[Federal Register Volume 67, Number 74 (Wednesday, April 17, 2002)]
[Rules and Regulations]
[Pages 18806-18807]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-9328]



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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 985

[No. 2002-16]
RIN 3069-AB15


Office of Finance Board of Directors Meetings

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is adopting 
as final, without change, the proposed rule to amend its regulation 
governing the minimum number of meetings that the Office of Finance 
board of directors must hold each year. The final rule requires the 
Office of Finance board of directors to hold at least six in-person 
meetings per year.

DATES: This final rule shall become effective on May 17, 2002.

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

    On March 7, 2002, the Finance Board published a proposed rule to 
amend the Finance Board regulation that currently requires the Office 
of Finance (OF) board of directors (OF board) to meet no fewer than 
nine times per year, which was published on June 7, 2000 in connection 
with a regulatory action that broadened the duties of the OF. See 
generally 12 CFR Parts 966, 985 and 989. 65 FR 36290 (June 7, 2000).\1\ 
Under these regulations, 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. 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.\2\ 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, who also serves as the 
chair. See 12 CFR 985.8(a).
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    \1\ The principal function of the OF, which 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)), is to offer, 
issue, and service consolidated obligations on which the Banks are 
jointly and severally liable (COs). The regulatory action authorized 
the OF to act as agent of the Banks in issuing COs under section 
11(a) of the Act, in addition to its authority to issue COs on 
behalf of the Finance Board under section 11(c) of the Act. See 12 
U.S.C. 1431 (a) and (c). The rule change expanded the OF's 
responsibility for preparing the combined Federal Home Loan Bank 
System (Bank System) annual and quarterly financial reports, as part 
of its debt issuance functions. See 12 CFR 985.3(b), 985.6(b).
    \2\ In particular, certain governance standards that apply to 
the boards of directors of the Banks under part 917 of the Finance 
Board regulations are made applicable to the OF board. See 12 CFR 
985.8. Specifically, the OF board must adopt bylaws in accordance 
with the requirements of 917.10, and must establish policies for the 
management and operation of the OF, and approve a strategic business 
plan, in accordance with Sec. 917.5 of the Finance Board 
regulations. 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 Sec. 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 of the Finance Board regulations and applicable SEC 
regulations governing audit reports. See 12 CFR 985.8(d)(4).
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    Section 985.8(b) of the Finance Board regulations requires the OF 
board to hold no fewer than nine meetings annually.\3\ When adopted, 
this requirement was consistent with the regulation that required the 
Banks' boards of directors to hold a minimum of nine meetings each 
year.\4\ Since that time, the Finance Board has reduced the minimum 
number of board meetings required of the Banks to no fewer than six in-
person board meetings annually, to reflect the actual operations of the 
Banks. 12 CFR 918.7(a).\5\
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    \3\ Prior to the adoption of this requirement in June 2000, the 
OF board was required to meet quarterly.
    \4\ See 65 FR 13663, 13664 (March 14, 2000), citing 64 FR 71275 
(December 21, 1999).
    \5\ See 12 CFR 918.7 (66 FR 54916 (October 31, 2001)).
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    The OF board has asked the Finance Board to reduce the minimum 
number of meetings for the OF board to six in-person meetings annually. 
As discussed in the SUPPLEMENTARY INFORMATION section of the proposed 
rule, this request is based on arguments made by the OF board that it 
would be able to conduct its business more efficiently and effectively 
by holding no fewer than six meetings annually. The OF board noted that 
the debt issuance operations ``while substantial in terms of debt 
issued, are largely routine in nature,'' and are subject to periodic 
review by the examiners of the Finance Board, as well as by external 
auditors. Debt issuance follows established parameters, and the OF 
board ratifies debt issuance activity at regularly scheduled meetings. 
Consistent with applicable regulations, the OF board has in place the 
requisite guidelines, policies, and procedures to monitor the OF's day-
to-day operations. Moreover, the activities of the OF are closely 
monitored by various Bank officials through a variety of formal and ad 
hoc committees. Finally, the OF board noted that it has in place 
sufficient checks and balances in place to ensure continued adequate 
review of the OF's operations, including an internal audit function 
that performs regular compliance reviews of the debt issuance and 
servicing functions and reports quarterly to the OF board. 
Additionally, by regulation, the OF board acting as the audit committee 
holds quarterly meetings, usually by telephone, to approve the 
publication of the quarterly and annual financial reports.

II. Analysis of Final Rule

    The final rule adopts the proposed rule without change. The final 
rule reduces the minimum number of meetings that the OF board must hold 
each year from nine to six in-person meetings. The Finance Board 
received no comments on the proposed rule. 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. The rule, which sets a 
minimum number of meetings, establishes a floor rather than a ceiling 
on the number of meetings the OF board may hold. The OF board may hold 
more meetings than the minimum number required, in order to carry out 
its duties and properly oversee the OF's operations. The Finance 
Board's experience with the reduced number of meetings for the Banks 
suggests that the boards of directors have been able to fully discharge 
their oversight duties under this revised framework.\6\
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    \6\ As stated in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, the Finance Board determined from an informal survey 
of governance practices of large financial institutions, including 
bank holding companies, thrift holding companies, and Fannie Mae and 
Freddie Mac, with asset sizes that ranged from $11 billion to $575.2 
billion, the number of board meetings held each year varied from as 
few as four to no more than twelve, averaging approximately seven 
meetings. Moreover, asset size did not necessarily correlate to 
meeting frequency. For example, Freddie Mac (the largest asset size 
institution in the survey) held just five meetings in 1999.
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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 obligation incumbent on the OF board to 
determine the number

[[Page 18807]]

of meetings to hold each year to carry out its oversight 
responsibilities. The Finance Board further expects that 
notwithstanding the proposed reduction of the minimum number of 
meetings to be held each year, the OF board will continue to maintain 
its level of oversight of the OF and its operations, and observe all 
appropriate safety and soundness guidelines.

III. Regulatory Flexibility Act

    The final 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 rule, when it becomes final, will not have 
significant economic impact on a substantial number of small entities 
under the RFA.

Paperwork Reduction Act

    This final 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 amends 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: April 10, 2002.

    By the Board of Directors of the Federal Housing Finance Board.
John T. Korsmo,
Chairman.
[FR Doc. 02-9328 Filed 4-16-02; 8:45 am]
BILLING CODE 6725-01-P