[Federal Register Volume 74, Number 18 (Thursday, January 29, 2009)]
[Rules and Regulations]
[Pages 5101-5102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-1517]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
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to and codified in the Code of Federal Regulations, which is published
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Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 /
Rules and Regulations
[[Page 5101]]
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1231
RIN 2590-AA08
Golden Parachute Payments
AGENCY: Federal Housing Finance Agency.
ACTION: Final rule.
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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing a final
regulation that sets forth factors to be considered by the Director of
FHFA in acting upon the Director's authority to limit golden parachute
payments to entity-affiliated parties in connection with the Federal
National Mortgage Association, the Federal Home Loan Mortgage
Corporation, and the Federal Home Loan Banks.
DATES: Effective Date: January 29, 2009.
FOR FURTHER INFORMATION CONTACT: Alfred M. Pollard, General Counsel,
(202) 414-3788 (not a toll-free number), Federal Housing Finance
Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The
telephone number for the Telecommunications Device for the Deaf is
(800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
General Background
The Housing and Economic Recovery Act of 2008 (HERA), Public Law
110-289, 122 Stat. 2654, amended the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.)
(Act) to establish FHFA as an independent agency of the Federal
Government.\1\ FHFA was established to oversee the prudential
operations of the Federal National Mortgage Association, the Federal
Home Loan Mortgage Corporation (collectively, Enterprises), and the
Federal Home Loan Banks (Banks) (collectively, regulated entities) and
to ensure that they operate in a safe and sound manner including being
capitalized adequately; foster liquid, efficient, competitive and
resilient national housing finance markets; comply with the Act and
rules, regulation, guidelines and orders issued under the Act, and the
respective authorizing statutes of the regulated entities; and carry
out their missions through activities authorized and consistent with
the Act and their authorizing statutes; and, that the activities and
operations of the regulated entities are consistent with the public
interest.
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\1\ See Division A, titled the ``Federal Housing Finance
Regulatory Reform Act of 2008,'' Title I, Section 1101 of HERA.
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The Office of Federal Housing Enterprise Oversight (OFHEO) and the
Federal Housing Finance Board (FHFB) will be abolished one year after
enactment of the HERA. However, the regulated entities continue to
operate under regulations promulgated by OFHEO and FHFB until such
regulations are superseded by regulations promulgated by the FHFA.
Background on Golden Parachute Payments
Section 1114 of HERA amended 12 U.S.C. 4518 to provide additional
authorities for FHFA in addressing certain compensation and benefits,
specifically golden parachute payments and indemnification payments.
HERA added a new paragraph (e) to section 4518 addressing regulation
and prohibition of these benefits. While paragraphs (e)(1) and (e)(3)-
(6) are self executing, Congress provided that for paragraph (e)(2)
addressing factors to be taken into account when acting regarding
golden parachutes and indemnification, FHFA prescribe, by regulation,
factors to be considered. The factors set forth in paragraph (e)(2) are
explicit and provide guidance to the Director in taking an action under
the statute.
FHFA published an Interim Final Rule that was effective on
September 16, 2008, the date of publication in the Federal Register.
The rule, which was corrected on September 19 and September 23, 2008,
addresses only golden parachute payments.\2\ During the public notice
and comment period, which closed on October 31, 2008, FHFA requested
comment on paragraph (2) of section 4518(e), i.e., factors to be taken
into account by FHFA when acting regarding golden parachutes. The
Interim Final Rule also provided that FHFA would consider other
comments on other aspects of the regulation for future revision, if
necessary or appropriate.
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\2\ 73 FR 53356 (September 16, 2008), with Correcting Amendments
at 73 FR 54309 (September 19, 2008) and at 73 FR 54673 (September
23, 2008), to be codified at 12 CFR 1231. The portion of the Interim
Final Rule published on September 16, 2008, which relates to
indemnification payments, is being promulgated by separate
rulemaking that is subject to public comment. See Proposed Amendment
for Golden Parachute and Indemnification Payments, 73 FR 67424
(November 14, 2008).
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II. Comment on the Interim Final Rule
General Comment
FHFA received comments from individuals in the general public, nine
Federal Home Loan Banks, and Fannie Mae. In general, the public
commented that severance should not be paid to departing executives of
the Enterprises, particularly the Chief Executive Officers. The
consensus among these individuals was that any such payment would be
excessive, irresponsible, and grossly unfair to taxpayers.
The Banks commented that they shared widespread public concern over
excessive golden parachute payments paid by failed or failing
companies. The Banks noted that fulfillment of their housing and
liquidity mission, consistent with safe and sound operation, demands a
high caliber workforce, and that reasonable and customary separation
benefits are an important and appropriate component of the Banks'
retention, hiring, and workforce management efforts. To that end, the
Banks requested that FHFA consider standards set forth in the Federal
Deposit Insurance Corporation (FDIC) regulations on golden parachute
payments, which were promulgated pursuant to the Federal Deposit
Insurance Act (FDI Act), for guidance as FHFA considers changes to the
Interim Final Rule.\3\ The Banks requested consideration of the FDIC
regulations, as the legislative provisions on which they
[[Page 5102]]
are based are similar to the HERA and represent industry practice. For
these reasons, many of the Banks' comments suggest specific aspects of
the FDIC regulations that the Banks believe should be incorporated into
the Final Rule.
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\3\ See 61 FR 5926 (February 15, 1996) and 12 CFR part 359.
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Similarly, Fannie Mae suggested that FHFA revise the Interim Final
Rule to more closely follow the FDIC regulations, and also the Farm
Credit System Insurance Corporation (FCSIC) regulations, which adopted
the FDIC's approach.\4\ Fannie Mae commented that the FDIC and FCSIC
regulations implement legislation similar to the HERA so conformance
with regulations would foster uniformity in regulation, public
perception of fairness, and competition on a level regulatory playing
field for executive talent. Fannie Mae also stated such conformance
would reduce administrative burden because of existing guidance and
precedent.
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\4\ 12 CFR part 1412.
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FHFA gave careful consideration to the comments of the Banks and
Fannie Mae requesting conformance of the provisions of the Interim
Final Rule with the provisions of FDIC and FCSIC regulations relating
to golden parachutes. In publishing the Interim Final Rule, FHFA
primarily sought comment on factors the Director would consider in
acting on golden parachute payments. The comments received to the
Interim Final Rule address other elements of a golden parachute
regulation. For this reason, FHFA has determined that it will consider
adding provisions similar to those of the FDIC golden parachute
regulation in a subsequent rulemaking. The FDIC regulation describes
more specifically benefits included or excluded from the term ``golden
parachute payment.'' It should be noted that, consistent with the FDIC
regulation, benefits provided under qualified and nonqualified deferred
compensation plans are excluded from the term ``golden parachute
payment'' under the Interim Final Rule and under this final regulation.
Specific Comment
For purposes of this regulation, FHFA considered a comment by
Fannie Mae that addressed one of the factors to be taken into account
by the Director when acting regarding golden parachutes, i.e.,
paragraph (f) of Sec. 1231.5. The paragraph provides that in
determining whether to prohibit or limit any golden parachute payment,
among the factors, the Director shall consider--
(f) Any other factor the Director determines relevant to the
facts and circumstances surrounding the golden parachute payment,
including but not limited to negligence, gross negligence, neglect,
willful misconduct, breach of fiduciary duty, and malfeasance on the
part of an entity-affiliated party.
Fannie Mae requested that paragraph (f) of Sec. 1231.5 be amended
to mirror the ``catchall'' factor adopted by the FDIC and the FCSIC in
their regulations, whereby the Director would consider: ``Any other
factors or circumstances which would indicate that the proposed payment
would be contrary to the intent of section 1318(e) of the Act or this
part.'' In commenting on the requested amendment, Fannie Mae stated
that there are substantial benefits to regulatory uniformity in terms
of predictability and fairness, and there is no apparent difference in
congressional intent or in the policy implications of golden parachute
restrictions that would call for a different standard in the present
context. By mirroring the ``catchall'' factor adopted by the FDIC and
the FCSIC, Fannie Mae claimed focus would be on the intent of the
statute, and would permit the Director to consider all appropriate
factors in determining whether to deny or limit proposed golden
parachute payments.
After consideration of Fannie Mae's comment, FHFA determined to
amend paragraph (f) of Sec. 1231.5 to follow more closely the
statutory language in section 1318 of the Act that the Director may
consider in the oversight of compensation of an executive officer. To
that end, as relevant facts and circumstances for the Director to
consider with respect to golden parachute payments, FHFA has deleted
the following language: ``but not limited to negligence, gross
negligence, neglect'' and has substituted in lieu thereof the following
language: ``any fraudulent act or omission, breach of fiduciary duty,
violation of law, rule, regulation, order, or written agreement, and
the level of''.
Regulatory Impacts
Paperwork Reduction Act
The Final Rule does not contain any information collection
requirement that requires the approval of OMB under the Paperwork
Reduction Act (44 U.S.C. 3501 et seq.).
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, small businesses, or small organizations must
include an initial regulatory flexibility analysis describing the
regulation's impact on small entities. Such an analysis need not be
undertaken if the agency has certified that the regulation will not
have a significant economic impact on a substantial number of small
entities. 5 U.S.C. 605(b). FHFA has considered the impact of the Final
Rule under the Regulatory Flexibility Act. FHFA certifies that the
Final Rule is not likely to have a significant economic impact on a
substantial number of small business entities because the regulation is
applicable only to the regulated entities which are not small entities
for the purposes of the Regulatory Flexibility Act.
List of Subjects in 12 CFR Part 1231
Golden Parachutes, Government-Sponsored Enterprises.
Accordingly, the Interim Final Rule at part 1231 of Title 12 CFR
Chapter XII, published at 73 FR 53356 on September 16, 2008, and
corrected at 73 FR 54309 on September 19, 2008, and at 73 FR 54673 on
September 23, 2008, is adopted as a final rule with the following
changes:
Subchapter B--Entity Regulations
0
1. The heading for subchapter B of Chapter XII is revised to read as
set forth above.
0
2. The title of part 1231 is revised to read as set forth below.
PART 1231--GOLDEN PARACHUTE PAYMENTS
0
3. The authority citation for part 1231 continues to read as follows:
Authority: 12 U.S.C. 4518(e).
0
4. Amend Sec. 1231.5 by revising paragraph (f) to read as follows:
Sec. 1231.5 Factors to be taken into account.
* * * * *
(f) Any other factor the Director determines relevant to the facts
and circumstances surrounding the golden parachute payment, including
any fraudulent act or omission, breach of fiduciary duty, violation of
law, rule, regulation, order, or written agreement, and the level of
willful misconduct, breach of fiduciary duty, and malfeasance on the
part of an entity-affiliated party.
Dated: January 15, 2009.
James B. Lockhart III,
Director, Federal Housing Finance Agency.
[FR Doc. E9-1517 Filed 1-28-09; 8:45 am]
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