound practices which otherwise might 
adversely affect the Nation's financial institutions, with resulting 
harmful consequences to the growth and development of the Nation's 
economy.'' (S. Rep. No. 89-1482, 89th Cong., 2d Sess. 2 (August 18, 
1966) (reprinted in 1966 U.S.C.C.A.N. 3532, 3533)).
    The interpretation of ``unsafe or unsound practice'' offered by the 
commenter departs from this tested model. The courts have interpreted 
the phrase ``as a flexible concept which gives the administering agency 
the ability to adapt to changing business problems and practices in the 
regulation of the banking industry.'' Seidman v. OTS, 37 F.3d 911, 927 
(3rd Cir. 1994) (citing Groos Nat'l Bank v. Comptroller of the 
Currency, 573 F.2d 889, 897 (5th Cir. 1978) (``The phrase `unsafe or 
unsound banking practice' is widely used in the regulatory statutes and 
in case law, and one of the purposes of the banking acts is clearly to 
commit the progressive definition and eradication of such practices to 
the expertise of the appropriate regulatory agencies.'')). Therefore, 
the Finance Board has determined that the final rule should not contain 
a definition of ``unsafe and unsound practices.''
    The Finance Board's authority to issue cease and desist orders 
under section 2B(a)(5) of the Act (12 U.S.C. 1422b(a)(5)), which 
incorporates the provisions of sections 8(b)(6) and (7) of the Federal 
Deposit Insurance Act,\10\ includes the authority to issue an order 
requiring a Bank, or any executive officer or director of a Bank, to 
take affirmative action to correct or remedy any condition resulting 
from any violation or practice with respect to which such order was 
issued.\11\ Accordingly, as set forth section 908.4(b)(2)(iv) of the 
final rule [proposed 908.4(b)(1)(iv)], the Finance Board may require 
such party to, among other things, rescind any agreement or contract. 
Three commenters support deleting this provision from the final rule. 
One of those commenters suggests that the provision might create 
uncertainty for the Banks when they enter the capital markets to raise 
funds regarding the enforcability of capital market agreements, and 
suggests that if the provision is not deleted it should be amended to 
exclude such contracts. The Finance Board is not persuaded that any 
such risk is presented and declines to adopt that recommendation.
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    \10\ See 12 U.S.C. 1818(b)(6) and (7).
    \11\ The Finance Board derives this authority from 12 U.S.C. 
1818(b)(6)(D).
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    One commenter opposes the rescission provision on the ground that 
it could seriously jeopardize the Banks' ability to enter binding, 
enforceable contracts. Another commenter argues that the provision 
might impair the ability of a Bank to set employees' compensation, 
rights, and pension or profit-sharing terms by employment contract and 
suggests amending the provision to exclude employment contracts, change 
in control agreements, pension or profit sharing plans, or similar 
employment agreements. This rationale is unavailing. Congress, as the 
legislative body with exclusive authority to define the extent of the 
Finance Board's supervisory and oversight authority, has required the 
Finance Board, as its ``primary duty'' to ``ensure'' that the Banks are 
run in a ``financially safe and sound manner'' (see 12 U.S.C. 
1422a(a)(3)(A)). Congress expressly incorporated into the Act the 
contract rescission authority under section 8(b)(6) of the FDI Act (12 
U.S.C. 1818(b)(6)) as a tool to achieve this mandate. In fact, the 
banking regulatory agencies have had the identical authority since 
1989, with no known negative effect on the regulated financial 
institutions. Such decisions are, as they should be, made by the 
banking regulatory agency on a case-by-case basis taking into account 
many factors that may not be anticipated in a rulemaking. The Finance 
Board finds no justification for the suggestion that the agency should 
otherwise interpret the

[[Page 9900]]

clear intent of Congress with respect to such oversight of the Banks. 
Moreover, this supervisory model ultimately may strengthen the Finance 
Board's ability to ensure that the Banks remain adequately capitalized 
and able to access the capital markets, and able to fulfill their 
housing finance mission, as required under section 2A of the Act. 
Therefore, the Finance Board has retained this oversight power in the 
final rule.
    Section 908.5 of the final rule revises the proposed rule to 
clarify that a temporary cease and desist order may be issued only in 
connection with a notice of charges issued and served by the Finance 
Board to initiate cease and desist proceedings in accordance with 
section 2B(a)(5) of the Act. 12 U.S.C. 1422b(a)(5). Pursuant to section 
2B(a)(5) of the Act, the statutory authority for the Finance Board to 
issue a temporary cease and desist order derives from and is governed 
by section 1372 of the Safety and Soundness Act (12 U.S.C. 4632). 
Accordingly, the final rule reorders the provisions in sections 
908.5(a)(1) and (a)(2) of the proposed rule and restates these 
provisions in sections 908.5(a) and (b) of the final rule in order to 
more clearly delineate the separate grounds and authority to issue a 
temporary cease and desist order. Section 908.5(a) of the final rule 
consolidates the grounds for a temporary cease and desist order based 
on conduct or violation or threatened conduct or violation likely to 
cause insolvency or a significant depletion of capital together with 
the authority to issue a temporary cease and desist order requiring a 
Bank or individual respondent to cease and desist from such conduct or 
violation and to take affirmative action to prevent or remedy such 
insolvency, depletion, or harm pending completion of the cease and 
desist hearing. Similarly, the revision set forth in section 908.5(b) 
of the final rule combines in one provision the Finance Board's 
authority to base a temporary cease and desist order on a Bank's 
incomplete or inaccurate books and records and the Finance Board's 
authority to issue a temporary cease and desist order that would 
require a respondent to cease and desist from conduct that caused or 
contributed to the incompleteness of the books and records and to 
require affirmative action to restore the books to a complete and 
accurate state. Additionally, in light of the improvements to section 
908.5 in the final rule, section 908.5(a)(3) of the proposed rule was 
deleted in the final rule in response to a comment to make the 
provisions consistent with the statutory authority.
    In accordance with section 1372(d) of the Safety and Soundness Act 
(12 U.S.C. 4632(d)), which confers subject matter jurisdiction on the 
United States District Court for the District of Columbia (district 
court), section 908.5(f) of the final rule [proposed 908.5(c)] 
describes how a respondent may seek injunctive relief from a temporary 
cease and desist order. Specifically, a respondent may petition the 
district court to issue an injunction setting aside, limiting, or 
suspending the enforcement, operation, of effectiveness of the order 
pending completion of the hearing pursuant to the notice of charges. In 
accordance with sections 2B(a)(5) and (7) of the Act (12 U.S.C. 
1422b(a)(5) and (a)(7)) and sections 1372(d) and 1375(b) of the Safety 
and Soundness Act (12 U.S.C. 4632(d) and 4635(b)), the district court's 
jurisdiction is limited to granting the injunctive relief requested. In 
effect, the district court lacks subject matter jurisdiction to 
consider any substantive challenge to the notice of charges, such as an 
action for judicial review under the Administrative Procedure Act. The 
means of obtaining judicial review of final orders of the Board of 
Directors is described separately in Sec. 908.10 of the final rule, in 
accordance with section 1374 of the Safety and Soundness Act (12 U.S.C. 
4634). Under section 908.5(g) of the final rule [proposed 908.5(d)], 
the district court has subject matter jurisdiction, which is based on 
sections 2B(a)(5) and (7) of the Act (12 U.S.C. 1422b(a)(5) and (a)(7)) 
and section 1372(e) of the Safety and Soundness Act (12 U.S.C. 
4632(e)), to enforce a temporary cease and desist order if a respondent 
violates, threatens to violate, or fails to obey such order. Certain 
commenters contended that the Finance Board cannot confer or limit the 
jurisdiction of federal courts by regulation. The references to 
jurisdiction in the proposed rule were intended only to reflect what 
Congress has provided by statute, and the final rule has been revised 
to make that point clear.
    Section 908.6 of the final rule states the authority of the Finance 
Board to initiate civil money penalty enforcement proceedings in 
accordance with section 1376 of the Safety and Soundness Act (12 U.S.C. 
4636). As proposed, section 908.6(a)(4) of the rule included unsafe or 
unsound practices and breaches of fiduciary duty as grounds for 
assessing a civil money penalty. The Finance Board has deleted these 
terms from the text of the final rule solely to conform the rule text 
to that of section 1376(a)(4) of the Safety and Soundness Act (12 
U.S.C. 4636(a)(4)). The Finance Board, as the safety and soundness 
regulator of the Banks, has explicit statutory authority under the Act 
to determine whether any acts or omissions may constitute an unsafe or 
unsound practice, a violation of law, order or regulation, or is likely 
to result in a loss. One commenter opposes the use of the term ``loss'' 
in proposed section 908.6(a)(4) of the rule, which provides that the 
agency may impose a civil money penalty if a Bank or any executive 
officer or director of a Bank ``engages in any conduct that causes or 
is likely to cause a loss to a Bank.'' The commenter argues that the 
term ``loss'' is too broad and should be deleted from the rule. The 
Finance Board disagrees and has retained the provision in section 
908.6(a)(4) of the final in as much as it is an exact recitation of the 
statutory authority in section 1376(a)(4) of the Safety and Soundness 
Act (12 U.S.C 4636(a)(4)). The Finance Board concludes that any 
determination of whether or not a ``loss'' is presented under this 
provision is to be made on a case-by-case basis and factually 
established in a hearing on the record. The Finance Board believes that 
the final rule provides ample procedural safeguards. There is no 
credible likelihood to suppose, as one commenter suggests, that a 
determination of ``loss'' could be made on the basis of shifting market 
values, or that the provision could make Bank directors guarantors of 
all Bank activities.
    Section 908.6(d) of the final rule [proposed 908.6(c)] lists 
certain factors to be considered by the Finance Board in assessing a 
civil money penalty. On its face, the list is not exclusive because it 
states ``such factors as.'' One commenter urges the Finance Board to 
adopt additional factors, taking a page from comments submitted by 
Freddie Mac and Fannie Mae directed to OFHEO in a recent rulemaking. 
The Finance Board is not persuaded that it is necessary to encumber 
section 908.6(d) by inserting ``any other factors the [agency] may 
determine by regulation to be appropriate.'' The change would only add 
redundancy to the rule, which currently permits the Board of Directors 
to look to other appropriate factors as needed on a case-by-case basis.
    One commenter argues that the Finance Board lacks authority to 
provide in section 908.6(f)(4) of the rule that, in an action brought 
by the Finance Board in the district court to enforce a civil money 
penalty assessment order, the court would not have subject matter 
jurisdiction to review the validity and appropriateness of the order. 
The commenter calls for the provision to be

[[Page 9901]]

deleted on the ground that due process rights are abridged. This claim 
lacks merit. Section 908.6(f)(4) of the final rule, as proposed, is 
based on and faithfully applies the applicable provisions in the Safety 
and Soundness Act. The Finance Board is bound by the jurisdictional 
limitations on the district court set by Congress. Sections 1376(c)(3), 
1376(d) and 1375(b) of the Safety and Soundness Act (12 U.S.C. 
4636(c)(3), 4636(d) and 4635(b)) together provide the district court 
with exclusive jurisdiction to enforce a civil money penalty assessment 
order and expressly bar judicial review of such orders in the district 
court. Section 1374 of the Safety and Soundness Act (12 U.S.C. 4634) 
vests jurisdiction to review the validity and appropriateness of a 
civil money penalty assessment order or a cease and desist order 
exclusively in the United States Court of Appeals for the District of 
Columbia Circuit (court of appeals). Therefore, the Finance Board has 
declined to delete section 908.6(f)(4) from the final rule.
    One commenter suggests that section 908.6(i) of the proposed rule 
should be eliminated or, at a minimum, the bar against indemnification 
of directors and executive officers should be limited to tier 3 
violations for knowing conduct that caused or is likely to cause a 
substantial loss. The Finance Board agrees with the commenter that the 
rule should state the statutory authority and has revised the 
indemnification provision in Sec. 908.6(i) of the final rule 
accordingly.
    Section 908.6(k) of the proposed rule set forth the obligation of 
the Finance Board periodically to adjust the statutory civil money 
penalty amounts pursuant to the Federal Civil Penalties Inflation 
Adjustment Act of 1990, Pub. L. 101-410, Oct. 5, 1990, 104 Stat. 890, 
as amended by the Debt Collection Improvement Act of 1996, Pub. L. No. 
104-134, Title III, Sec. 31001(s)(2), April 26, 1996, 110 Stat. 1321-
373, and Pub. L. 105-362, Title XIII, Sec. 1301(a)(1), Nov. 19, 1988, 
112 Stat. 3293 (collectively, the Inflation Adjustment Act) (codified 
at 28 U.S.C. 2461 note). The Finance Board is required to adjust each 
civil money penalty set forth herein by a prescribed cost-of-living 
adjustment at least once every four years.
    The adjustment is based on the formula prescribed in the Inflation 
Adjustment Act. Section 5(a) of the Inflation Adjustment Act prescribes 
that the inflation adjustment for each maximum monetary civil penalty 
(or the range of minimum and maximum civil monetary penalties) shall be 
determined by the cost-of-living adjustment and shall be rounded to the 
nearest multiple of a specified dollar amount as set forth in that 
provision. Section 5(b) of the act defines the term cost-of-living 
adjustment to mean ``the percentage (if any) for each civil monetary 
penalty by which the Consumer Price Index for the month of June of the 
calendar year preceding the adjustment exceeds the Consumer Price Index 
for the month of June of the calendar year in which the amount of such 
civil monetary penalty was last set or adjusted pursuant to law.'' The 
agencies are required to use the Consumer Price Index for All Urban 
Consumers (CPI-U), which is compiled by the Bureau of Statistics of the 
Department of Labor. \12\ Section 908.6(k) is included in the final 
rule for comprehensiveness and clarity.
---------------------------------------------------------------------------

    \12\ By way of example, most recently in October 2000, the 
Office of Thrift Supervision (OTS) and the Federal Deposit Insurance 
Corporation (FDIC) each published a final rule adjusting the civil 
money penalty amounts in their respective regulations pursuant to 
the Inflation Adjustment Act. See 65 FR 61260 (Oct. 17, 2000) (OTS) 
and 65 FR 64884 (Oct. 31, 2000) (FDIC).
---------------------------------------------------------------------------

    Section 908.7 of the proposed rule included provisions for the 
suspension and removal of officers, directors, employees and agents of 
the Banks under section 2B(a)(2) of the Act (12 U.S.C. 1422b(a)(2)). 
Numerous comments on the removal provision argue that the agency lacks 
authority to adopt the rule and challenge whether the rule met the 
constitutional requirements of due process. The Finance Board has 
deleted the removal provision from the final rule because section 
2B(a)(2) of the Act (12 U.S.C. 1422b(a)(2)) predated the GLB Act, thus 
it is not logically a necessary element of this rulemaking, the purpose 
of which is to implement the GLB Act amendments. Moreover, because 
section 2B(a)(2) of the Act (12 U.S.C. 1422b(a)(2)) does not require 
that a hearing on the record be held to remove or suspend an officer, 
director, employee or agent of a Bank, it raises additional and 
disparate administrative law issues. Section 908.7 of the proposed rule 
established different procedures than those applicable to cease and 
desist and civil money penalty proceedings under section 2B(a)(5) of 
the Act (12 U.S.C. 1422b(a)(5)). In order to eliminate any potential 
confusion that may arise from addressing these very different remedies 
in the same rulemaking, the Finance Board has determined to undertake a 
separate rulemaking in the future to provide a full and fair 
opportunity for comment and to respond to such comments in detail at 
that time. Instead, section 908.7 of the final rule establishes in 
accordance with section 1379A of the Safety and Soundness Act (12 
U.S.C. 4640) that any notice (e.g., notice of charges or notice of 
civil money penalty assessment) to be served on a respondent under the 
rule may be served by registered mail or other appropriate manner 
reasonably calculated to give actual notice to the respondent as the 
Finance Board may by regulation or otherwise provide.
    The Finance Board has adopted several provisions in the final rule 
pertinent to certain administrative requirements in the Safety and 
Soundness Act. Briefly, section 908.8 of the rule as proposed was 
adopted with an additional section that specifies the fees and expenses 
to be paid witnesses subpoenaed under the provision, in accordance with 
section 1379B of the Safety and Soundness Act (12 U.S.C. 4641). Section 
908.9 of the final rule sets forth the requirement under sections 
2B(a)(5) of the Act (12 U.S.C. 1422b(a)(5)) and 1373 of the Safety and 
Soundness Act (12 U.S.C. 4633) that hearings conducted pursuant to 
section 908.4 and 908.6 of the rule are to be held on the record and in 
the District of Columbia. Section 908.13 of the final rule provides 
that such hearings shall be public in accordance with section 1379(b) 
of the Safety and Soundness Act (12 U.S.C. 4639(b)). Section 908.10 of 
the final rule adopts the provision as proposed, but with certain 
clarifications. The reference to Rule 4 of the Federal Rules of 
Procedure [proposed 908.10(b)] has been eliminated. Judicial review of 
a final order of the Board of Directors (whether a cease and desist 
order or an order assessing a civil money penalty) is governed by the 
applicable federal law and appellate court rules. Section 1374 of the 
Safety and Soundness Act (12 U.S.C. 4634) provides that the petition 
seeking review must be filed within 30 days after the date of service 
of the final order with the court of appeals. Rule 15(c) of the Federal 
Rules of Appellate Procedure (FRAP) and Rule 15 of the United States 
Court of Appeals, District of Columbia Circuit (Local Rules) require 
the clerk of the court to transmit a copy of the petition to the 
Finance Board, in a manner prescribed by FRAP Rule 3(d). Sections 
908.10(a) and (b) of the rule have been amended accordingly. Similarly, 
section 908.10(c) has been amended to clarify that the Finance Board 
shall file the hearing record with the clerk of the court of appeals in 
accordance with FRAP 17 and Local Rule 17 as provided in section 2112 
of Title 28 of the United States Code. Additional language in the 
remaining paragraphs clearly states the statutory authority for subject 
matter

[[Page 9902]]

jurisdiction or other appropriate statutory authority underlying these 
provisions of the final rule. Finally, section 908.12 of the final rule 
sets out the Finance Board's authority under section 1377 of the Safety 
and Soundness Act (12 U.S.C. 4637) to issue a notice of charges or a 
notice of assessment of a civil money penalty to an individual within 
two years of separation from a Bank.
    Subpart C of the final rule provides the general rules that govern 
the process and specifies the authority of the Finance Board and the 
Board of Directors and the presiding officer, an Administrative Law 
Judge (ALJ) or other neutral, qualified individual who is appointed by 
the Finance Board to preside over the hearing and file with the Board 
of Directors a recommended decision and order, which shall be based on 
the record of the hearing, for a final decision and order to be issued 
by the Board of Directors. The Board of Directors may intervene in any 
matter to perform, direct the performance of, or waive the performance 
of any authorized action of the presiding officer. The presiding 
officer is authorized to: change the hearing date, time or place; issue 
or modify subpoenas or subpoenas duces tecum; issue protective orders; 
administer oaths and affirmations; regulate the course of the hearing 
and hold conferences to address issues arising in the hearing; and rule 
on non-dispositive motions.
    All hearings are open to the public, unless the Finance Board 
determines that an open hearing would be contrary to the public 
interest or a party moves for a closed hearing and the Board of 
Directors orders the hearing closed. Because the presiding officer is 
fully authorized to regulate the course of the hearing, he or she may 
limit public and media access to any hearing the Finance Board has 
determined will be a public hearing. Additionally, the Finance Board 
may file any document or portion of a document under seal and the 
presiding officer is required to take all appropriate steps to preserve 
the confidentiality of such document(s) or parts thereof.
    The final rule provides that every filing or submission of record 
shall be signed by at least one representative of record to certify 
that the document has been read and that to the best of the 
representative's knowledge it is supported in fact and is not made for 
any improper purpose. Ex parte communications are prohibited. Any party 
or representative who makes or elicits an ex parte communication may be 
subject to appropriate sanctions. The Finance Board anticipates that in 
the future, under applicable law, the agency will have the necessary 
technological ability to enable the parties to submit documents by 
electronic media, and may specify the conditions for such electronic 
transmission. Until further notice, for purposes of this regulation, 
all papers filed by the parties shall be filed in accordance with the 
requirements set out in Sec. 908.25(c) of the final rule.
    Any respondent may submit a settlement proposal to the Finance 
Board in accordance with section 908.30 of the final rule. Submission 
of a settlement offer does not provide a basis for delaying a 
proceeding, and no settlement offer is admissible in evidence in the 
adjudicative proceeding or any court. Nothing in the rule prohibits or 
restricts the authority of the Finance Board to conduct any examination 
or inspection of any Bank, or to conduct or to continue any form of 
investigation authorized by the Act.
    Under subpart D, the Finance Board commences proceedings by issuing 
and serving a notice of charges or a notice of assessment of a civil 
money penalty on a respondent. During the course of a hearing, the 
presiding officer controls virtually all aspects of the proceeding. The 
presiding officer: determines the hearing schedule; presides over any 
pre-hearing conferences; rules on motions, discovery, and evidentiary 
issues; and ensures that the proceeding is fair, equitable, and 
impartial. The presiding officer does not, however, have the authority 
to make a ruling that disposes of the proceeding. Only the Board of 
Directors has the authority to dismiss the proceeding or to make a 
final determination on the merits of the proceeding following a hearing 
on the record or a negotiated disposition.
    Subpart E of the final rule governs hearings and post-hearing 
proceedings. Section 908.60 of the final rule provides that hearings 
shall be conducted in accordance with the APA. The parties to the 
proceeding have the right to present evidence and witnesses at the 
hearing and to examine and cross-examine the witnesses. At the 
completion of the hearing, the parties may submit proposed findings of 
fact and conclusions of law and a proposed order. The presiding officer 
then submits the complete record to the Board of Directors for 
consideration and action. The record includes the presiding officer's 
recommended decision, recommended findings of fact and conclusions of 
law, and proposed order. The record also includes all pre-hearing and 
hearing transcripts, exhibits, rulings, motions, briefs and memoranda, 
and all supporting papers filed in connection with the hearing. The 
Board of Directors shall issue a final ruling within 90 days of the 
date the presiding officer serves notice on the parties that the record 
is complete and the case has been submitted to the Board of Directors 
for final decision, or at such time as is practicable within the 
discretion of the Board of Directors.
    Subpart F, ``Rules of Practice Before the Finance Board,'' governs 
the parties and their representatives appearing before the Finance 
Board under this rule and provides for the imposition of disciplinary 
sanctions--censure, suspension or disbarment--by the presiding officer 
or the Board of Directors against parties or their representatives. 
This subpart covers parties and individuals that appear before the 
Finance Board in a representational capacity; covered representation 
may include, but is not limited to, the practice of attorneys and 
accountants. The presiding officer may decide what notice and responses 
are appropriate where sanctions are at issue for conduct arising in an 
adjudicatory proceeding or hearing. The final rule prescribes when 
sanctions may be imposed, and what those sanctions may be. Employees of 
the Finance Board are not subject to disciplinary proceedings under 
this subpart. The Finance Board may also apply these qualification and 
disciplinary rules to parties or representatives in an administrative 
proceeding under part 907 of the Finance Board's rules and regulations 
(12 CFR part 907).

III. Regulatory Impact

Executive Order 13132, Federalism

    Executive Order 13132 requires that Executive departments and 
agencies identify regulatory actions that have significant federalism 
implications, that is, regulations or actions that have substantial, 
direct effects on the States, on the relationship between the national 
Government and the States, or on the distribution of power and 
responsibilities between Federal and State Government. The Finance 
Board has determined that this rule has no federalism implications that 
warrant consultation with the states or the preparation of a federalism 
summary impact statement in accordance with Executive Order 13132.

Executive Order 12866, Regulatory Planning and Review

    In order to make the regulatory process more efficient, Executive 
Order 12866 requires the centralized review of regulatory action. The 
Finance Board has determined that this rule is not a

[[Page 9903]]

significant regulatory action as such term is defined in Executive 
Order 12866, has so indicated to the Office of Management and Budget 
(OMB), and was not notified by OMB that the rule must be reviewed by 
OMB.

Executive Order 12988, Civil Justice Reform

    Executive Order 12988 sets forth guidelines to promote the just and 
efficient resolution of civil claims and to reduce the risk of 
litigation to the Federal Government. This rule meets the applicable 
standards of sections 3(a) and 3(b) of Executive Order 12988.

Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995 requires for any rule that 
includes a Federal mandate that may result in an annual expenditure by 
State, local and tribal governments, in the aggregate, or by the 
private sector, of $100 million, that an agency prepare an assessment 
statement of the anticipated costs and benefits of the Federal mandate. 
See 2 U.S.C. 1532(a). The rule does not include such a Federal mandate, 
and, therefore, it does not warrant the preparation of such an 
assessment statement.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities must include a regulatory flexibility analysis 
describing the rule's impact on small entities. Such an analysis need 
not be undertaken if the agency head certifies that the rule will not 
have a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 605(b). The rule applies only to the Banks, which do 
not come within the meaning of small entities as defined in the 
Regulatory Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in 
accordance with section 605(b) of the RFA, 5 U.S.C. 605(b), the Finance 
Board hereby certifies that this proposed rule, when promulgated as a 
final rule, will not have significant economic impact on a substantial 
number of small entities.

Paperwork Reduction Act

    The Paperwork Reduction Act seeks to minimize the paperwork burden 
for individuals, small businesses, and other entities resulting from 
the collection of information by or for the Federal government. See 44 
U.S.C. 3501 et seq. This rule does not contain any collections of 
information pursuant to the Paperwork Reduction Act of 1995. 44 U.S.C. 
3502(3). Therefore, the Finance Board has not submitted any information 
to the Office of Management and Budget for review.

List of Subjects

12 CFR Part 907

    Administrative practice and procedure, Federal Home Loan Banks.

12 CFR Part 908

    Administrative practice and procedure, Penalties.

    For the reasons stated in the preamble, the Finance Board amends 12 
CFR parts 907 and 908 as follows:

PART 907--PROCEDURES

    1. The authority citation for part 907 continues to read as 
follows:

    Authority: 12 U.S.C. 1422b(a)(1).


    2. Add Sec. 907.16 to read as follows:


Sec. 907.16  Rules of practice.

    In connection with any matter initiated or pending pursuant to this 
part, petitioners, requestors or intervenors, or their representatives, 
shall be subject to the provisions of subpart F of 12 CFR part 908. No 
other provision of part 908 shall apply under this part.

    3. Add part 908 to read as follows:

PART 908--RULES OF PRACTICE AND PROCEDURE IN HEARINGS ON THE RECORD

Subpart A--Introduction

Sec.
908.1  Scope.
908.2  Definitions.
908.3  Rules of construction.
Subpart B--Scope and Authority--Enforcement Proceedings
908.4  Cease and desist proceedings.
908.5  Temporary cease and desist orders.
908.6  Civil money penalties.
908.7  Service of notice.
908.8  Subpoenas.
908.9  Hearings on the record.
908.10  Judicial review.
908.11  Jurisdiction and enforcement.
908.12  Notice after separation.
908.13  Public disclosure of final orders.
908.14  No implied private right of action.
908.15-908.19  [Reserved]
Subpart C--General Rules
908.20  Authority of the Board of Directors.
908.21  Authority of the presiding officer.
908.22  Public hearings.
908.23  Good faith certification.
908.24  Ex parte communications.
908.25  Filing of papers.
908.26  Service of papers.
908.27  Computing time.
908.28  Change of time limits.
908.29  Witness fees and expenses.
908.30  Settlement or other dispute resolution.
908.31  Right to supervise the Banks.
908.32  Collateral attacks on proceedings under this part.
908.33-908.39  [Reserved]
Subpart D--Pre-Hearing Proceedings
908.40  Commencement of proceeding and contents of notices.
908.41  Answer.
908.42  Amended pleadings.
908.43  Failure to appear.
908.44  Consolidation and severance of actions.
908.45  Motions.
908.46  Discovery.
908.47  Request for document discovery from parties.
908.48  Document subpoenas to nonparties.
908.49  Deposition of witness unavailable for hearing.
908.50  Interlocutory review.
908.51  Summary disposition.
908.52  Partial summary disposition.
908.53  Scheduling and prehearing conferences.
908.54  Pre-hearing submissions.
908.55  Hearing subpoenas.
908.56-908.59  [Reserved]
Subpart E--Hearing and Post-hearing Proceedings
908.60  Conduct of hearings.
908.61  Evidence.
908.62  Post-hearing filings.
908.63  Recommended decision and filing of record.
908.64  Exceptions to recommended decision.
908.65  Review by Board of Directors.
908.66  Exhaustion of administrative remedies.
908.67  Stay of final decision and order pending judicial review.
908.68-908.69  [Reserved]
Subpart F--Rules of Practice Before the Finance Board
908.70  Scope.
908.71  Practice before the Finance Board.
908.72  Appearances and practice in proceedings before the Finance 
Board.
908.73  Conflicts of interest.
908.74  Sanctions.
908.75  Censure, suspension, disbarment and reinstatement.

    Authority: 12 U.S.C. 1422b(a)(5), 4631(c) and (f), and 4632-
4641. Section 908.4 is also authorized by 12 U.S.C. 1818(b)(6) and 
(7).

Subpart A--Introduction


Sec. 908.1  Scope.

    This part prescribes rules of practice and procedure applicable to 
any hearing with regard to:
    (a) Cease and desist proceedings under section 2B(a)(5) of the Act 
(12 U.S.C. 1422b(a)(5)); or
    (b) Civil money penalty assessment proceedings under section 
2B(a)(5) of the Act (12 U.S.C. 1422b(a)(5)).


Sec. 908.2  Definitions.

    For purposes of this part--
    Decisional employee means any employee of the Finance Board, except

[[Page 9904]]

the Office of General Counsel, or any member of the presiding officer's 
staff who has not engaged in an investigative or prosecutorial role in 
connection with the subject cease and desist or civil money penalty 
proceedings and who may assist the Board of Directors or the presiding 
officer, respectively, in preparing orders, recommended decisions, 
decisions and other documents under this part.
    Hearing means an adjudicatory proceeding conducted pursuant to this 
part;
    Notice means a written notice of charges or notice of assessment of 
a civil money penalty so titled that served by the Finance Board upon a 
respondent, which conforms to Sec. 908.40 and describes the alleged 
violations with sufficient specificity to put the respondent on notice 
of the nature and scope of the charges being brought against him, 
except in the context of the plain meaning of the word notice in a 
provision, such as reasonable notice or actual notice.
    Party means, for purposes of subparts C through F of this part 
only, the Finance Board or respondent.
    Person means an individual, sole proprietor, partnership, 
corporation, unincorporated association, trust, joint venture, pool, 
syndicate, agency, Bank, or other entity or organization with the 
exception of the Finance Board.
    Presiding officer means an administrative law judge or other 
qualified, neutral individual who is appointed by the Finance Board 
under applicable law, and, pursuant to Title 5 of the United States 
Code, may conduct a hearing or adjudicatory proceeding under this part.
    Representative of record means an individual who is authorized to 
represent a respondent (and includes a respondent who represents 
himself) at a hearing conducted under this part and who has filed a 
notice of appearance in accordance with Sec. 908.72.
    Respondent means any person named in a notice of charges or notice 
of determination to impose civil money penalties issued by the Finance 
Board.
    Safety and Soundness Act means the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501-4641) (Title 
XIII of the Housing and Community Development Act of 1992, Pub. L. No. 
102-550).
    Violation includes any act or omission by any person, undertaken 
alone or with one or more others, that causes directly or indirectly, 
counsels, participates in, or otherwise furthers, aids or abets a 
violation of the Act, other applicable law, regulation, or order of the 
Finance Board.


Sec. 908.3  Rules of construction.

    For purposes of this part--
    (a) Any term in the singular includes the plural and the plural 
includes the singular, if such use would be appropriate;
    (b) Any use of a masculine, feminine, or neuter gender encompasses 
all three, if such use would be appropriate; and
    (c) Unless the context requires otherwise, a party's representative 
of record, if any, may, on behalf of that party, take any action 
required to be taken by the party.

Subpart B--Scope and Authority--Enforcement Proceedings


Sec. 908.4  Cease and desist proceedings.

    (a) Notice of Charges. (1) Grounds. The Finance Board may issue and 
serve a notice of charges upon a Bank or any executive officer or 
director of a Bank if the Finance Board determines that such party is 
engaging or has engaged in, or, if the Finance Board has reasonable 
cause to believe is about to engage in:
    (i) An unsafe or unsound practice in conducting the business of the 
Bank;
    (ii) Any conduct that violates any provision of the Act or any 
applicable law, order, rule or regulation; or
    (iii) Any conduct that violates any condition imposed in writing by 
the Finance Board in connection with the granting of any application or 
other request by the Bank, or any written agreement between the Bank 
and the Finance Board.
    (2) Content of notice of charges. A notice of charges shall contain 
a statement of the facts constituting the alleged conduct or violation 
and otherwise shall conform to the requirements set forth in 
Sec. 908.40.
    (b) Cease and desist order. (1) Issuance of order. An order to 
cease and desist shall be issued in writing and only after the 
respondent has been given the opportunity for a hearing on the record 
in accordance with the requirements set forth in Sec. 908.9. If the 
Board of Directors finds, based on the record of the hearing, that any 
conduct or violation specified in the notice of charges has been 
established or if a respondent consents (or is deemed to have consented 
pursuant to Sec. 908.43), the Board of Directors may issue and serve 
upon the respondent an order requiring the respondent to cease and 
desist from any such practice, violation or conduct, to take 
affirmative action to correct or remedy the conditions resulting from 
any such practice, violation or conduct, or to comply with such 
limitations on activities or functions as may be prescribed therein.
    (2) Affirmative action. The authority of the Board of Directors to 
issue and serve a cease and desist order that requires a respondent to 
take affirmative action to correct or remedy any conditions resulting 
from any violation or practice with respect to which such order is 
issued includes the authority to require a respondent to--
    (i) Make restitution or provide reimbursement, indemnification, or 
guarantee against loss if--
    (A) The respondent was unjustly enriched in connection with the 
violation, conduct or practice described in the order; or
    (B) The violation, conduct or practice involved a reckless 
disregard for the law or any applicable regulations or prior order of 
the Finance Board;
    (ii) Restrict the growth of the Bank;
    (iii) Dispose of any loan or asset involved;
    (iv) Rescind any agreement or contract;
    (v) Employ qualified officers or employees (who may be subject to 
approval by the Finance Board, as directed by the Finance Board); and
    (vi) Take such other action as the Finance Board determines to be 
appropriate.
    (3) Authority to limit activities. The authority of the Board of 
Directors to issue and serve a cease and desist order includes the 
authority to place limitations on the activities or functions of a 
respondent.
    (c) Effective date of order. An order issued under paragraph (b) of 
this section shall become effective upon the expiration of the 30-day 
period beginning on the date of service of the order upon the 
respondent, (except in the case of an order issued upon consent, which 
shall become effective at the time specified therein), and shall remain 
effective and enforceable as provided in the order, except to the 
extent that the order is stayed, modified, terminated, or set aside by 
action of the Board of Directors or otherwise as provided for in this 
part.


Sec. 908.5  Temporary cease and desist orders.

    (a) Grounds. Whenever the Board of Directors determines that any 
conduct or violation, or threatened conduct or violation, specified in 
a notice of charges issued and served upon a respondent, or the 
continuation of such conduct or violation, is likely to cause 
insolvency, a significant depletion of total capital, or irreparable 
harm to a Bank prior to the completion of the cease and desist 
proceeding, the Board of Directors may issue a temporary order 
requiring the respondent to cease and

[[Page 9905]]

desist from any such conduct or violation, or such threatened conduct 
or violation, and to take affirmative action to prevent or remedy such 
insolvency, depletion, or harm pending completion of such proceedings. 
Such order may include any requirement authorized under 
Sec. 908.4(b)(2).
    (b) Incomplete records. If a notice of charges specifies that the 
books and records of a Bank are so incomplete or inaccurate that the 
Finance Board is unable, through the normal supervisory process, to 
determine the financial condition of the Bank or the details or purpose 
of any transaction or transactions that may have a material effect on 
the financial condition of a Bank, the Finance Board may issue a 
temporary order requiring a respondent to:
    (1) Cease and desist from any activity or practice that caused or 
contributed to, whether in whole or in part, the incomplete or 
inaccurate state of the books or records of a Bank; or
    (2) Take affirmative action to restore the books or records to a 
complete and accurate state.
    (c) Effective date. Any temporary order issued pursuant to this 
section shall become effective upon service upon the respondent.
    (d) Effective period. (1) Any temporary order issued under 
paragraph (a) of this section, unless set aside, limited, or suspended 
by a court in a proceeding under paragraph (e) of this section, shall 
remain in effect and enforceable pending the completion of the 
proceeding on the notice of charges and shall remain effective until 
the Board of Directors dismisses the charges specified in the notice of 
charges or it is superceded by a cease and desist order.
    (2) Any temporary order issued under paragraph (b) of this section, 
unless set aside, limited, or suspended by a court in proceedings 
pursuant to paragraph (e) of this section, shall remain in effect and 
enforceable until the earlier of the completion of the proceeding on 
the notice of charges, or the date that the Finance Board determines, 
by examination or otherwise, that the books and records of the Bank are 
accurate and reflect the financial condition of the Bank.
    (e) Judicial relief. As authorized by section 2B(a)(5) of the Act 
(12 U.S.C. 1422b(a)(5)) and sections 1372(d) and 1375(b) of the Safety 
and Soundness Act (12 U.S.C. 4632(d) and 4635(b)), a respondent that 
has been served with a temporary order may apply to the United States 
District Court for the District of Columbia within ten days after such 
service for an injunction setting aside, limiting, or suspending the 
enforcement, operation, or effectiveness of the order pending the 
completion of the hearing pursuant to the notice of charges.
    (f) Enforcement of temporary order. If a respondent violates, 
threatens to violate, or fails to obey, a temporary order issued 
pursuant to this section, the Finance Board may bring an action in the 
United States District Court for the District of Columbia for an 
injunction to enforce such temporary order, as authorized by sections 
2B(a)(5) and 2B(a)(7) of the Act (12 U.S.C. 1422b(a)(5) and (a)(7)) and 
section 1372(e) of the Safety and Soundness Act (12 U.S.C. 4632(e)).


Sec. 908.6  Civil money penalties.

    (a) Notice of assessment. (1) Grounds. The Finance Board may issue 
and serve a notice of assessment of a civil money penalty on any Bank 
or any executive officer or director of a Bank that:
    (i) Violates any provision of the Act, or any order, rule, or 
regulation issued under the Act;
    (ii) Violates any final or temporary cease and desist order issued 
by the Finance Board pursuant to the Act;
    (iii) Violates any written agreement between a Bank and the Finance 
Board; or
    (iv) Engages in any conduct that causes or is likely to cause a 
loss to a Bank.
    (2) Content of notice. A notice of assessment of a civil money 
penalty shall contain a statement of the facts constituting the alleged 
conduct or violation and otherwise conform to the requirements set 
forth in Sec. 908.40.
    (b) Order assessing penalty. An order assessing a civil money 
penalty shall be issued in writing and only after the respondent has 
been given the opportunity for a hearing on the record in accordance 
with the procedures set forth in Sec. 908.9. If the Board of Directors 
finds, based on the record of the hearing, that any conduct or 
violation specified in the notice of assessment of a civil money 
penalty has been established or if a respondent consents (or is deemed 
to have consented pursuant to Sec. 908.43), the Board of Directors may 
issue and serve upon the respondent an order assessing a civil money 
penalty.
    (c) Amount of penalty. (1) The Finance Board may impose a civil 
money penalty under paragraph (b) of this section against a Bank for a 
violation described in paragraph (a)(i) through (iii) of this section 
in an amount not to exceed $5,000.00 for each day that such violation 
continues;
    (2) The Finance Board may impose a civil money penalty on an 
executive officer or director of a Bank in an amount not to exceed 
$10,000.00, or on a Bank in an amount not to exceed $25,000.00, for 
each day that a violation or conduct described in paragraph (a) of this 
section continues, if the Finance Board finds that the violation or 
conduct:
    (i) Is part of a pattern of misconduct; or
    (ii) Involved recklessness and caused or would be likely to cause a 
material loss to a Bank; or
    (3) The Finance Board may impose a civil money penalty on an 
executive officer or director of a Bank in an amount not to exceed 
$100,000.00, or on a Bank in an amount not to exceed $1,000,000.00, for 
each day that a violation or conduct described in paragraph (a) of this 
section continues, if the Finance Board finds that the violation or 
conduct was knowing and caused or would be likely to cause a 
substantial loss to a Bank.
    (d) Factors in determining the amount of the penalty. In 
determining the amount of the civil money penalty to be assessed under 
this section, the Finance Board shall consider such factors as the 
gravity of the violation, any history of prior violations, the good 
faith of the officer or director of a Bank, the effect of the penalty 
on promoting or protecting the safety and soundness of a Bank or the 
Bank System, any injury to members of the subject Bank or to the public 
at large, any benefits received, and the potential for the deterrence 
of future violations.
    (e) Judicial relief. Pursuant to section 2B(a)(5) of the Act (12 
U.S.C. 1422b(a)(5)) and section 1376(c)(3) of the Safety and Soundness 
Act (12 U.S.C. 4636(c)(3)), an order of the Board of Directors imposing 
a civil money penalty under this subsection shall not be subject to 
judicial review except as otherwise provided in Sec. 908.10, in 
accordance with section 1374 of the Safety and Soundness Act (12 U.S.C. 
4634).
    (f) Judicial enforcement of an order imposing a penalty. Pursuant 
to sections 2B(a)(5) and 2B(a)(7) of the Act (12 U.S.C. 1422b(a)(5) and 
(a)(7)) and section 1376(d) of the Safety and Soundness Act (12 U.S.C. 
4636(d)), if a Bank, or an executive officer or director of a Bank, 
fails to comply with an order of the Board of Directors imposing a 
civil money penalty, the Finance Board may seek to enforce the order as 
follows:
    (1) After the order is final and no longer subject to judicial 
review under Sec. 908.10, the Finance Board may bring an action in the 
United States District

[[Page 9906]]

Court for the District of Columbia to obtain a monetary judgment 
against a Bank or the executive officer or director of a Bank;
    (2) The Finance Board may, in addition, seek such other relief as 
may be available from the District Court;
    (3) The monetary judgment may, in the discretion of the District 
Court, include any attorneys fees and other expenses incurred by the 
Finance Board in connection with the action; and
    (4) The validity and appropriateness of the Board of Directors' 
order assessing a civil money penalty shall not be subject to review of 
the United States District Court for the District of Columbia.
    (g) Board of Directors' authority to review. The Board of Directors 
may:
    (1) Review any order to assess a civil money penalty or any 
interlocutory ruling arising from a hearing on the record, or
    (2) Settle, modify, or remit in whole or in part, any civil money 
penalty, which may be or may have been assessed under this section.
    (h) Availability of other remedies. Any civil money penalty 
assessed under this section shall be in addition to any other available 
civil remedy and may be assessed whether or not the Finance Board 
imposes other administrative sanctions pursuant to this part.
    (i) Prohibition of reimbursement or indemnification. A Bank shall 
not reimburse, indemnify, or otherwise compensate directly or 
indirectly any executive officer or director for any penalty imposed 
against such individual under paragraph (c)(3) of this section.
    (j) Applicability. Any penalty under this part may be imposed only 
for conduct or violations occurring after November 12, 1999.
    (k) Adjustment of civil money penalties by the rate of inflation. 
Pursuant to the Federal Civil Penalties Inflation Adjustment Act of 
1990, as amended by the Debt Collection Improvement Act of 1996, Pub. 
Law No. 104-134 (1996) (collectively, the Inflation Adjustment Act) (to 
be codified at 28 U.S.C. 2461 note), the Finance Board is required to 
adjust each civil money penalty set forth herein by a prescribed cost-
of-living adjustment at least once every four years. The adjustment is 
based on the formula prescribed in section 5(b) of the Inflation 
Adjustment Act (28 U.S.C. 2461 note).


Sec. 908.7  Service of notice.

    In accordance with section 2B(a)(5) of the Act (12 U.S.C. 
1422b(a)(5)) and section 1379A of the Safety and Soundness Act (12 
U.S.C. 4640), any service required or authorized to be made by the 
Finance Board under this part may be made by registered mail, or in 
such other manner reasonably calculated to give actual notice as the 
Finance Board may by regulation or otherwise provide.


Sec. 908.8  Subpoenas.

    (a) Authority. Pursuant to section 2B(a)(5) of the Act (12 U.S.C. 
1422b(a)(5)) and section 1379B of the Safety and Soundness Act (12 
U.S.C. 4641), the Finance Board, in the course of or in connection with 
a hearing under this part, shall have the authority:
    (1) To administer oaths and affirmations;
    (2) To take and preserve testimony under oath;
    (3) To issue subpoenas and subpoenas duces tecum; and
    (4) To revoke, quash, or modify subpoenas and subpoenas duces tecum 
issued by the Finance Board pursuant to this part.
    (b) Witnesses and documents. The attendance of witnesses and the 
production of documents provided for in this subsection may be required 
from any place in any State at any designated place where such 
proceeding is being conducted.
    (c) Enforcement. The Finance Board may file an action in the United 
States district court for the judicial district where the proceeding is 
being conducted or where the witness resides or conducts business, or 
in the United States District Court for the District of Columbia, for 
enforcement of any subpoena or subpoena duces tecum issued pursuant to 
this section. Such courts shall have jurisdiction over such actions and 
power to order and require compliance with such subpoenas and subpoenas 
duces tecum.
    (d) Fees and Expenses. Witnesses subpoenaed under this section 
shall be paid the same fees and mileage that are paid witnesses in the 
district courts of the United States. Any court having jurisdiction of 
any proceeding instituted under this section by a Bank may allow to any 
such party such reasonable expenses and attorneys fees as the court 
deems just and proper. Such expenses shall be paid by the Bank or from 
its assets.


Sec. 908.9  Hearings on the record.

    (a) Requirements. (1) Venue and record. Pursuant to section 
2B(a)(5) of the Act (12 U.S.C. 1422b(a)(5)) and section 1373 of the 
Safety and Soundness Act (12 U.S.C. 4633), any hearing conducted 
pursuant to Secs. 908.4 or 908.6 shall be held on the record and in the 
District of Columbia.
    (2) Timing. Any hearing shall be set for a date not earlier than 
thirty (30) days nor later than sixty (60) days after service of a 
notice, unless an earlier or a later date is set by the presiding 
officer at the request of the party served.
    (3) Procedure. Any hearing held pursuant to Secs. 908.4 or 908.6 
shall be conducted in accordance with chapter 5 of Title 5 of the 
United States Code.
    (4) Failure to appear. If a respondent fails to appear at a hearing 
individually or through a duly authorized representative, the 
respondent shall be deemed to have consented to the issuance of a cease 
and desist order or an order assessing a civil money penalty for which 
the hearing is held.
    (5) Open to the public. All hearings on the record with respect to 
any notice issued by the Finance Board shall be open to the public, 
unless the Board of Directors, in its discretion, determines that 
holding an open hearing would be contrary to the public interest.
    (b) Issuance of final order. After a hearing on the record has been 
concluded, and within 90 days after the parties have been notified that 
the case has been submitted to the Board of Directors for final 
decision, the Board of Directors shall render the final decision (which 
shall include findings of fact upon which the decision is predicated) 
and shall issue and serve upon each party to the proceeding a final 
order or orders consistent with the provisions.
    (c) Judicial review and modification of final orders. Judicial 
review of any such final decision and order shall be exclusively as 
provided for in Sec. 908.10, pursuant to section 2B(a)(5) of the Act 
(12 U.S.C. 1422b(a)(5)) and sections 1373 and 1374 of the Safety and 
Soundness Act (12 U.S.C. 4633 and 4634). Unless a petition for review 
is timely filed as provided in Sec. 908.10, and thereafter until the 
record in the proceeding has been filed as so provided, the Board of 
Directors may at any time modify, terminate, or set aside any such 
final decision and order, upon such notice and in such manner as the 
Board of Directors, in its sole discretion, considers proper. Upon such 
filing of the record, the Board of Directors may modify, terminate, or 
set aside any such final decision and order with permission of the 
court.


Sec. 908.10  Judicial review.

    (a) Authority. Pursuant to section 2B(a)(5) of the Act (12 U.S.C. 
1422b(a)(5)) and section 1374 of the Safety and Soundness Act (12 
U.S.C. 4634), any party to a hearing may obtain judicial review of a 
final decision and

[[Page 9907]]

order issued under Secs. 908.4 or 908.6 exclusively by filing a written 
petition in the United States Court of Appeals for the District of 
Columbia Circuit within thirty (30) days after the date of service of 
the final decision and order, requesting the court to modify, terminate 
or set aside the final decision and order.
    (b) Filing of record. Upon receiving a copy of the petition from 
the clerk of the court of appeals, the Finance Board shall file the 
hearing record with the clerk, as provided in section 2112 of Title 28 
of the United States Code (28 U.S.C. 2112).
    (c) Jurisdiction. Pursuant to section 2B(a)(5) of the Act (12 
U.S.C. 1422b(a)(5)) and section 1374(c) of the Safety and Soundness Act 
(12 U.S.C. 4634(c)), upon the filing of a petition, the court of 
appeals shall have jurisdiction, which upon the filing of the record by 
the Finance Board (except as otherwise provided in Sec. 908.9) shall be 
exclusive, to affirm, modify, terminate or set aside, in whole or in 
part, a final decision and order of the Board of Directors.
    (d) Review. Review by the court of appeals of a final decision and 
order of the Board of Directors and the record of any hearing conducted 
pursuant to this part shall be governed by chapter 7 of Title 5 of the 
United States Code (5 U.S.C. 701 et seq.).
    (e) Order to pay civil money penalty. In connection with its review 
of a final order pursuant to this part, the court of appeals shall have 
authority in accordance with section 2B(a)(5) of the Act (12 U.S.C. 
1422b(a)(5)) and section 1374(e) of the Safety and Soundness Act (12 
U.S.C. 4634(e)), to order payment of any civil money penalty imposed by 
the Finance Board.
    (f) No automatic stay. In accordance with section 2B(a)(5) of the 
Act (12 U.S.C. 1422b(a)(5)) and section 1374(f) of the Safety and 
Soundness Act (12 U.S.C. 4634(f)), the commencement of an action for 
judicial review of a final decision and order of the Board of Directors 
under this section shall not operate as a stay of any such order, 
unless the court of appeals specifically orders a stay of the order in 
whole or in part.


Sec. 908.11  Jurisdiction and enforcement.

    (a) Enforcement. In accordance with sections 2B(a)(5) and 2B(a)(7) 
of the Act (12 U.S.C. 1422b(a)(5) and (a)(7)) and section 1375(a) of 
the Safety and Soundness Act (12 U.S.C. 4635(a)), the Finance Board may 
bring an action in the United States District Court for the District of 
Columbia for the enforcement of any effective order issued by the Board 
of Directors under this part. Such court shall have jurisdiction and 
power to order and require compliance with such order.
    (b) Limitation on jurisdiction. In accordance with sections 
2B(a)(5) and 2B(a)(7) of the Act (12 U.S.C. 1422b(a)(5) and (a)(7)) and 
section 1375(b) of the Safety and Soundness Act (12 U.S.C. 4635(b)), 
and except as otherwise provided in the Act, no court shall have 
jurisdiction to affect, by injunction or otherwise, the issuance or 
enforcement of any order issued by the Board of Directors under this 
part, or to review, modify, suspend, terminate, or set aside any such 
notice or order.


Sec. 908.12  Notice after separation.

    The resignation, termination of employment or participation, or 
separation of a director or executive officer of a Bank shall not 
affect the jurisdiction and authority of the Finance Board to issue any 
notice and proceed under this part against any such director or 
executive officer, if such notice is served before the end of the two-
year period beginning on the date such director or executive officer 
ceases to be associated with the Bank.


Sec. 908.13  Public disclosure of final orders.

    (a) In general. The Finance Board shall make available to the 
public--
    (1) Any written agreement or other written statement for which a 
violation may be redressed by the Finance Board or any modification to 
or termination thereof, unless the Finance Board in its discretion, 
determines that public disclosure would be contrary to the public 
interest;
    (2) Any order that is issued by the Board of Directors and that has 
become final in accordance with this part; and
    (3) Any modification to or termination of any final order made 
public pursuant to this part.
    (b) Delay of public disclosure under exceptional circumstances. If 
the Finance Board determines in writing that the public disclosure, 
pursuant to paragraph (a) of this section, of any final decision and 
order of the Board of Directors would seriously threaten the financial 
health or security of a Bank, the Finance Board may delay the public 
disclosure of such decision and order for a reasonable time.
    (c) Documents filed under seal. The Finance Board may file any 
document or part thereof under seal in any hearing commenced by the 
Finance Board under this part, if it determines in writing that 
disclosure thereof would be contrary to the public interest.
    (d) Retention of documents. The Finance Board shall keep and 
maintain a record, for not less than six years, of all documents 
described in paragraph (a) of this section and all enforcement 
agreements and other supervisory actions and supporting documents 
issued with respect to or in connection with any enforcement proceeding 
initiated by the Finance Board under this part or any other law.
    (e) Disclosure to Congress. This section may not be construed to 
authorize the withholding, or to prohibit the disclosure, of any 
information to the Congress or any committee or subcommittee thereof.


Sec. 908.14  No implied private right of action.

    This part shall not create any private right of action on behalf of 
any person against a Bank or any director or executive officer of a 
Bank or impair any existing private right of action under applicable 
law.


Sec. 908.15--908.19  [Reserved]

Subpart C--General Rules


Sec. 908.20  Authority of the Board of Directors.

    The Board of Directors may, at any time during the pendency of a 
proceeding under this part, perform, direct the performance of, or 
waive the performance of any act that could be done or ordered by the 
presiding officer.


Sec. 908.21  Authority of the presiding officer.

    (a) General rule. All cease and desist or civil money penalty 
proceedings governed by this subpart shall be conducted in a hearing on 
the record in accordance with the provisions of the Administrative 
Procedure Act, 5 U.S.C. 551-559. The presiding officer shall have 
complete charge of the hearing, conduct a fair and impartial hearing, 
avoid unnecessary delay, and assure that a record of the hearing is 
made.
    (b) Powers. The presiding officer shall have all powers necessary 
to conduct the hearing in accordance with paragraph (a) of this section 
and 5 U.S.C. 556(c). The presiding officer is authorized to--
    (1) Set and change the date, time and place of the hearing upon 
reasonable notice to the parties;
    (2) Continue or recess the hearing in whole or in part for a 
reasonable period of time;
    (3) Hold conferences to identify or simplify the issues, or to 
consider other matters that may aid in the expeditious disposition of 
the proceeding, including settlement conferences, mediation or other 
consensual methods of dispute resolution;
    (4) Administer oaths and affirmations;

[[Page 9908]]

    (5) Issue subpoenas, subpoenas duces tecum, and protective orders, 
as authorized by this part, and to revoke, quash, or modify such 
subpoenas;
    (6) Take and preserve testimony under oath;
    (7) Rule on motions and other procedural matters appropriate in a 
hearing, except that only the Board of Directors shall have the power 
to grant any motion to dismiss a cease and desist or civil money 
penalty proceeding or to make a final determination on the merits of 
such proceedings;
    (8) Regulate the scope and timing of discovery;
    (9) Regulate the course of the hearing and the conduct of 
representatives and parties;
    (10) Examine witnesses;
    (11) Receive, exclude, limit, or otherwise rule on evidence;
    (12) Upon motion of a party, take official notice of facts;
    (13) Recuse herself/himself upon motion made by a party or on her 
or his own motion;
    (14) Prepare and present to the Board of Directors a recommended 
decision as provided in this part;
    (15) Establish time, place and manner limitations on the attendance 
of the public and the media for any public hearing; and
    (16) Do all other things necessary and appropriate to discharge the 
duties of a presiding officer.


Sec. 908.22  Public hearings.

    (a) General rule. All hearings shall be open to the public, unless 
the Finance Board, in its discretion, determines that holding an open 
hearing would be contrary to the public interest. The Finance Board may 
make such determination sua sponte at any time by written notice to all 
parties.
    (b) Motion for closed hearing. Within twenty (20) days of service 
of a notice, any party or respondent may file with the presiding 
officer a motion for a non-public hearing and any party may file a 
pleading in reply to the motion. The presiding officer shall forward 
the motion and any reply, together with a recommended decision on the 
motion, to the Board of Directors, who shall make a final 
determination. Such motions and replies shall be governed by 
Sec. 908.45.
    (c) Filing documents under seal. The Finance Board, in its 
discretion, may file any document, or any part of any document, under 
seal if the agency makes a written determination that disclosure of the 
document would be contrary to the public interest. The presiding 
officer shall take all appropriate steps to preserve the 
confidentiality of such documents or parts thereof, including closing 
portions of the hearing to the public.


Sec. 908.23  Good faith certification.

    (a) General requirement. Every filing or submission of record 
following the issuance of a notice by the Finance Board shall be signed 
by at least one representative of record in her or his individual name 
and shall state that representative's address and telephone number and 
the names, addresses and telephone numbers of all other representatives 
of record for the person making the filing or submission.
    (b) Effect of signature. (1) By signing a document, the 
representative of record or party certifies that--
    (i) The representative of record or party has read the filing or 
submission of record;
    (ii) To the best of her or his knowledge, information and belief 
formed after reasonable inquiry, the filing or submission of record is 
well-grounded in fact and is warranted by existing law or a good faith, 
non-frivolous argument for the extension, modification, or reversal of 
existing law, regulation or Finance Board policy or order; and
    (iii) The filing or submission of record is not made for any 
improper purpose, such as to harass or to cause unnecessary delay or 
needless increase in the cost of litigation.
    (2) If a filing or submission of record is not signed, the 
presiding officer shall strike the filing or submission of record, 
unless it is signed promptly after the omission is called to the 
attention of the pleader or movant.
    (c) Effect of making oral motion or argument. The act of making any 
oral motion or oral argument by any representative or party shall 
constitute a certification that to the best of her or his knowledge, 
information, and belief, formed after reasonable inquiry, such 
expressions or statements are well-grounded in fact and are warranted 
by existing law or a good faith, non-frivolous argument for the 
extension, modification, or reversal of existing law, regulation, or 
Finance Board policy or order, and are not made for any improper 
purpose, such as to harass or to cause unnecessary delay or needless 
increase in the cost of litigation.


Sec. 908.24  Ex parte communications.

    (a) Definition. (1) Ex parte communication means any material oral 
or written communication relevant to the merits of a cease and desist 
or civil money penalty proceeding under this part that was neither on 
the record nor on reasonable prior notice to all parties that takes 
place between--
    (i) An interested person outside the Finance Board (including the 
person's representative); and
    (ii) The presiding officer handling the proceeding, the Board of 
Directors or any member thereof, a decisional employee of the Finance 
Board assigned to that proceeding, or any other person who is or may 
reasonably be expected to be involved in the decisional process.
    (2) A communication that does not concern the merits of a 
proceeding under this part, such as a request for status of the 
proceeding, does not constitute an ex parte communication.
    (b) Prohibition of ex parte communications. From the time that a 
notice commencing a proceeding under this part is issued by the Finance 
Board until the date that the Board of Directors issues its final 
decision pursuant to Sec. 908.65, no person referred to in paragraph 
(a)(1)(i) of this section shall knowingly make or cause to be made an 
ex parte communication. The Board of Directors, any member thereof 
individually, the presiding officer, or an employee of the Finance 
Board, shall not knowingly make or cause to be made an ex parte 
communication.
    (c) Procedure upon occurrence of ex parte communication. If an ex 
parte communication is received by any person identified in paragraph 
(a) of this section, that person promptly shall cause all such written 
communications (or, if the communication is oral, a memorandum stating 
the substance of the communication) to be placed on the record of the 
proceeding and served on all parties. All parties to the proceeding 
shall have an opportunity, within ten days of receipt of service of the 
ex parte communication or the written record of an oral communication, 
to file responses thereto and to recommend any sanctions, in accordance 
with paragraph (d) of this section, that they believe to be appropriate 
under the circumstances.
    (d) Sanctions. Any party or representative for a party who makes an 
ex parte communication, or who encourages or solicits another person or 
entity to make any such communication, may be subject to any 
appropriate sanction or sanctions imposed by the Board of Directors or 
the presiding officer, including, but not limited to, exclusion from 
the proceedings and an adverse ruling on the issue that is the subject 
of the prohibited communication.
    (e) Consultations by presiding officer. Except to the extent 
required for the disposition of ex parte matters as authorized by law, 
the presiding officer may not consult a person or party on

[[Page 9909]]

any matter relevant to the merits of a proceeding, unless on notice and 
opportunity for all parties to participate.
    (f) Separation of functions. An employee or agent engaged in the 
performance of investigative or prosecuting functions for the Finance 
Board in a case may not, in that or a factually related case, 
participate or advise in the decision, recommended decision, or Board 
of Directors' review of the recommended decision under Sec. 908.65, 
except as a witness or counsel in a hearing.


Sec. 908.25  Filing of papers.

    (a) Filing. Any papers required to be filed shall be addressed to 
the presiding officer and filed with the Finance Board, 1777 F Street, 
NW., Washington, DC 20006.
    (b) Manner of filing. Unless otherwise specified by the Finance 
Board or the presiding officer, filing shall be accomplished by:
    (1) Personal service;
    (2) Delivery to the U.S. Postal Service or to a reliable commercial 
delivery service for same day or overnight delivery;
    (3) Mailing by first class, registered, or certified mail; or
    (4) Transmission by electronic media upon any conditions specified 
by the Finance Board or the presiding officer. All papers filed by 
electronic media shall also concurrently be filed in accordance with 
paragraph (c) of this section.
    (c) Formal requirements as to papers filed. (1) Form. All papers 
must set forth the name, address and telephone number of the 
representative or party making the filing and must be accompanied by a 
certification setting forth when and how service has been made on all 
other parties. All papers filed must be double-spaced and printed or 
typewritten on 8\1/2\  x  11-inch paper and must be clear and legible.
    (2) Signature. All papers must be dated and signed as provided in 
Sec. 908.23.
    (3) Caption. All papers filed must include at the head thereof, or 
on a title page, the name of the Finance Board and of the filing party, 
the title and docket number of the proceeding and the subject of the 
particular paper.
    (4) Number of copies. Unless otherwise specified by the Finance 
Board or the presiding officer, an original and one copy of all 
documents, papers, transcripts of testimony, and exhibits shall be 
filed.


Sec. 908.26  Service of papers.

    (a) By the parties. Except as otherwise provided, a party filing 
papers or serving a subpoena shall serve a copy upon the representative 
of record for each party to the proceeding so represented and upon any 
party not so represented.
    (b) Method of service. Except as provided in paragraphs (c)(2) and 
(d) of this section, a serving party shall use one or more of the 
following methods of service:
    (1) Personal service;
    (2) Delivery to the U.S. Postal Service or to a reliable commercial 
delivery service for same day or overnight delivery;
    (3) Mailing by first class, registered, or certified mail; or
    (4) Transmission by electronic media, only if the parties mutually 
agree. Any papers served by electronic media shall also concurrently be 
served in accordance with the requirements of Sec. 908.25(c).
    (c) By the Finance Board or the presiding officer. (1) All papers 
required to be served by the Finance Board or the presiding officer 
upon a party who has appeared in the proceeding in accordance with 
Sec. 908.72 may be served by any means specified in paragraph (b) of 
this section.
    (2) If a notice of appearance has not been filed in the proceeding 
for a party in accordance with Sec. 908.72, the Finance Board or the 
presiding officer shall make service upon such party by any of the 
following methods:
    (i) By personal service;
    (ii) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where 
the individual resides or works;
    (iii) If the person to be served is a corporation or other 
association, by delivery to an officer, managing or general agent, or 
to any other agent authorized by appointment or by law to receive 
service and, if the agent is one authorized by statute to receive 
service and the statute so requires, by also mailing a copy to the 
party;
    (iv) By registered or certified mail addressed to the person's last 
known address; or
    (v) By any other method reasonably calculated to give actual 
notice.
    (d) Subpoenas. Subject to applicable provisions in this part, 
service of a subpoena may be made:
    (1) By personal service;
    (2) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where 
the individual resides or works;
    (3) If the person to be served is a corporation or other 
association, by delivery to an officer, managing or general agent, or 
to any other agent authorized by appointment or by law to receive 
service and, if the agent is one authorized by statute to receive 
service and the statute so requires, by also mailing a copy to the 
party;
    (4) By registered or certified mail addressed to the person's last 
known address; or
    (5) By any other method reasonably calculated to give actual 
notice.
    (e) Area of service. Service in any State, commonwealth, 
possession, territory of the United States or the District of Columbia 
on any person doing business in any State, commonwealth, possession, 
territory of the United States or the District of Columbia, or on any 
person as otherwise permitted by law, is effective without regard to 
the place where the hearing is held.
    (f) Proof of service. Proof of service of papers filed by a party 
shall be filed before action is taken thereon. The proof of service, 
which shall serve as prima facie evidence of the fact and date of 
service, shall show the date and manner of service and may be by 
written acknowledgment of service, by declaration of the person making 
service, or by certificate of a representative of record. However, 
failure to file proof of service contemporaneously with the papers 
shall not affect the validity of actual service. The presiding officer 
may allow the proof to be amended or supplied, unless to do so would 
result in material prejudice to a party.


Sec. 908.27  Computing time.

    (a) General rule. In computing any period of time prescribed or 
allowed by this subpart, the date of the act or event that commences 
the designated period of time is not included. The last day so computed 
is included unless it is a Saturday, Sunday, or Federal holiday. When 
the last day is a Saturday, Sunday or Federal holiday, the period shall 
run until the end of the next day that is not a Saturday, Sunday, or 
Federal holiday. Intermediate Saturdays, Sundays and Federal holidays 
are included in the computation of time. However, when the time period 
within which an act is to be performed is ten (10) days or less, not 
including any additional time allowed for in paragraph (c) of this 
section, intermediate Saturdays, Sundays and Federal holidays are not 
included.
    (b) When papers are deemed to be filed or served. (1) Filing and 
service are deemed to be effective--
    (i) In the case of personal service or same day reliable commercial 
delivery service, upon actual service;

[[Page 9910]]

    (ii) In the case of U.S. Postal Service or reliable commercial 
overnight delivery service, or first class, registered, or certified 
mail, upon deposit in or delivery to an appropriate point of 
collection; or
    (iii) In the case of transmission by electronic media, as specified 
by the authority receiving the filing in the case of filing, and as 
agreed among the parties in the case of service.
    (2) The effective filing and service dates specified in paragraph 
(b)(1) of this section may be modified by the Finance Board or the 
presiding officer in the case of filing or by agreement of the parties 
in the case of service.
    (c) Calculation of time for service and filing of responsive 
papers. Whenever a time limit is measured by a prescribed period from 
the service of any notice or paper, the applicable time limits shall be 
calculated as follows:
    (1) If service was made by first class, registered, or certified 
mail, or by delivery to the U.S. Postal Service for longer than 
overnight delivery service, add three (3) calendar days to the 
prescribed period for the responsive filing.
    (2) If service was made by U.S. Postal Service or reliable 
commercial overnight delivery service, add one (1) calendar day to the 
prescribed period for the responsive filing.
    (3) If service was made by electronic media transmission, add one 
(1) calendar day to the prescribed period for the responsive filing, 
unless otherwise determined by the Board of Directors or the presiding 
officer in the case of filing, or by agreement among the parties in the 
case of service.


Sec. 908.28  Change of time limits.

    Except as otherwise provided by law, the presiding officer may, for 
good cause shown, extend the time limits prescribed above or prescribed 
by any notice or non-dispositive order issued under this part. After 
the referral of the case to the Board of Directors pursuant to 
Sec. 908.63, the Board of Directors may grant extensions of the time 
limits for good cause shown. Extensions may be granted on the motion of 
a party after notice and opportunity to respond is afforded all 
nonmoving parties, or on the Board of Directors' or the presiding 
officer's own motion.


Sec. 908.29  Witness fees and expenses.

    Witnesses (other than parties) subpoenaed for testimony or 
depositions shall be paid the same fees for attendance and mileage as 
are paid to witnesses pursuant to the Federal Rules of Civil Procedure 
(title 28 of the U.S. Code) governing proceedings in the United States 
district courts, in which the United States is a party, provided that, 
in the case of a discovery subpoena addressed to a party, no witness 
fees or mileage shall be paid. Fees for witnesses shall be tendered in 
advance by the party requesting the subpoena, except that fees and 
mileage need not be tendered in advance where the Finance Board is the 
issuer of the subpoena. The Finance Board shall not be responsible for 
or required to pay any fees to or expenses of any witness not 
subpoenaed by the Finance Board.


Sec. 908.30  Settlement or other dispute resolution.

    Any respondent may, at any time in a cease and desist or civil 
money penalty proceeding, unilaterally submit to the Finance Board's 
counsel of record written offers or proposals for settlement of such 
proceeding in whole or in part without prejudice to the rights of any 
of the parties. Any such offer or proposal shall be made exclusively to 
the Finance Board. Submission of a written settlement offer does not 
provide a basis for adjourning or otherwise delaying all or any portion 
of a proceeding under this part. Any party to a proceeding under this 
part may request a neutral individual preside over settlement 
negotiations. No settlement offer or proposal, or any subsequent 
negotiation or resolution, is admissible as evidence in any proceeding 
under this part or any court.


Sec. 908.31  Right to supervise the Banks.

    Nothing contained in this part shall limit in any manner the right 
of the Finance Board to conduct any examination, inspection, or 
visitation of any Bank, or the right of the Finance Board to conduct or 
continue any form of investigation authorized by law. Nothing set forth 
in this part shall restrict or be deemed to restrict the authority of 
the Finance Board to supervise the Banks or to issue or enforce orders 
or directives pursuant to section 2B(a)(1), or any other provision, of 
the Act (12 U.S.C. 1422b(a)(1)).


Sec. 908.32  Collateral attacks on proceedings under this part.

    If a respondent files in any court a collateral attack that 
purports to challenge all or any portion of a proceeding under this 
part, the hearing on the merits shall continue without regard to the 
pendency of any such challenge action. No default or other failure to 
act as directed in the hearing within the times prescribed in this 
subpart shall be excused based on the pendency of any such challenge 
action.


Sec. 908.33--908.39  [Reserved]

Subpart D--Pre-Hearing Proceedings


Sec. 908.40  Commencement of proceeding and contents of notices.

    Proceedings under this part are commenced by the issuance of a 
notice of charges or a notice of assessment of a civil money penalty 
(notice). A notice that is served by the Finance Board upon a 
respondent in accordance with Sec. 908.7 shall state all of the 
following:
    (a) The legal authority for the proceeding and for the Finance 
Board's jurisdiction over the proceeding;
    (b) A statement of the matters of fact or law showing that the 
Finance Board is entitled to relief;
    (c) A proposed order or prayer for an order granting the requested 
relief;
    (d) The time, place and nature of the hearing;
    (e) The time within which to file an answer;
    (f) The time within which to request a hearing; and
    (g) The address for filing the answer and/or request for a hearing.


Sec. 908.41  Answer.

    (a) Deadline for filing answer. Unless otherwise specified by the 
Finance Board in the notice, respondent shall file an answer within 
twenty (20) days of service of the notice.
    (b) Content of answer. An answer shall respond specifically to each 
paragraph or allegation of fact contained in the notice and must admit, 
deny, or state that the party lacks sufficient information to admit or 
deny each allegation of fact. A statement of lack of information has 
the effect of a denial. Denials must fairly meet the substance of each 
allegation of fact denied; general denials are not permitted. When a 
respondent denies part of an allegation, that part must be denied and 
the remainder specifically admitted. Any allegation of fact in the 
notice that is not denied in the answer is deemed admitted for purposes 
of the proceeding. A respondent is not required to respond to the 
portion of a notice that constitutes the prayer for relief or proposed 
order. The answer shall set forth affirmative defenses, if any, 
asserted by the respondent.
    (c) Default. Failure of a respondent to file an answer required by 
this section within the time provided constitutes a waiver of such 
respondent's right to appear and contest the allegations in the notice. 
If no timely answer is filed, the Finance Board's counsel of record may 
file a motion for entry of an order of default. Upon a finding that no 
good cause has been shown for the failure to

[[Page 9911]]

file a timely answer, the presiding officer shall file with the Board 
of Directors a recommended decision containing the findings and the 
relief sought in the notice. Any final order issued by the Board of 
Directors based upon a respondent's failure to answer shall be deemed 
to be an order issued upon consent.


Sec. 908.42  Amended pleadings.

    (a) Amendments. The notice or answer may be amended or supplemented 
by the Finance Board prior to the scheduling conference held in 
accordance with Sec. 908.53, or at any stage of the proceeding with the 
permission of the presiding officer for good cause shown. The 
respondent must answer an amended notice within the time remaining for 
the respondent's answer to the original notice, or within ten (10) days 
after service of the amended notice, whichever period is longer, unless 
the Board of Directors or the presiding officer orders otherwise for 
good cause shown.
    (b) Amendments to conform to the evidence. When issues not raised 
in the notice or answer are tried at the hearing by express or implied 
consent of the parties, they shall be treated in all respects as if 
they had been raised in the notice or answer, and no formal amendments 
shall be required. If evidence is objected to at the hearing on the 
ground that it is not within the issues raised by the notice or answer, 
the presiding officer may admit the evidence when admission is likely 
to assist in adjudicating the merits of the action. The presiding 
officer will do so freely when the determination of the merits of the 
action is served thereby and the objecting party fails to satisfy the 
presiding officer that the admission of such evidence would unfairly 
prejudice that party's action or defense upon the merits. The presiding 
officer may grant a continuance to enable the objecting party to meet 
such evidence.


Sec. 908.43  Failure to appear.

    Failure of a respondent to appear in person or by a duly authorized 
representative at the hearing constitutes a waiver of respondent's 
right to a hearing and is deemed an admission of the facts as alleged 
and consent to the relief sought in the notice. Without further 
proceedings or notice to the respondent, the presiding officer shall 
file with the Board of Directors a recommended decision containing the 
findings and the relief sought in the notice.


Sec. 908.44  Consolidation and severance of actions.

    (a) Consolidation. On the motion of any party, or on the Finance 
Board's or the presiding officer's own motion, the presiding officer 
may consolidate, for some or all purposes, any two or more proceedings, 
if each such proceeding involves or arises out of the same transaction, 
occurrence or series of transactions or occurrences, or involves at 
least one common respondent or a material common question of law or 
fact, unless such consolidation would cause unreasonable delay or 
injustice. In the event of consolidation under this section, 
appropriate adjustment to the pre-hearing schedule must be made to 
avoid unnecessary expense, inconvenience, or delay.
    (b) Severance. The presiding officer may, upon the motion of the 
Finance Board or any party, sever the proceeding for separate 
resolution of the matter as to any respondent only if the presiding 
officer finds that undue prejudice or injustice to the moving party 
would result from not severing the proceeding and such undue prejudice 
or injustice would outweigh the interests of judicial economy and 
expedition in the complete and final resolution of the proceeding.


Sec. 908.45  Motions.

    (a) Written motions. (1) Except as otherwise provided herein, an 
application or request for an order or ruling must be made by written 
motion.
    (2) All written motions shall state with particularity the relief 
sought and must be accompanied by a proposed order.
    (3) No oral argument may be held on written motions except as 
otherwise directed by the presiding officer. Written memoranda, briefs, 
affidavits, or other relevant material or documents may be filed in 
support of or in opposition to a motion.
    (b) Oral motions. A motion may be made orally and on the record at 
a hearing, unless the presiding officer directs that such motion be 
reduced to writing and filed with the presiding officer. Oral motions 
must be made a part of the record of the hearing, and accompanied by a 
proposed order.
    (c) Filing of motions. Motions shall be filed with the presiding 
officer, except that following the filing of a recommended decision 
with the Board of Directors, motions must be filed with the Board of 
Directors in accordance with Sec. 908.64.
    (d) Responses. (1) Except as otherwise provided herein, any party 
may file a written response to a motion within ten days after service 
of any written motion, or within such other period of time as may be 
established by the presiding officer or the Board of Directors. The 
presiding officer shall not rule on any oral or written motion before 
each party has had an opportunity to file a response.
    (2) The failure of a party to oppose a written motion or an oral 
motion made on the record is deemed to be consent by that party to the 
entry of an order substantially in the form of the order accompanying 
the motion.
    (e) Dilatory motions. Frivolous, dilatory, or repetitive motions 
are prohibited. The filing of such motions may form the basis for 
sanctions.
    (f) Dispositive motions. Dispositive motions shall be governed by 
Secs. 908.51 and 908.52.


Sec. 908.46  Discovery.

    (a) Limits on discovery. Subject to the limitations set out in 
paragraphs (b), (d), and (e) of this section, any party to a hearing 
under this part may obtain document discovery by serving a written 
request to produce documents. For purposes of a request to produce 
documents, the term documents may be defined to include drawings, 
graphs, charts, photographs, recordings, data stored in electronic 
form, and other data compilations from which information can be 
obtained or translated, if necessary, by the parties through detection 
devices into reasonably usable form, as well as written material of all 
kinds.
    (b) Relevance. A party may obtain document discovery regarding any 
matter not privileged provided that the information sought has a 
logical connection to consequential facts (i.e., material) or may tend 
to prove or disprove a matter in issue (i.e., relevant) related to the 
merits of the pending action. Any request to produce documents that 
calls for irrelevant or immaterial information, or that is 
unreasonable, oppressive, excessive in scope, unduly burdensome, or 
repetitive of previous requests, or that seeks to obtain privileged 
documents, shall be denied or modified. A request is unreasonable, 
oppressive, excessive in scope, or unduly burdensome if, among other 
things, it fails to include justifiable limitations on the time period 
covered and the geographic locations to be searched, the time provided 
to respond in the request is inadequate, or the request calls for 
copies of documents to be delivered to the requesting party and fails 
to include the requestor's written agreement to pay in advance for the 
copying, in accordance with Sec. 908.47.

[[Page 9912]]

    (c) Forms of discovery. Document discovery shall be limited to 
requests for production of documents for inspection and copying. No 
other form of discovery shall be allowed. Discovery by use of 
interrogatories may be permitted. This paragraph shall not be 
interpreted to require the creation of a document.
    (d) Privileged matter. Privileged documents shall not be 
discoverable. Privileges include the attorney-client privilege, work-
product privilege, any government's or government agency's deliberative 
process privilege and any other privileges provided by the 
Constitution, any applicable act of Congress, or the principles of 
common law.
    (e) Time limits. All discovery, including all responses to 
discovery requests, shall be completed within the time set by the 
presiding officer, but in no case later than ten (10) days prior to the 
service deadline for pre-hearing submissions in accordance with 
Sec. 908.54. No exception to this time limit shall be permitted, unless 
the presiding officer finds on the record that good cause exists for 
waiving the requirements of this paragraph.


Sec. 908.47  Request for document discovery from parties.

    (a) General rule. Any party may serve on any other party a request 
to produce for inspection any discoverable documents that are in the 
possession, custody, or control of the party upon whom the request is 
served. Copies of the request shall be served on all other parties. The 
request must identify the documents to be produced either by individual 
item or by category and must describe each item and category with 
reasonable particularity. Documents must be produced as they are kept 
in the usual course of business or they shall be labeled and organized 
to correspond with the categories in the request.
    (b) Production or copying. The request shall specify a reasonable 
time, place and manner for production and performing any related acts. 
In lieu of inspecting the documents, the requesting party may specify 
that all or some of the responsive documents be copied and the copies 
delivered to the requesting party. If copying of fewer than 250 pages 
is requested, the party to whom the request is addressed shall bear the 
cost of copying and shipping charges. If a party requests more than 250 
pages of copying, the requesting party shall pay for copying and 
shipping charges. Copying charges are at the current rate per page 
imposed by the Finance Board at Sec. 910.9(g) of this chapter for 
requests for documents filed under the Freedom of Information Act, 5 
U.S.C. 552. The party to whom the request is addressed may require 
payment in advance before producing the documents.
    (c) Obligation to update responses. A party who has responded to a 
discovery request is not required to supplement the response, unless:
    (1) The responding party learns that in some material respect the 
information disclosed is incomplete or incorrect, and
    (2) The additional or corrective information has not otherwise been 
made known to the other parties during the discovery process or in 
writing.
    (d) Motions to strike or limit discovery requests. (1) Any party 
that objects to a discovery request may, within ten (10) days of being 
served with such request, file a motion in accordance with the 
provisions of Sec. 908.45 requesting the presiding officer order the 
request be stricken or otherwise limited. If an objection is made to 
only a portion of an item or category in a request, the objection shall 
specify that portion. Any objections not made in accordance with this 
paragraph and Sec. 908.45 are waived.
    (2) The party who served the request that is the subject of a 
motion to strike or limit may file a written response within five (5) 
days of service of the motion. No other party may file a response.
    (e) Privilege. At the time other documents are produced, all 
documents withheld on the grounds of privilege must be reasonably 
identified, together with a statement of the basis for the assertion of 
privilege. When similar documents that are protected by deliberative 
process, attorney work-product, or attorney-client privilege are 
voluminous, these documents may be identified by category instead of by 
individual document. The presiding officer has discretion to determine 
when the identification by category is insufficient.
    (f) Motions to compel production. (1) If a party withholds any 
documents as privileged or fails to comply fully with a discovery 
request, the requesting party may, within (10) ten days of the 
assertion of privilege or of the time the failure to comply becomes 
known to the requesting party, file a motion in accordance with the 
provisions of Sec. 908.45 for the issuance of a subpoena compelling 
production.
    (2) The party who asserted the privilege or failed to comply with 
the request may, within five (5) days of service of a motion for the 
issuance of a subpoena compelling production, file a written response 
to the motion. No other party may file a response.
    (g) Ruling on motions. After the time for filing responses to 
motions pursuant to this section has expired, the presiding officer 
shall rule promptly on all such motions. If the presiding officer 
determines that a discovery request or any of its terms calls for 
irrelevant material, is unreasonable, oppressive, excessive in scope, 
unduly burdensome, or repetitive of previous requests, or seeks to 
obtain privileged documents, he or she may deny or modify the request 
and may issue appropriate protective orders, upon such conditions as 
justice may require. The pendency of a motion to strike or limit 
discovery or to compel production shall not be a basis for staying or 
continuing the proceeding, unless otherwise ordered by the presiding 
officer. Notwithstanding any other provision in this part, the 
presiding officer may not release, or order a party to produce, 
documents withheld on grounds of privilege if the party has stated to 
the presiding officer its intention to file a timely motion for 
interlocutory review of the presiding officer's order to produce the 
documents, until the motion for interlocutory review has been decided.
    (h) Enforcing discovery subpoenas. If the presiding officer issues 
a subpoena compelling production of documents by a party, the 
subpoenaing party may, in the event of noncompliance and to the extent 
authorized by applicable law, apply to any appropriate United States 
district court for an order requiring compliance with the subpoena. A 
party's right to seek court enforcement of a subpoena shall not in any 
manner limit the sanctions that may be imposed by the presiding officer 
against a party who fails to produce or induces another to fail to 
produce subpoenaed documents.


Sec. 908.48  Document subpoenas to nonparties.

    (a) General rules. (1) Any party may apply to the presiding officer 
for the issuance of a document discovery subpoena addressed to any 
person who is not a party to the proceeding. The application must 
contain a proposed document subpoena and a brief statement showing the 
general relevance and reasonableness of the scope of documents sought. 
The subpoenaing party shall specify a reasonable time, place, and 
manner for production in response to the subpoena.
    (2) A party shall only apply for a document subpoena under this 
section within the time period during which such party could serve a 
discovery request under Sec. 908.46(e) and in accordance with 
Sec. 908.47. The party requesting the document subpoena is

[[Page 9913]]

responsible for serving it on the subpoenaed person and for serving 
copies on all parties. Document subpoenas may be served in any State, 
territory, or possession of the United States, the District of 
Columbia, or as otherwise provided by law.
    (3) The presiding officer shall promptly issue any document 
subpoena applied for under this section; except that, if the presiding 
officer determines that the application does not set forth a valid 
basis for the issuance of the subpoena, or that any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
may refuse to issue the subpoena or may issue it in a modified form 
upon such conditions as may be determined by the presiding officer.
    (b) Motion to quash or modify. (1) Any person to whom a document 
subpoena is directed may file a motion to quash or modify such 
subpoena, accompanied by a statement of the basis for quashing or 
modifying the subpoena. The movant shall serve the motion on all 
parties and any party may respond to such motion within ten days of 
service of the motion.
    (2) Any motion to quash or modify a document subpoena shall be 
filed on the same basis, including the assertion of privilege, upon 
which a party could object to a discovery request under Sec. 908.47 and 
during the same time limits during which such an objection could be 
filed.
    (c) Enforcing document subpoenas. If a subpoenaed person fails to 
comply with any subpoena issued pursuant to this section or any order 
of the presiding officer that directs compliance with all or any 
portion of a document subpoena, the subpoenaing party or any other 
aggrieved party may, to the extent authorized by applicable law, apply 
to an appropriate United States district court for an order requiring 
compliance with any part of the subpoena that the presiding officer has 
not quashed or modified. A party's right to seek court enforcement of a 
document subpoena shall in no way limit the sanctions that may be 
imposed by the presiding officer on a party who induces a failure to 
comply with subpoenas issued under this section.


Sec. 908.49  Deposition of witness unavailable for hearing.

    (a) General rules. (1) A party desiring to preserve that witness' 
testimony for the record may apply in accordance with the procedures 
set forth in paragraph (a)(2) of this section to the presiding officer 
for the issuance of a subpoena, including a subpoena duces tecum, 
requiring the attendance of the witness at a deposition. The presiding 
officer may issue a deposition subpoena under this section upon a 
showing that--
    (i) The testimony is reasonably expected to be material; and
    (ii) Taking the deposition will not result in any undue burden to 
any other party and will not cause undue delay of the proceeding.
    (2) The application must contain a proposed deposition subpoena and 
a brief statement of the reasons for the issuance of the subpoena. The 
subpoena must name the witness whose deposition is to be taken and 
specify the time and place for taking the deposition. A deposition 
subpoena may require the witness to be deposed anywhere within the 
United States and its possessions and territories in which that witness 
resides or has a regular place of employment or such other convenient 
place as the presiding officer shall fix.
    (3) A subpoena shall be promptly issued upon request, unless the 
presiding officer determines that the request fails to set forth a 
valid basis under this section for its issuance. The presiding officer 
shall make a determination that there is a valid basis for issuing the 
subpoena. The presiding officer may require a written response from the 
party requesting the subpoena or require attendance at a conference to 
determine whether there is a valid basis upon which to issue the 
requested subpoena.
    (4) The party obtaining a deposition subpoena is responsible for 
serving it on the witness and for serving copies on all parties. Unless 
the presiding officer orders otherwise, no deposition under this 
section shall be taken on fewer than ten (10) days' notice to the 
witness and all parties. Deposition subpoenas may be served anywhere 
within the United States or its possessions or territories on any 
person doing business anywhere within the United States or its 
possessions or territories, or as otherwise permitted by law.
    (b) Objections to deposition subpoenas. (1) The witness and any 
party who has not had an opportunity to oppose a deposition subpoena 
issued under this section may file a motion under Sec. 908.45 with the 
presiding officer to quash or modify the subpoena prior to the time for 
compliance specified in the subpoena, but not more than ten (10) days 
after service of the subpoena.
    (2) A statement of the basis for the motion to quash or modify a 
subpoena issued under this section shall accompany the motion. The 
motion must be served on all parties.
    (c) Procedure upon deposition. (1) Each witness testifying pursuant 
to a deposition subpoena shall be duly sworn and each party shall have 
the right to examine the witness. Objections to questions or documents 
must be in short form, stating the grounds for the objection. Failure 
to object to questions or documents is not deemed a waiver except where 
the ground for objection might have been avoided if the objection had 
been presented timely. All questions, answers and objections must be 
recorded.
    (2) Any party may move before the presiding officer for an order 
compelling the witness to answer any questions the witness has refused 
to answer or submit any evidence that, during the deposition, the 
witness has refused to submit.
    (3) The deposition shall be subscribed by the witness, unless the 
parties and the witness, by stipulation, have waived the signing, or 
the witness is ill, cannot be found, or has refused to sign. If the 
deposition is not subscribed by the witness, the court reporter taking 
the deposition shall certify that the transcript is a true and complete 
transcript of the deposition.
    (d) Enforcing subpoenas. If a subpoenaed person fails to comply 
with any subpoena issued pursuant to this section or with any order of 
the presiding officer made upon motion under paragraph (c)(2) of this 
section, the subpoenaing party or other aggrieved party may, to the 
extent authorized by applicable law, apply to an appropriate United 
States district court for an order requiring compliance with the 
portions of the subpoena that the presiding officer has ordered 
enforced. A party's right to seek court enforcement of a deposition 
subpoena in no way limits the sanctions that may be imposed by the 
presiding officer on a party who fails to comply with or induces a 
failure to comply with a subpoena issued under this section.


Sec. 908.50  Interlocutory review.

    (a) General rule. The Board of Directors may review a ruling of the 
presiding officer prior to the certification of the record to the Board 
of Directors only in accordance with the procedures set forth in this 
section.
    (b) Procedure. Any motion for interlocutory review shall be filed 
by a party with the presiding officer within ten (10) days of his 
ruling. Upon the expiration of the time for filing all responses, the 
presiding officer shall refer the matter to the Board of Directors for 
final disposition. In referring the matter to the Board of Directors, 
the presiding officer may indicate

[[Page 9914]]

agreement or disagreement with the asserted grounds for interlocutory 
review of the ruling in question.
    (c) Scope of review. The Board of Directors may exercise 
interlocutory review of a ruling of the presiding officer if it finds 
that--
    (1) The ruling involves a controlling question of law or policy as 
to which substantial grounds exist for a difference of opinion;
    (2) Immediate review of the ruling may materially advance the 
ultimate termination of the proceeding;
    (3) Subsequent modification of the ruling at the conclusion of the 
proceeding would be an inadequate remedy; or
    (4) Subsequent modification of the ruling would cause unusual delay 
or expense.
    (d) Suspension of proceeding. Neither a request for interlocutory 
review nor any disposition of such a request by the Board of Directors 
under this section suspends or stays the proceeding unless otherwise 
ordered by the presiding officer or the Board of Directors.


Sec. 908.51  Summary disposition.

    (a) In general. The presiding officer shall recommend that the 
Board of Directors issue a final order granting a motion for summary 
disposition if the undisputed pleaded facts, admissions, affidavits, 
stipulations, documentary evidence, matters as to which official notice 
may be taken and any other evidentiary materials properly submitted in 
connection with a motion for summary disposition show that--
    (1) There is no genuine issue as to any material fact; and
    (2) The movant is entitled to a decision in its favor as a matter 
of law.
    (b) Filing of motions and responses. (1) Any party who believes 
there is no genuine issue of material fact to be determined and that 
such party is entitled to a decision as a matter of law may move at any 
time for summary disposition in its favor of all or any part of the 
proceeding. Any party, within twenty (20) days after service of such 
motion or within such time period as allowed by the presiding officer, 
may file a response to such motion.
    (2) A motion for summary disposition must be accompanied by a 
statement of material facts as to which the movant contends there is no 
genuine issue. Such motion must be supported by documentary evidence, 
which may take the form of admissions in pleadings, stipulations, 
written interrogatory responses, depositions, investigatory 
depositions, transcripts, affidavits and any other evidentiary 
materials that the movant contends support its position. The motion 
must also be accompanied by a brief containing the points and 
authorities in support of the contention of the movant. Any party 
opposing a motion for summary disposition must file a statement setting 
forth those material facts as to which such party contends a genuine 
dispute exists. Such opposition must be supported by evidence of the 
same type as that submitted with the motion for summary disposition and 
a brief containing the points and authorities in support of the 
contention that summary disposition would be inappropriate.
    (c) Hearing on motion. At the request of any party or on his own 
motion, the presiding officer may hear oral argument on the motion for 
summary disposition.
    (d) Decision on motion. Following receipt of a motion for summary 
disposition and all responses thereto, the presiding officer shall 
determine whether the movant is entitled to summary disposition. If the 
presiding officer finds that the moving party is not entitled to 
summary disposition, the presiding officer shall make a ruling denying 
the motion. If the presiding officer determines that summary 
disposition is warranted, the presiding officer shall submit a 
recommended decision to that effect to the Board of Directors under 
Sec. 908.63.


Sec. 908.52  Partial summary disposition.

    If the presiding officer determines that a party is entitled to 
summary disposition as to certain claims only, he or she shall defer 
submitting a recommended decision to the Board of Directors as to those 
claims. A hearing on the remaining issues must be ordered. Those claims 
for which the presiding officer has determined that summary disposition 
is warranted will be addressed in the recommended decision filed at the 
conclusion of the hearing.


Sec. 908.53  Scheduling and prehearing conferences.

    (a) Scheduling conference. Within thirty (30) days of service of 
the notice or order commencing a proceeding or at such other time as 
the parties may agree, the presiding officer shall direct 
representatives for all parties to meet with him or her in person at a 
specified time and place prior to the hearing or to confer by telephone 
for the purpose of scheduling the course and conduct of the proceeding. 
This meeting or telephone conference is called a ``scheduling 
conference.'' The identification of potential witnesses, the time for 
and manner of discovery and the exchange of any pre-hearing materials 
including witness lists, statements of issues, stipulations, exhibits 
and any other materials may also be determined at the scheduling 
conference.
    (b) Pre-hearing conference. The presiding officer may, in addition 
to the scheduling conference, on his own motion or at the request of 
any party, direct representatives for the parties to meet with him (in 
person or by telephone) at a pre-hearing conference to address any or 
all of the following:
    (1) Simplification and clarification of the issues;
    (2) Stipulations, admissions of fact and the contents, authenticity 
and admissibility into evidence of documents;
    (3) Matters of which official notice may be taken;
    (4) Limitation of the number of witnesses;
    (5) Summary disposition of any or all issues;
    (6) Resolution of discovery issues or disputes;
    (7) Amendments to pleadings; and
    (8) Such other matters as may aid in the orderly disposition of the 
proceeding.
    (c) Transcript. The presiding officer, in his discretion, may 
require that a scheduling or prehearing conference be recorded by a 
court reporter. A transcript of the conference and any materials filed, 
including orders, becomes part of the record of the proceeding. A party 
may obtain a copy of the transcript at such party's expense.
    (d) Scheduling or pre-hearing orders. Within a reasonable time 
following the conclusion of the scheduling conference or any pre-
hearing conference, the presiding officer shall serve on each party an 
order setting forth any agreements reached and any procedural 
determinations.


Sec. 908.54  Pre-hearing submissions.

    (a) Service deadline. Within the time set by the presiding officer, 
but in no case later than 10 (ten) days before the start of the 
hearing, each party shall serve on every other party the serving 
party's:
    (1) Pre-hearing statement;
    (2) Final list of witnesses to be called to testify at the hearing, 
including name and address of each witness and a short summary of the 
expected testimony of each witness;
    (3) List of the exhibits to be introduced at the hearing along with 
a copy of each exhibit; and
    (4) Stipulations of fact, if any.
    (b) Effect of failure to comply. No witness may testify and no 
exhibits may be introduced at the hearing if such

[[Page 9915]]

witness or exhibit is not listed in the pre-hearing submissions 
pursuant to paragraph (a) of this section, except for good cause shown.


Sec. 908.55  Hearing subpoenas.

    (a) Issuance. (1) Upon application of a party showing general 
materiality or relevance and reasonableness of scope of the testimony 
or other evidence sought, the presiding officer may issue a subpoena or 
a subpoena duces tecum requiring the attendance of a witness at the 
hearing or the production of documentary or physical evidence at such 
hearing. The application for a hearing subpoena must also contain a 
proposed subpoena specifying the attendance of a witness or the 
production of evidence from any State, commonwealth, possession, 
territory of the United States, or the District of Columbia, or as 
otherwise provided by law at any designated place where the hearing is 
being conducted. The party making the application shall serve a copy of 
the application and the proposed subpoena on every other party.
    (2) A party may apply for a hearing subpoena at any time before the 
commencement of or during a hearing. During a hearing, a party may make 
an application for a subpoena orally on the record before the presiding 
officer.
    (3) The presiding officer shall promptly issue any hearing subpoena 
applied for under this section; except that, if the presiding officer 
determines that the application does not set forth a valid basis for 
the issuance of the subpoena, or that any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
may refuse to issue the subpoena or may issue the subpoena in a 
modified form upon any conditions consistent with this subpart. Upon 
issuance by the presiding officer, the party making the application 
shall serve the subpoena on the person named in the subpoena and on 
each party.
    (b) Motion to quash or modify. (1) Any person to whom a hearing 
subpoena is directed or any party may file a motion to quash or modify 
such subpoena, accompanied by a statement of the basis for quashing or 
modifying the subpoena. The movant must serve the motion on each party 
and on the person named in the subpoena. Any party may respond to the 
motion within ten days of service of the motion.
    (2) Any motion to quash or modify a hearing subpoena must be filed 
prior to the time specified in the subpoena for compliance, but no more 
than ten days after the date of service of the subpoena upon the 
movant.
    (c) Enforcing subpoenas. If a subpoenaed person fails to comply 
with any subpoena issued pursuant to this section or any order of the 
presiding officer that directs compliance with all or any portion of a 
hearing subpoena, the subpoenaing party or any other aggrieved party 
may seek enforcement of the subpoena pursuant to Sec. 908.8(c). A 
party's right to seek court enforcement of a hearing subpoena shall in 
no way limit the sanctions that may be imposed by the presiding officer 
on a party who fails, or induces a failure, to comply with any subpoena 
issued under this section.


Secs. 908.56-908.59  [Reserved]

Subpart E--Hearing and Post-hearing Proceedings


Sec. 908.60  Conduct of hearings.

    (a) General rules. (1) Hearings. Hearings shall be conducted in 
accordance with chapter 5 of Title 5 of the United States Code (5 
U.S.C. 501-559) and other applicable law, so as to provide a fair and 
expeditious presentation of the relevant disputed issues. Except as 
limited by this subpart, each party has the right to present its case 
or defense by oral and documentary evidence and to conduct such cross-
examination of witnesses as may be required for full disclosure of the 
facts.
    (2) Order of hearing. The Finance Board shall present its case-in-
chief first, unless otherwise ordered by the presiding officer or 
unless otherwise expressly specified by law or regulation. The Finance 
Board shall be the first party to present an opening statement and a 
closing statement and may make a rebuttal statement after the 
respondent's closing statement. If there are multiple respondents, 
respondents may agree among themselves as to their order or 
presentation of their cases, but if they do not agree, the presiding 
officer shall fix the order.
    (3) Examination of witnesses. Only one representative for each 
party may conduct an examination of a witness, except that in the case 
of extensive direct examination, the presiding officer may permit more 
than one representative for the party presenting the witness to conduct 
the examination. A party may have one representative conduct the direct 
examination and another representative conduct re-direct examination of 
a witness, or may have one representative conduct the cross examination 
of a witness and another representative conduct the re-cross 
examination of a witness.
    (4) Stipulations. Unless the presiding officer directs otherwise, 
all documents that the parties have stipulated as admissible shall be 
admitted into evidence upon commencement of the hearing.
    (b) Transcript. The hearing shall be recorded and transcribed. The 
transcript shall be made available to any party upon payment of the 
cost thereof. The presiding officer shall have authority to order the 
record corrected, either upon motion to correct, upon stipulation of 
the parties, or following notice to the parties upon the presiding 
officer's own motion.


Sec. 908.61  Evidence.

    (a) Admissibility. (1) Except as is otherwise set forth in this 
section, relevant, material and reliable evidence that is not unduly 
repetitive is admissible to the fullest extent authorized by the 
Administrative Procedure Act (5 U.S.C. 551-559) and other applicable 
law.
    (2) Evidence that would be admissible under the Federal Rules of 
Evidence (see generally, 28 U.S.C.) is admissible in a proceeding 
conducted pursuant to this subpart.
    (3) The presiding officer may admit evidence, which otherwise would 
be inadmissible under the Federal Rules of Evidence (28 U.S.C.), upon a 
finding made on the record that the evidence is relevant, material, 
probative and reliable, and would not prejudice the rights of or cause 
an undue burden to any party to the proceeding.
    (b) Official notice. (1) Official notice may be taken of any 
material fact that may be judicially noticed by a United States 
district court and any material information in the official public 
records of any Federal or State government agency.
    (2) All matters officially noticed by the presiding officer or the 
Finance Board shall appear on the record.
    (3) If official notice is requested of any material fact, the 
parties, upon timely request, shall be afforded an opportunity to 
object.
    (c) Documents. (1) A duplicate copy of a document is admissible to 
the same extent as the original, unless a genuine issue is raised as to 
whether the copy is in some material respect not a true and legible 
copy of the original.
    (2) Subject to the requirements of paragraph (a)(1) of this 
section, any document, including a report of examination, oversight 
activity, inspection, or visitation, prepared by the Finance Board or 
by another Federal or State financial institution's regulatory agency 
is admissible either with or without a sponsoring witness.

[[Page 9916]]

    (3) Witnesses may use existing or newly created charts, exhibits, 
calendars, calculations, outlines, or other graphic material to 
summarize, illustrate, or simplify the presentation of testimony. Such 
materials may, subject to the presiding officer's discretion, be used 
with or without being admitted into evidence.
    (d) Objections. (1) Objections to the admissibility of evidence 
must be timely made and rulings on all objections must appear in the 
record.
    (2) When an objection to a question or line of questioning is 
sustained, the examining representative of record may make a specific 
proffer on the record of what he expected to prove by the expected 
testimony of the witness. The proffer may be by representation of the 
representative or by direct interrogation of the witness.
    (3) The presiding officer shall retain rejected exhibits, 
adequately marked for identification, for the record and transmit such 
exhibits to the Board of Directors.
    (4) Failure to object to admission of evidence or to any 
evidentiary ruling constitutes a waiver of the objection.
    (e) Stipulations. The parties may stipulate as to any relevant 
matters of fact or the authentication of any relevant documents. Such 
stipulations must be received in evidence at a hearing and are binding 
on the parties with respect to the matters therein stipulated.
    (f) Depositions of unavailable witnesses. (1) If a witness is 
unavailable to testify at a hearing and that witness has testified in a 
deposition in accordance with Sec. 908.49, a party may offer as 
evidence all or any part of the transcript of the deposition, including 
deposition exhibits, if any.
    (2) Such deposition transcript is admissible to the same extent 
that testimony would have been admissible had that person testified at 
the hearing, provided that if a witness refused to answer proper 
questions during the depositions, the presiding officer may, on that 
basis, limit the admissibility of the deposition in any manner that 
justice requires.
    (3) Only those portions of a deposition received in evidence at the 
hearing constitute a part of the record.


Sec. 908.62  Post-hearing filings.

    (a) Proposed findings and conclusions and supporting briefs. (1) 
Using the same method of service for each party, the presiding officer 
shall serve notice upon each party that the certified transcript, 
together with all hearing exhibits and exhibits introduced but not 
admitted into evidence at the hearing, has been filed. Any party may 
file with the presiding officer proposed findings of fact, proposed 
conclusions of law and a proposed order within thirty (30) days after 
the parties have received notice that the transcript has been filed 
with the presiding officer, unless otherwise ordered by the presiding 
officer.
    (2) Proposed findings and conclusions must be supported by citation 
to any relevant authorities and by page references to any relevant 
portions of the record. A post-hearing brief may be filed in support of 
proposed findings and conclusions, either as part of the same document 
or in a separate document.
    (3) Any party is deemed to have waived any issue not raised in 
proposed findings or conclusions timely filed by that party.
    (b) Reply briefs. Reply briefs may be filed within fifteen (15) 
days after the date on which the parties' proposed findings and 
conclusions and proposed order are due. Reply briefs must be limited 
strictly to responding to new matters, issues, or arguments raised in 
another party's papers. A party who has not filed proposed findings of 
fact and conclusions of law or a post-hearing brief shall not file a 
reply brief.
    (c) Simultaneous filing required. The presiding officer shall not 
order the filing by any party of any brief or reply brief supporting 
proposed findings and conclusions in advance of the other party's 
filing of its brief.


Sec. 908.63  Recommended decision and filing of record.

    (a) Filing of recommended decision and record. Within forty-five 
(45) days after expiration of the time allowed for filing reply briefs 
under Sec. 908.62(b), the presiding officer shall file with and certify 
to the Board of Directors, for decision, the record of the proceeding. 
The record must include the presiding officer's recommended decision, 
recommended findings of fact and conclusions of law, and proposed 
order; all pre-hearing and hearing transcripts, exhibits and rulings; 
and the motions, briefs, memoranda and other supporting papers filed in 
connection with the hearing. The presiding officer shall serve upon 
each party the recommended decision, recommended findings and 
conclusions, and proposed order.
    (b) Filing of index. At the same time the presiding officer files 
with and certifies to the Board of Directors, for final determination, 
the record of the proceeding, the presiding officer shall furnish to 
the Board of Directors a certified index of the entire record of the 
proceeding. The certified index shall include, at a minimum, an entry 
for each paper, document or motion filed with the presiding officer in 
the proceeding, the date of the filing, and the identity of the filer. 
The certified index shall also include an exhibit index containing, at 
a minimum, an entry consisting of exhibit number and title or 
description for each exhibit introduced and admitted into evidence at 
the hearing; each exhibit introduced but not admitted into evidence at 
the hearing; each exhibit introduced and admitted into evidence after 
the completion of the hearing; and each exhibit introduced but not 
admitted into evidence after the completion of the hearing.


Sec. 908.64  Exceptions to recommended decision.

    (a) Filing exceptions. Within thirty (30) days after service of the 
recommended decision, recommended findings and conclusions, and 
proposed order under Sec. 908.63, a party may file with the Finance 
Board written exceptions to the presiding officer's recommended 
decision, recommended findings and conclusions, or proposed order; to 
the admission or exclusion of evidence; or to the failure of the 
presiding officer to make a ruling proposed by a party. A supporting 
brief may be filed at the time the exceptions are filed, either as part 
of the same document or in a separate document.
    (b) Effect of failure to file or raise exceptions. (1) Failure of a 
party to file exceptions to those matters specified in paragraph (a) of 
this section within the time prescribed is deemed a waiver of objection 
thereto.
    (2) No exception need be considered by the Board of Directors if 
the party taking exception had an opportunity to raise the same 
objection, issue, or argument before the presiding officer and failed 
to do so.
    (c) Contents. (1) All exceptions and briefs in support of such 
exceptions must be confined to the particular matters in or omissions 
from the presiding officer's recommendations to which that party takes 
exception.
    (2) All exceptions and briefs in support of exceptions must set 
forth page or paragraph references to the specific parts of the 
presiding officer's recommendations to which exception is taken, the 
page or paragraph references to those portions of the record relied 
upon to support each exception and the legal authority relied upon to 
support each exception. Exceptions and briefs in support shall not 
exceed a total of 30 pages, except by leave of the Finance Board on 
motion.
    (3) Each party may submit one reply brief within ten (10) days of 
service of exceptions and briefs in support of

[[Page 9917]]

exceptions. Reply briefs shall not exceed 15 pages, except by leave of 
the Finance Board on motion.


Sec. 908.65  Review by Board of Directors.

    (a) Notice of submission to the Board of Directors. When the Board 
of Directors determines that the record in the proceeding is complete, 
the Finance Board shall serve notice upon the parties that the 
proceeding has been submitted to the Board of Directors for final 
decision and order in accordance with this section.
    (b) Oral argument before the Board of Directors. Upon the 
initiative of the Board of Directors or on the written request of any 
party filed with the Board of Directors within the time for filing 
exceptions under Sec. 908.64, the Board of Directors may order and hear 
oral argument on the recommended findings, conclusions, decision and 
order of the presiding officer. A written request by a party must show 
good cause for oral argument and state reasons why arguments cannot be 
presented adequately in writing. A denial of a request for oral 
argument may be set forth in the Board of Directors' final decision and 
order. Oral argument before the Board of Directors must be transcribed.
    (c) Board of Directors' final decision and order. (1) Decisional 
employees may advise and assist the Board of Directors in the 
consideration and disposition of the case, and in the preparation of 
the final decision and order. The final decision and order of the Board 
of Directors will be based upon review of the entire record of the 
proceeding, except that the Board of Directors may limit the issues to 
be reviewed to those findings and conclusions to which opposing 
arguments or exceptions have been filed by the parties in accordance 
with this part.
    (2) The Board of Directors shall render and issue a final decision 
and order within ninety (90) days after notification of the parties 
that the case has been submitted to the Board of Directors, unless the 
Board of Directors orders that the action or any aspect thereof be 
remanded to the presiding officer for further proceedings in accordance 
with instructions as may be specified by the Board of Directors. Copies 
of the final decision and order of the Board of Directors shall be 
served upon each party to the proceeding and otherwise, as may be 
required by the Board of Directors in accordance with applicable law.


Sec. 908.66  Exhaustion of administrative remedies.

    To exhaust administrative remedies as to any issue on which a party 
disagrees with the presiding officer's recommendations, a party must 
file exceptions with the Board of Directors under Sec. 908.64. A party 
must exhaust administrative remedies as a precondition to seeking 
judicial review of any final decision and order, in whole or in part, 
issued by the Board of Directors under Sec. 908.65.


Sec. 908.67  Stay of final decision and order pending judicial review.

    The commencement of proceedings for judicial review of all or part 
of a final order issued by the Board of Directors in accordance with 
Sec. 908.65, as provided in Sec. 908.10 may not, unless specifically 
ordered by the Board of Directors or a reviewing court, operate as a 
stay of any order issued by the Board of Directors. The Board of 
Directors may, in its discretion and on such terms as it finds just, 
stay the effectiveness of all or any part of an order of the Board of 
Directors pending a final decision on a petition for judicial review of 
that order.


Sec. 908.68-908.69  [Reserved]

Subpart F--Rules of Practice Before the Finance Board


Sec. 908.70  Scope.

    This subpart contains rules governing practice by parties or their 
representatives in any proceeding before the Finance Board. In 
particular, these rules of practice shall apply to any appearances 
before the Board of Directors under this part or part 907 of this 
chapter. This subpart also shall govern the imposition of sanctions by 
the Finance Board or a presiding officer against parties or their 
representatives in a hearing under this part or a proceeding under part 
907 of this chapter. In the sole discretion of the Finance Board, 
Secs. 908.74 and 908.75 may be applied to persons who appear in a 
representational capacity in any hearing under this part or any 
proceeding under part 907 of this chapter, or in any other matter that 
involves contacting the Finance Board as a principal or agent with 
respect to asserting the rights, privileges, or liabilities of an 
individual or entity, including presentations to or communications with 
the Board of Directors or any member of the Board of Directors. This 
representation includes, but is not limited to, the practice of 
attorneys and accountants. Employees of the Finance Board are not 
subject to disciplinary proceedings under this subpart.


Sec. 908.71  Practice before the Finance Board.

    Practice before the Finance Board for the purposes of this subpart, 
includes, but is not limited to, transacting any business with the 
Finance Board as counsel, representative or agent for any other person, 
unless the Finance Board orders otherwise. Practice before the Finance 
Board also includes the preparation of any statement, opinion, or other 
paper by a counsel, representative or agent that is filed with the 
Finance Board in any request, certification, notification, application, 
report, or other document, with the consent of such counsel, 
representative or agent. Practice before the Finance Board does not 
include work prepared for a Bank solely at the request of the Bank for 
use in the ordinary course of its business.


Sec. 908.72  Appearances and practice in proceedings before the Finance 
Board.

    (a) Appearances in proceedings before the Finance Board. (1) By 
attorneys. A party may be represented by an attorney who is a member in 
good standing of the bar of the highest court of any State, 
commonwealth, possession, territory of the United States, or the 
District of Columbia and who is not currently suspended or disbarred 
from practice before the Finance Board.
    (2) By non-attorneys. An individual may appear on his own behalf. A 
member of a partnership may represent the partnership and a duly 
authorized officer, board of director member, employee, or other agent 
of any corporation or other entity not specifically listed herein may 
represent such corporation or other entity; provided that such officer, 
board of director member, employee, or other agent is not currently 
suspended or disbarred from practice before the Finance Board. A duly 
authorized officer or employee of any Government unit, agency, or 
authority may represent that unit, agency, or authority.
    (b) Notice of appearance. Any person appearing in a representative 
capacity on behalf of a party, including the Finance Board, shall 
execute and file a notice of appearance with the presiding officer at 
or before the time such person submits papers or otherwise appears on 
behalf of a party in a hearing under this part. Such notice of 
appearance shall include a written declaration that the individual is 
currently qualified as provided in paragraphs (a)(1) or (a)(2) of this 
section and is authorized to represent the particular party. By filing

[[Page 9918]]

a notice of appearance on behalf of a party in a hearing under this 
part, the representative thereby agrees and represents that he is 
authorized to accept service on behalf of the represented party and 
that, in the event of withdrawal from representation, he or she will, 
if required by the presiding officer, continue to accept service until 
a new representative has filed a notice of appearance or until the 
represented party indicates that he or she will proceed on a pro se 
basis. Unless the representative filing the notice is an attorney, the 
notice of appearance shall also be executed by the person represented 
or, if the person is not an individual, by the chief executive officer, 
or duly authorized officer of that person.


Sec. 908.73  Conflicts of interest.

    (a) Conflict of interest in representation. No representative shall 
represent another person in an adjudicatory proceeding if it reasonably 
appears that such representation may be limited materially by that 
representative's responsibilities to a third person or by that 
representative's own interests. The presiding officer may take 
corrective measures at any stage of a proceeding to cure a conflict of 
interest in representation, including the issuance of an order limiting 
the scope of representation or disqualifying an individual from 
appearing in a representative capacity for the duration of the 
proceeding.
    (b) Certification and waiver. If any person appearing as counsel or 
other representative represents two or more parties in a proceeding 
under this part or also represents a nonparty on a matter relevant to 
an issue in the proceeding, that representative must certify in writing 
at the time of filing the notice of appearance required by Sec. 908.72:
    (1) That the representative has personally and fully discussed the 
possibility of conflicts of interest with each such party and nonparty;
    (2) That each such party and nonparty waives any right it might 
otherwise have had to assert any known conflicts of interest or to 
assert any non-material conflicts of interest during the course of the 
proceeding.


Sec. 908.74  Sanctions.

    (a) General rule. Appropriate sanctions may be imposed during the 
course of any proceeding when any party or representative of record has 
acted or failed to act in a manner required by applicable statute, 
regulation, or order, and that act or failure to act--
    (1) Constitutes contemptuous conduct. Contemptuous conduct includes 
dilatory, obstructionist, egregious, contumacious, unethical, or other 
improper conduct at any phase of any proceeding, hearing, or appearance 
before the Board of Directors;
    (2) Has caused some other party material and substantive injury, 
including, but not limited to, incurring expenses including attorney's 
fees or experiencing prejudicial delay;
    (3) Is a clear and unexcused violation of an applicable statute, 
regulation, or order; or
    (4) Has delayed the proceeding unduly.
    (b) Sanctions. Sanctions that may be imposed include, but are not 
limited to, any one or more of the following:
    (1) Issuing an order against a party;
    (2) Rejecting or striking any testimony or documentary evidence 
offered, or other papers filed, by the party;
    (3) Precluding the party from contesting specific issues or 
findings;
    (4) Precluding the party from offering certain evidence or from 
challenging or contesting certain evidence offered by another party;
    (5) Precluding the party from making a late filing or conditioning 
a late filing on any terms that may be just; or
    (6) Assessing reasonable expenses, including attorney's fees, 
incurred by any other party as a result of the improper action or 
failure to act.
    (c) Procedure for imposition of sanctions. (1) The presiding 
officer, on the motion of any party, or on his own motion, and after 
such notice and responses as may be directed by the presiding officer, 
may impose any sanction authorized by this section. The presiding 
officer shall submit to the Board of Directors for final ruling any 
sanction that would result in a final order that terminates the case on 
the merits or is otherwise dispositive of the case.
    (2) Except as provided in paragraph (d) of this section, no 
sanction authorized by this section, other than refusing to accept late 
papers, shall be imposed without prior notice to all parties and an 
opportunity for any representative or party against whom sanctions 
would be imposed to be heard. The presiding officer shall determine and 
direct the appropriate notice and form for such opportunity to be 
heard. The opportunity to be heard may be limited to an opportunity to 
respond verbally immediately after the act or inaction in question is 
noted by the presiding officer.
    (3) For purposes of interlocutory review, motions for the 
imposition of sanctions by any party and the imposition of sanctions 
shall be treated the same as motions for any other ruling by the 
presiding officer.
    (4) Nothing in this section shall be read to preclude the presiding 
officer or the Finance Board from taking any other action or imposing 
any other restriction or sanction authorized by any applicable statute 
or regulation.
    (d) Sanctions for contemptuous conduct. If, during the course of 
any proceeding, a presiding officer finds any representative or any 
individual representing himself to have engaged in contemptuous 
conduct, the presiding officer may summarily suspend that individual 
from participating in that or any related proceeding or impose any 
other appropriate sanction.


Sec. 908.75  Censure, suspension, disbarment and reinstatement.

    (a) Discretionary censure, suspension and disbarment. (1) The 
Finance Board may censure any individual who practices or attempts to 
practice before it or suspend or revoke the privilege to appear or 
practice before the Finance Board of such individual if, after notice 
of and opportunity for a hearing in the matter, that individual is 
found by the Finance Board--
    (i) Not to possess the requisite qualifications or competence to 
represent others;
    (ii) To be seriously lacking in character or integrity or to have 
engaged in material unethical or improper professional conduct;
    (iii) To have caused unfair and material injury or prejudice to 
another party, such as prejudicial delay or unnecessary expenses 
including attorney's fees;
    (iv) To have engaged in, or aided and abetted, a material and 
knowing violation of the Act or the rules or regulations issued under 
the Act or any other law or regulation governing Bank operations;
    (v) To have engaged in contemptuous conduct before the Finance 
Board;
    (vi) With intent to defraud in any manner, to have willfully and 
knowingly deceived, misled, or threatened any client or prospective 
client; or
    (vii) Within the last ten years, to have been convicted of an 
offense involving moral turpitude, dishonesty or breach of trust, if 
the conviction has not been reversed on appeal. A conviction within the 
meaning of this paragraph shall be deemed to have occurred when the 
convicting court enters its judgment or order, regardless of whether an 
appeal is pending or could be taken and includes a judgment or an order 
on a plea of nolo contendere or on consent, regardless of

[[Page 9919]]

whether a violation is admitted in the consent.
    (2) Suspension or revocation on the grounds set forth in paragraphs 
(a)(1) (ii), (iii), (iv), (v), (vi) and (vii) of this section shall 
only be ordered upon a further finding that the individual's conduct or 
character was sufficiently egregious as to justify suspension or 
revocation. Suspension or disbarment under this paragraph shall 
continue until the applicant has been reinstated by the Finance Board 
for good cause shown or until, in the case of a suspension, the 
suspension period has expired.
    (3) If the final order against the respondent is for censure, the 
individual may be permitted to practice before the Finance Board, but 
such individual's future representations may be subject to conditions 
designed to promote high standards of conduct. If a written letter of 
censure is issued, a copy will be maintained in the Finance Board's 
files.
    (b) Mandatory suspension and disbarment. (1) Any counsel who has 
been and remains suspended or disbarred by a court of the United States 
or of any State, commonwealth, possession, territory of the United 
States or the District of Columbia; any accountant or other licensed 
expert whose license to practice has been revoked in any State, 
commonwealth, possession, territory of the United States or the 
District of Columbia; any person who has been and remains suspended or 
barred from practice before the Department of Housing and Urban 
Development, the Office of the Comptroller of the Currency, the Board 
of Governors of the Federal Reserve System, the Office of Thrift 
Supervision, the Federal Deposit Insurance Corporation, the National 
Credit Union Administration, the Office of Federal Housing Enterprise 
Oversight, the Farm Credit Administration, the Securities and Exchange 
Commission, or the Commodity Futures Trading Commission is also 
suspended automatically from appearing or practicing before the Finance 
Board. A disbarment or suspension within the meaning of this paragraph 
shall be deemed to have occurred when the disbarring or suspending 
agency or tribunal enters its judgment or order, regardless of whether 
an appeal is pending or could be taken and regardless of whether a 
violation is admitted in the consent.
    (2) A suspension or disbarment from practice before the Finance 
Board under paragraph (b)(1) of this section shall continue until the 
person suspended or disbarred is reinstated under paragraph (d)(2) of 
this section.
    (c) Notices to be filed. (1) Any individual appearing or practicing 
before Finance Board who is the subject of an order, judgment, decree, 
or finding of the types set forth in paragraph (b)(1) of this section 
shall file promptly with the Finance Board a copy thereof, together 
with any related opinion or statement of the agency or tribunal 
involved.
    (2) Any individual appearing or practicing before the Finance Board 
who is or within the last ten years has been convicted of a felony or 
of a misdemeanor that resulted in a sentence of prison term or in a 
fine or restitution order totaling more than $5,000 shall file a notice 
promptly with the Finance Board. The notice shall include a copy of the 
order imposing the sentence or fine, together with any related opinion 
or statement of the court involved.
    (d) Reinstatement. (1) Unless otherwise ordered by the Finance 
Board, an application for reinstatement for good cause may be made in 
writing by a person suspended or disbarred under paragraph (a)(1) of 
this section at any time more than three years after the effective date 
of the suspension or disbarment and, thereafter, at any time more than 
one year after the person's most recent application for reinstatement. 
An applicant for reinstatement under this paragraph (d)(1) may, in the 
Finance Board's sole discretion, be afforded a hearing.
    (2) An application for reinstatement for good cause by any person 
suspended or disbarred under paragraph (b)(1) of this section may be 
filed at any time, but not less than one (1) year after the applicant's 
most recent application. An applicant for reinstatement for good cause 
under this paragraph (d)(2) may, in the Finance Board's sole 
discretion, be afforded a hearing. However, if all the grounds for 
suspension or disbarment under paragraph (b)(1) of this section have 
been removed by a reversal of the order of suspension or disbarment or 
by termination of the underlying suspension or disbarment, any person 
suspended or disbarred under paragraph (b)(1) of this section may apply 
immediately for reinstatement and shall be reinstated upon written 
application notifying the Finance Board that the grounds have been 
removed.
    (e) Conferences. (1) The Finance Board may confer with a proposed 
respondent concerning allegations of misconduct or other grounds for 
censure, disbarment or suspension, regardless of whether a proceeding 
for censure, disbarment or suspension has been commenced. If a 
conference results in a stipulation in connection with a proceeding in 
which the individual is the respondent, the stipulation may be entered 
in the record at the request of either party to the proceeding.
    (2) Resignation or voluntary suspension. In order to avoid the 
institution of or a decision in a disbarment or suspension proceeding, 
a person who practices before the Finance Board may consent to censure, 
suspension or disbarment from practice. At the discretion of the 
Finance Board, the individual may be censured, suspended or disbarred 
in accordance with the consent offered.
    (f) Hearings under this section. Hearings conducted under this 
section shall be conducted in substantially the same manner as other 
hearings under this part, provided that in proceedings to terminate an 
existing suspension or disbarment order, the person seeking the 
termination of the order shall bear the burden of going forward with an 
application supported with proof that the suspension should be 
terminated. The Finance Board may, in its sole discretion, direct that 
any proceeding to terminate an existing suspension or disbarment be 
limited to written submissions. All hearings held under this section 
shall be closed to the public unless the Finance Board, on its own 
motion or upon the request of a party, otherwise directs that the 
hearing be open to the public.

    Dated: February 13, 2002.
    By the Federal Housing Finance Board.
John T. Korsmo,
Chairman.
[FR Doc. 02-5094 Filed 3-4-02; 8:45 am]
BILLING CODE 6725-01-P