[Federal Register Volume 74, Number 123 (Monday, June 29, 2009)]
[Proposed Rules]
[Pages 30975-30981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-15329]


 ========================================================================
 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. 74, No. 123 / Monday, June 29, 2009 / 
Proposed Rules  

[[Page 30975]]



FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1231

RIN 2590-AA08


Golden Parachute and Indemnification Payments

AGENCY: Federal Housing Finance Agency.

ACTION: Proposed rule.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is proposing an 
amendment to the final Golden Parachute Payments regulation that was 
published in the Federal Register on January 29, 2009. This proposed 
amendment addresses prohibited and permissible 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 (regulated entities) as 
well as the Office of Finance. It also sets forth prohibited and 
permissible indemnification payments that regulated entities and the 
Office of Finance may make to an entity-affiliated party in connection 
with administrative proceedings or civil actions instituted by FHFA.

DATES: Written comments on the proposed amendment must be received on 
or before July 29, 2009. For additional information, see SUPPLEMENTARY 
INFORMATION.

ADDRESSES: You may submit your comments on the proposed amendment, 
identified by regulatory information number ``RIN 2590-AA08,'' by any 
of the following methods:
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel, Attention: Comments/RIN 2590-AA08, Federal 
Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, 
DC 20552.
     Hand Delivered/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA08, 
Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., 
Washington, DC 20552. The package should be logged at the Guard Desk, 
First Floor, on business days between 9 a.m. and 5 p.m.
     E-mail: Comments to Alfred M. Pollard, General Counsel, 
may be sent by e-mail at [email protected]. Please include ``RIN 
2590-AA08'' in the subject line of the message.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comment to the Federal eRulemaking Portal, please also send it by e-
mail to FHFA at [email protected] to ensure timely receipt by the 
agency. Please include ``RIN 2590-AA08'' in the subject line of the 
message.

FOR FURTHER INFORMATION CONTACT: Alfred M. Pollard, General Counsel, 
(202) 414-3788 (not a toll free number). The telephone number for the 
Telecommunications Device for the Deaf is (800) 877-8339.

SUPPLEMENTARY INFORMATION: 

I. Comments

    FHFA invites comments on all aspects of the proposed amendment and 
will take all comments into consideration before issuing the final 
regulation. FHFA previously requested comments on a proposed amendment, 
addressing indemnification payments, to the Golden Parachute Payments 
regulation that was published on November 14, 2008 (73 FR 67424). 
Comments received in response to the November 14, 2008 publication will 
be considered along with comments received in response to this 
amendment.
    Copies of all comments will be posted without change, including any 
personal information you provide, such as your name and address, on the 
FHFA Internet Web site at http://www.fhfa.gov. In addition, copies of 
all comments received will be available for examination by the public 
on business days between the hours of 10 a.m. and 3 p.m., at the 
Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., 
Washington, DC 20552. To make an appointment to inspect comments, 
please call the Office of General Counsel at (202) 414-3751.

II. Background

A. 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.) 
(Safety and Soundness 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 (FHLBanks) (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 Safety and Soundness Act and rules, regulation, guidelines, and 
orders issued under the Safety and Soundness Act, and their respective 
authorizing statutes; and carry out their missions through activities 
authorized and consistent with the Safety and Soundness Act and their 
authorizing statutes; and, that the activities and operations of the 
regulated entities are consistent with the public interest. FHFA also 
has regulatory authority over the Office of Finance of the Federal Home 
Loan Bank System.
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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 HERA. However, the regulated entities continue to operate 
under regulations promulgated by OFHEO and FHFB until such regulations 
are superseded by regulations promulgated by FHFA.

B. Rulemaking Background

    Section 1114 of HERA amended section 1318(e) of the Safety and 
Soundness Act (12 U.S.C. 4518(e)) to provide explicit authorities to 
FHFA in addressing golden parachute payments and indemnification 
payments. FHFA published the interim final regulation on Golden 
Parachute and Indemnification Payments in the

[[Page 30976]]

Federal Register on September 16, 2008 (73 FR 53356). Subsequently, it 
published corrections rescinding that portion of the regulation that 
addressed indemnification payments on September 19, 2008 (73 FR 54309) 
and on September 23, 2008 (73 FR 54673). On November 14, 2008 (73 FR 
67424), FHFA published a proposed amendment to the interim final 
regulation in the Federal Register, which addressed indemnification 
payments. The public notice and comment period closed on December 29, 
2008. On January 29, 2009 (74 FR 5101), FHFA published the final 
regulation on Golden Parachute Payments.
    FHFA is proposing an amendment to the final Golden Parachute 
Payments regulation that would address in more detail prohibited and 
permissible golden parachute payments. FHFA believes it is useful to 
provide an opportunity to the public to read and comment on both the 
proposed golden parachute payments and indemnification payments 
amendments in context. Therefore, this proposed amendment also contains 
a re-proposal of the indemnification payments amendment that was first 
proposed on November 14, 2008.

III. Office of Finance

    Section 1114 of HERA amended section 1318(e) of the Safety and 
Soundness Act (12 U.S.C. 4518(e)) by providing FHFA with additional 
authorities in addressing golden parachute and indemnification payments 
made by the regulated entities. The Office of Finance is a joint office 
of the FHLBanks that was established by a predecessor to FHFA. The 
Office of Finance is governed by a three-person board of directors 
consisting of two FHLBank presidents and one independent member. Under 
the regulations of FHFB, the Office of Finance is subject to the same 
regulatory oversight authority and enforcement powers as are the 
FHLBanks and their respective directors, officers, and employees.\2\ 
The Office of Finance also is subject to the cease-and-desist authority 
of FHFA, and its directors, officers and management are subject to the 
removal and prohibition authority of FHFA.\3\ Although the Office of 
Finance is not directly covered by section 1318(e), it is subject to 
the Director's ``general regulatory authority'' under section 
1311(b)(2) of the Safety and Soundness Act (12 U.S.C. 4511(b)(2)), as 
amended by HERA. The Director is required to exercise that authority as 
necessary to ensure that the purposes of the Safety and Soundness Act, 
the authorizing statutes, and other applicable law are carried out.
    Because of the unique nature of the Office of Finance and the 
interrelationship between it and the FHLBanks, FHFA believes that the 
purposes underlying the limitations on golden parachute and 
indemnification payments can best be carried out if the limitations are 
consistent between the FHLBanks and the Office of Finance, their joint 
office. Therefore, based on its general regulatory authority over the 
Office of Finance, FHFA is proposing that the amendment would apply to 
the Office of Finance.
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    \2\ 12 CFR 985.4 and 985.7.
    \3\ 12 U.S.C.4631(a) and 4636a(a).
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IV. Golden Parachute Payments

    FHFA published a final regulation, Golden Parachute Payments in the 
Federal Register on January 29, 2009 (74 FR 5101). The final Golden 
Parachute Payments regulation addressed public comment on factors the 
Director would consider in acting on golden parachute payments. As 
stated in the preamble of the final regulation, comments received that 
addressed other elements of a golden parachute regulation would be 
considered by FHFA in subsequent rulemaking for public comment. 
Specifically, in response to comments received, it was stated that FHFA 
would consider adding provisions similar to those of the Federal 
Deposit Insurance Corporation (FDIC) golden parachute regulation in the 
subsequent rulemaking. The FDIC regulation describes more specifically 
benefits included or excluded from the term ``golden parachute 
payment.'' Thus, the provisions of the proposed amendment addressing 
golden parachute payments are substantially similar to the FDIC 
regulation that limits golden parachute payments by insured depository 
institutions to institution-affiliated parties.\4\
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    \4\ The FDIC regulation is found at 12 CFR part 359.
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    The proposed amendment would describe prohibited and permissible 
golden parachute payments that a regulated entity or the Office of 
Finance may make to an entity-affiliated party. The term ``entity-
affiliated party'' is statutorily defined under the Safety and 
Soundness Act to include any ``officer'' of the regulated entity.\5\ 
The term ``officer'' for purposes of the Director's oversight of golden 
parachute payments has broader coverage than the term ``executive 
officer'' as defined in section 4502(12) of the Safety and Soundness 
Act (12 U.S.C. 4502(12)) with respect to the Director's authority to 
prohibit and withhold executive compensation under section 1318(a) of 
the Safety and Soundness Act (12 U.S.C. 4518(a)).
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    \5\ 12 U.S.C. 4502(11).
---------------------------------------------------------------------------

    In proposing the amendment, FHFA recognizes that prior to the 
enactment of HERA, the regulated entities or the Office of Finance may 
have entered into agreements that provide for golden parachute payments 
beyond that which is proposed to be permissible under section 1318(e) 
of the Safety and Soundness Act (12 U.S.C. 4518(e)) and the proposed 
amendment. FHFA intends that the proposed amendment would apply to 
agreements entered into by a regulated entity or the Office of Finance 
with an entity-affiliated party on or after the date the regulation is 
effective.

V. Indemnification Payments

    The proposed amendment would describe prohibited and permissible 
indemnification payments that a regulated entity and the Office of 
Finance may make to an entity-affiliated party in connection with 
administrative proceedings or civil actions instituted by FHFA. The 
provisions of the proposed amendment addressing indemnification 
payments are substantially similar to the FDIC regulation that limits 
indemnification by insured depository institutions to institution-
affiliated parties.\6\
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    \6\ 12 CFR part 359.
---------------------------------------------------------------------------

    The proposed amendment is substantially similar to the proposed 
amendment addressing indemnification payments published in the Federal 
Register on November 14, 2008 (73 FR 67424). FHFA received seven 
comment letters and will consider those comment letters with comments 
received in response to this proposed rulemaking.
    In proposing the amendment, FHFA recognizes that prior to the 
enactment of HERA, the regulated entities or the Office of Finance may 
have entered into indemnification agreements that provide for 
indemnification beyond that which is proposed to be permissible under 
section 1318(e) of the Safety and Soundness Act (12 U.S.C. 4518(e)) and 
the proposed amendment. FHFA intends that the proposed amendment would 
apply to agreements entered into by a regulated entity or the Office of 
Finance with an entity-affiliated party on or after the date the 
regulation is effective.
    FHFA is also of the view that the enactment of section 1114 of HERA 
makes clear that Congress has authorized FHFA to limit or prohibit a 
regulated entity or the Office of Finance from indemnifying an entity-
affiliated

[[Page 30977]]

party for any civil money penalty, notwithstanding the language of 12 
U.S.C. 4636(g). Nevertheless, FHFA is of the view that it would be in 
the best interests of the regulated entities to permit indemnification 
of first and second tier civil money penalties where the administrative 
proceeding or civil action relates to conduct occurring while the 
regulated entity was in conservatorship.

VI. Differences Between FHLBanks and Enterprises

    Section 1313(f) of the Safety and Soundness Act (12 U.S.C. 
4513(f)), as amended by section 1201 of HERA, requires the Director, 
when promulgating regulations relating to the FHLBanks, to consider the 
differences between the FHLBanks and the Enterprises with respect to 
the FHLBanks' cooperative ownership structure; mission of providing 
liquidity to members; affordable housing and community development 
mission; capital structure; and joint and several liability. The 
Director may also consider any other differences that are deemed 
appropriate. In preparing the proposed amendment, the Director 
considered the differences between the FHLBanks and the Enterprises as 
they relate to the above factors. The Director requests comments from 
the public about whether differences related to these factors should 
result in a revision of the proposed amendment as it relates to the 
FHLBanks.

Regulatory Impact

Paperwork Reduction Act

    The proposed amendment does not contain any information collection 
requirement that requires the approval of the Office of Management and 
Budget 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 
proposed amendment under the Regulatory Flexibility Act. FHFA certifies 
that the proposed amendment is not likely to have a significant 
economic impact on a substantial number of small business entities 
because the proposed amendment 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, 
Indemnification.

    Accordingly, for reasons stated in the preamble, under the 
authority of 12 U.S.C. 4518(e) and 4526, FHFA proposes to amend part 
1231 of subchapter B of title 12 CFR Chapter XII as follows:

Subchapter B--Entity Regulations

PART 1231--GOLDEN PARACHUTE AND INDEMNIFICATION PAYMENTS

    1. The authority citation for part 1231 is revised to read as 
follows:

    Authority: 12 U.S.C. 4518(e); 12 U.S.C. 4526.

    2. The heading to part 1231 is revised to read as set forth above.
    3. Section 1231.1 is revised to read as follows:


Sec.  1231.1  Purpose.

    The purpose of this part is to implement section 1318(e) of the 
Safety and Soundness Act (12 U.S.C. 4518(e)) by setting forth the 
standards that the Director will take into consideration in determining 
whether to limit or prohibit golden parachute payments and by setting 
forth prohibited and permissible indemnification payments that 
regulated entities and the Office of Finance may make to entity-
affiliated parties.
    4. Section 1231.2 is amended by:
    a. Removing the paragraph designations before each definition and 
arranging definitions in alphabetical order.
    b. Removing the reserved paragraphs (l) through (n).
    c. Removing the definition for the term ``Act.''
    d. Adding definitions for the terms ``Benefit plan,'' ``Bona fide 
deferred compensation plan or arrangement,'' ``Liability or legal 
expense,'' ``Nondiscriminatory,'' ``Payment,'' ``Prohibited 
indemnification payment,'' and ``Safety and Soundness Act'' in 
alphabetical order.
    e. Revising the definition for the terms ``Entity-affiliated 
party,'' ``Golden parachute payment,'' and ``Troubled condition.''
    The additions and revisions read as follows:


Sec.  1231.2  Definitions.

* * * * *
    Benefit plan means any plan, contract, agreement, or other 
arrangement which is an ``employee welfare benefit plan'' as that term 
is defined in section 3(1) of the Employee Retirement Income Security 
Act of 1974, as amended (29 U.S.C. 1002(1)), or other usual and 
customary plans such as dependent care, tuition reimbursement, group 
legal services or cafeteria plans; provided however, that such term 
shall not include any plan intended to be subject to paragraphs 
(2)(iii) and (v) of the term golden parachute payment as defined in 
this section.
    Bona fide deferred compensation plan or arrangement means any plan, 
contract, agreement or other arrangement whereby:
    (1) An entity-affiliated party voluntarily elects to defer all or a 
portion of the reasonable compensation, wages or fees paid for services 
rendered which otherwise would have been paid to such party at the time 
the services were rendered (including a plan that provides for the 
crediting of a reasonable investment return on such elective deferrals) 
and the regulated entity or the Office of Finance either:
    (i) Recognizes compensation expense and accrues a liability for the 
benefit payments according to generally accepted accounting principles 
(GAAP); or
    (ii) Segregates or otherwise sets aside assets in a trust which may 
only be used to pay plan and other benefits, except that the assets of 
such trust may be available to satisfy claims of creditors of the 
regulated entities or the Office of Finance in the case of insolvency; 
or
    (2) A regulated entity or the Office of Finance establishes a 
nonqualified deferred compensation or supplemental retirement plan, 
other than an elective deferral plan described in paragraph (1) of this 
definition:
    (i) Primarily for the purpose of providing benefits for certain 
entity-affiliated parties in excess of the limitations on contributions 
and benefits imposed by sections 401(a)(17), 402(g), 415, or any other 
applicable provision of the Internal Revenue Code of 1986 (26 U.S.C. 
401(a)(17), 402(g), 415); or
    (ii) Primarily for the purpose of providing supplemental retirement 
benefits or other deferred compensation for a select group of 
directors, management or highly compensated employees (excluding 
severance payments described in paragraph (2)(v) of the term golden 
parachute payment as defined in this section and

[[Page 30978]]

permissible golden parachute payments described in Sec.  1231.3(b); and
    (3) In the case of any nonqualified deferred compensation or 
supplemental retirement plans as described in paragraphs (1) and (2) of 
this definition, the following requirements shall apply:
    (i) The plan was in effect at least one year prior to any of the 
events described in paragraph (1)(ii) of the term golden parachute 
payment as defined in this section;
    (ii) Any payment made pursuant to such plan is made in accordance 
with the terms of the plan as in effect no later than one year prior to 
any of the events described in paragraph (1)(ii) of the term golden 
parachute payment as defined in this section and in accordance with any 
amendments to such plan during such one-year period that do not 
increase the benefits payable thereunder;
    (iii) The entity-affiliated party has a vested right, as defined 
under the applicable plan document, at the time of termination of 
employment to payments under such plan;
    (iv) Benefits under such plan are accrued each period only for 
current or prior service rendered to the employer (except that an 
allowance may be made for service with a predecessor employer);
    (v) Any payment made pursuant to such plan is not based on any 
discretionary acceleration of vesting or accrual of benefits which 
occurs at any time later than one year prior to any of the events 
described in paragraph (1)(ii) of the term golden parachute payment as 
defined in this section;
    (vi) The regulated entity or the Office of Finance has previously 
recognized compensation expense and accrued a liability for the benefit 
payments according to GAAP or segregated or otherwise set aside assets 
in a trust which may only be used to pay plan benefits, except that the 
assets of such trust may be available to satisfy claims of the 
regulated entity's creditors in the case of insolvency; and
    (vii) Payments pursuant to such plans shall not be in excess of the 
accrued liability computed in accordance with GAAP.
* * * * *
    Entity-affiliated party means:
    (1) With respect to the Office of Finance, any director, officer, 
or management of the Office of Finance; and
    (2) With respect to a regulated entity:
    (i) Any director, officer, employee, or controlling stockholder of, 
or agent for, a regulated entity;
    (ii) Any shareholder, affiliate, consultant, or joint venture 
partner of a regulated entity, and any other person, as determined by 
the Director (by regulation or on a case-by-case basis) that 
participates in the conduct of the affairs of a regulated entity, 
provided that a member of a Federal Home Loan Bank shall not be deemed 
to have participated in the affairs of that Federal Home Loan Bank 
solely by virtue of being a shareholder of, and obtaining advances 
from, that Federal Home Loan Bank;
    (iii) Any independent contractor for a regulated entity (including 
any attorney, appraiser, or accountant), if:
    (A) The independent contractor knowingly or recklessly participates 
in any violation of any law or regulation, any breach of fiduciary 
duty, or any unsafe or unsound practice; and
    (B) Such violation, breach, or practice caused, or is likely to 
cause, more than a minimal financial loss to, or a significant adverse 
effect on, the regulated entity;
    (iv) Any not-for-profit corporation that receives its principal 
funding, on an ongoing basis, from any regulated entity; and
    (v) The Office of Finance.
* * * * *
    Golden parachute payment means:
    (1) Any payment (or any agreement to make any payment) in the 
nature of compensation by any regulated entity or the Office of Finance 
for the benefit of any current or former entity-affiliated party 
pursuant to an obligation of such regulated entity or the Office of 
Finance that:
    (i) Is contingent on, or by its terms is payable on or after, the 
termination of such party's primary employment or affiliation with the 
regulated entity or the Office of Finance; and
    (ii) Is received on or after, or is made in contemplation of, any 
of the following events:
    (A) The insolvency (or similar event) of the regulated entity which 
is making the payment;
    (B) The appointment of any conservator or receiver for such 
regulated entity; or
    (C) A determination by FHFA that the regulated entity is in a 
troubled condition; or
    (D) The Enterprise is assigned a composite rating of ``Significant 
Concerns'' or ``Critical Concerns'' by FHFA, or the Federal Home Loan 
Bank or the Office of Finance is assigned a composite rating of 3 or 4 
by FHFA.
    (2) Exceptions. The term golden parachute payment shall not 
include:
    (i) Any payment made pursuant to a pension or retirement plan which 
is qualified (or is intended within a reasonable period of time to be 
qualified) under section 401 of the Internal Revenue Code of 1986 (26 
U.S.C. 401) or pursuant to a pension or other retirement plan which is 
governed by the laws of any foreign country;
    (ii) Any payment made pursuant to a ``benefit plan'' as that term 
is defined in this section;
    (iii) Any payment made pursuant to a bona fide deferred 
compensation plan or arrangement as that term is defined in this 
section;
    (iv) Any payment made by reason of death or by reason of 
termination caused by the disability of an entity-affiliated party; or
    (v) Any payment made pursuant to a nondiscriminatory severance pay 
plan or arrangement which provides for payment of severance benefits to 
all eligible employees upon involuntary termination other than for 
cause, voluntary resignation, or early retirement; provided, however, 
that no employee shall receive any such payment which exceeds the base 
compensation paid to such employee during the 12 months (or such longer 
period or greater benefit as the Director shall consent to) immediately 
preceding termination of employment, resignation, or early retirement, 
and such severance pay plan or arrangement shall not have been adopted 
or modified to increase the amount or scope of severance benefits at a 
time when the regulated entity or the Office of Finance is in a 
condition specified in paragraph (1)(ii) of the term golden parachute 
payment as defined in this section or in contemplation of such a 
condition without the prior written consent of the Director; or
    (vi) Any severance or similar payment which is required to be made 
pursuant to a State statute or foreign law which is applicable to all 
employers within the appropriate jurisdiction (with the exception of 
employers that may be exempt due to their small number of employees or 
other similar criteria); or
    (vii) Any other payment which the director determined to be 
permissible in accordance with Sec.  1231.3(b).
* * * * *
    Liability or legal expense means:
    (1) Any legal or other professional expense incurred in connection 
with any claim, proceeding, or action;
    (2) The amount of, and the cost incurred in connection with, any 
settlement of any claim, proceeding, or actions; and
    (3) The amount of, and any cost incurred in connection with, any 
judgment or penalty imposed with respect to any claim, proceeding, or 
action.

[[Page 30979]]

    Nondiscriminatory means that the plan, contract, or arrangement in 
question applies to all employees of a regulated entity or the Office 
of Finance who meet reasonable and customary eligibility requirements 
applicable to all employees, such as minimum length of service 
requirements. A nondiscriminatory plan, contract, or arrangement may 
provide different benefits based only on objective criteria such as 
salary, total compensation, length of service, job grade, or 
classification, which are applied on a proportionate basis (with a 
variance in severance benefits relating to any criterion of plus or 
minus ten percent) to groups of employees consisting of not less than 
the lesser of 33 percent of employees or 1,000 employees.
* * * * *
    Payment means:
    (1) Any direct or indirect transfer of any funds or any asset;
    (2) Any forgiveness of any debt or other obligation;
    (3) The conferring of any benefit, including but not limited to 
stock options and stock appreciation rights; and
    (4) Any segregation of any funds or assets, the establishment or 
funding of any trust or the purchase of or arrangement for any letter 
of credit or other instrument, for the purpose of making, or pursuant 
to any agreement to make, any payment on or after the date on which 
such funds or assets are segregated, or at the time of or after such 
trust is established or letter of credit or other instrument is made 
available, without regard to whether the obligation to make such 
payment is contingent on:
    (i) The determination, after such date, of the liability for the 
payment of such amount; or
    (ii) The liquidation, after such date, of the amount of such 
payment.
    Prohibited indemnification payment means:
    (1) Any payment (or any agreement to make any payment) by any 
regulated entity or the Office of Finance for the benefit of any 
current or former entity-affiliated party, to pay or reimburse such 
person for any civil money penalty or judgment resulting from any 
administrative or civil action instituted by FHFA, or for any other 
liability or legal expense with regard to any such administrative 
proceeding or civil action that results in a final order or settlement 
pursuant to which such person:
    (i) Is assessed a civil money penalty;
    (ii) Is removed from office or prohibited from participating in the 
conduct of the affairs of the regulated entity or the Office of 
Finance; or
    (iii) Is required to cease-and-desist from or take any affirmative 
action described in section 1371 of the Safety and Soundness Act (12 
U.S.C. 4631) with respect to the regulated entity.
    (2) Exceptions. (i) The term prohibited indemnification payment 
shall not include any reasonable payment by a regulated entity or the 
Office of Finance that is used to purchase any commercial insurance 
policy or fidelity bond, provided that such insurance policy or 
fidelity bond shall not be used to pay or reimburse an entity-
affiliated party for the cost of any judgment or civil money penalty 
assessed against such person in an administrative proceeding or civil 
action commenced by FHFA, but may pay any legal or professional 
expenses incurred in connection with such proceeding or action or the 
amount of any restitution to the regulated entity or the receiver or to 
the Office of Finance.
    (ii) The term prohibited indemnification payment shall not include 
any reasonable payment by a regulated entity or the Office of Finance 
that represents partial indemnification for legal or professional 
expenses specifically attributable to particular charges for which 
there has been a formal and final adjudication or finding in connection 
with a settlement that the entity-affiliated party has not violated 
certain laws or regulations, has not engaged in certain unsafe or 
unsound practices or breaches of fiduciary duty, unless the 
administrative proceeding or civil action has resulted in a final 
prohibition order against the entity-affiliated party under section 
1377 of the Safety and Soundness Act (12 U.S.C. 4636a).
    (iii) The term prohibited indemnification payment shall not include 
a payment by a regulated entity for a civil money penalty under section 
1376(b)(1) and (2) of the Safety and Soundness Act (12 U.S.C. 
4636(b)(1) and (2)) where the regulated entity has been placed in 
conservatorship.
* * * * *
    Safety and Soundness Act means the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.), as 
amended.
    Troubled condition means a regulated entity that:
    (1) Is subject to a cease-and-desist order or written agreement 
issued by FHFA that requires action to improve the financial condition 
of the regulated entity or is subject to a proceeding initiated by the 
Director, which contemplates the issuance of an order that requires 
action to improve the financial condition of the regulated entity, 
unless otherwise informed in writing by FHFA; or
    (2) Is informed in writing by the Director that it is in a troubled 
condition for purposes of the requirements of this part on the basis of 
the most recent report of examination or other information available to 
FHFA.
    5. Section 1231.3 is added to read as follows:


Sec.  1231.3  Golden parachute payments.

    (a) Prohibited golden parachute payments. No regulated entity or 
the Office of Finance shall make or agree to make any prohibited golden 
parachute payment, except as provided in this part.
    (b) Permissible golden parachute payments. (1) A regulated entity 
or the Office of Finance may agree to make or may make a golden 
parachute payment if and to the extent that:
    (i) The Director determines that such a payment or agreement is 
permissible; or
    (ii) Such an agreement is made in order to hire a person to become 
an entity-affiliated party either at a time when the regulated entity 
or the Office of Finance satisfies or in an effort to prevent it from 
imminently satisfying any of the criteria set forth in paragraph 
(1)(ii) of the term golden parachute payment as defined in Sec.  
1231.2, and the Director consents in writing to the amount and terms of 
the golden parachute payment. Such consent by the Director shall not 
improve the entity-affiliated party's position in the event of the 
insolvency of the regulated entity since such consent can neither bind 
a receiver nor affect the provability of receivership claims; or
    (iii) Such a payment is made pursuant to an agreement which 
provides for a reasonable severance payment, not to exceed 12 months 
salary, to an entity-affiliated party in the event of a change in 
control of the regulated entity; provided, however, that a regulated 
entity shall obtain the consent of the Director prior to making such a 
payment and this paragraph (b)(1)(iii) shall not apply to the regulated 
entity being placed into conservatorship or receivership; and
    (iv) A regulated entity or the Office of Finance making a request 
pursuant to paragraphs (b)(1)(i) through (iii) of this section shall 
demonstrate that it does not possess and is not aware of any 
information, evidence, documents, or other materials that would 
indicate that there is a reasonable basis to believe, at the time such 
payment is proposed to be made, that:
    (A) The entity-affiliated party has committed any fraudulent act or 
omission, breach of trust or fiduciary duty, or insider abuse with 
regard to the

[[Page 30980]]

regulated entity or the Office of Finance that is likely to have a 
material adverse effect on the regulated entity or the Office of 
Finance;
    (B) The entity-affiliated party is substantially responsible for 
the insolvency of, the appointment of a conservator or receiver for, or 
the troubled condition of the regulated entity;
    (C) The entity-affiliated party has materially violated any 
applicable Federal or State law or regulation that has had or is likely 
to have a material effect on the regulated entity or the Office of 
Finance; and
    (D) The entity-affiliated party has violated or conspired to 
violate section 215, 657, 1006, 1014, or 1344 of title 18 of the United 
States Code, or section 1341 or 1343 of such title affecting a 
``financial institution'' as the term is defined in title 18 of the 
United States Code (18 U.S.C. 20).
    (2) In making a determination under paragraphs (b)(1)(i) through 
(iii) of this section, the Director may consider:
    (i) Whether, and to what degree, the entity-affiliated party was in 
a position of managerial or fiduciary responsibility;
    (ii) The length of time the entity-affiliated party was affiliated 
with the regulated entity or the Office of Finance, and the degree to 
which the proposed payment represents a reasonable payment for services 
rendered over the period of employment; and
    (iii) 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 the entity-affiliated party.
    6. Section 1231.4 is added to read as follows:


Sec.  1231.4  Indemnification payments.

    (a) Scope. (1) This section applies only after an administrative 
proceeding or civil action has been instituted by FHFA.
    (2) The provisions of this section shall remain in full force and 
effect with respect to a regulated entity that is in conservatorship.
    (b) Prohibited indemnification payments. No regulated entity or the 
Office of Finance shall make or agree to make any prohibited 
indemnification payment, except as provided in this part.
    (c) Permissible indemnification payments. (1) A regulated entity or 
the Office of Finance may make or agree to make reasonable 
indemnification payments to an entity-affiliated party with respect to 
an administrative proceeding or civil action initiated by FHFA, 
including payment for a civil money penalty pursuant to paragraph 
(2)(iii) of the definition of the term prohibited indemnification 
payment in Sec.  1231.2 if:
    (i) The board of directors of the regulated entity or the Office of 
Finance, in good faith, determines in writing after due investigation 
and consideration that the entity-affiliated party acted in good faith 
and in a manner he or she reasonably believed to be in the best 
interests of the regulated entity.
    (ii) The board of directors of the regulated entity or the Office 
of Finance, in good faith, determines in writing after due 
investigation and consideration that such payments will not materially 
adversely affect the safety and soundness of the regulated entity or 
the Office of Finance;
    (iii) The indemnification payments do not constitute ``prohibited 
indemnification payments'' as that term is defined in Sec.  1231.2; and
    (iv) The entity-affiliated party agrees in writing to reimburse the 
regulated entity or the Office of Finance, to the extent not covered by 
payments from insurance or bonds purchased pursuant to paragraph (2)(i) 
of the definition of the term prohibited indemnification payment in 
Sec.  1231.2, for that portion of any advanced indemnification payments 
that subsequently become ``prohibited indemnification payments,'' as 
such term is defined in Sec.  1231.2.
    (2) An entity-affiliated party requesting indemnification payments 
shall not participate in any way in the board's discussion and approval 
of such payments; provided, however, that such entity-affiliated party 
may present his or her request to the board of directors and respond to 
any inquiries from the board of directors concerning his or her 
involvement in the circumstances giving rise to the administrative 
proceeding or civil action.
    (3) In the event that a majority of the members of the board of 
directors are named as respondents in an administrative proceeding or 
civil action and request indemnification, the remaining members of the 
board may authorize independent legal counsel to review the 
indemnification request and provide the remaining members of the board 
with a written opinion of counsel as to whether the conditions 
delineated in paragraph (c)(1) of this section have been met. If 
independent legal counsel opines that said conditions have been met, 
the remaining members of the board of directors may rely on such 
opinion in authorizing the requested indemnification.
    (4) In the event that all of the members of the board of directors 
are named as respondents in an administrative proceeding or civil 
action and request indemnification, the board shall authorize 
independent legal counsel to review the indemnification request and 
provide the board with a written opinion of counsel as to whether the 
conditions delineated in paragraph (c)(1) of this section have been 
met. If independent legal counsel opines that said conditions have been 
met, the board of directors may rely on such opinion in authorizing the 
requested indemnification.
    7. Section 1231.5 is revised to read as follows:


Sec.  1231.5  Applicability in the event of receivership.

    The provisions of this part, or any consent or approval granted 
under the provisions of this part by FHFA, shall not in any way bind 
any receiver of a regulated entity in receivership. Any consent or 
approval granted under the provisions of this part by FHFA shall not in 
any way obligate FHFA or receiver to pay any claim or obligation 
pursuant to any golden parachute, severance, indemnification, or other 
agreement. Nothing in this part may be construed to permit the payment 
of salary or any liability or legal expense of an entity-affiliated 
party contrary to section 1318(e)(3) of the Safety and Soundness Act 
(12 U.S.C. 4518(e)(3)).
    8. Section 1231.6 is added to read as follows:


Sec.  1231.6  Filing instructions.

    (a) Scope. This section contains the procedures to apply for the 
consent of the Director to make golden parachute payments under Sec.  
1231.3(b) or to make excess nondiscriminatory severance plan payments 
under paragraph (2)(v) of the definition of the term golden parachute 
payment in Sec.  1231.2.
    (b) Where to file. A Federal Home Loan Bank or Office of Finance 
applicant must submit a letter application to the Deputy Director of 
the Division of Federal Home Loan Bank Supervision. An Enterprise 
applicant must submit a letter application to the Deputy Director of 
the Division of Enterprise Regulation.
    (c) Content of filing. The letter application must contain the 
following:
    (1) The reasons why the regulated entity or the Office of Finance 
seeks to make the payment;
    (2) An identification of the entity-affiliated party who will 
receive the payment;

[[Page 30981]]

    (3) A copy of any contract or agreement regarding the subject 
matter of the filing;
    (4) The cost of the proposed payment and its impact on the capital 
and earnings of the regulated entity;
    (5) The reasons why the consent to the payment should be granted; 
and
    (6) Certification and documentation as to each of the factors 
listed in Sec.  1231.3(b)(1)(iv).
    (d) Additional information. FHFA may request additional information 
at any time during the processing of the letter application.
    (e) Written notice. FHFA shall provide the applicant with written 
notice of the decision as soon as it is rendered.

    Dated: June 22, 2009.
James B. Lockhart III,
Director, Federal Housing Finance Agency.
[FR Doc. E9-15329 Filed 6-26-09; 8:45 am]
BILLING CODE 8070-01-P