[Federal Register Volume 74, Number 204 (Friday, October 23, 2009)]
[Proposed Rules]
[Pages 54758-54762]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-25577]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 918

FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1261

RIN 2590-AA31


Federal Home Loan Bank Directors' Compensation and Expenses

AGENCY: Federal Housing Finance Agency.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement section 1202 of the Housing 
and Economic Recovery Act of 2008 (HERA), which amended section 7(i) of 
the Federal Home Loan Bank Act (Bank Act) by repealing the statutory 
caps on the annual compensation that can be paid to Federal Home Loan 
Bank (Bank) directors. The proposed rule would allow each Bank to pay 
its directors reasonable compensation and expenses, subject to the 
authority of the Director (Director) of the Federal Housing Finance 
Agency (FHFA) to object to, and to prohibit prospectively, compensation 
and/or expenses that the Director determines are not reasonable.

DATES: FHFA will accept written comments on this proposed rule on or 
before December 7, 2009.

ADDRESSES: You may submit your comments on the proposed rule identified 
by regulatory information number (RIN) 2590-AA31 by any one of the 
following methods:
     U.S. Mail, United Parcel Post, Federal Express, or Other 
Mail Service: The mailing address for comments is:

[[Page 54759]]

Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA31, 
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-AA31, 
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 to [email protected]. Please include ``RIN 
2590-AA31'' 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. Include the following information in the subject line of your 
submission: Federal Housing Finance Agency. Proposed Rule: Federal Home 
Loan Bank Directors' Compensation and Expenses, RIN 2590-AA31.

FOR FURTHER INFORMATION CONTACT: Daniel E. Coates, Associate Director, 
Risk Analysis and Research, (202) 408-2959, [email protected]; 
Neil R. Crowley, Deputy General Counsel, (202) 343-1316, 
[email protected]. 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 rule and will 
take all comments into consideration before issuing the final rule. 
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. Establishment of FHFA

    Effective July 30, 2008, Division A of HERA, Public Law 110-289, 
122 Stat. 2654 (2008), titled the Federal Housing Finance Regulatory 
Reform Act of 2008, created FHFA as an independent agency of the 
Federal Government.
    HERA transferred to FHFA the supervisory, mission, and oversight 
responsibilities over the Federal National Mortgage Association and the 
Federal Home Loan Mortgage Corporation (the Enterprises), and the Banks 
(collectively, regulated entities) from the U.S. Department of Housing 
and Urban Development (HUD), including the Office of Federal Housing 
Enterprise Oversight (OFHEO), and from the Federal Housing Finance 
Board (FHFB). HERA abolished OFHEO and the FHFB one year after the date 
of its enactment.
    FHFA is responsible for ensuring that the Enterprises and the Banks 
operate in a safe and sound manner, including their maintenance of 
adequate capital, internal controls, that their operations and 
activities foster liquid, efficient, competitive, and resilient 
national housing finance markets, and that they carry out their public 
policy missions through authorized activities. See Sec.  1102 of HERA, 
amending section 1313 of the Federal Housing Enterprises Financial 
Safety and Soundness Act of 1992 (Safety and Soundness Act) (12 U.S.C. 
4513). The regulated entities continue to operate under regulations 
promulgated by OFHEO and FHFB until such regulations are superseded by 
regulations promulgated by FHFA. See id. section 1302 and 1312 of HERA; 
122 Stat. 2795, 2798.

B. Statutory and Regulatory Background

    Until 1999, section 7(i) of the Bank Act authorized the Banks to 
pay reasonable compensation and expenses to their directors, subject to 
the approval of the FHFB. In 1999, Congress amended section 7(i) to 
impose statutory caps on the amount of annual compensation that a Bank 
could pay to its Chairperson, Vice Chairperson and other directors. See 
Public Law 106-102, 113 Stat. 1338, 1453 (November 12, 1999). As part 
of HERA, Congress repealed the statutory caps on director compensation, 
the effect of which was to reinstate the prior statutory structure, 
which authorized the Banks to pay reasonable compensation and expenses 
to their directors, subject to the approval of FHFA. See Sec.  1202 of 
HERA, amending section 7(i) of the Bank Act at 12 U.S.C. 1427(i). HERA 
also enhanced the authority of the Director to oversee the compensation 
practices of the regulated entities more generally. See id. Sec.  1202 
of HERA and Sec. Sec.  1113 and 1114 of HERA (the latter sections amend 
section 1318 of the Safety and Soundness Act, 12 U.S.C. 4518). The 
proposed rule would implement the provisions of section 7(i) of the 
Bank Act in a manner that is consistent with the other authorities that 
the Director has over the compensation practices of the regulated 
entities.

C. HERA Section 1201

    Section 1201 of HERA (section 1313(f) of the Safety and Soundness 
Act) requires the FHFA Director to consider the differences between the 
Banks and the Enterprises in rulemakings that affect the Banks with 
respect to the Banks' cooperative ownership structure, mission of 
providing liquidity to members, affordable housing and community 
development mission, capital structure and joint and several liability. 
12 U.S.C. 4513(f). In preparing this proposed rule, the Director 
considered these factors and determined that the rule is appropriate, 
particularly because the proposed amendments would implement statutory 
provisions of the Bank Act that apply only to the Banks. Nonetheless, 
FHFA requests comments about whether these factors should result in a 
revision of the proposed amendment as it relates to the Banks.

III. Analysis of Proposed Rule

A. Scope of the Proposed Rule

    This proposed rule would relocate the FHFB regulations relating to 
director compensation in their entirety from part 918 of the FHFB 
regulations to part 1261 of the FHFA regulations. In addition, the 
proposed rule would amend certain provisions of those regulations to 
reflect the changes made by HERA. Although each of the individual 
amendments to the FHFB regulations may not be evident from the 
regulatory text of the proposed rule because the provisions are being 
relocated in their entirety, any material substantive revisions are 
discussed in this preamble.

B. Definitions--Section 1261.20

    For the sake of consistency, the proposed rule would replace the 
earlier rule's definition of ``compensation'' with a simplified version 
of the definition currently proposed in FHFA's executive compensation 
rule, which is based on the definition of ``compensation'' in the 
Safety and Soundness Act. The new definition is in substance the same 
as the old; it would encompass any kind of payment or

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other provision of value for a director's services, and would include, 
but not be limited to, such things as meeting fees, incentive payments, 
and perquisites or fringe benefits.

C. General--Section 1261.21

    The proposed rule would add a new Sec.  1261.21, which is intended 
to articulate the general standard under which the Banks may compensate 
their directors and to establish reporting requirements with respect to 
how Banks compensate their directors. The general standard is derived 
from section 7(i) of the Bank Act and closely parallels the statutory 
provisions, i.e., it authorizes the Banks to pay reasonable 
compensation and expenses to their directors, but also makes clear that 
the director compensation practices of the Banks remain subject to FHFA 
oversight and possible disapproval. The new reporting requirements are 
intended to provide FHFA with a basis to assess the reasonableness of 
the compensation and expenses paid to a Bank's directors, as well as to 
provide FHFA with the information necessary to prepare its annual 
report to Congress regarding the compensation and expenses paid to Bank 
directors, as required by section 1202 of HERA, which amended the Bank 
Act at 12 U.S.C. 1427(i)(2). (See also section 1319B of the Safety and 
Soundness Act, 12 U.S.C. 4521, for the content of the Director's annual 
report.)

D. Directors' Compensation Policy--Section 1261.22

    Section 1261.22 of the proposed rule addresses the requirement that 
each Bank must adopt annually a written policy relating to the 
compensation and expenses to be paid to its directors. This provision 
includes elements from Sec.  918.2 and Sec.  918.3 of the FHFB's 
regulations governing this topic, as well as new provisions relating to 
the HERA amendments. In addition, this section would delete the Gramm-
Leach-Bliley (GLB) salary caps, as required by HERA's amendment of 
section 7(i) of the Bank Act, and which currently are codified at Sec.  
918.3(a).
    Paragraph (a) of this section would require each Bank's board of 
directors annually to adopt a written policy to provide for the payment 
of reasonable compensation and expenses to the directors of the Bank. 
This provision would also state that such payments may be based on any 
factors that the board of directors determines to be appropriate, 
subject to the other requirements of the regulation. Both of those 
requirements exist under the FHFB regulations and are carried forward 
into the FHFA regulations without substantive change.
    Paragraph (b) of this section would specify the minimum contents of 
a Bank's director compensation policy, much of which already is 
included in Sec.  918.2 and Sec.  918.3 of the FHFB regulations. 
Specifically, the compensation policy must: (a) Identify the activities 
or functions for which director attendance or participation is 
necessary and which may be compensated; (b) explain and justify the 
methodology used to determine the amount of compensation to be paid to 
the Bank directors; (c) include provisions requiring that compensation 
paid must reflect the amount of time a director has spent on official 
business, and that compensation be reduced, as necessary, to reflect 
lesser attendance at board or committee meetings.
    Paragraph (c) of this section prohibits a Bank from paying 
compensation to a director who regularly fails to attend board or 
committee meetings, and prohibits the payment of fees to a director 
that do not reflect the director's performance of official Bank 
business conducted prior to the payment of such fees (e.g., retainer 
fees). This provision largely reiterates similar prohibitions contained 
in Sec.  918.3(b) of the FHFB regulations.
    Paragraph (d) of this section is a new provision that requires each 
Bank to submit to the Director a copy of its directors' compensation 
policy, along with all studies or other supporting materials upon which 
the Bank relied in determining the level of compensation and expenses 
to pay its directors. The Bank must submit the information no later 
than 10 business days after adopting the policy, and no fewer than 30 
calendar days prior to the first payment to directors being made under 
the policy. The Director intends to use this information in assessing 
the reasonableness of the compensation and expenses paid to directors 
each year, as well as to develop the provisions for its annual report 
to Congress that address the amount of compensation and expenses paid 
by each of the Banks to its directors.

E. Director Disapproval--Section 1261.23

    Section 918.5 of the FHFB regulations deemed any payments made by 
the Banks in accordance with the provisions of part 918 to be approved 
by the FHFB for purposes of section 7(i) of the Bank Act. The proposed 
rule includes a new provision, Sec.  1261.23, which addresses the 
Director's authority to disapprove compensation arrangements that do 
not conform to the reasonableness standard imposed by section 7(i) of 
the Bank Act. This section provides that the Director may determine 
that a Bank's compensation arrangements are not reasonable after 
reviewing the Bank's director compensation policy, the methodology 
employed in establishing the amount of compensation and/or expenses to 
be paid, or any other materials submitted by the Bank in support of its 
policy. In such an event, the Director may order a Bank to refrain from 
making any further payments based upon that compensation policy, 
although the proposal also provides that any such order will be applied 
prospectively and will not affect payments made prior to the Director's 
order.

F. Other Amendments--Sections 1261.24, 1261.25, 1261.26 and 1261.27

    The proposed rule includes several other provisions that are 
carried over from the regulations of the FHFB without material 
substantive changes. Sections 1261.24 and 1261.27 of the proposed rule, 
which relate to directors' expenses and the location of board and 
committee meetings, respectively, are identical to the corresponding 
provisions within the FHFB regulations. Section 1261.25, which relates 
to items that must be disclosed in a Bank's annual report to its 
members, adds four elements to those that were required by the FHFB 
regulations. The additional items relate to the amount of compensation 
and expenses paid to each director during the year, the number of board 
and committee meetings held each year, and the number of board and 
committee meetings that each board member attended during the year.
    Section 1261.26 of the proposed rule, relating to the number of in-
person board meetings each Bank must hold annually, is much the same as 
Sec.  918.7 of the FHFB regulations, except that the proposal does not 
include any references to the statutory compensation caps and 
introduces a new provision requiring the board of directors of each 
Bank to hold as many meetings as is appropriate for the board to carry 
out its fiduciary responsibilities to the Bank. That provision is 
intended to recognize that changing circumstances may require the board 
of directors of a Bank to meet more frequently than the minimum of six 
in-person meetings each year, if such additional meetings are needed to 
address adverse financial or supervisory issues, or for other reasons.

[[Page 54761]]

IV. Paperwork Reduction Act

    The proposed rule does not contain any information collection 
requirements that require the approval of the Office of Management and 
Budget under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).

V. Regulatory Flexibility Act

    The proposed rule, if adopted as a final rule, will apply only to 
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 General Counsel of FHFA hereby certifies that the 
proposed rule, if promulgated as a final rule, will not have a 
significant economic impact on a substantial number of small entities.

List of Subjects in 12 CFR Parts 918 and 1261

    Banks, Banking, Community development, Conflicts of interest, 
Credit, Elections, Ethical conduct, Federal home loan banks, Financial 
disclosure, Housing, Reporting and recordkeeping requirements, Wages.

Authority and Issuance

    For the reasons stated in the preamble, under the authority of 12 
U.S.C. 1427, 4511, 4526, FHFA proposes to amend chapters IX and XII, of 
title 12 of the Code of Federal Regulations as follows:

CHAPTER IX--FEDERAL HOUSING FINANCE BOARD

PART 918--[REMOVED]

    1. Remove part 918.

CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY

PART 1261--FEDERAL HOME LOAN BANK DIRECTORS

    2. The authority citation for part 1261 continues to read as 
follows:

    Authority:  12 U.S.C. 1426, 1427, 1432, 4511 and 4526.

    3. Add Subpart B to read as follows:
Subpart B--Federal Home Loan Bank Directors' Compensation and Expenses
Sec.
1261.20 Definitions.
1261.21 General.
1261.22 Directors' compensation policy.
1261.23 Director disapproval.
1261.24 Directors' expenses.
1261.25 Disclosure.
1261.26 Board meetings.
1261.27 Site of board of directors and committee meetings.

Subpart B--Federal Home Loan Bank Directors' Compensation and 
Expenses


Sec.  1261.20  Definitions.

    As used in this subpart:
    Compensation means any payment of money or the provision of any 
other thing of current or potential value in connection with service as 
a director. Compensation includes all direct and indirect payments of 
benefits, both cash and non-cash, granted to or for the benefit of any 
director.


Sec.  1261.21  General.

    (a) Standard. Each Bank may pay its directors reasonable 
compensation for the time required of them, and their necessary 
expenses, in the performance of their duties, as determined by a 
resolution adopted by the board of directors of the Bank and subject to 
the provisions of this subpart.
    (b) Reporting. No later than December 1 of each calendar year, each 
Bank shall report to the Director the compensation anticipated to be 
paid to its directors for the following calendar year. By no later than 
the tenth business day of each calendar year, each Bank shall report to 
the Director the amount of compensation and expenses paid to each 
director for the immediately preceding calendar year.


Sec.  1261.22  Directors' compensation policy.

    (a) General. Each Bank's board of directors annually shall adopt a 
written compensation policy to provide for the payment of reasonable 
compensation and expenses to the directors for the time required of 
them in performing their duties as directors. Payments under the 
directors' compensation policy may be based on any factors that the 
board of directors determines reasonably to be appropriate, subject to 
the requirements set forth in this subpart.
    (b) Minimum contents. The compensation policy shall address the 
activities or functions for which director attendance or participation 
is necessary and which may be compensated, and shall explain and 
justify the methodology used to determine the amount of compensation to 
be paid to the Bank directors. The compensation policy shall require 
that any compensation paid to a director reflect the amount of time the 
director has spent on official Bank business, and shall require that 
compensation be reduced, as necessary to reflect lesser attendance or 
performance at board or committee meetings during a given year.
    (c) Prohibited payments. A Bank shall not pay a director who 
regularly fails to attend board or committee meetings, and shall not 
pay fees to a director that do not reflect the director's performance 
of official Bank business conducted prior to the payment of such fees.
    (d) Submission requirements. By no later than the tenth business 
day after adopting its annual policy for director compensation and 
expenses, and at least 30 days prior to the first payment being made to 
its directors, each Bank shall submit to the Director a copy of the 
policy, along with all studies or other supporting materials upon which 
the board relied in determining the level of compensation and expenses 
to pay to its directors.


Sec.  1261.23  Director disapproval.

    The Director may determine, based upon his or her review of a 
Bank's director compensation policy, methodology and/or other related 
materials, that the compensation and/or expenses to be paid to the 
directors are not reasonable. In such case, the Director may order the 
Bank to refrain from making any further payments under that 
compensation policy. Any such Director determination and order shall be 
applied prospectively only and shall not affect any compensation or 
expense payments made prior to the date of the Director's determination 
and order.


Sec.  1261.24  Directors' expenses.

    Each Bank may pay its directors for such necessary and reasonable 
travel, subsistence and other related expenses incurred in connection 
with the performance of their official duties as are payable to senior 
officers of the Bank under the Bank's travel policy, except that 
directors may not be paid for gift or entertainment expenses.


Sec.  1261.25  Disclosure.

    Each Bank shall, in its annual report:
    (a) State the sum of the total compensation paid to its directors 
in that year;
    (b) State the sum of the total expenses paid to its directors in 
that year;
    (c) State the total compensation paid to each director in that 
year;
    (d) State the total expenses paid to each director in that year;
    (e) State the total number of board meetings and meetings of its 
designated committees held in that year;
    (f) State the number of board and designated committee meetings 
that each director attended; and
    (g) Summarize its policy on director compensation.


Sec.  1261.26  Board meetings.

    The board of directors of each Bank shall hold as many meetings as

[[Page 54762]]

necessary and appropriate to carry out its fiduciary responsibilities 
with respect to the effective oversight of the management of the Bank 
and such other duties and obligations as may be imposed by applicable 
laws, provided the board of directors of a Bank shall hold a minimum of 
six in-person meetings in any year.


Sec.  1261.27  Site of board of directors and committee meetings.

    Meetings of a Bank's board of directors and committees thereof 
usually should be held within the district served by the Bank. No 
meetings of a Bank's board of directors and committees thereof may be 
held in any location that is not within the United States, including 
its possessions and territories.

    Dated: October 18, 2009.
Edward J. DeMarco,
Acting Director, Federal Housing Finance Agency.
[FR Doc. E9-25577 Filed 10-22-09; 8:45 am]
BILLING CODE 8070-01-P