[Federal Register Volume 78, Number 19 (Tuesday, January 29, 2013)]
[Proposed Rules]
[Pages 6045-6056]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-01428]



[[Page 6045]]

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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1260

RIN 2590-AA35


Information Sharing Among Federal Home Loan Banks

AGENCY: Federal Housing Finance Agency.

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: Section 1207 of the Housing and Economic Recovery Act of 2008 
(HERA) amended the Federal Home Loan Bank Act (Bank Act) to require the 
Federal Housing Finance Agency (FHFA) to make available to each Federal 
Home Loan Bank (Bank) information relating to the financial condition 
of all other Banks. Section 1207 also requires FHFA to promulgate 
regulations to facilitate the sharing of such information among the 
Banks. FHFA published a proposed rule to implement those HERA 
provisions in late 2010, but, after reviewing the comments and 
reconsidering the proposed means of information sharing, FHFA has 
determined that a number of material changes to the rule are necessary. 
Therefore, it is publishing this second proposed rule to implement the 
provisions of section 1207.

DATES: Written comments must be received on or before April 1, 2013.

ADDRESSES: You may submit your comments, identified by regulatory 
information number (RIN) 2590-AA35, by any of the following methods:
     Email: Comments to Alfred M. Pollard, General Counsel may 
be sent by email to [email protected]. Please include ``RIN 2590-
AA35'' 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 email 
to FHFA at [email protected] to ensure timely receipt by FHFA. 
Please include ``RIN 2590-AA35'' in the subject line of the message.
     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-AA35, Federal 
Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., 
Washington, DC 20024.
     Hand Delivered/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA35, 
Federal Housing Finance Agency, Eighth Floor, 400 7th Street SW., 
Washington, DC 20024. The package should be logged at the FHFA Guard 
Desk, First Floor, on business days between 9 a.m. and 5 p.m.

FOR FURTHER INFORMATION CONTACT: Eric M. Raudenbush, Assistant General 
Counsel, Office of General Counsel, [email protected], (202) 
649-3084 (this is not a toll-free number); or Amy Bogdon, Associate 
Director for Regulatory Policy and Programs, Office of Program Support, 
Division of Bank Regulation, [email protected], (202) 649-3320 (this 
is not a toll-free number), Federal Housing Finance Agency, 400 Seventh 
Street SW., Washington, DC 20024. The telephone number for the 
Telecommunications Device for the Hearing Impaired 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. All 
comments received will be posted without change on the FHFA web site at 
http://www.fhfa.gov, and will include any personal information 
provided, such as name, address (mailing and email), and telephone 
numbers. In addition, copies of all comments received will be available 
without change for public inspection on business days between the hours 
of 10:00 a.m. and 3:00 p.m., at the Federal Housing Finance Agency, 400 
Seventh Street SW., Washington, DC 20024. To make an appointment to 
inspect comments, please call the Office of General Counsel at (202) 
649-3804.

II. Background

A. The Federal Home Loan Bank System

    The Federal Home Loan Bank System (Bank System) consists of twelve 
Banks and the Office of Finance (OF). The Banks are wholesale financial 
institutions organized under the Bank Act.\1\ The Banks are 
cooperatives; only members of a Bank may purchase its capital stock, 
and only members or certain eligible housing associates (such as state 
housing finance agencies) may obtain access to secured loans, known as 
advances, or other products provided by a Bank.\2\ Each Bank is managed 
by its own board of directors and serves the public interest by 
enhancing the availability of residential mortgage and community 
lending credit through its member institutions.\3\ Any eligible 
institution (generally a federally insured depository institution or 
state-regulated insurance company) may become a member of a Bank if it 
satisfies certain criteria and purchases a specified amount of the 
Bank's capital stock.\4\
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    \1\ See 12 U.S.C. 1423, 1432(a).
    \2\ See 12 U.S.C. 1426(a)(4), 1430(a), 1430b.
    \3\ See 12 U.S.C. 1427.
    \4\ See 12 U.S.C. 1424; 12 CFR part 1263.
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B. Banks' Joint and Several Liability and Disclosure Requirements on 
COs

    The Banks fund their operations principally through the issuance of 
consolidated obligations (COs), which are debt instruments issued on 
behalf of the Banks by the OF, a joint office of the Banks, pursuant to 
section 11 of the Bank Act,\5\ and part 1270 of the regulations of 
FHFA.\6\ Under these regulations, the COs may be issued only through OF 
as agent for the Banks, and the Banks are jointly and severally liable 
for the timely payment of principal and interest on all COs when 
due.\7\ Accordingly, even when COs are issued with one Bank being the 
primary obligor, the ultimate liability for the timely payment of 
principal and interest thereon remains with all of the Banks 
collectively, which creates a need for each Bank to be able to assess 
the financial condition of the other Banks.
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    \5\ 12 U.S.C. 1431.
    \6\ 12 CFR part 1270.
    \7\ See 12 CFR 1270.4(a), 1270.10(a).
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    Although the COs themselves are not registered securities under the 
federal securities laws, the Federal Housing Finance Board (Finance 
Board) \8\ adopted regulations in 2004 requiring each Bank to register 
a class of its common stock (which is issued only to its member 
institutions) with the Securities and Exchange Commission (SEC) under 
section 12(g) of the Securities Exchange Act of 1934 (1934 Act).\9\ 
Each Bank subsequently registered a class of its common stock with the 
SEC in compliance with that regulation. Separately, HERA included a 
provision requiring the Banks to register their common stock under 
section 12(g) of the 1934 Act, and to maintain that registration.\10\ 
Accordingly, each Bank remains subject to the periodic disclosure 
requirements established

[[Page 6046]]

under the 1934 Act, as interpreted and administered by the SEC.
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    \8\ The Federal Housing Finance Board was the regulator of the 
Bank System from 1989 through 2008. HERA, which abolished the 
Finance Board and established FHFA, provides that all regulations of 
the Finance Board shall remain in effect and shall be enforceable by 
the Director of FHFA until modified, terminated, set aside or 
superseded by the Director. See Public Law 110-289, Sec.  1312, 122 
Stat. 2798 (2008).
    \9\ 15 U.S.C. 78l(g). See 69 FR 38811 (June 29, 2004), codified 
at 12 CFR part 998.
    \10\ See 15 U.S.C. 78oo(b).
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C. New Statutory Provision Requiring the Sharing of Bank Information

    Section 1207 of HERA added a new section 20A to the Bank Act that 
requires FHFA to make available to each Bank such reports, records, or 
other information as may be available, relating to the condition of any 
other Bank in order to enable each Bank to evaluate the financial 
condition of the other Banks and the Bank System as a whole.\11\ The 
underlying objective for that requirement is to better enable each Bank 
to assess the likelihood that it may be required to make payments on 
behalf of another Bank under its joint and several liability on the 
COs, as well as to comply with disclosure obligations under the 1934 
Act regarding its potential joint and several liability.\12\ Section 
20A further requires FHFA to promulgate regulations to facilitate the 
sharing of such financial information among the Banks.\13\ Section 20A 
permits a Bank to request that FHFA determine that particular 
information that may otherwise be made available is ``proprietary'' (a 
term that is not defined in the Bank Act) and that the public interest 
requires that such information not be shared.\14\ Finally, section 20A 
provides that it does not affect the obligations of the Banks under the 
1934 Act and related regulations of the SEC, and that the sharing of 
Bank information thereunder shall not cause FHFA to waive any privilege 
applicable to the shared information.\15\
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    \11\ See 12 U.S.C. 1440a.
    \12\ See 12 U.S.C. 1440a(a).
    \13\ See 12 U.S.C. 1440a(b)(1).
    \14\ See 12 U.S.C. 1440a(b)(2).
    \15\ See 12 U.S.C. 1440a(c), (d).
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D. The First Proposed Rule

    On September 30, 2010, FHFA published in the Federal Register a 
proposed rule to implement section 20A of the Bank Act by adding to 
FHFA's regulations a new part 1260 to govern the sharing of information 
among the Banks and the OF. Under the proposed rule, FHFA also proposed 
to move to new part 1260, without substantive change, existing 
regulations of the Finance Board relating to the filing of regulatory 
reports by the Banks. The 60-day comment period closed on November 29, 
2010.\16\
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    \16\ See 75 FR 60347 (Sept. 30, 2010).
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    Under the first proposed rule, FHFA would have routinely 
distributed each Bank's report of examination (or such portions thereof 
deemed appropriate by FHFA), as well as any other supervisory report 
that FHFA presented to a Bank's board of directors, to each of the 
other Banks and the OF. This distribution would have occurred after 
affording the subject Bank a ten business day period following the 
presentation of the report to the Bank's board of directors within 
which to request that particular information contained in the report be 
withheld from distribution on the basis that it is proprietary and the 
public interest requires that it not be shared. The proposed rule would 
have provided that any sharing of information thereunder would not 
constitute a waiver by FHFA of any privileges with respect to the 
shared information and that, to the extent that the shared information 
qualified as ''unpublished information'' under part 911 of the 
regulations of the Finance Board, it would continue to qualify as such 
and would continue to be subject to the restrictions on disclosure set 
forth in part 911.\17\
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    \17\ See 12 CFR part 911.
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    FHFA received ten comment letters in response to the first proposed 
rule, all of which were sent by representatives of individual Banks--
specifically, the Atlanta, Chicago, Dallas, Des Moines, Indianapolis, 
New York, Pittsburgh, San Francisco, Seattle, and Topeka Banks. Seven 
of the commenters expressed general support for the rule, although 
several of those expressed concerns about possible disclosure of 
sensitive or confidential information that may be contained in Banks' 
reports of examination and several provided a number of recommendations 
regarding other changes and clarifications to be made in the final 
rule. The three remaining commenters expressed general opposition to 
the first proposed rule as written because they believed that the types 
of information proposed to be distributed thereunder--i.e., the Banks' 
reports of examination and other supervisory reports presented to a 
Bank's board of directors--would not serve the purposes underlying 
section 20A of the Bank Act. These commenters suggested alternative 
categories of financial information to be disseminated by FHFA (which 
are discussed in more detail below) that they asserted would better 
fulfill the intent behind section 20A, but did not otherwise comment on 
specific aspects of the first proposed rule.

III. The Second Proposed Rule

    Following the close of the comment period on the first proposed 
rule, FHFA reviewed all of the comments received and also analyzed more 
closely a number of issues underlying the rule, including the scope of 
information to be shared and how that scope might evolve over time. As 
a result of this analysis, FHFA concluded that the scope of information 
to be shared under the rule should be broader than that contemplated in 
the first proposed rule and that, because of frequent changes in the 
content and format of reports, analyses and databases that FHFA might 
distribute or make available under the rule, the precise items to be 
shared should be established by order of the Director of FHFA or his 
designee, as opposed to being enshrined in the rule text. The agency 
believes that these changes represent a significant enough departure 
from the approach taken in the first proposed rule to warrant the 
publication of this second proposed rule, which supersedes the first 
proposed rule.
    Under the new approach, the regulatory text of the proposed rule 
continues to address the procedures through which the information 
sharing is to be carried out and to set forth requirements intended to 
prevent or limit the disclosure of shared information to outside 
parties. With respect to the latter issue, FHFA has made a number of 
additions and changes in response to comments received. Specific 
comments, FHFA's responses, and differences between the first and 
second proposed rules are described in greater detail below in the 
sections describing the relevant rule provisions. In addition, the 
specific items that FHFA expects to distribute pursuant to the initial 
order issued by the Director or his designee under the rule are also 
discussed in detail.
    In addition to a number of substantive differences, this second 
proposed rule is also organized somewhat differently than the first 
proposal. Under the first proposed rule, the material currently 
contained in section 914.2 of the regulations of the Finance Board 
(which requires each Bank to file regulatory reports as required by its 
regulator), as well as related definitions set forth in section 914.1, 
would have been transferred to new part 1260 without substantive 
change.\18\ FHFA is no longer proposing to transfer this material to 
part 1260 because the agency now contemplates that it will separately 
adopt an equivalent regulatory provision that would be applicable to 
all of its regulated entities.\19\ Because part 1260 (and subchapter D 
of chapter XII, of which it is a part) is intended to

[[Page 6047]]

apply only to the Banks, the agency determined that it is not an 
appropriate location for that new provision. Also, in the first 
proposed rule, all of the new material governing the sharing of 
information among Banks (other than definitions) was contained in a 
single CFR section. In this second proposed rule, that substantive 
material has been broken into four separate CFR sections in order to 
provide greater clarity.
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    \18\ See 12 CFR part 914.
    \19\ In addition to the Banks, FHFA is also the regulator of 
Fannie Mae and Freddie Mac. See 12 U.S.C. 4502(20), 4511.
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A. Section 1260.1--Definitions

    As in the first proposed rule, Sec.  1260.1 of this proposed rule 
sets forth definitions of terms to be used in part 1260. Because the 
material that would have been transferred from part 914 of the Finance 
Board's regulations under the first proposed rule is not included in 
this proposed rule, the defined terms relating to that material have 
been removed from proposed Sec.  1260.1. In addition, definitions of 
the short forms ``Bank'' (for a Federal Home Loan Bank), ``Bank Act'' 
(for the Federal Home Loan Bank Act), and FHFA (for the Federal Housing 
Finance Agency) have been removed because those terms are now defined 
in 12 CFR 1201.1, which sets forth definitions of basic terms that are 
used throughout FHFA's regulations.\20\ Section 1201.1 also defines the 
terms ``SEC'' (meaning the United States Securities and Exchange 
Commission) and ``1934 Act'' (meaning the Securities Exchange Act of 
1934 (15 U.S.C. 78a et seq.)), which are used in this proposed rule, 
but which were not used in the first proposed rule.
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    \20\ See 78 Fed. Reg. 2319 (Jan. 11, 2013). New Sec.  1201.1 and 
related revisions to FHFA's regulations and those of the Finance 
Board become effective on February 11, 2013.
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    In this second proposed rule, FHFA has added definitions for the 
terms ``proprietary information'' (which is discussed below) and 
``unpublished information'' (cross-referencing the definition for that 
term set forth in 12 CFR 911.1). None of the commenters addressed the 
definitions set forth in the first proposed rule.

B. Section 1260.2--Sharing of Information Among the Banks

Reasoning Behind Revised Approach
    Section 1260.3(a) of the first proposed rule would have required 
that FHFA periodically distribute to each Bank and to the OF the final 
reports of examination (or such portions thereof that FHFA deemed 
appropriate) of all other Banks, as well as any other supervisory 
reports that FHFA presented to the board of directors of a Bank, 
subject to the requirements set forth in the remainder of the rule. In 
the first proposed rule, the agency also requested comments on whether 
the rule should allow the Director or his designee to expand the 
categories of information to be distributed thereunder by means of an 
order or other agency action without the need for subsequent amendment 
of the rule.
    Seven commenters expressly supported the sharing of final reports 
of examination for each Bank, and six also expressly supported the 
sharing of other supervisory reports presented to a Bank's board of 
directors by FHFA. Five commenters expressly supported the exclusion of 
findings and conclusions memoranda, work programs and other supervisory 
materials not presented to a Bank's board of directors from the 
information sharing required under the rule, while no commenters 
favored sharing these types of materials. Several of the commenters who 
generally supported the sharing of final supervisory reports requested 
that FHFA also distribute any response from a Bank's management to a 
report of examination, stating that this would provide insight into how 
other Banks address the issues raised. All of the commenters who 
supported the sharing of final reports of examination also expressed 
concern about the possible disclosure of sensitive or confidential 
information that may be contained in the reports and offered a number 
of suggestions about how such disclosure could be prevented. As 
discussed further below, three of the commenters generally opposed the 
sharing of final reports of examination because they believed the 
reports would be of questionable usefulness in assessing a Bank's 
current and future ability to make payments on its COs.
    As stated in the SUPPLEMENTARY INFORMATION to the first proposed 
rule, each Bank already has access to a significant amount of 
information about the financial condition of the other Banks, including 
reports filed with the SEC under the 1934 Act, call reports filed with 
FHFA, quarterly certifications filed with FHFA attesting to each Bank's 
ability to make full and timely payments on its current obligations 
during the next quarter, FHFA's Annual Report to Congress (required 
under 12 U.S.C. 4521(a)), and various other reports and summaries 
prepared by FHFA. FHFA approached the first proposed rule principally 
as a means of providing for the distribution of additional types of 
Bank information above and beyond the substantial amount of information 
to which the Banks already have access. As reflected in the first 
proposed rule, the agency believed that, given the volume of 
information that is already available to the Banks, the most useful 
source of additional information would be the Banks' reports of 
examination. Thus, the first proposed rule focused upon providing each 
Bank's full report of examination to all of the other Banks, with 
appropriate redactions for proprietary information meeting the criteria 
stated in section 20A of the Bank Act.
    In the process of developing a final rule, FHFA reconsidered both 
the procedural and substantive aspects of the first proposed rule and, 
based on both comments received and on internal discussions, ultimately 
concluded that two major changes were warranted that would improve on 
the substance of the first proposed rule. First, FHFA concluded that 
the specific categories of information to be distributed under the 
regulation should not be identified in the rule itself, but by means of 
a Director's order. Second, FHFA concluded that such an order should 
address not only new categories of information to be shared, but also 
the many types of Bank-related financial data and reports that FHFA 
already distributes, or makes available, to the Banks. Accordingly, 
Sec.  1260.2 of this proposed rule provides that the specific 
categories of information to be distributed to the Banks and the OF 
would be established by means of an order issued by the Director of 
FHFA or by a senior agency official designated by the Director pursuant 
to an appropriate delegation of authority. In keeping with the apparent 
intent behind section 20A of the Bank Act, the categories of 
information that could be included in such an order would be limited to 
financial and supervisory information regarding the Banks, either 
individually or collectively.
    FHFA believes that, on balance, this approach will better fulfill 
the purposes of section 20A by allowing the scope of information shared 
to evolve more readily to meet the information needs of the Banks. 
Depending on the types of financial and supervisory issues that the 
Bank System may be facing at any given time, FHFA may occasionally 
prepare a single report on a specific topic, or may prepare a 
particular report for a limited period of time and then, for various 
reasons, either discontinue the report or combine it with another 
report. Even reports that are prepared regularly over an extended 
period of time often evolve in terms of format, content or title--
again, sometimes in response to the changing issues that the Bank 
System may be facing, or sometimes merely to make them more useful for 
the purposes for which they were intended. This flexible approach to 
the preparation and

[[Page 6048]]

distribution of Bank information has worked well to this point, and 
FHFA believes that it would be appropriate to incorporate that approach 
into this proposed information sharing regulation, rather than to 
continue with the original approach of specifying the items of shared 
information in the regulatory text. FHFA believes that to impose upon 
itself the obligation to undertake a full notice-and-comment rulemaking 
every time it seeks to alter the format or content of a report, or 
determine that it is appropriate to share a new category of 
information, would undermine its ability to provide the Banks with the 
type of appropriate and timely financial information that section 20A 
requires to be shared.
    In the SUPPLEMENTARY INFORMATION to the first proposed rule, FHFA 
requested comment on whether the final rule should allow FHFA to expand 
the categories of information to be disseminated to the Banks without 
undertaking a subsequent rulemaking. Three commenters expressly 
supported allowing FHFA to expand the categories of information to be 
shared without a rulemaking, as long as the Banks are given a 
reasonable opportunity for informal review and comment on any changes 
in advance. No commenters objected to including such a provision.
    FHFA recognizes that there are advantages to allowing the Banks an 
informal opportunity to provide input on the types of information that 
would be most useful to them and also on the types of information that 
they believe should not be disclosed to other Banks. To this end, Sec.  
1260.2 of this proposed rule would require that FHFA provide the Banks 
with reasonable notice and an opportunity to comment before issuing an 
order that would establish or amend the scope of information to be 
shared under the rule. The inclusion of this provision will allow FHFA, 
in consultation with the Banks, to make appropriate adjustments to the 
scope of information being shared as both gain more experience in the 
process, without the necessity of revising the rule. Thus, if it 
becomes apparent over time that it is appropriate to distribute a wider 
range of information, this can be accomplished by means of a written 
order issued under Sec.  1260.2.
    In order to provide the Banks and the OF, as well as other 
interested parties, the fullest opportunity to consider and comment 
upon the range of information that FHFA expects to include in the 
initial order issued under a final information sharing rule, these 
items are set out and discussed below. Similarly, the agency intends to 
publish the final rule and the initial distribution order concurrently 
so as to provide the greatest possible clarity regarding the scope and 
effect of the final rule. If the list of information to be shared under 
the distribution order that is published with the final rule is 
substantially identical to that described in this Supplementary 
Information, no further opportunity to comment on the contents of the 
order will be provided to the Banks--i.e., FHFA will consider the 
notice and opportunity to comment provided by this proposed rule to 
have fulfilled the requirements of Sec.  1260.2. However, if the list 
of information to be shared under that order differs materially from 
that described in this Supplementary Information, a further opportunity 
to comment will be provided to the Banks in accordance with the 
provisions of the rule. To be clear, proposed Sec.  1260.2 would not 
require this type of formal notice-and-comment process when a 
distribution order is issued or amended; and if that provision is 
adopted substantially as proposed, the agency anticipates that it would 
typically use a less formal notice-and-comment process when it issues 
or amends a distribution order.
Anticipated Scope of Information Sharing Under Initial Distribution 
Order
    As mentioned, FHFA already provides each Bank with a substantial 
amount of financial information about the other Banks--both in the form 
of raw data and in the form of analytical reports based on raw data. 
FHFA believes that, for the sake of clarity and efficiency, as well as 
to be consistent with the HERA mandate for information sharing, those 
existing distributions of information should also be governed by the 
procedures and requirements that would be established under a final 
information sharing rule. Thus, the agency expects that the initial 
distribution order issued under the rule would bring within the purview 
of the rule the following categories of information that are currently 
made available to the Banks: (1) Information uploaded by each Bank to 
FHFA's call report system (CRS) electronic database (excluding Bank 
membership information) \21\; (2) information about the Banks that is 
presented in FHFA's semi-annual ``Profile of the Federal Home Loan Bank 
System'' report prepared by FHFA's Division of Bank Regulation (DBR) 
\22\; (3) information relating to the weekly report on Bank liquidity 
prepared by DBR; and (4) information relating to the quarterly report 
on Bank membership prepared by DBR. In addition, FHFA anticipates that 
the initial order would also provide for the distribution of three new 
categories of information: (1) The ``Summary and Conclusions'' portion 
of each Bank's report of examination; (2) a quarterly statement, to be 
prepared by FHFA, indicating whether each Bank has timely filed with 
FHFA the quarterly liquidity certification required pursuant to 12 CFR 
1270.10(b)(1); and (3) a statement, to be prepared by FHFA as 
circumstances warrant, identifying any Bank that has notified FHFA 
pursuant to 12 CFR 1270.10(b)(2) of any actual or anticipated liquidity 
problems and describing the nature of the liquidity problems. Each of 
these new categories of information is described below.
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    \21\ Banks currently are not permitted to access detailed 
information about other Banks' members that is contained in the CRS 
database because FHFA considers this to be proprietary information. 
FHFA does not intend to share this information under the initial 
distribution order to be issued under a final rule.
    \22\ DBR also prepares more detailed semi-annual profiles of the 
individual Banks which currently are shared only with the subject 
Bank and not with other Banks or the OF. Because these individual 
Bank profiles often contain proprietary information regarding a 
Bank's members, as well as assessments based upon detailed 
information from the Bank's report of examination, FHFA does not 
intend to share this information under the initial distribution 
order to be issued under a final rule.
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Banks' Reports of Examination
    The first proposed rule contemplated that FHFA would routinely 
distribute each Bank's report of examination in its entirety, subject 
to the proviso that FHFA reserved the right to narrow the distribution 
to those portions of the report that FHFA deemed appropriate. FHFA 
carefully considered comments received, as well as the requirements of 
section 20A of the Bank Act, and the agency's statutory 
responsibilities as regulator and supervisor of the Bank System and has 
decided that a narrower approach to the sharing of the reports of 
examination would be more appropriate. The reason for this modified 
approach is to ensure that each Bank receives the information necessary 
to assess the condition of the other Banks and to make legal 
disclosures regarding its potential joint and several liability without 
damaging the integrity of the Bank examination process. Candid 
communication--both by Bank employees and by FHFA examiners--is a 
critical element of the examination process. The agency has 
reconsidered whether the distribution of full final reports of 
examination, as provided in the first proposed rule, might inhibit 
candid communications between Bank employees and FHFA examiners, 
thereby compromising the Bank examination process and

[[Page 6049]]

undermining FHFA's ability to carry out its supervisory 
responsibilities. These concerns regarding the examination process were 
reflected indirectly in Sec.  1260.3(a) of the first proposed rule, 
under which FHFA would have reserved the authority to distribute only 
``such portions'' of the reports of examination that the agency 
``deem[ed] appropriate.'' Despite the fact that the first proposed rule 
would have allowed FHFA to redact certain portions of a report of 
examination, the agency now believes that it is preferable to take a 
more explicit and standardized approach to identifying the portions of 
the report of examination that will be provided to the other Banks and 
the OF.
    Accordingly, FHFA expects that, under the initial distribution 
order, it would routinely distribute to the Banks and the OF the 
material that is currently contained in the ``Summary and Conclusions'' 
portion of each Bank's final annual report of examination. With respect 
to the timing of these distributions, FHFA anticipates that the initial 
order will reflect the approach from the first proposed rule, which is 
that each distribution would be made soon after FHFA has presented the 
final report to the subject Bank's board of directors. The Federal Home 
Loan Bank Examination Manual issued by FHFA requires that the Summary 
and Conclusions section contain an evaluation of the overall condition 
and practices of the Bank, as well as a table that depicts the date and 
examination ratings (both composite and component ratings) for the 
current examination and the previous examination.\23\ This must be 
followed by a concise discussion of the composite rating which 
addresses any component that is a significant factor in the composite 
rating or has changed since the previous examination. Thus, the agency 
anticipates that the order would provide for the distribution of those 
portions of each Bank's exam report that set forth: (i) The Bank's 
composite rating and component ratings for the current and prior 
examination; (ii) a summary of the basis for the current composite 
rating (including any component that is a significant factor in the 
composite rating) and any changes to the composite or component ratings 
since the last examination; and (iii) the conclusion regarding the 
overall condition and practices of the Bank and the analysis used to 
reach that conclusion. FHFA would not distribute the portions of any 
report of examination in which the component examination ratings are 
discussed or analyzed in detail or in which the ``matters requiring 
attention'' of the Bank's board of directors are enumerated or 
discussed.\24\
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    \23\ The Federal Home Loan Bank Examination Manual can be found 
at http://www.fhfa.gov/webfiles/2652/FHFB%20Manual.pdf.
    \24\ Component ratings are currently given for: (1) Corporate 
governance; (2) market risk; (3) credit risk; (4) operational risk; 
and (5) financial condition and performance. FHFA is adopting a new 
examination ratings system, effective January 1, 2013, under which 
component ratings will be given for: (1) Capital; (2) asset quality; 
(3) management; (4) earnings; (5) liquidity; (6) sensitivity to 
market risk; and (7) operational risk. See 77 FR 67644 (Nov. 13, 
2012).
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    Under the initial order, FHFA would not distribute any other 
supervisory reports that it may present to the board of directors of a 
Bank, as would have been the case under the first proposed rule. In 
addition, FHFA does not anticipate providing in the initial order for 
the sharing of Bank managements' responses to reports of examination, 
as suggested by one commenter. FHFA examiners discuss findings with 
Bank management prior to the preparation of a final report of 
examination, which discussions provide examiners with insights into the 
opinions and reactions of Bank management. FHFA believes that 
disclosure of such communications between management and the 
examination team is not essential to understanding the financial 
condition of the Bank, and could hamper the open and honest 
communication that is required to carry out the examination process 
effectively.
Banks' Quarterly Liquidity Certifications and Related Liquidity Notices
    As mentioned above, three commenters generally opposed the sharing 
of final reports of examination and other supervisory reports presented 
by FHFA to a Bank's board of directors. All three of these viewed the 
purpose behind section 20A of the Bank Act as being limited strictly to 
providing each Bank with sufficient information to evaluate the 
financial condition of the other Banks in order to assess the 
likelihood that it may be called upon to make payments on another 
Bank's COs under the joint and several liability provisions of the Bank 
Act. None of these commenters believed that the sharing of final 
supervisory reports would be an effective method of achieving this goal 
because they argued that these reports address topics that are not 
necessarily related to a Bank's financial condition and are not 
designed to provide real-time financial information that would aid in 
evaluating joint and several liability. All three of these commenters 
advocated that FHFA include in its final rule an alternative provision 
requiring FHFA to confirm to all of the Banks, on a quarterly basis, 
that each of the other Banks has submitted a certification that it 
remains capable of making full and timely payment of all of its current 
obligations coming due during the next quarter, as required under Sec.  
1270.10(b)(1) of FHFA's regulations.\25\ In response to this comment, 
FHFA proposes that the initial distribution order provide for the 
regular distribution of a statement by FHFA confirming that each Bank 
has filed its quarterly liquidity certification, as well as a statement 
by FHFA about any notices that may be submitted by a Bank about 
liquidity problems, as required by Sec.  1270.10(b)(2) of the 
regulations.\26\
---------------------------------------------------------------------------

    \25\ 12 CFR 1270.10(b)(1).
    \26\ 12 CFR 1270.10(b)(2).
---------------------------------------------------------------------------

    Section 1270.10(b)(1) of the regulations requires that, before the 
end of each calendar quarter, and before declaring or paying any 
dividend for that quarter, the President of each Bank certify in 
writing to FHFA that, based on known current facts and financial 
information, the Bank will remain in compliance with all statutory and 
regulatory liquidity requirements and will remain capable of making 
full and timely payment of all of its current obligations coming due 
during the next quarter. In addition, Sec.  1270.10(b)(2) requires that 
a Bank provide immediate notice to FHFA if the Bank: (i) Is unable to 
provide the written certification required by paragraph (b)(1); (ii) 
projects at any time that it will fail to comply with statutory or 
regulatory liquidity requirements, or will be unable to timely and 
fully meet all of its current obligations due during the quarter; (iii) 
actually fails to comply with statutory or regulatory liquidity 
requirements or to timely and fully meet all of its current obligations 
due during the quarter; or (iv) negotiates or enters into an agreement 
with one or more other Banks to obtain financial assistance to meet its 
current obligations due during the quarter.
    FHFA proposes that the initial distribution order provide that, 
following the end of each calendar quarter, FHFA distribute a statement 
indicating whether each Bank has timely filed the quarterly 
certification relating to the Bank's anticipated compliance with 
liquidity requirements and its anticipated ability to meet its 
obligations coming due during the following calendar quarter, as 
required by Sec.  1270.10(b)(1). For example, soon after the end of the 
first calendar quarter of a year, FHFA would distribute a

[[Page 6050]]

statement indicating for each Bank whether, prior to the end of the 
first quarter, the Bank filed the required certification regarding its 
ability to meet liquidity requirements and meet its obligations during 
the second quarter. The order would also provide that, following its 
receipt of any notice filed under Sec.  1270.10(b)(2), FHFA distribute 
to all of the other Banks and the OF a statement identifying the Bank 
that filed the notice and describing the nature of the notice. In this 
statement, FHFA would provide whatever additional information about the 
notice that it deems appropriate under the circumstances. At present, 
certain of the Banks individually ask FHFA whether the other Banks have 
made their quarterly liquidity certifications, and FHFA responds to 
those requests individually by confirming its receipt of the 
certifications from the other Banks. By incorporating this information 
into the HERA-mandated information sharing regime, FHFA would make this 
information available to all of the Banks, not just those who ask for 
it.
Other Information Which May Be Shared in the Future
    In various combinations, the three commenters who advocated the 
sharing of information about the liquidity filings made under Sec.  
1270.10(b) also supported the quarterly distribution of certain other 
financial information regarding each Bank. The suggested financial 
information included, for each Bank: net income projections and 
anticipated material losses; projected dividend rates; impairments of 
assets; concentrations of advances and exposures to derivatives 
counterparties and mortgage insurers; market risk limit measures, 
including key rate durations; liquidity information; member collateral 
shortfalls; unsecured credit exposures; and FHFA's intended actions if 
a Bank is expected to default on its upcoming obligations. Certain of 
this financial information, such as that relating to concentration of 
advances to members, exposures to derivatives counterparties, other 
unsecured credit exposures, and liquidity requirements, is already 
available through the Banks' federal securities filings, which may 
lessen the need to include it within the HERA-mandated information 
sharing regime. Because of that, FHFA does not currently anticipate 
that the initial distribution order would require the distribution of 
those items, but recognizes that, after FHFA and the Banks have gained 
further experience with the substance and mechanics of the information 
sharing process, it may be appropriate to include similar types of 
information within the information sharing regime. Accordingly, FHFA 
requests comments on what types of financial information, beyond those 
already available to the Banks through the federal securities filings 
and the FHFA's call report data base, might be appropriate for FHFA to 
include within the information sharing regime, either as part of the 
initial distribution order or subsequently.
    FHFA also requests comments on whether it would be useful for the 
agency to distribute under this rule a weekly DBR report on the Banks' 
unsecured credit exposure. As required under Sec.  1273.6(f) of FHFA's 
regulations, the OF currently collects from each Bank data relating to 
the Bank's unsecured credit exposure to individual counterparties and, 
from this data, compiles and distributes to the Banks a monthly 
report.\27\ These reports may be of limited practical value given that 
the data is typically about 20 days old by the time the report is 
distributed and that the vast majority of the Banks' unsecured credit 
exposure occurs in the form of overnight transactions. In order to 
address these shortcomings, DBR recently has been preparing for its own 
internal use a weekly report that covers the Banks' credit exposures 
arising from repurchase transactions (which are not covered by the 
existing OF report, but which can constitute a significant portion of 
the Banks' exposure to foreign counterparties), as well as the forms of 
unsecured credit exposure that are addressed in the OF report. The new 
DBR report is typically completed within one day of FHFA's receipt of 
the data and assesses the Banks' exposure based upon seven-day 
averages, rather than as of a single point-in-time, as is the case with 
the OF report. Although FHFA has not yet determined whether it will 
continue to compile these reports or whether it will distribute them to 
the Banks on a regular basis, the agency seeks comment on whether 
regular distribution of these reports to the Banks would further the 
purposes of section 20A of the Bank Act.
---------------------------------------------------------------------------

    \27\ See 12 CFR 1273.6(f).
---------------------------------------------------------------------------

FHFA as Information Clearinghouse
    Like the first proposed rule, this proposed rule requires that FHFA 
act as the clearinghouse for the sharing of information under section 
20A of the Bank Act, and provides no mechanism for the direct sharing 
of such information among Banks. Four commenters expressly supported 
this approach, and none objected. One commenter requested that the 
final rule contain an explicit statement that it governs the entirety 
of a Bank's right to receive shared information under section 20A of 
the Bank Act and that no Bank is permitted to receive such information 
unilaterally from FHFA or another Bank. FHFA has not included such a 
statement in this proposed rule. In part, this is because part 911 of 
the Finance Board's regulations, which continues to govern the control 
of unpublished information,\28\ already prohibits a Bank from 
disclosing information created or obtained by the Finance Board or FHFA 
in connection with the performance of official duties, including 
reports of examination and supervisory correspondence, without prior 
written authorization from FHFA.\29\ The first proposed rule would not 
have authorized any direct sharing of unpublished information among the 
Banks and no such authorization has been included in this proposed 
rule. In order to preserve its ability to provide written authorization 
for the disclosure of unpublished information as circumstances warrant, 
FHFA has declined to include in this proposed rule a blanket 
prohibition on the direct sharing of such materials. In addition, there 
is no basis upon which FHFA may prohibit a Bank from sharing financial 
information that does not qualify as unpublished information under part 
911, even if it is shared with one or several Banks to the exclusion of 
others. Moreover, the Banks currently share certain non-confidential 
information among themselves on an informal basis--a practice that FHFA 
does not want to discourage, as could be the case if the proposed rule 
were to include a

[[Page 6051]]

prohibition such as that raised by the commenters.
---------------------------------------------------------------------------

    \28\ In this issue of the Federal Register, FHFA is also 
publishing a proposed rule which would replace part 911 with new 
regulations governing the control of unpublished information (which 
is referred to as ``non-public information'' in that proposed rule). 
If adopted in final form as proposed, those new regulations would be 
identical in effect to the provisions of part 911 that are 
referenced in the regulatory text of this proposed rule and that are 
discussed in this Supplementary Information. Should FHFA's final 
rule on non-public information differ materially from the proposed 
rule with respect to those provisions, these changes will be 
addressed and appropriately accounted for in the final version of 
this rule.
    \29\ See 12 CFR 911.3(c)(1). In 2006, the Finance Board issued 
an Advisory Bulletin that permitted a Bank to disclose the factual 
content of information contained in its report of examination, if 
necessary in the preparation of its SEC disclosures, but continued 
to prohibit the Banks from releasing the report of examination 
itself, or any portion of the report. See Federal Housing Finance 
Board Advisory Bulletin 2006-AB-03 (July 18, 2006) (available online 
at http://www.fhfa.gov/webfiles/13094/2006-AB-03.pdf). The Advisory 
Bulletin also specifically prohibited the sharing of reports of 
examination among the Banks, and nothing in the second proposed rule 
is intended to override this restriction.
---------------------------------------------------------------------------

    The centralized distribution process reflected in this proposed 
rule represents the agency's best initial judgment as to the 
appropriate way to implement section 20A. FHFA intends to undertake the 
distribution of Bank information within the parameters of part 1260, 
but will assess the process on an ongoing basis and make such 
adjustments within those parameters, or take such other steps 
(including amending the rule if appropriate), as it determines are 
necessary to most effectively fulfill the statutory information sharing 
mandate.
    For similar reasons, FHFA has declined a request made by three 
commenters that the final rule specify that FHFA is to distribute 
information directly to the chief executive officer of each Bank and of 
the OF. Although the agency intends to provide guidance as to the 
specifics of the distribution process (probably as part of the 
distribution orders), FHFA believes that these specifics should not be 
enshrined in the regulation. FHFA already communicates with the Banks 
through various secure means, and other such approaches may be 
developed over time. To require FHFA to undertake a new rulemaking to 
make the necessary adjustments would hinder the ability of the agency 
to carry out the distribution process in the most effective manner. 
FHFA believes that the restrictions on disclosure of information by 
Banks and their directors, officers and employees set forth in Sec.  
1260.5 of this proposed rule (discussed in detail below) and elsewhere 
are sufficient to protect confidential information. Within those 
parameters, each Bank must establish its own policies and procedures to 
govern access to the shared information.

C. Section 1260.3--Requests To Withhold Proprietary Information

    As required under section 20A of the Bank Act, Sec.  1260.3(b)(1) 
of the first proposed rule would have permitted a Bank to request in 
writing that FHFA withhold from distribution particular information 
contained in a report of examination, so long as the Bank could 
demonstrate that the information is proprietary and the public interest 
requires that it not be shared. The first proposed rule would have 
given a Bank ten business days following the presentation of a report 
to its board of directors within which to make such a request. Section 
1260.3(b)(2) of the first proposed rule would have required the 
Director of FHFA or his designee to make a prompt, non-appealable 
determination as to whether to redact the subject information from the 
report to be distributed and to notify the affected Bank of its 
decision.
    In this proposed rule, FHFA has restructured the provisions 
regarding the withholding of proprietary information, primarily to 
correspond to the changes that are proposed to be made to the scope of 
information to be shared under the rule, but also to provide greater 
clarity and in response to some of the comments received on the first 
proposed rule. Those provisions are located in Sec.  1260.3 of this 
proposed rule. It has also added a definition of the term ``proprietary 
information'' to Sec.  1260.1 in order to clarify the standards to be 
applied in making proprietary determinations under the rule and to 
ensure that those standards are consistent with standards that FHFA 
applies when it makes proprietary determinations in other contexts.
    Section 1260.3(a) provides that a Bank may request in writing that 
FHFA withhold from distribution particular information relating to the 
Bank on the grounds that it is proprietary information and the public 
interest requires that it not be shared. Section 1260.3(a) would also 
require that, in order for a request to be considered by FHFA, the 
request must identify the particular information the Bank believes 
should be withheld and provide support for the assertions that it is 
proprietary information and that withholding such information from the 
other Banks and the OF is necessary to protect the public interest. The 
primary purpose of this provision is to make clear that, in preparing a 
request to withhold particular information, a Bank must be able to 
demonstrate that it meets both the ``public interest'' and the 
``proprietary information'' elements of the statutory test. An 
assertion that a piece of information is ``proprietary information,'' 
without more, is not sufficient under the statute to justify 
withholding the information.
    Proposed Sec.  1260.1 defines the term ``proprietary information'' 
to mean ``information that contains trade secrets, or privileged or 
confidential commercial or financial information that, if shared among 
the Banks and the Office of Finance as provided under this part, would 
likely cause substantial competitive harm to the Bank to which the 
information pertains.'' Because neither section 20A nor any other 
provision of the Bank Act defines the term ``proprietary,'' FHFA looked 
to the Freedom of Information Act (FOIA) and related case law in 
formulating the proposed definition. Specifically, the definition is 
based largely upon the language of section 552(b)(4) of FOIA (Exemption 
4), which exempts from FOIA's public disclosure requirements ``trade 
secrets and commercial or financial information obtained from a person 
and privileged or confidential.'' \30\ The definition also incorporates 
language from a line of judicial interpretations of Exemption 4 
requiring that disclosure of the information in question be ``likely * 
* * to cause substantial harm to the competitive position of the person 
from whom the information was obtained'' in order for that information 
to qualify for exemption from FOIA disclosure pursuant to that 
provision.\31\
---------------------------------------------------------------------------

    \30\ See 5 U.S.C. 552(b)(4).
    \31\ See, e.g., National Parks & Conservation Ass'n v. Morton, 
498 F.2d 765, 770 (DC Cir. 1974).
---------------------------------------------------------------------------

    Although the term ``proprietary'' does not actually appear in the 
statutory text of FOIA, courts interpreting FOIA Exemption 4 generally 
have treated that provision as referring to proprietary 
information.\32\ FHFA has chosen to take this approach in part because 
it will allow the agency to draw upon the substantial body of case law 
interpreting Exemption 4 if called upon to make a proprietary 
determination under section 20A (although in doing so FHFA will not be 
bound by FOIA, its legislative history, or Exemption 4 case law). In 
addition, the proposed definition parallels the regulatory definition 
that FHFA applies when determining whether particular data constitutes 
``proprietary information'' that must be excluded from the electronic 
``Public Use Database'' of information on mortgages purchased by Fannie 
Mae and Freddie Mac that the agency is required by statute to maintain 
and make available to the public.\33\ However, unlike determinations 
made

[[Page 6052]]

under the Public Use Database regulations, in order for information to 
be withheld from distribution under section 20A and this rule, a Bank 
must establish not only that the information is proprietary, but also 
that the public interest requires that it not be distributed. 
Accordingly, it is possible that, under this rule, FHFA may find it 
necessary to distribute information that qualifies as ``proprietary'' 
where the distribution of that information is necessary or appropriate 
to fulfill the purposes of section 20A.
---------------------------------------------------------------------------

    \32\ See, e.g., Public Citizen Health Research Group v. FDA, 704 
F.2d 1280 (DC Cir. 1983). In Public Citizen, the U.S. Court of 
Appeals for the District of Columbia Circuit clarified that, in 
order to meet the ``competitive harm'' requirement imposed by 
National Parks and its progeny, the harm arising from disclosure of 
the information at issue must ``flow[] from the affirmative use of 
proprietary information by competitors.'' See id. at 1291 n.30.
    \33\ See 12 U.S.C. 4543. The definition of ``proprietary 
information'' that FHFA uses in such cases is actually contained in 
the regulations of the Department of Housing and Urban Development 
(HUD), see 24 CFR 81.2, which was responsible for maintaining the 
Public Use Database (PUDB) until Congress transferred responsibility 
for that function to FHFA in 2008. In developing its definition of 
``proprietary information,'' HUD drew from FOIA Exemption 4 and 
related case law in part so that it would be able to draw upon the 
body of FOIA law when making proprietary determinations under its 
PUDB regulations. See 60 Fed. Reg. 61846, 61877 (Dec. 1, 1995). FHFA 
expects to propose new PUDB regulations in the near future and 
anticipates that those regulations will contain a definition of 
``proprietary information'' that is substantially similar to the one 
contained in the current HUD-promulgated PUDB regulations.
---------------------------------------------------------------------------

    Section 1260.3(b) of this proposed rule addresses the required 
timing of requests from the Banks to withhold proprietary information. 
Paragraph (b)(1) establishes general rules for requests relating to 
information submitted by the Banks, as well as for requests relating to 
information created by FHFA, such as reports of examination. Paragraph 
(b)(2) provides an exception to the general rules, which would allow 
the Director to establish different timeframes for particular 
categories of information that may be distributed pursuant to a 
distribution order issued under Sec.  1260.2. For information that a 
Bank submits to FHFA, subparagraph (b)(1)(i) provides that the agency 
would consider only those requests that were received prior to, or 
simultaneously with, the Bank's submission of the information to FHFA. 
For example, if a Bank were to believe that elements of the data that 
it uploads into FHFA's CRS database met the statutory standards for 
being withheld from distribution, it would be required to submit its 
request to FHFA no later than the time at which it uploads the data. 
Otherwise, it would forgo the right to object at a later time to FHFA's 
distribution of that data--whether the data was made available in raw 
form (for example, as data accessible to other Banks in the CRS) or in 
modified form (for example, as part of comparisons with the data of 
other Banks, as presented in the Bank System Profile Book or other 
reports on the Banks or Bank System).
    The reasoning behind this approach for Bank-submitted information 
is three-fold. First, this type of information is likely to serve the 
purposes underlying section 20A of the Bank Act only if other Banks are 
able to access it in a timely fashion. To allow a Bank a multi-day 
period within which to ask that portions of the information be withheld 
would introduce an unnecessary delay in the process and could lead to 
the risk that the information will be stale by the time it is received 
by other Banks, thus undermining the purpose of the information sharing 
scheme. For example, FHFA currently distributes to the Banks a weekly 
liquidity report, which it could not continue to do with the same 
timeliness if Banks had an opportunity to object to the distribution of 
portions of each week's data. Second, because the Banks themselves 
prepare the information and would be aware of its probable 
distribution, the marginal utility of providing them with an additional 
period of time in which to review the information for proprietary 
material would not outweigh the need to distribute the information in a 
timely manner. Finally, the vast majority of the data that Banks submit 
to FHFA through the CRS and in response to special data requests is in 
the form of numbers reflecting past financial performance, which data 
is unlikely to contain anything that could be considered proprietary in 
nature.
    For information to be distributed other than that which is 
submitted to FHFA by the Banks themselves, subparagraph (b)(1)(ii) 
would permit each Bank ten business days after being provided a copy of 
the information within which to review that information for proprietary 
material and to deliver to FHFA a request to withhold. This is 
substantially identical to the approach reflected in the first proposed 
rule with respect to Banks' reports of examination and, in fact, would 
apply in the same way to that information under this proposed rule.
    As mentioned, paragraph (b)(2) of Sec.  1260.3 would allow FHFA, as 
part of an order issued by the Director or his designee under Sec.  
1260.2, to establish requirements for the timing of requests to 
withhold for any category of information to be distributed under such 
an order. Paragraph (b)(2) requires that, in establishing any such 
requirements, the Director or his designee must consider the volume and 
complexity of the information to be reviewed, the Bank's existing 
familiarity with the information, the frequency of submission or 
distribution of the information, the likelihood that the information 
will contain proprietary information, and the effect that any delay in 
the distribution of the information would have on the fulfillment of 
the purposes of section 20A(a) of the Bank Act.
    FHFA anticipates that, for the sake of clarity, when it issues the 
initial distribution order identifying the particular categories of 
information to be disclosed, it also would specify which information is 
subject to the ``time of submission'' provision and which is subject to 
the ``10 business day'' provision, described above. For example, FHFA 
anticipates that the initial order would specify that a Bank will have 
ten business days following the date on which FHFA presents a report of 
examination to the Bank's board of directors within which to request 
that FHFA redact particular proprietary information before distributing 
it to the other Banks--i.e., the request would need to be filed before 
the close of business on the tenth business day following the 
presentation of the report to the Bank's board. Similarly, the initial 
distribution order would likely reiterate that the Banks will be 
required to file requests to withhold data uploaded to the CRS, 
information submitted in response to a special data request or 
liquidity certifications and notices at or before the time that such 
information is submitted to FHFA.
    Section 1260.3(c) of this proposed rule provides that, after 
receiving a written request that meets the form and timing requirements 
of paragraphs (a) and (b) of Sec.  1260.3, the Director or his designee 
shall promptly determine whether to withhold any information from 
distribution, which determination is final. Paragraph (c) would also 
require that FHFA notify the affected Bank of its determination and 
prohibit FHFA from distributing the information that is the subject of 
the request until it has provided the required notice to the Bank.
    Three commenters supported the first proposed rule's provision for 
the withholding of proprietary information when doing so is found to be 
in the public interest, while no commenters objected to the withholding 
of such information, or to the finality of FHFA's determination 
regarding the information requested to be withheld. A number of 
commenters requested that the final rule provide a mechanism for the 
withholding of categories of information in addition to that which FHFA 
deems to be proprietary and in the public interest to withhold. Seven 
commenters expressed concern over the possible disclosure of 
information that is subject to confidentiality agreements with third 
parties, or confidentiality provisions of license agreements. Five 
commenters stated that because each Bank is a separate legal entity, 
providing a Bank with access to sensitive or confidential strategic, 
operational, regulatory and business information may not be 
appropriate. Six commenters stated that sensitive information, such as 
that identifying personnel, or describing personnel matters, should not 
be distributed.
    FHFA has declined to include in this proposed rule additional bases 
upon which the Banks may request the

[[Page 6053]]

withholding of information beyond that which is mandated by section 20A 
of the Bank Act. While section 20A does not expressly limit the bases 
upon which a Bank may request that FHFA withhold information, the fact 
that the statute expressly permits Banks to request the withholding 
only of proprietary information and requires a conclusion that any 
withholding of such information be in the public interest is a strong 
indication that the intent of Congress was to limit the types of 
information which the Banks could request to be withheld. FHFA believes 
that the concerns raised by the commenters will be mitigated by the 
fact that only the summary portions of the Banks' reports of 
examination would be distributed under the anticipated initial 
distribution order. In addition, FHFA is cognizant of the concerns 
expressed by the commenters and will prepare reports of examination 
with those concerns in mind.
    Seven commenters expressly supported the ten business day period in 
which a Bank would be permitted to request the withholding of 
proprietary information from distribution. However, all of these 
commenters also asked that the final rule require FHFA to notify the 
subject Bank prior to distribution if the request is fully or partially 
denied, and to identify the information that will not be withheld, in 
order to allow the Bank to make timely and appropriate securities law 
or contractual disclosures. Section 1260.3(b)(2) of the first proposed 
rule would have required FHFA to provide notice of any determination 
regarding a request to withhold information, and this provision appears 
in revised form in Sec.  1260.3(c) of this proposed rule, which 
specifies that FHFA must provide such notice to the requesting Bank and 
may not distribute any of the information in question until it has 
provided that notice.

D. Section 1260.4--Timing and Form of Information Distribution

    Section 1260.3(c) of the first proposed rule would have required 
FHFA to distribute a Bank's report of examination after the ten-
business-day period had expired without a request to withhold 
proprietary information or, if a Bank had made such a request, after 
the Director or his designee had acted on the request. If the Director 
or his designee were to determine that the report of examination 
included proprietary information that should not be shared, that 
proposed rule would have required FHFA to distribute an appropriately 
redacted version of the report. The first proposed rule also would have 
allowed FHFA to distribute the reports in either tangible or electronic 
form, as deemed appropriate on either an ongoing or case-by-case basis. 
FHFA received no comments on this provision of the rule.
    Section 1260.4 of this proposed rule is substantially similar to 
Sec.  1260.3(c) of the first proposal, although the wording has been 
altered slightly to reflect the more generic approach to the scope of 
information to be distributed. Section 1260.4(a) provides that FHFA may 
distribute information to the other Banks and the OF after the 
expiration of the applicable time period for asking that FHFA withhold 
proprietary information, unless the affected Bank has asked that 
particular information be withheld from distribution. Section 1260.4(a) 
further provides that when a Bank has filed a request to withhold 
information, FHFA may not distribute the information that is the 
subject of the request until after the Director or his designee has 
acted on the request and has provided the affected Bank with notice of 
the decision. Under this provision, the Director or his designee would 
be free to reach any appropriate decision regarding the distribution of 
the information in question--i.e., to withhold all of the information, 
to distribute all of the information or to withhold part and distribute 
part of the information in question. Subsequently, FHFA would 
distribute the subject information in conformity with that decision. 
Under Sec.  1260.4(b), as under the first proposed rule, FHFA would be 
permitted to distribute the information in either tangible or 
electronic form, as it deems appropriate.

E. Section 1260.5--Control of Shared Information

    Section 1260.3(d) of the first proposed rule provided that the 
sharing of information under the rule did not constitute a waiver by 
FHFA of any privilege, or its right to control, supervise, or impose 
limitations on, the subsequent use and disclosure of any information 
concerning a Bank. The first proposed rule also provided that, to the 
extent that any reports of examination or other materials provided to a 
Bank or the OF under the rule otherwise qualify as ``unpublished 
information'' under 12 CFR part 911 (or any future regulatory 
provisions dealing with the same subject matter that may be promulgated 
by FHFA), those materials would continue to qualify as such and would 
continue to be subject to the restrictions on disclosure of such 
information set forth therein.\34\ Two commenters expressly supported 
this provision and none opposed it. In this proposed rule, FHFA has 
carried over that provision from the first proposed rule (with 
additions described below), and has redesignated that provision as 
Sec.  1260.5(a). This proposed rule also adds three new provisions, 
contained in paragraphs (b), (c), and (d) of Sec.  1260.5, to address 
more comprehensively the protection of unpublished information.
---------------------------------------------------------------------------

    \34\ Under 12 CFR part 911 ``unpublished information'' refers to 
any information or document created or obtained by FHFA in 
connection with the performance of official duties, regardless of 
who possesses it, except for information or documents that the 
agency is required by statute or its own regulations to disclose or 
that were previously published or disclosed or are customarily 
furnished to the public in the course of the performance of official 
duties. See 12 CFR 911.1 (definition refers to the former Federal 
Housing Finance Board as regulator, but now applies to FHFA).
---------------------------------------------------------------------------

    Section 20A of the Bank Act makes clear that a primary reason for 
requiring the sharing of information among the Banks is to enable each 
Bank to better assess the likelihood that it will need to make payments 
pursuant to its joint and several liability on Bank System COs and to 
enable it to better fulfill its duty to disclose material information 
regarding the likelihood of such payments as required by applicable 
provisions of the federal securities laws or regulations issued 
thereunder by the SEC. Citing the restrictions on the disclosure of 
unpublished information set forth in 12 CFR part 911, several 
commenters requested that FHFA provide in the final rule, or in other 
guidance, authorization for each Bank to disclose in its SEC disclosure 
documents material information derived from the reports of examination 
of other Banks received under the rule after giving prior notice to the 
Bank to which the information pertains.
    In 2006, the Finance Board issued written guidance authorizing each 
Bank to use and disclose in its SEC disclosure documents information 
contained in its own report of examination, provided that the 
disclosure is limited to a recital of the factual content of the report 
and does not involve the release of the report of examination itself, 
or any portion of it.\35\ FHFA has added to Sec.  1260.5(a) of this 
proposed rule language to extend this treatment to unpublished 
information regarding other Banks received pursuant to an order issued 
under Sec.  1260.2, provided that the Bank meets the requirements 
regarding disclosure of this information that are set out in Sec.  
1260.5(b) of the rule. In this proposed rule, FHFA has added

[[Page 6054]]

Sec.  1260.5(b) to permit a Bank to disclose unpublished information 
received under Sec.  1260.2 in its SEC disclosure documents provided 
that its determination that such disclosure is required under 
applicable provisions of the federal securities laws has been made in 
good faith, and that the Bank provides to FHFA and to the Bank to which 
the information pertains prior notice of the content and the 
anticipated timing of the disclosure. FHFA believes it is unlikely that 
information received regarding one Bank would prompt an SEC disclosure 
obligation by another Bank if the subject Bank has not determined that 
the information was material to the first Bank and thus warranted 
disclosure under the federal securities laws.\36\ Nonetheless, because 
each Bank makes its own determination as to materiality and the content 
of its own disclosures under the federal securities laws, such a result 
is at least possible and, for that reason, FHFA has decided to address 
the matter in this proposed rule.
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    \35\ See Federal Housing Finance Board Advisory Bulletin 2006-
AB-03 (July 18, 2006).
    \36\ Each Bank is subject to the periodic reporting requirements 
of section 13(a) of the 1934 Act, 15 U.S.C. 78m(a), and, therefore, 
upon the occurrence of a material corporate event, is required to 
file with the SEC (in most cases within four business days of the 
material event) a current report on Form 8-K. See 17 CFR 240.13a-11; 
17 CFR 249.308.
---------------------------------------------------------------------------

    While the first proposed rule would have addressed the maintenance 
of the privileged status of reports of examination from the perspective 
of FHFA, it would not have addressed the confidentiality of shared 
information from the perspective of the Banks. Two commenters requested 
that the final rule clarify that the release of information under the 
rule will not be deemed a waiver by the subject Bank of any privilege 
or right to control the underlying information. In addition, four 
commenters advocated including a requirement in the final rule that 
would require each Bank to take measures to ensure that the 
confidentiality of other Banks' supervisory information is maintained 
by those that will have access to it. One commenter stated that the 
final rule should require that all Banks use reasonable means, but not 
less than that used to protect their own proprietary information, to 
safeguard the information contained in another Bank's report of 
examination and avoid unauthorized disclosure, dissemination or use.
    In response to these concerns, FHFA has included in this proposed 
rule a new Sec.  1260.5(c), which expressly states that a Bank may use 
unpublished information received under the rule only for the purposes 
described in section 20A(a) of the Bank Act (i.e., to evaluate the 
financial condition of one or more other Banks and to comply with its 
obligations under the 1934 Act), and prohibits the disclosure of any 
unpublished information received under Sec.  1260.2, except as 
otherwise provided in the rule (e.g., in the case of a disclosure made 
under the federal securities laws pursuant to Sec.  1260.5(a) and (b)). 
Proposed Sec.  1260.5(c) would further require that each Bank and the 
OF implement policies and procedures to prevent the improper disclosure 
of such information and to limit the access of its personnel to such 
information. Under this proposed rule, these policies and procedures 
must be no less stringent than those that apply to the entity's own 
confidential and supervisory information. As with other internal 
controls, these procedures and their implementation will be subject to 
FHFA scrutiny as part of the Bank examination process.
    Finally, like the first proposed rule, this proposed rule does not 
provide for any formal sharing of information pertaining to the OF 
because all twelve Bank presidents are members of the OF's board of 
directors and, therefore, already have access to its report of 
examination and other financial information. Three commenters expressly 
agreed that, for the reason stated, reports of examination for the OF 
do not need to be formally distributed to the Banks, while no 
commenters advocated the formal distribution of the OF reports or other 
information. However, all three supported inclusion of a specific 
provision stating that Bank presidents be permitted to share 
information regarding the OF with the boards of directors and 
appropriate staff of his or her Bank, subject to the restrictions on 
disclosure and adoption of policies and procedures required under the 
rule. FHFA has included such a provision in Sec.  1260.5(d) of this 
proposed rule.

IV. Consideration of Differences Between the Banks and the Enterprises

    Section 1201 of HERA amended the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 to add a new section 
1313(f), which requires the Director of FHFA, when promulgating 
regulations relating to the Banks, to consider the differences between 
the Banks and the Enterprises (Fannie Mae and Freddie Mac) as they 
relate to: the Banks' cooperative ownership structure; the mission of 
providing liquidity to members; the affordable housing and community 
development mission; their capital structure; and their joint and 
several liability on consolidated obligations.\37\ The Director also 
may consider any other differences that are deemed appropriate. In 
preparing this second proposed rule, FHFA considered the differences 
between the Banks and the Enterprises as they relate to the above 
factors, and determined that the rule is appropriate. No commenters 
raised any issues relating to this statutory requirement, as it applied 
to the first proposed rule.
---------------------------------------------------------------------------

    \37\ See 12 U.S.C. 4513(f).
---------------------------------------------------------------------------

V. Paperwork Reduction Act

    This proposed rule does not contain any collections of information 
pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.). Therefore, FHFA has not submitted any information to the Office 
of Management and Budget for review.

VI. Regulatory Flexibility Act

    This proposed rule applies 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, FHFA certifies that this proposed rule 
will not have significant economic impact on a substantial number of 
small entities.

List of Subjects

12 CFR Part 1260

    Confidential business information, Federal home loan banks, 
Reporting and recordkeeping requirements.

    Accordingly, for the reasons stated in the SUPPLEMENTARY 
INFORMATION and under the authority of 12 U.S.C. 4526, the Federal 
Housing Finance Agency proposes to amend subchapter D of chapter XII of 
title 12 of the Code of Federal Regulations as follows:

CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY

Subchapter D--Federal Home Loan Banks

0
1. Add part 1260 to read as follows:

PART 1260--SHARING OF INFORMATION AMONG FEDERAL HOME LOAN BANKS

Sec.
1260.1 Definitions.
1260.2 Bank information to be shared.
1260.3 Requests to withhold proprietary information.
1260.4 Distribution of Bank information by FHFA.
1260.5 Disclosure of shared Bank information.

    Authority: 12 U.S.C. 1440a, 4511 and 4513.

[[Page 6055]]

Sec.  1260.1  Definitions.

    As used in this part:
    Proprietary information means information that contains trade 
secrets, or privileged or confidential commercial or financial 
information that, if shared among the Banks and the Office of Finance 
as provided under this part, would likely cause substantial competitive 
harm to the Bank to which the information pertains.
    Unpublished information has the meaning set forth in Sec.  911.1 of 
this title.


Sec.  1260.2  Bank information to be shared.

    In order to enable each Bank to evaluate the financial condition of 
any one or more of the other Banks and the Bank System, FHFA shall 
distribute to each Bank and to the Office of Finance such categories of 
financial and supervisory information regarding each Bank and the Bank 
system as the Director or his designee may specify from time to time by 
written order, subject to the requirements of this part. Prior to 
issuing or amending such an order, FHFA shall notify each Bank and the 
Office of Finance of the proposed contents of the order and allow them 
a reasonable period within which to comment.


Sec.  1260.3  Requests to withhold proprietary information.

    (a) General. A Bank may request in writing that FHFA withhold from 
distribution particular information relating to the Bank that may 
otherwise be subject to distribution under Sec.  1260.2 on the basis 
that it is proprietary information and the public interest requires 
that it not be shared. Any such request shall identify the particular 
information the Bank believes should be withheld and provide support 
for the assertions that it is proprietary information and that 
withholding it from the other Banks and the Office of Finance is 
necessary to protect the public interest.
    (b) Timing of requests.--(1) General. Unless otherwise specified by 
written order as described in paragraph (b)(2) of this section, the 
period within which a Bank may make a request to withhold proprietary 
information under paragraph (a) of this section shall be as follows:
    (i) For information that a Bank submits to FHFA, the request shall 
be delivered to FHFA no later than the time at which the Bank submits 
the subject information to FHFA.
    (ii) For information that FHFA creates (not including compilations 
of data submitted by the Banks), prior to distributing any information 
relating to a particular Bank, FHFA shall provide that Bank with a copy 
of the information to be distributed, after which the Bank shall have 
ten (10) business days within which to deliver the request to FHFA.
    (2) As specified by written order. Any order issued by the Director 
or his designee under Sec.  1260.2 may establish requirements for the 
timing of requests to withhold proprietary information that are 
different from those specified under paragraph (b)(1) of this section 
for any category of information to be distributed thereunder. In 
establishing such requirements, the Director or his designee shall give 
due regard to the volume and complexity of the information to be 
reviewed, the Bank's existing familiarity with the information, the 
frequency of submission or distribution of the information, the 
likelihood that the information will contain proprietary information, 
and the effect that any delay in the distribution of the information 
would have on the fulfillment of the purposes of section 20A(a) of the 
Bank Act.
    (c) Determination and notice by FHFA. After receiving a written 
request that meets the requirements of paragraphs (a) and (b) of this 
section, the Director or his designee shall promptly determine whether 
to withhold any information from distribution pursuant to the request, 
which determination shall be final. FHFA shall promptly notify the 
affected Bank of that determination and shall not distribute any 
information that is the subject of the request until it has provided 
the required notice to the Bank.


Sec.  1260.4  Distribution of Bank information by FHFA.

    (a) Timing. FHFA may distribute information authorized to be 
distributed pursuant to Sec.  1260.2 after the expiration of the 
applicable time period specified in Sec.  1260.3(b) unless, within that 
time period, the affected Bank has filed with FHFA a written request to 
withhold particular proprietary information that meets the requirements 
of Sec.  1260.3(a). When a Bank has filed such a request, FHFA shall 
not distribute the information that is the subject of the request until 
the Director or his designee has made the determination and provided 
the notice required by Sec.  1260.3(c) and shall distribute or withhold 
the subject information in conformity with that determination.
    (b) Form. FHFA may distribute information under this part in either 
tangible or electronic form, as it deems appropriate.


Sec.  1260.5  Disclosure of shared Bank information.

    (a) No waiver of privilege. The release of information under this 
part does not constitute a waiver by FHFA of any privilege, or of its 
right to control, supervise or impose limitations on the subsequent use 
and disclosure of any information concerning a Bank. To the extent that 
any information provided to a Bank or the Office of Finance pursuant to 
this part qualifies as unpublished information under part 911 of this 
title or any successor provision, that information shall continue to 
qualify as such and shall continue to be subject to the restrictions on 
disclosure set forth in those provisions, provided that a Bank shall 
not be deemed to have violated Sec.  911.3(c) of this title or any 
successor provision by disclosing in filings with the SEC unpublished 
information about another Bank that was obtained pursuant to this part 
if the disclosure is limited to a recital of the relevant factual 
content of the underlying information and the Bank has provided the 
notice required by paragraph (b) of this section.
    (b) Disclosures under the Federal securities laws. If a Bank 
determines in good faith that it is required by any applicable 
provisions of the 1934 Act or of the regulations issued by the SEC 
thereunder to disclose unpublished information relating to another Bank 
that it has received pursuant to this part, it shall provide to FHFA 
and to the Bank to which the information pertains prior written notice 
of such determination and of the content and anticipated timing of the 
disclosure, which notice shall be provided as far in advance of the 
anticipated disclosure as is feasible under the circumstances.
    (c) Safeguarding of information. A Bank may use unpublished 
information distributed pursuant to this part only for the purposes 
described in section 20A(a) of the Bank Act. Except as otherwise 
provided in this part, neither the Office of Finance, nor any Bank, nor 
any officer, director or employee thereof, may disclose or permit the 
use or disclosure of any unpublished information regarding another Bank 
or the Office of Finance, received pursuant to this part, in any manner 
or for any purpose. Each Bank and the Office of Finance shall implement 
policies and procedures to prevent the improper disclosure of such 
information and to limit the access of its personnel to such 
information, which policies and procedures shall be no less stringent 
than those that apply to the entity's own confidential and supervisory 
information.

[[Page 6056]]

    (d) Information regarding the Office of Finance. A Bank president 
that receives any information regarding the Office of Finance in his or 
her capacity as a member of the board of directors of the Office of 
Finance may share the information with the board of directors of the 
Bank at which he or she is employed, as well as with the appropriate 
officers and employees of the Bank, subject to the limitations of this 
part.

    Dated: January 17, 2013.
Edward J. DeMarco,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2013-01428 Filed 1-28-13; 8:45 am]
BILLING CODE 8070-01-P