[Federal Register Volume 68, Number 53 (Wednesday, March 19, 2003)]
[Proposed Rules]
[Pages 13238-13239]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6595]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 68, No. 53 / Wednesday, March 19, 2003 / 
Proposed Rules  

[[Page 13238]]



FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 915

[No. 2003-06]
RIN 3069-AB25


Federal Home Loan Bank Appointed Directors

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 rules to provide that at least one of the appointed 
directors serving on the board of directors of each Federal Home Loan 
Bank (Bank) has a background or experience that reasonably demonstrates 
that the director would have a strong understanding of the risks 
arising from the activities of a particular Bank. The proposed rule is 
intended to enhance the corporate governance practices of the Banks.

DATES: The Finance Board will consider written comments on the proposed 
rulemaking that are received on or before June 17, 2003.

ADDRESSES: Send comments by electronic mail to [email protected], by 
facsimile to 202/408-2580, or by regular mail to the Federal Housing 
Finance Board, 1777 F Street, NW., Washington, DC 20006, ATTN: Public 
Comments. Comments will be available for public inspection at this 
address.

FOR FURTHER INFORMATION CONTACT: Neil R. Crowley, Deputy General 
Counsel, 202/408-2990, [email protected]; or Thomas E. Joseph, Senior 
Attorney-Advisor, 202/408-2512, [email protected], Office of General 
Counsel; or Patricia L. Sweeney, Program Analyst, Community Investment 
and Affordable Housing Division, Office of Supervision, 202/408-2872, 
[email protected], Federal Housing Finance Board, 1777 F Street, NW., 
Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Background on Proposed Rule Amendment

    The Finance Board long has believed that an active and informed 
board of directors is one of the cornerstones of safe and sound Bank 
operations. See, e.g., 65 FR 25267 (May 1, 2002) (adopting revisions to 
part 917 of the Finance Board regulations). To this end, the Finance 
Board previously has adopted rules that are intended in part to 
describe the responsibilities of a Bank's board of directors and create 
standards against which a board's fulfillment of these duties may be 
judged. Id. Over the last few years, the Finance Board also has adopted 
rules that provide the Banks with authority to engage in a wider range 
of asset activities than had been the case in the past, and, as 
required by the Gramm-Leach-Bliley Act (GLB Act), Public Law 106-102, 
133 Stat. 1338 (Nov. 12, 1999), to have more discretion in designing 
their capital structures. See 65 FR 43969 (July 17, 2000) (revising the 
Bank's investment authority) and 66 FR 8262 (Jan. 20, 2001) (adopting 
final capital rule). While these changes provide the Banks with greater 
flexibility to address members' needs and to fulfill their housing 
finance mission, they also mean that the Banks may need to manage new 
risks as their activities evolve. To help assure that a Bank's board of 
directors continues to possess the required aggregate skills needed to 
provide strong oversight in light of changing Bank activities, the 
Finance Board is proposing to appoint at least one director at each 
Bank who will have the background to address the risks that arise from 
a Bank's activities.

II. Explanation of the Proposed Rule Amendment

    Section 7(a) of the Federal Home Loan Bank Act (Bank Act), 12 
U.S.C. 1427(a), provides the Finance Board with broad discretion to 
appoint a requisite number of directors to the board of directors of 
each Bank, although such directors must meet certain minimum statutory 
requirements. For example, appointed directors must be citizens of the 
United States, must be a resident of the district of the Bank on whose 
board the director serves, and at least two of the appointed directors 
on each Bank's board must be representatives chosen from organizations 
with more than a two-year history representing consumer or community 
interests on banking services, credit needs, housing, or financial 
consumer protections. See id. Appointed directors also must be 
independent of the Bank and its members, and thus are prohibited from 
having certain financial interests in either entity. Id. Consistent 
with this statutory authority, the Finance Board rules provide that the 
Finance Board shall in its sole discretion select the appointed 
directors for each Bank in accordance with the Bank Act. 12 CFR 
915.10(a).
    Given the broad discretion afforded the Finance Board by section 
7(a) of the Bank Act, the Finance Board also has authority to establish 
eligibility standards in addition to the minimum requirements set forth 
in the Bank Act that must be met by potential appointed directors 
before it will appoint such persons. See 12 U.S.C. 1422b(a)(1) 
(authority to promulgate regulations and orders necessary to carry out 
purposes of the Act). Based on this authority, the Finance Board is 
proposing to amend Sec.  915.10(a) to provide for the appointment to 
the board of directors of each Bank at least one director who can 
demonstrate an understanding of the risks faced by a particular Bank 
because of its investment and financing activities. Having at least one 
appointed director who has this expertise should help improve a board 
of directors' oversight and management of its Bank.
    The proposed rule does not require the Finance Board to appoint a 
person with the required expertise to a specific Bank's board of 
directors each year, but provides that there will be at all times, an 
appointed director serving on the board of a Bank with the required 
understanding. Thus, if there is an existing appointed director on a 
Bank's board who, in the Finance Board's opinion, reasonably 
demonstrates the skills required under the proposed rule, and who will 
continue to serve on the board for the coming year, another person with 
these skills would not need to be identified and appointed to that 
Bank's board.
    To fulfill the criteria of the proposed rule, a person would be 
expected to bring knowledge and perspective to a Bank's board that 
would strengthen the board's ability to analyze and manage the risks 
faced by the Banks, including interest rate risk, market risk, and the 
risks arising from options associated

[[Page 13239]]

with a particular Bank's financing and investment activities. In 
particular, the Finance Board would expect the candidate who meets the 
requirements of the proposed rule to demonstrate a strong understanding 
of the risks faced by the Banks in supplying financing to members in 
fulfillment of the Banks' housing finance mission. The Finance Board 
also expects to apply any rule flexibly, taking account of the 
expertise of a Bank's existing directors, the activities and risk 
profile of the particular Bank, the pool of available candidates and 
other similar factors in identifying a qualified appointed director so 
that the level of skills and experience that could qualify a person for 
an appointed directorship under the proposed criteria could vary 
somewhat from Bank to Bank.
    Generally, the Finance Board believes that a potential appointed 
director could be considered to have the required skills if, based on 
work experience, publications or other relevant information, the 
Finance Board reasonably believed that an individual would have a 
strong understanding of the market, interest rate and other risks faced 
by a particular Bank. The Finance Board also believes that the proposed 
rule should not limit narrowly the professional pool from which a 
qualified appointed director could be chosen but that the pool of 
potential candidates should encompass a wide variety of professions 
including academia, the legal profession and government service. The 
Finance Board specifically requests comment on the criteria discussed 
above.
    The Finance Board expects this new requirement to be mandatory and 
to apply to public interest director appointments for each of the 12 
Banks for the terms beginning on January 1, 2004. The Finance Board 
requests comments on whether one such director at each Bank is 
sufficient, or whether the requirement should be expanded to two or 
more directors with the requisite expertise who would serve terms that 
are not co-terminus. In addition, the Finance Board is interested in 
receiving comments on whether the rule should specify other specific 
areas of expertise, in addition to the ones specified in this proposal, 
that should apply to the appointment of public interest directors.
    The Finance Board also is proposing to delete from Sec.  915.10(b) 
language that was needed to implement the ``staggering'' required by 
the GLB Act for replacement of a Bank's directors. See 65 FR 41560 
(July 6, 2000). Because the language, by its terms, only applies to 
Finance Board appointments made in 2001 and 2002 and is, therefore, no 
longer applicable, the Finance Board proposes to delete the second 
sentence of Sec.  915.10(b). The Finance Board also proposes to delete 
Appendix A to part 915, which includes matrices relating to the 
directorships of the Banks that were created in conjunction with the 
earlier elections and appointments. As part of its annual designation 
of elective directorships in the past two years, the Finance Board has 
included updated versions of the matrices to reflect the revised board 
structure for each Bank for that year, and expects to continue to do so 
in the future. Because the matrices in Appendix A relate to prior 
years, and have been superseded by more current versions, it no longer 
is necessary to include them in the regulations.

III. Regulatory Flexibility Act

    The final rule would apply only to the Finance Board and 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, if promulgated 
as a final rule, will not have a significant economic effect on a 
substantial number of small entities.

IV. Paperwork Reduction Act

    The Finance Board does not propose to amend current forms that 
potential appointed directors must complete. Thus, the 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. 
Accordingly, the Finance Board has not submitted any information to the 
Office of Management and Budget for review.

Lists of Subjects in 12 CFR Part 915

    Banks, Banking, Conflict of interests, Elections, Ethical conduct, 
Federal home loan banks, Financial Disclosure, Reporting and 
recordkeeping requirements.

    For the reasons stated in the preamble, the Finance Board proposes 
to amend title 12 CFR part 915 as follows:

PART 915--BANK DIRECTOR ELIGIBILITY, APPOINTMENT AND ELECTIONS

    1. The authority citation for part 915 continues to read as 
follows:

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1427, 1432.

    2. Revise Sec.  915.10 by adding a new sentence to the end of 
paragraph (a) and by deleting the second sentence of paragraph (b) to 
read as follows:


Sec.  915.10  Selection of appointed directors.

    (a) * * * In making its selections, the Finance Board will provide 
that at least one appointed director serving on the board of directors 
of each Bank for the coming year, either appointed in past selections 
or appointed in current selections, has a background or experience that 
reasonably demonstrates that the director possesses a strong 
understanding of the risks, including the interest rate risk, market 
risk and options risk, arising from a Bank's activities.
* * * * *

Appendix A to Part 915--[Removed]

    3. Appendix A to part 915 is removed.

    Dated: March 12, 2003.

    By the Board of Directors of the Federal Housing Finance Board.
John T. Korsmo,
Chairman.
[FR Doc. 03-6595 Filed 3-18-03; 8:45 am]
BILLING CODE 6725-01-P