[The Regulatory Plan and Unified Agenda of Federal Regulatory and Deregulatory Actions]
[Federal Housing Finance Board Regulatory Plan]
[From the U.S. Government Printing Office, www.gpo.gov]

Federal Register / Vol. 61, No. 231 / Friday, November 29, 1996 / The
                            Regulatory Plan

[[Page 62205]]

FEDERAL HOUSING FINANCE BOARD (FHFB)
Statement of Regulatory and Deregulatory Priorities
The Federal Housing Finance Board (Finance Board) is an independent 
agency that is statutorily charged with supervising and regulating the 
Nation's Federal Home Loan Bank (FHLBank) System. The FHLBank System 
consists of 12 regional FHLBanks that are each owned by their member 
financial institutions and that provide wholesale credit to members and 
certain nonmembers to be used for mortgage lending and related 
activities. The FHLBank System also includes the Office of Finance, 
which issues FHLBank System consolidated obligations. The Finance Board 
is required to prepare the following regulatory plan pursuant to 
section 4 of Executive Order 12866.
As always, the Finance Board's highest regulatory priority during the 
coming year is to ensure the safety and soundness of the FHLBank 
System. In addition, the Finance Board's primary regulatory priorities 
for 1996-97 are to ensure that the FHLBanks fulfill their statutory 
housing finance mission and to continue to reduce the regulatory burden 
on the FHLBanks by devolving authority over appropriate matters of 
corporate governance from the Finance Board to the FHLBanks themselves. 
To further these priorities, the Agency plans to carry out three 
significant regulatory actions, involving the FHLBank System's 
Affordable Housing Program (AHP), Community Investment Programs (CIPs), 
and Financial Management Policy (FMP), and to undertake several policy 
modifications and minor rulemakings over the course of the coming year. 
These prospective regulatory actions are in harmony with the regulatory 
philosophy and principles set forth by the President in Executive Order 
12866 in that they either are necessary for the Agency to carry out 
effectively its statutory role as safety and soundness regulator of the 
FHLBank System, or are intended to establish guidelines under which 
various authorities may be devolved from the Agency to the FHLBanks.
In November 1996, the Finance Board published a second notice of 
proposed rulemaking (NPRM) to amend its AHP regulation to address 
issues that have arisen because of the success of the AHP, under which 
FHLBank member institutions fund the construction and purchase of 
housing for low- and moderate-income individuals and families. Although 
the Finance Board published the original NPRM in January of 1994, the 
approval of a final rule was delayed by an 18-month period during which 
the Agency lacked a quorum of its Board of Directors. Since regaining a 
quorum in June of 1995, the Finance Board has decided to publish for 
comment a second NPRM that contains a less detailed and restrictive AHP 
regulation than the version published in 1994.
This initiative, which is discussed in more detail below (RIN 3069-
AA28), will encourage the FHLBanks to fulfill their statutory mission 
and will complete the major portion of the Agency's effort to devolve 
to the FHLBanks authority over those matters of corporate governance 
that may be devolved under the existing statutory scheme. As part of a 
longer-term effort, the Finance Board is studying the statutorily-
authorized CIPs in an attempt to create a regulation that would expand 
the use of these community development programs by the FHLBanks. This 
initiative also is discussed in detail below (RIN 3069-AA05).
The Finance Board also plans to revise its FMP (RIN 3069-AA50), which 
governs permissible investments of the FHLBanks, and to promulgate the 
FMP as a regulation. As part of its safety and soundness 
responsibilities, the Finance Board intends to amend the FMP to more 
thoroughly address the control of interest rate risk assumed by the 
FHLBanks. As part of its effort to ensure that the FHLBanks fulfill 
their statutory housing finance mission, the Finance Board plans to 
modify the FMP to encourage the FHLBanks to refocus their balance 
sheets away from investments that are not related to this mission to a 
combination of advances (i.e., credit extended to members) and other 
assets that are mission-related. In this vein, the Finance Board also 
is actively encouraging legislation that would change the FHLBanks' 
annual obligations to the Resolution Funding Corporation from a fixed 
dollar amount to a percentage of earnings, thereby reducing the 
incentive for FHLBanks to invest in higher income, but less mission-
related, instruments.
In addition to undertaking these significant regulatory actions, the 
Finance Board anticipates that it will continue to devolve to the 
FHLBanks, through nonsignificant regulations, more minor matters of 
corporate governance during the coming year and beyond. For example, 
the Agency intends to promulgate a final rule transferring to the 
FHLBanks specific responsibilities for selection and compensation of 
FHLBank officers and employees. Especially with respect to items that 
need Finance Board approval under the statute, the Finance Board 
intends to determine those functions for which appropriate regulatory 
standards can be embodied in a regulation and to address these issues 
in a step-by-step fashion.
Finally, during the coming year, the Finance Board expects to adopt 
standard policies and procedures to be followed by examiners during the 
annual regulatory examinations of the FHLBanks and for resolving 
disputes that arise during these examinations by bringing such issues 
to the Agency's Board of Directors for resolution.
_______________________________________________________________________
FHFB

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                          PROPOSED RULE STAGE

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163. COMMUNITY INVESTMENT PROGRAM
Priority:


Economically Significant. Major status under 5 USC 801 is undetermined.


Legal Authority:


 12 USC 1422a; 12 USC 1422b; 12 USC 1430(i)


CFR Citation:


 12 CFR 961


Legal Deadline:


None


Abstract:


The Finance Board is contemplating proposing a regulation or developing 
guidelines that would address operational aspects of the community 
investment programs (CIPs) of the FHLBanks under section 10 of the 
Federal Home Loan Bank Act (Bank Act).


Statement of Need:


The CIPs have operated for 7 years without any clarifying regulations. 
During this time, operational issues have arisen. A regulation or 
guidelines may be necessary to address these issues in order to 
establish a more specific framework for the operation of the CIPs and 
to expand usage of the programs.


Summary of the Legal Basis:


Section 2B(a)(1) of the Bank Act authorizes the Finance Board to

[[Page 62206]]

promulgate regulations necessary to carry out the provisions of the 
Act. Section 10 of the Bank Act authorizes the FHLBanks to establish 
CIPs.


Alternatives:


Because consideration of additional CIP guidance is in a very 
preliminary stage, the Finance Board has not yet analyzed the 
alternative approaches to the issues expected to be addressed in this 
initiative.


Anticipated Costs and Benefits:


Because the Finance Board has not yet analyzed the alternative 
approaches to the issues expected to be addressed in the CIP 
regulation, the Finance Board is not yet able to identify the expected 
costs and benefits of any such CIP regulation.


Risks:


The CIP regulation will not address issues of financial risk to the 
FHLBanks. The advances made by the FHLBanks through their CIPs, like 
all FHLBank advances, are governed by the Finance Board's Advances 
regulation, which addresses the safety and soundness issues involved in 
making advances. Because advances made through the CIPs are 
overcollateralized, there is a low magnitude of risk of loss to the 
FHLBanks in making such advances.


Timetable:
_______________________________________________________________________
Action                                 DFR Cite

_______________________________________________________________________
NPRM                                                           09/00/97
Small Entities Affected:


None


Government Levels Affected:


None


Agency Contact:
Diane Dorius
Associate Director, Community Investment
Office of Housing Policy
Federal Housing Finance Board
1777 F Street NW.
Washington, DC 20006
Phone: 202 408-2576
Fax: 202 408-2580
RIN: 3069-AA05
_______________________________________________________________________
FHFB
164. AFFORDABLE HOUSING PROGRAM
Priority:


Economically Significant. Major status under 5 USC 801 is undetermined.


Reinventing Government:


This rulemaking is part of the Reinventing Government effort. It will 
revise text in the CFR to reduce burden or duplication, or streamline 
requirements.


Legal Authority:


 12 USC 1422b(a)(1); 12 USC 1430(j)


CFR Citation:


 12 CFR 960


Legal Deadline:


None


Abstract:


The Federal Housing Finance Board (Finance Board) issued a second 
proposed rule revising its regulation governing the Affordable Housing 
Program (AHP) in order to simplify and clarify the AHP's requirements 
for the Federal Home Loan Banks (FHLBanks) and their members.


Statement of Need:


The Finance Board is revising its AHP Regulation in order to address 
operational issues that have arisen during the 7 years the program has 
been in existence. The proposed AHP amendments will help enhance the 
AHP's compatibility with various State and Federal housing programs 
that provide funds in conjunction with AHP funds. In addition, the 
amendments would make the AHP more responsive to local low-income 
housing needs in each of the 12 FHLBank districts and increase 
efficiency in administration of the program.


Summary of the Legal Basis:


Section 10(j) of the Federal Home Loan Bank Act requires the Finance 
Board to promulgate regulations governing the AHP.


Alternatives:


During the development of the proposed AHP amendments, the Finance 
Board considered various alternative approaches to dealing with the 
operational issues that have arisen over the 7 years of the AHP's 
existence. In addition, the Finance Board will consider all 
alternatives suggested by the public during the notice-and-comment 
process.


Anticipated Costs and Benefits:


At this time, it is not possible to quantify the expected costs and 
benefits of the revised AHP regulation. In general, the Finance Board 
expects the revised AHP regulation to reduce the FHLBanks' 
administrative costs of operating the AHP.


Risks:


The revised AHP regulation does not address issues of financial risk to 
the FHLBanks. The advances made by the FHLBanks through the AHP, like 
all FHLBank advances, are governed by the Finance Board's Advances 
regulation, which addresses the safety and soundness issues involved in 
making advances. Because advances made through the AHP are 
overcollateralized, there is a low magnitude of risk of loss to the 
FHLBanks in making such advances.


Timetable:
_______________________________________________________________________
Action                                 DFR Cite

_______________________________________________________________________
NPRM            59 FR 1323                                     01/10/94
NPRM Comment Period End                                        03/11/94
Second NPRM                                                    11/00/96
Second NPRM Comment Period End                                 01/00/97
Final Action                                                   02/00/97
Final Action Effective                                         03/00/97
Small Entities Affected:


None


Government Levels Affected:


None


Agency Contact:
Charles McLean
Deputy Director, Office of Housing Policy
Federal Housing Finance Board
1777 F Street NW.
Washington, DC 20006
Phone: 202 408-2537
RIN: 3069-AA28
_______________________________________________________________________
FHFB
165.  FEDERAL HOME LOAN BANK FINANCIAL MANAGEMENT
Priority:


Other Significant. Major status under 5 USC 801 is undetermined.


Legal Authority:


 12 USC 1422b(a); 12 USC 1431; 12 USC 1436(a)


CFR Citation:


 12 CFR Not yet determined


Legal Deadline:


None


Abstract:


The Finance Board will issue a proposed rule that revises its FHLBank 
Financial Management Policy (FMP), which governs permissible 
investments of the FHLBanks, and codifies the policy as a regulation.

[[Page 62207]]

Statement of Need:


In December 1993, the Finance Board adopted the FMP to provide guidance 
to and establish limits for the FHLBanks in their implementation of 
financial programs and strategies. The Finance Board will be amending 
the policy to more thoroughly address FHLBanks' assumption of interest 
rate risk and to direct FHLBank funds toward investments that are more 
closely related to their housing finance mission. For the first time, 
the Finance Board will be promulgating the FMP as a regulation to make 
the FMP more accessible to the public.


Summary of the Legal Basis:


Sections 11(h) and 16(a) of the Bank Act authorize the FHLBanks to make 
certain types of investments. Section 11 generally authorizes the 
FHLBanks to seek various sources of funding for their operations. 
Section 2B(a) of the Bank Act authorizes the Finance Board to supervise 
the FHLBanks and to promulgate such regulations as are necessary to 
carry out the provisions of the Act.


Alternatives:


The Finance Board is considering various alternative methods for 
controlling FHLBank interest rate risk and encouraging investment in 
mission-related assets. In addition, the agency will consider all 
alternatives suggested by the public during the notice and comment 
process.


Anticipated Costs and Benefits:


The Finance Board anticipates that the new FMP provisions may result in 
slightly lower investment income for the FHLBanks to the extent that 
the interest rate risk controls and mission-related investment 
requirements may narrow the range of high-income assets in which the 
FHLBanks may invest. However, these costs will be counterbalanced by 
FHLBanks' assumption of less interest rate risk and by the FHLBanks' 
greater support for the mortgage markets. The regulation would not 
otherwise impose any direct financial costs upon the FHLBanks or their 
member institutions.


Risks:


Although FHLBank interest rate risk is already well-managed under the 
current FMP, the proposed regulation will attempt to further minimize 
such risk by incorporating state-of-the-art models and methods for 
monitoring and controlling the risk. The Finance Board is considering 
whether there are any circumstances under which there should be reserve 
requirements against interest rate risk exposure. Because the 
regulation is in its preliminary stages of preparation, the agency 
cannot now quantify the amount by which such risk will be reduced.


Timetable:
_______________________________________________________________________
Action                                 DFR Cite

_______________________________________________________________________
NPRM                                                           01/00/97
NPRM Comment Period End                                        03/00/97
Small Entities Affected:


None


Government Levels Affected:


None


Agency Contact:
Thomas D. Sheehan
Acting Director, Office of Policy
Federal Housing Finance Board
1777 F Street NW.
Washington, DC 20006
Phone: 202 408-2870
RIN: 3069-AA50
BILLING CODE 6725-01-F