[Federal Register Volume 67, Number 45 (Thursday, March 7, 2002)]
[Proposed Rules]
[Pages 10339-10340]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-5469]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 985

[No. 2002-06]
RIN 3069-AB15


Office of Finance Board of Directors Meetings

AGENCY: Federal Housing Finance Board.

ACTION: Proposed rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is proposing 
to amend its regulation governing the minimum number of meetings that 
the board of directors of the Office of Finance must hold each year. 
The proposed rule would require at least six in-person meetings per 
year.

DATES: The Finance Board will consider written comments on the proposed 
rule that are received on or before April 8, 2002.

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

FOR FURTHER INFORMATION CONTACT: Patricia L. Sweeney, Office of Policy, 
Research and Analysis, 202/408-2872, [email protected], or 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. Statutory and Regulatory Background

    The Office of Finance (OF) is a joint office of the Federal Home 
Loan Banks (Banks) under section 2B of the Federal Home Loan Bank Act 
(Act). 12 U.S.C. 1422b(b)(2). The principal function of the OF is to 
offer, issue, and service consolidated obligations (COs) on which the 
Banks are jointly and severally liable. See 12 U.S.C. 1431(c). Until 
recently, OF issued debt as agent for the Finance Board, which was the 
statutory issuer of the debt under section 11(c) of the Act. On June 7, 
2000, the Finance Board authorized the Banks to issue COs under section 
11(a) of the Act, 12 U.S.C. 1431(a), and authorized the OF to act as 
the agent of the Banks in issuing and servicing those COs. 65 FR 36290 
(June 7, 2000). That regulatory action also broadened the OF's 
functions, expanded the duties, responsibilities, and powers of the OF 
board of directors (OF board), and set a minimum number of annual board 
meetings, as discussed below. As part of that rulemaking, the Finance 
Board assigned to the OF (as part of its debt issuance function) the 
responsibility for preparing the combined Federal Home Loan Bank System 
(Bank System) annual and quarterly financial reports.\1\ 12 CFR 
985.3(b), 985.6(b). The Finance Board also required the OF to obtain 
annual independent audits, gave OF the exclusive authority to select 
the independent outside auditor for the combined financial statements, 
and mandated that the Banks provide the necessary financial information 
within timeframes set by the Finance Board or the OF. See 12 CFR part 
989.
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    \1\ Previously, the Finance Board was responsible for preparing 
those financial reports. As amended, Sec. 985.6(b) also sets forth 
the standards under which the OF is required to prepare Bank System 
annual and quarterly financial reports. The rule requires that the 
scope, form and content of the disclosures in such financial reports 
be consistent with the requirements of the applicable Securities 
Exchange Commission's (SEC) regulations governing various disclosure 
requirements, and be presented in accordance with the Statement Of 
Financial Accounting Standards No. 131, ``Disclosures about Segments 
of an Enterprise and Related Information'' (FAS 131). The rule also 
requires that OF comply with the filing and distribution schedule 
applicable to corporate registrants under the Securities Exchange 
Act of 1934.
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    Under the existing rules, the OF board is responsible for the 
oversight of every aspect of the operations of the OF and has broad 
powers to carry out its responsibilities. See generally 12 CFR part 
985. In executing these duties, the OF board is subject to many of the 
same regulations that apply to the boards of directors of the Banks. In 
particular, the Finance Board rules require the OF board to conform to 
certain governance standards that apply to the boards of directors of 
the Banks under part 917 of the Finance Board regulations. See 12 CFR 
985.8. One effect of that rule is that certain provisions in part 917 
that apply to the Banks have been made equally applicable to the OF 
board. Specifically, the OF board must adopt bylaws in accordance with 
the requirements of section 917.10, and must establish policies for the 
management and operation of the OF, and approve a strategic business 
plan, in accordance with section 917.5. See 12 CFR 985.8(a)(2), (d)(1), 
(2). The OF board also must review, adopt, and monitor annual operating 
and capital budgets, in accordance with section 917.8 of the Finance 
Board regulations, see 12 CFR 985.8(d)(3), and must establish and 
perform the duties of an audit committee consistent with the 
requirements of Sec. 917.7 and applicable SEC regulations governing 
audit reports. See 12 CFR 985.8(d)(4).
    To discharge these duties the Finance Board constituted the OF 
board with three part-time members, each of whom is appointed by the 
Finance Board. The OF board includes two Bank presidents and one 
private citizen member, the latter of whom serves as the chair. See 12 
CFR 985.8(a). Section 985.8(b) of the Finance Board regulations 
currently requires the OF board to hold no fewer than nine meetings 
annually. When the Finance Board adopted this requirement in June 2000, 
it established a minimum meeting requirement for the OF board, which 
previously had been required to meet quarterly. Although this action 
was independent of the Finance Board's regulatory treatment of the 
Banks, it was consistent with the regulations applicable to the Banks, 
which at that time were required to hold a minimum of nine meetings 
each year.\2\ Since that time, the Finance Board has reduced the 
minimum number of board meeting required of the Banks to no fewer than 
six in-person board meetings annually, which reflects the actual 
operations practices of the Banks. 12 CFR 918.7(a).
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    \2\ See 65 FR 13663, 13664 (March 14, 2000), citing 64 FR 71275 
(December 21, 1999).
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II. Analysis of Proposed Rule

    The OF board has asked the Finance Board to reduce the minimum 
number of meetings for the OF board, noting that ``[t]he OF is a small 
organization whose business activities, while substantial in terms of 
debt issued, are largely routine in nature.'' The OF board also noted 
that its staff is experienced, and its operations are subject to 
periodic review by the examiners of the Finance Board, as well as by 
external auditors, and that the OF board has in place sufficient 
guidelines, policies, and procedures to monitor the day-to-day business 
affairs of the OF. Moreover, the OF board establishes the debt issuance 
parameters and ratifies debt issuance activity at regularly scheduled 
meetings, and the activities of the OF are closely monitored by various 
Bank officials through a variety of formal and ad hoc committees.
    The OF board believes that it can continue to carry out its 
responsibilities while holding fewer meetings, without disruption of 
office functions or board

[[Page 10340]]

oversight, noting that there are sufficient checks and balances in 
place to ensure continued adequate review by the OF board. For example, 
an internal audit function headed by the OF's director of internal 
audit and compliance performs regular reviews of the debt issuance and 
servicing functions, and reports to the OF board on a quarterly basis. 
Additionally, the OF board reviews the OF's budget-to-actual expenses 
quarterly, and OF senior staff regularly reports on all actions taken 
under a delegation of authority. The OF board further notes that 
``[g]iven the stable nature of the OF's operation, the number of 
matters that must be brought for the Board's consideration at a formal 
meeting are limited.'' By regulation, the OF board serves as the audit 
committee, which meets each quarter, usually by telephone, to approve 
the publication of the quarterly and annual financial reports. These 
meetings generally do not coincide with the regular meeting of the 
board of directors.
    The proposed rule would reduce the minimum number of meetings that 
the OF board must hold each year from nine to six in-person meetings. 
The Finance Board believes that reducing the minimum number of meetings 
would not affect the ability of the OF board to monitor the operations 
of the OF, or the ability of the Finance Board to oversee the OF. 
Moreover, the proposed rule would be consistent with earlier actions by 
the Finance Board to reduce to six the minimum number of annual in-
person board meetings required of the Banks. The Finance Board's 
experience with the reduced number of meetings for the Banks suggests 
that the boards of directors have been able to discharge their 
oversight duties notwithstanding the lesser number of meetings.
    In relation to this issue, the Finance Board has conducted a survey 
of large financial intermediaries regarding the number of board 
meetings held each year. The survey included 12 bank holding companies 
(with total assets ranging from $11 billion to $99 billion), 4 thrift 
holding companies (with total assets ranging from $35 billion to $186.5 
billion), and the Fannie Mae and Freddie Mac (with total assets of 
$575.2 billion and $386.7 billion, respectively). The number of board 
meetings held each year by the boards of the bank holding companies 
ranged from 4 to 12 (averaging 7.33); for the thrift institution 
holding companies, the range was 4 to 9, (averaging 7.00) meetings 
annually. Fannie Mae held 8 board meetings in 1999, and Freddie Mac 
held five 5 meetings in that year.\3\ That information tends to confirm 
the view that requiring at least six in-person OF board meetings 
annually would be consistent with the practices at institutions of 
comparable size and with similar responsibilities.
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    \3\ See 66 FR 24263, 24264 (May 14, 2001).
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    The Finance Board believes that setting the minimum number of in-
person board meetings at six per year strikes an appropriate balance 
between the needs of the Finance Board as the safety and soundness 
regulator of the Banks and the desire of the OF board to determine the 
optimal number of meetings to hold each year. The Finance Board further 
expects that notwithstanding the proposed reduction of the minimum 
number of meetings to be held each year, the OF board of directors will 
continue to maintain its level of oversight of the OF and its 
operations.

III. Regulatory Flexibility Act

    The proposed rule would apply only to the OF, which does 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, if promulgated as a final 
rule, will not have significant economic impact on a substantial number 
of small entities under the RFA.

Paperwork Reduction Act

    This proposed rule does not contain any collections of information 
pursuant to the Paperwork Reduction Act of 1995. See 33 U.S.C. 3501 et 
seq. Therefore, the Finance Board has not submitted any information to 
the Office of Management and Budget for review.

List of Subjects in 12 CFR Part 985

    Federal Home Loan Banks.

    Accordingly, the Finance Board hereby proposes to amend part 985, 
title 12, chapter IX, Code of Federal Regulations, as follows:

PART 985--THE OFFICE OF FINANCE

    1. The authority citation for part 985 continues to read as 
follows:

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

    2. Revise Sec. 985.8(b) to read as follows:


Sec. 985.8  General duties of the OF board of directors.

* * * * *
    (b) Meetings and quorum. The OF board of directors shall conduct 
its business by majority vote of its members at meetings convened in 
accordance with its bylaws, and shall hold no fewer than six in-person 
meetings annually. Due notice shall be given to the Finance Board by 
the Chair prior to each meeting. A quorum, for purposes of meetings of 
the OF board of directors, shall be not less than two members.
* * * * *

    Dated: February 13, 2002.

    By the Board of Directors of the Federal Housing Finance Board.
John T. Korsmo,
Chairman.
[FR Doc. 02-5469 Filed 3-6-02; 8:45 am]
BILLING CODE 6725-01-P