[Federal Register Volume 73, Number 188 (Friday, September 26, 2008)]
[Rules and Regulations]
[Pages 55710-55722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-22659]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 915
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1261
RIN 2590-AA03
Federal Home Loan Bank Boards of Directors: Eligibility and
Elections
AGENCIES: Federal Housing Finance Board; Federal Housing Finance
Agency.
ACTION: Interim final rule with request for comments.
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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing and
seeking comment on an interim final regulation to implement section
1202 of the Housing and Economic Recovery Act of 2008, which revises
section 7 of the Federal Home Loan Bank Act (Bank Act). Section 7
governs the eligibility and election of individuals to serve on the
boards of directors of the 12 Federal Home Loan Banks (Banks).
DATES: This interim final rule is effective on September 26, 2008. The
FHFA will accept written comments on the interim final rule on or
before November 25, 2008.
ADDRESSES: Submit comments to the FHFA using any one of the following
methods:
E-mail: [email protected]. Please include RIN 2590-AA03 in the
subject line of the message.
Fax: 202-408-2580.
Mail/Hand Delivery: Federal Housing Finance Board, 1625 Eye Street,
NW., Washington DC 20006, Attention: Public Comments/RIN 2590-AA03.
Federal eRulemaking Portal: http://www.regulations.gov. Follow the
instructions for submitting comments. If you submit your comment to the
Federal eRulemaking Portal, please also send it by e-mail to the FHFA
at [email protected] to ensure timely receipt by the FHFA. Include the
following information in the subject line of your submission: Federal
Housing Finance Agency. Interim Final Rule: Federal Home Loan Bank
Boards of Directors: Eligibility and Elections. RIN Number 2590-AA03.
We will post all public comments we receive without change,
including any personal information you provide, such as your name and
address, on the FHFA Web site at http://www.fhfb.gov/Default.aspx?Page=93&Top=93.
FOR FURTHER INFORMATION CONTACT: Thomas P. Jennings, Senior Attorney
Advisor (FHFB), [email protected], (202) 408-2553; or Patricia L.
Sweeney, Management Analyst (FHFB), [email protected] or (202) 408-
2872. You can send regular mail to the Federal Housing Finance Board,
1625 Eye Street, NW., Washington DC 20006.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
Effective July 30, 2008, the Federal Housing Finance Regulatory
Reform Act of 2008 (Act), Division A of the Housing and Economic
Recovery Act of 2008, Public Law No. 110-289, 122 Stat. 2654 (2008),
transferred the supervisory and oversight responsibilities of the
Office of Federal Housing Enterprise Oversight and the Federal Housing
Finance Board over the Federal National Mortgage Association (Fannie
Mae), Federal Home Loan Mortgage Corporation (Freddie Mac)
(collectively, Enterprises), and the Banks to a new independent
executive branch agency known as the Federal Housing Finance Agency
(FHFA). The FHFA is responsible for ensuring that the Enterprises and
the Banks operate in a safe and sound manner, including being
capitalized adequately, and carry out their public policy missions,
including fostering liquid, efficient, competitive, and resilient
national housing finance markets. The Enterprises and the Banks
continue to operate under regulations promulgated by OFHEO and the FHFB
until the FHFA issues its own regulations.
Section 1101 of the Act revised section 7 of the Bank Act. 12
U.S.C. 1427. The FHFB regulation implementing section 7 is codified at
12 CFR part 915. Part 915 governed the nomination and election only of
those directors who are chosen from among the officers and directors of
members of the Banks, which this interim final rule refers to as member
directors. The Act amended section 7(b) of the Bank Act, 12 U.S.C.
1427(b), to give the members the right to also elect all of the other
directors on the boards of directors of the Banks, which other
directors are referred to in this interim final rule as independent
directors. The FHFA has kept the basic process of elections that exists
in part 915 as it applies to member directorships, making changes as
necessary to comply with the amendments to section 7 of the Bank Act.
The FHFA has added provisions to govern the process for nominating
individuals for independent directorships and for conducting the
election of independent directors in conjunction with the election of
member directors. The organizational structure of part 915 also has
been revised.
Section 1201 of the Act (codified at 12 U.S.C. 4513(f)) requires
the Director of the FHFA to consider the differences between the Banks
and the Enterprises in rulemakings that affect the Banks with respect
to the Banks' cooperative ownership structure, mission of providing
liquidity to members, affordable housing and community development
mission, capital structure, and joint and several liability. In
preparing the interim final rule, the Director considered these factors
and determined that the rule is appropriate, particularly because this
interim final rule implements a statutory provision of the Bank Act
that applies only to the Banks. See 12 U.S.C. 1427.
II. Description of the Interim Final Rule
The interim final regulation removes part 915 of the FHFB
regulations and establishes part 1261 of the FHFA regulations, which
will contain the rules governing the eligibility and election of Bank
directors. The name of new part 1261 will read ``Federal Home Loan Bank
Director Eligibility and Elections.''
A. Definitions: Section 1261.1
The FHFA has made technical changes to the definitions of ``bona
fide resident,'' ``guaranteed directorship,'' ``stock directorship,''
and ``voting state,'' but their meanings remain the same as they were
in part 915. The meaning of ``record date'' has not changed. The
identification number for the Banks is the same, except that it is now
the number assigned by the FHFA.
The Act's amendments to section 7 of the Bank Act, 12 U.S.C. 1427,
divide the directorships of the Banks into two categories--member
directorships and independent directorships. Both types of
directorships are filled by a vote of the members; however, elections
for member directors are held on a state-by-state basis, whereas
independent directors are elected at large by all the members of a Bank
without regard to whether the members located in a particular voting
state may be voting on member directors in any particular year. The
definitions of ``independent directorship'' and ``member directorship''
reflect that difference.
The definitions of ``guaranteed directorship'' and ``stock
directorship''
[[Page 55711]]
reflect that there are two categories of member directorships, because
section 7(c) of the Bank Act, 12 U.S.C. 1417(c), guarantees that
directorships from members located in some states will be no fewer than
the number that existed on December 31, 1960, regardless of the amount
of voting stock located in those states. The definition of ``public
interest directorship'' reflects the statutory criteria that an
independent director must have in order to receive this designation.
Section 7(c) of the Bank Act, 12 U.S.C. 1427(c), requires the
Director of the FHFA to determine the number of member directorships
based on the approximate ratio of required stock held by members
located in particular states in a Bank's geographic region. The method
the FHFA uses is defined in this section as the ``method of equal
proportions.''
B. General Provisions: Section 1261.2
Section 7(a) of the Bank Act, 12 U.S.C. 1427(a), sets the size of a
Bank's board of directors at 13, or such other number as the Director
may determine, provided the member directorships always maintain a
majority and the independent directorships comprise at least 40 percent
of the entire board. Section 1261.2(a) provides that the FHFA Director
annually will set the number of directorships for each Bank, and will
designate the directorships as either member directorships or
independent directorships. The rule does not provide that the Director
will designate the independent directorships as either public interest
directorships or other independent directorships. If the Director does
not further designate the independent directorships, the board of
directors of a Bank will have the power, through the nomination
process, to nominate any number of the independent directorships as
public interest directorships, provided it so designates at least two
of the independent directorships. The FHFA requests comments on whether
the boards of the Banks or the FHFA Director should establish the
number of public interest directorships.
Section 7(c) of the Bank Act, 12 U.S.C. 1427(c), continues to
require that states be grandfathered with the number of directorships
representing members in the states on December 31, 1960,
notwithstanding any other provision in section 7. Thus, in applying the
grandfather provision to the Banks based on their current districts,
notwithstanding the Act's apparent default board size of 13, every Bank
must have a minimum of 14 directorships, 8 of which must be member
directorships. The Act amends section 7(d) of the Bank Act, 12 U.S.C.
1427(d), to require that the term of office of directors elected after
July 30, 2008 be four years, except that the FHFA has to adjust terms
to achieve an approximately equal staggering of the years for the
election of the members of the board of directors of a Bank. Section
1261.2(b) addresses this requirement. The Act also amends the Bank Act
to require that existing directorships that do not expire on December
31, 2008 continue their existing terms, so the FHFA has to adjust the
terms of new directorships beginning January 1, 2009 in order to
achieve staggering.
Section 1261.2(c) carries forward the requirement in section
915.3(a) that the Banks are responsible for conducting annual
elections. Section 1261.2(d) and (e) are based on the sections 915.3(d)
and 915.2, respectively, of the FHFB rule.
C. Designation of Member Directorships: Section 1261.3
Section 1261.3(a) continues the requirement in section 915.4 of the
FHFB rule that each Bank must submit a capital report. The FHFA will
rely on this information to designate stock directorships among the
voting states in a Bank's district. Each Bank also must notify each of
its members of its minimum required stock holdings. Section
1261.3(a)(2) applies only to the Chicago Bank, whose capital plan is
not yet in effect.
Section 1261.3(b) and (c) of the interim final rule carry forward
the requirements of section 915.3(b) of the FHFB regulations. Section
1261.3(b) specifies the methodology by which the FHFA will make the
allocation of member directorships, and section 1261.3(c) provides that
the FHFA will follow the requirements in sections 7(b) and (c) of the
Bank Act in designating member directorships to the states. Annually,
the FHFA will use the method of equal proportions to determine how
member directorships should be divided among the states in a Bank's
district, based on the stock holdings of the members located in each
state in the Bank's district. The FHFA's annual allocation to each
state will be sufficient to meet the requirement in section 7(c) of the
Bank Act that the number of member directorships in each state be equal
to the number of elective directorships that it had on December 31,
1960 (the guaranteed directorships).
The effect of the so-called ``grandfather'' provision is that,
based on the present geographic districts of the Banks, each Bank will
have a minimum of eight member directorships. Section 1261.3(c)
recognizes that some existing directorships at a Bank may cease to
exist if, resulting from the Director's annual designation, the number
of directors is set at a number below the size of the existing board,
the number of member directorships increases and the number of
independent directorships decreases, or vice versa, or the application
of the method of equal proportions causes any state to lose a
directorship to another state. If a state loses a directorship through
any of these events, section 1261.3(c) provides that the director
sitting in that directorship shall be ineligible to serve after
December 31 of that year.
Section 1261.3(d) continues the notification provision in section
915.3(e) of the FHFB rule.
D. Director Eligibility: Section 1261.4
Section 1261.4(a) carries forward section 915.7(b) of the FHFB rule
regarding the eligibility requirements of member directors. Section
1261.4(b) sets forth the eligibility requirements of independent
directors in section 7(a) of the Bank Act.
Section 1261.4(c) describes situations in which otherwise eligible
individuals would not be eligible to serve. The term limit provisions
of section 7(d) of the Bank Act limit service of individuals who have
served all or part of three consecutive full terms. Such individuals
are ineligible for the two years following such service. For terms
beginning after the effective date of the Act, section 1261.4(c) deems
only four year terms to be full terms. The existing directorships that
do not end on December 31, 2008, have three year terms, and those
directorships' terms are full terms. If the FHFA creates shorter than
four year terms for directorships that begin on or after January 1,
2009, to effectively stagger the directorships, those shorter terms
will not be deemed to be full terms. Nonetheless, such shorter terms
will not be effective for purposes of creating a break in service or
avoiding the three consecutive term count. In other words, serving in
three consecutive three year elective directorships ending December 31,
2008 will render an individual ineligible to serve a shortened term
beginning January 1, 2009, and serving in one or two three year
elective directorships ending December 31, 2008, a shortened term
beginning January 1, 2009, and one or two four year terms immediately
thereafter, for a total of three full terms, will render an individual
ineligible to again serve for two more years.
The FHFA seeks comment on its application of the consecutive full-
term
[[Page 55712]]
limitation in section 7(d) of the Bank Act. If a director serves in a
term which met the Bank Act's requirement of a full term at the time
the director assumed that directorship, no matter how long the term is,
should that term be considered a full term? Should the current terms
and any prior terms consecutive thereto of directors elected prior to
July 30, 2008, be deemed to be full terms for purposes of the three
consecutive term rule in section 7(d) of the Bank Act? Should the full
terms of the directors appointed by the Finance Board be treated any
differently from how the terms of elective directors are treated?
Should the shorter term that the FHFA creates for purposes of
staggering be considered a break between terms before and after other
terms of service, for purposes of treating the other terms as
consecutive full terms?
Section 1261.4(d) deems a sitting director to be ineligible on
December 31 of the year in which that person's directorship is
eliminated or redesignated to another state through the annual
allocation under the method of equal proportions. The FHFA is required
to do an annual allocation, and changes in member stock ownership on a
state-by-state basis may cause a state to lose one or more
directorships. Although an individual may have to give up a
directorship due to reallocation or elimination, if the individual does
not complete a full term due to such action, that term will not count
as a full term for purposes of eligibility.
E. Determination of Member Votes: Section 1261.5
Section 1261.5 carries forward section 915.5 of the FHFB rule,
which sets forth how the Banks must determine the number of votes of
each member. For those Banks that have more than one class of stock,
the Banks are required to calculate the average number of shares
separately for each class and allow each member to vote its combined
average number of shares. The average for each class is calculated
based on the total number of members in each state, even if a member
holds no shares in a class of stock. The number of votes allocated to a
member is the number of votes that the member may vote for any
directorship, whether it is a member directorship, independent public
interest directorship, or other independent directorship.
F. Nominations for Member and Independent Directorships: Section 1261.6
Section 915.6 of the FHFB regulation set forth the requirements for
member directorship nominations. Section 1261.6 carries forth these
requirements with some modifications and sets forth how the Banks will
nominate independent directorship candidates. Banks are not required to
do so in any particular mode of communication, so long as they can
demonstrate to the FHFA their compliance with the regulations.
As required by section 1261.6(a) of the interim final rule, the
Banks must provide to each member a notice of the commencement of the
election process in a reasonable time in advance of the elections. As
to member directorships, the notice and nomination procedures do not
differ significantly from the procedures set forth in the FHFB
regulation.
As to independent directorships, section 7 of the Bank Act requires
each Bank to nominate candidates, and the election from among the
candidates is the right of the members of each Bank. Under section
1261.6(d) of the interim final rule, a Bank must consider anyone who
applies using an application form prescribed by the FHFA and indicates
on the form that s/he meets the eligibility requirements set forth in
section 1261.4(b), provided the application form is delivered to the
Bank by a deadline set by the Bank and the application form contains
any of the qualifications for independent directors set forth in that
section. Independent directors may meet either the requirements of
public interest directors or the requirements set forth in section
1261.6(e).
Section 1261.6(d) also requires that a Bank's board of directors
consult with the Bank's Advisory Council before nominating independent
directors. The FHFA requests comment on whether it should require the
Advisory Council to play any specific role in the consultation process
and whether the FHFA should prescribe procedures on how the
consultation should take place.
Section 7(a) of the Bank Act and section 1261.6(d) of the interim
final rule require that public interest directors have more than four
years experience in representing consumer or community interests in
banking services, credit needs, housing, or consumer financial
protections. Prior to the Act's amendments to section 7(a), a public
interest director had to be from an organization that had a history of
more than two years representing consumer or community interests, but
the individual did not necessarily have to have personal experience
doing so. Although the FHFA will impose the Act's requirements on newly
chosen independent directors, the FHFA will deem existing public
interest directors who qualified and were designated as public interest
directors under the Bank Act before it was amended to be public
interest directors for the remainder of their existing terms.
The FHFA requests comments on whether it should apply the revised
experience requirements to existing public interest directors and, if
so, whether it should require any Bank that does not have two public
interest directors who meet the revised requirements to nominate
candidates who do meet those requirements.
Section 1261.6(d)(3) requires the Banks to establish the number of
public interest directorships from among the number of independent
directorships established by the FHFA Director pursuant to section
1261.3(c). It requires the Banks to have at least two public interest
directors, as required by section 7(a) of the Bank Act. The boards of
directors of the Banks must nominate at least as many individuals for
public interest directorships as there are positions available. Any
board may nominate more individuals for public interest directorship
positions than there are positions to be filled; however, the Bank may
fill only those vacant positions that the board has designated as
public interest directorships with public interest director nominees.
The rule permits a board of directors to have only enough nominees
to fill the vacant positions, because the board of directors of a Bank
might determine that the most highly qualified candidates may not apply
unless they are assured of a seat after having been nominated. The FHFA
requests comment on whether the board of directors of a Bank should be
required to nominate more candidates for independent directorships than
there are positions to be filled, if the board has determined that
there are sufficient applicants who are both eligible and qualified.
Section 7(a) of the Bank Act sets forth specific qualifications
that independent directors, other than public interest directors, must
have, and it authorizes the FHFA Director to establish other knowledge
or experience that an independent director may have in lieu of the
types of knowledge or experience specified in section 7(a). Section
1261.6(e) provides that independent directors may be qualified if they
have knowledge or experience in the law, in addition to the statutorily
prescribed subjects of auditing or accounting, derivatives, financial
management, organizational management, project development or risk
management practices. In each case, a candidate's knowledge or
experience must be
[[Page 55713]]
commensurate with the knowledge or experience needed to oversee a
business of the size and complexity of the Bank. The FHFA solicits
comment on whether additional areas of expertise should be added to the
list.
Pursuant to section 1261.6(f) of the interim final rule, Banks must
verify the eligibility of nominees for directorships before placing
their names on the ballots. The FHFA will prescribe eligibility
certification forms for member directors, and the Banks must use
information on those forms to verify eligibility of nominees for member
directorships. The FHFA will prescribe application forms and
eligibility certification forms for independent directors. For new
nominees for independent directorships, the Banks may use information
on the application forms. For incumbent nominees for independent
directorships, the Banks may use information on eligibility
certification forms or on application forms. As to independent
directorship nominees, both incumbent and new nominees, the Banks must
deliver the names and contemporaneously executed director application
forms of the nominees to the FHFA for its review and comment before the
names of any such nominees can be placed on ballots. The FHFA intends
to review the information submitted and, whenever it has comments that
might aid a Bank, make comments to the Bank's board of directors about
how any nominee's qualifications might serve the needs of the Bank.
G. Election Process: Section 1261.7
1. Ballots
Similar to the current election process conducted by the Banks, the
interim final rule requires each Bank to prepare a ballot for each
voting state. A Bank may not deliver ballots until after the FHFA has
commented on the independent director nominees. Independent director
nominees are elected on a district-wide basis, so all states in the
district will be voting states in each annual election. The FHFA
contemplates that ballots will differ from state to state, because a
Bank likely will not include on the ballots in one state the member
director nominees for the other states in its district. The ballots
must include a closing date for voting, which may not be sooner than 30
days after the ballots are delivered.
The ballots must contain the type of minimum information on member
directorship nominees required in section 915.8 of the FHFB rule. As to
independent directorship nominees, the ballots must include information
about their qualifications for the type of directorship for which they
are nominated. All nominees must be listed alphabetically and
separately for each type of directorship for which the election is
being held. A Bank may include additional information it deems
appropriate, including a description of the skills and experience of
the member director nominees. If, pursuant to section 1261.9, a Bank
has conducted an assessment of the skills and experience it needs on
its board of directors and included that information in its notice
required in section 1261.6, or subsequently has revised that
assessment, the Bank may include a statement of the most recent version
of its assessment with the ballots. The interim final rule also
requires the Banks to include on the ballots a statement that write-in
candidates are not permitted and a statement that the Bank will not
disclose how any member votes its ballot.
2. Lack of Member Directorship Nominees
In those instances where the number of member nominees is not
greater than the number of member directorships to be filled, section
1261.7(c) of the interim final rule requires a Bank to declare the
seats filled by the eligible nominees, first filling any guaranteed
directorships and then any remaining stock directorships. If any member
directorship is not filled, or if the failure to fill any directorship
would cause the number of member directors to be fewer than a majority
of the directors, then such directorship will become vacant on January
1 of the following year, and the Bank's board of directors at that time
may elect an individual to fill the vacancy.
3. Voting
The interim final rule provides that a member's vote for a nominee
is deemed a vote in the amount of all the stock that the member is
required to hold as of the record date. A member may not vote more than
the amount of its required stock for any one nominee, no matter how
many directorships are being filled by the election. A member may vote
for as many nominees as there are directorships being filled by the
election, but a member may vote only one time for any one nominee. A
member may vote at any time up until the closing date, by which time it
must have delivered its ballot to the Bank.
4. Declaring Results
Section 1261.7(f) of the interim final rule provides that the
individual receiving the highest number of votes is declared the winner
of a member directorship. If other member directorships are being
filled, the individual receiving the next highest number of votes also
will be declared a winner, and so on down the line. The same rule
applies to each type of independent directorship, except that a nominee
who receives fewer than 20 percent of the number of votes eligible to
be cast may not be declared a winner. If, for the last available
directorship of any type, there is a tie vote, and for an independent
directorship the tie vote is at least 20 percent of the eligible votes,
then the disinterested members of the Bank's board of directors by
majority vote will determine the winner. At the time of declaring
winners and at the time any director is seated, a Bank may not have any
reason to know that such director is ineligible to serve.
The FHFA requests comment on whether the rule should continue to
require that independent directors must receive at least a minimum
percentage of votes cast in order to be elected and, if so, what that
minimum should be. The FHFA believes that receiving at least a minimum
percentage of votes affirms that the candidate is the choice of the
members, even when the number of candidates does not exceed the number
of directorships to be filled. If there is a minimum percentage, should
it be based on the number of shares actually voting or on the number of
shares eligible to vote?
5. Report of Election
Section 1261.7(g) of the interim final rule requires each Bank to
promptly report to its members, each nominee, and the FHFA on the
results of an election. The report must contain the number of voting
members, the number of votes cast, and the number of votes received by
each nominee. As to each member director-elect, the Bank must provide
the same information required in section 915.8(e) or the FHFB rule. As
to each public interest director, the Bank must provide the consumer or
community interest represented and the expiration date of the term of
office. For each other independent director-elect, the Bank must
provide the individual's qualifications under section 1261.6(e) and the
expiration date of the term of office.
6. Failing To Fill All Independent Directorships
If any independent directorship is not filled for failure to
receive 20 percent of the eligible votes, section 1261.7(h) of the
interim final rule requires a Bank to conduct another election for such
directorship, following the same
[[Page 55714]]
procedures required for the initial election. The Bank must continue
repeated election procedures until the directorship is filled by a vote
of 20 percent of the votes eligible to be voted. The eligible votes
remain the same for each such repeat election.
H. Section 1261.8 Is Reserved for Future Use
I. Action Affecting Director Elections: Section 1261.9
Section 1261.9(a) of the interim final rule continues the
authorization to a Bank's board of directors to conduct an annual
assessment of the skills and experience needed on a Bank's board of
directors, as provided in section 915.9(a) of the FHFB rule. If such an
assessment identifies particular skills or experience needed on the
board, a Bank may inform its members of those needs in its notice of
elections.
Section 1261.9(b) of the interim final rule authorizes a Bank and
any of its directors, officers, attorneys, employees, and agents,
including the Bank's board of directors and Advisory Council, to
support any individual for nomination and election to an independent
directorship. Such individuals, if acting in their personal capacity,
are not prohibited from supporting the nomination or election of any
individual for a member directorship. The distinction between member
directorships and independent directorships is that the Bank's board of
directors nominates individuals for independent directorships, and
support of the Bank's nominees could benefit the Bank without
discriminating against any member.
Except as allowed under section 1261.9(a) and (b), no director,
officer, employee, attorney, or agent of a Bank may support or oppose
the nomination or election of any individual for any directorship of
the Bank, or take any other action to influence the voting for or
against any such individual.
The FHFA seeks comment on whether it is appropriate to distinguish
between member and independent directors when establishing prohibitions
on actions that might influence others with respect to any director.
Comment also is sought on whether there are other issues that the FHFA
should address in this section.
J. Independent Director Conflict of Interests: Section 1261.10
Section 7(a) of the Bank Act prohibits an independent director from
serving as an officer of any Bank and from serving as a director,
officer, or employee of any member of the Bank on whose board the
director sits, or of any recipient of any advances from that Bank.
Section 1261.10 of the interim final rule sets forth this prohibition
and requires any nominee for, and incumbent holding, an independent
directorship to disclose such interests. Positions held in a holding
company that controls any member or any recipient of advances, are
attributed to any member or recipient of advances if the assets of all
members or recipients of advances under the control of the holding
company equal at least 35 percent of the assets of the holding company.
Positions in any other subsidiary or affiliate of the holding company
are not attributed to the member or recipient of advances. Positions
held by an individual's spouse are attributed to the individual.
The FHA seeks comment on whether the holding company attribution
rule should be set at a number other than 35 percent.
K. Conflict of Interests Policy for Bank Directors: Section 1261.11
Section 1261.11(a) of the interim final rule revises and restates
the requirement in section 915.11 of the FHFB rule that Banks adopt a
conflicts of interest policy to apply to the members of their boards of
directors. The rule sets forth the minimum contents of such a policy.
One requirement is that the policy must require the board of directors
to administer the affairs of the Bank fairly and impartially, without
discriminating in favor of or against any member. The rule does not
address nonmember borrowers specifically, but the absence of any
reference to nonmember borrowers does not prohibit a Bank from
addressing conflicts of interests with respect to nonmember borrowers.
Section 1261.11(b) of the interim final rule requires any director
of a Bank to disclose fully to the board of directors of the Bank any
financial interest that the director or any immediate family member or
business associate has in any business matter or proposed business
matter involving the Bank and to refrain from any action in connection
with the matter. Section 1261.11(c) requires directors to maintain the
confidentiality of confidential information obtained by serving as a
director and to refrain from using that information for personal
benefit.
Section 1261.11(d) of the interim final rule prohibits the
acceptance of gifts to influence the director's actions as a member of
the board of directors of a Bank. A director may not accept a gift, no
matter the value, if the director believes, or would have reason to
believe, that the gift is given with the intent to influence the
director's actions. A director may not accept a gift, no matter the
value, if acceptance would have the appearance of the donor's intent to
influence the director's actions. Although the prohibition does not
prohibit other gifts, the absence of a specific prohibition does not
prohibit a Bank from addressing other situations in its conflict of
interest policy.
Section 1261.11(e) of the interim final rule prohibits a director
from accepting compensation for service on the board of a Bank from any
source other than the Bank. This prohibition does not prohibit any
director who is a salaried employee from continuing to receive a salary
even when the time that the director devotes to the Bank would
otherwise be time devoted to the employer.
L. Reporting Requirements for Bank Directors: Section 1261.12
Pursuant to section 1261.12(a) of the interim final rule, each
sitting director is required to execute an annual eligibility
certification form applicable to the directorship held by the director.
The form, prescribed by the FHFA for the purpose of identifying any
changes since a prior eligibility review, must be executed and
delivered to the Bank, and the Bank must deliver a copy to the FHFA.
Section 1261.12(b) of the interim final rule requires any sitting
director of a Bank who believes or has reason to believe that s/he no
longer meets the statutory or regulatory eligibility requirements to
notify promptly both the Bank and the FHFA. Likewise, any Bank that
believes or has reason to believe that any of its directors no longer
meets the eligibility requirements must notify the FHFA promptly.
M. Ineligible Bank Directors: Section 1261.13
Section 7(f) of the Bank Act, prior to the amendments made by the
Act, provided that an appointive directorship would become vacant
whenever the director holding that directorship failed to meet the
eligibility requirements set forth in the Bank Act, but the director
could continue to serve until replaced. The amendments to section 7(f)
now require that all directors who fail to meet their statutory
eligibility requirements immediately must vacate their offices. Section
1261.13 of the interim final rule applies these results whenever the
FHFA or a director's Bank makes a determination that the director has
failed to meet any eligibility requirement set forth in the Bank Act or
in part 1261 or has failed to comply with the reporting requirements in
section 1261.12 of the interim final rule. Section 1261.13 also
[[Page 55715]]
requires a Bank to notify the FHFA promptly after it has made such a
determination.
N. Vacant Bank Directorships: Section 1261.14
Section 1261.14(a) of the interim final rule implements the
requirements in section 7(f) of the Bank Act that any individual who
fills a vacancy on the board of a Bank be elected by a majority vote of
the remaining directors.
Section 1261.14(b) of the interim final rule requires the board of
directors of a Bank to fill any vacancy with an individual who meets
the eligibility and qualification requirements applicable to any
individual who was the predecessor in that position; however, if a Bank
continues to have at least two public interest directors, the board of
directors of the Bank may fill the vacant directorship with an
individual who meets the eligibility and qualification requirements for
any independent directorship. The eligibility requirements for both
member and independent directors are set forth in section 1261.4 of the
interim final rule. The eligibility requirements for independent public
interest directors and for other independent directors are the same.
The qualification requirements for independent public interest
directors and for other independent directors are set forth in section
1261.6 of the interim final rule. The Bank must verify eligibility
before allowing any director elected by the board to assume office, and
the Bank must deliver the individual's application form to the FHFA for
review and comment before the individual is allowed to assume office.
Section 1261.14(c) of the interim final rule requires a Bank to
provide a notice to the FHFA and to each member of the Bank that
includes specified information about any individual who has been
elected by the directors of the Bank.
O. Minimum Number of Member Directorships: Section 1261.15
Section 1261.15 designates the grandfathered directorships that
apply at the present time to the 12 Banks. The section also provides
that the grandfathering of directorships for any two or more Banks that
merge does not apply to those Banks that are a part of the merger, as
required by an amendment to section 7(c) of the Bank Act.
P. 2008 Temporary Schedule for Election of Directors: Section 1261.16
Section 1261.16 of the interim final rule requires each Bank to set
a reasonable schedule for the nomination and election of directors in
2008 only.
This temporary director election schedule will cease to be
effective after December 31, 2008.
III. Notice and Public Participation
The notice and comment procedure required by the Administrative
Procedure Act is inapplicable to this interim final rule because it is
in the public interest to implement the requirements of the Act as soon
as it is practicable to do so: The Banks need to conduct elections and
install directors in compliance with the new law by January 1, 2009,
when a number of terms of existing directors expire. See 5 U.S.C.
553(b)(3)(B). However, because the FHFA believes that public comments
are valuable, it encourages comments on this interim final rule, and
will consider all comments received on or before November 25, 2008 in
promulgating a final rule.
IV. Effective Date
For the reasons stated in part III above, the FHFA for good cause
finds that the interim final rule should become effective on September
26, 2008. See 5 U.S.C. 553(d)(3).
V. Paperwork Reduction Act
The interim final rule will have no substantive effect on any
collection of information covered by the Paperwork Reduction Act of
1995 (PRA). See 44 U.S.C. 3501 et seq. Therefore, the FHFA has not
submitted this interim final rule to the Office of Management and
Budget (OMB) for review. The Finance Board used application forms to
collect information on prospective appointive directors, and those
forms had been assigned control number 3069-0002 by the OMB. The FHFA
will direct the Banks to use those forms, which will be amended as
appropriate but the changes to the forms will not materially modify the
approved information collection. Consequently, the FHFA has not
submitted any information to OMB for review under the PRA.
VI. Regulatory Flexibility Act
The FHFA is adopting this regulation in the form of an interim
final rule and not as a proposed rule. Therefore, the provisions of the
Regulatory Flexibility Act do not apply. See 5 U.S.C. 601(2) and
603(a).
List of Subjects in 12 CFR Parts 915 and 1261
Banks, Banking, Conflicts of interest, Elections, Ethical conduct,
Federal home loan banks, Financial disclosure, Reporting and
recordkeeping requirements.
0
For the reasons stated in the preamble, under the authority of 12
U.S.C. 1319(G) and 12 U.S.C. 1426, 1427 and 1432, the FHFA proposes to
amend chapters IX and XII of title 12 of the Code of Federal
Regulations as follows:
CHAPTER IX--FEDERAL HOUSING FINANCE BOARD
PART 915--BANK DIRECTOR ELIGIBILITY AND ELECTIONS
0
1. Remove 12 CFR part 915.
CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY
0
2. Add and reserve subchapters A and C to 12 CFR Chapter XII.
0
3. Add subchapter B to 12 CFR chapter XII, and transfer part 1231 to
subchapter B.
0
4. Amend title 12 CFR chapter XII by establishing subchapter D to read
as follows:
Subchapter D--Federal Home Loan Banks
0
5. Add part 1261 to subchapter D to read as follows:
PART 1261--FEDERAL HOME LOAN BANK DIRECTOR ELIGIBILITY AND
ELECTIONS
Sec.
1261.1 Definitions.
1261.2 General provisions.
1261.3 Designation of member directorships.
1261.4 Director eligibility.
1261.5 Determination of member votes.
1261.6 Nominations for member and independent directorships.
1261.7 Election process.
1261.8 [Reserved].
1261.9 Actions affecting director elections.
1261.10 Independent director conflict of interests.
1261.11 Conflict of interests policy for Bank directors.
1261.12 Reporting requirements for Bank directors.
1261.13 Ineligible Bank directors.
1261.14 Vacant Bank directorships
1261.15 Minimum number of member directorships.
1261.16 Temporary rule for 2008 election of directors.
Authority: 12 U.S.C. 1426, 1427, and 1432.
Sec. 1261.1 Definitions.
For purposes of this part:
Act means the Federal Home Loan Bank Act, as amended (12 U.S.C.
1421 through 1449).
Bank, written in title case, means a Federal Home Loan Bank
established under section 12 of the Act (12 U.S.C. 1432).
Bona fide resident of a Bank district means an individual who:
[[Page 55716]]
(1) Maintains a principal residence in the Bank district; or
(2) If serving as an independent director, owns or leases in his or
her own name a residence in the Bank district and is employed in a
voting state in the Bank district.
Director means the Director of the Federal Housing Finance Agency.
FHFA means the Federal Housing Finance Agency.
FHFA ID number means the number assigned to a member by the FHFA
and used by the FHFA and the Banks to identify a particular member.
Guaranteed directorship means a member directorship that is
required by section 7(c) of the Act (12 U.S.C 1427(c)) to be designated
as representing Bank members that are located in a particular state,
other than a stock directorship.
Independent directorship means a directorship, as defined by
section 7(a)(4)(A) of the Act, 12 U.S.C. 1427(a)(4)(A), that is filled
by a plurality vote of the members at large by a person having the
qualifications specified by section 7(a)(3)(B)(i) or (ii), 12 U.S.C.
1427(a)(3)(B)(i) or (ii).
Member directorship means a directorship, as defined by section
7(a)(4)(A) of the Act, 12 U.S.C. 1427(a)(4)(A), that is filled by a
plurality vote of the members located in a particular state by a person
who is an officer or director of a member located in that state, and
includes guaranteed directorships and stock directorships.
Method of equal proportions means the mathematical formula used by
the FHFA to allocate member directorships among the states in a Bank's
district based on the relative amounts of Bank stock required to be
held as of the record date by members located in each state.
Public interest director means a person serving in a public
interest directorship.
Public interest directorship means an independent directorship
filled by an individual with more than four years experience
representing consumer or community interests in banking services,
credit needs, housing or consumer financial protections.
Record date means December 31 of the calendar year immediately
preceding the election year.
Stock directorship means a member directorship that is designated
by the FHFA as representing the members located in a particular voting
state based on the amount of Bank stock held required to be held by the
members in that state as of the record date, other than a guaranteed
directorship.
Voting state means the District of Columbia, Puerto Rico, or the
state of the United States in which a member's principal place of
business, as determined in accordance with 12 CFR part 925, is located
as of the record date. The voting state of a member with a principal
place of business located in the U.S. Virgin Islands as of the record
date is Puerto Rico, and the voting state of a member with a principal
place of business located in American Samoa, Guam, or the Commonwealth
of the Northern Mariana Islands as of the record date is Hawaii.
Sec. 1261.2 General provisions.
(a) Board size and composition. Annually, the FHFA Director will
determine the size of the board of directors for each Bank and will
designate at least a majority, but no more than 60 percent, of the
directorships as member directorships and the remainder as independent
directorships.
(b) Term of directorships. The term of office of each directorship
commencing on or after January 1, 2009 shall be four years, except as
adjusted pursuant to section 7(d) of the Act (12 U.S.C 1427(d)) to
achieve a staggered board, and shall commence on January 1 of the
calendar year so designated by the FHFA.
(c) Annual elections. Each Bank annually shall conduct an election
the purpose of which is to fill all directorships designated by the
FHFA as commencing on January 1 of the calendar year immediately
following such election. Subject to the provisions of the Act and in
accordance with the requirements of this part, the disinterested
members of the board of directors of each Bank, or a committee of
disinterested directors, shall administer and conduct the annual
election of directors. In so doing, the disinterested directors may use
Bank staff or independent contractors to perform ministerial and
administrative functions concerning the elections process.
(d) Location of members. In accordance with section 7(c) of the Act
(12 U.S.C 1427(c)), for purposes of the election of member directors, a
member is deemed to be located in its voting state, unless otherwise
designated by the Director.
(e) Dates. If any date specified in this part for action by a Bank,
or specified by a Bank pursuant to this part, falls on a Saturday,
Sunday, or Federal holiday, the relevant time period is deemed to be
extended to the next calendar day that is not a Saturday, Sunday, or
Federal holiday.
Sec. 1261.3 Designation of member directorships.
(a) Determination of voting stock. (1) On or before April 10 of
each year, each Bank shall deliver to the FHFA a capital stock report
that indicates, as of the record date, the number of members located in
each voting state in the Bank's district, the number of shares of Bank
stock that each member (identified by its FHFA ID number) was required
to hold, and the number of shares of Bank stock that all members
located in each voting state were required to hold. If a Bank has
issued more than one class of stock, it shall report the total shares
of stock of all classes required to be held by the members. The Bank
shall certify to the FHFA that, to the best of its knowledge, the
information provided in the capital stock report is accurate and
complete, and that it has notified each member of its minimum capital
stock holdings.
(2) If a Bank's capital plan was not in effect as of the record
date, the number of shares of Bank stock that any member is required to
hold as of the record date shall be determined in accordance with 12
CFR 925.20 and 925.22. If a Bank's capital plan was in effect as of the
record date, the number of shares of Bank stock that any member was
required to hold as of that date shall be determined in accordance with
the minimum investment established by the capital plan for that Bank;
however, for any member whose Bank stock is less than the minimum
investment during a transition period, the amount of Bank stock to be
reported shall be the number of shares of Bank stock actually owned by
the member as of the record date.
(b) Designation of member directorships as stock directorships. The
Director annually will conduct a designation of member directorships
for each Bank based on the number of shares of Bank stock required to
be held by the members in each state as of December 31 of the preceding
calendar year, using the method of equal proportions. If a Bank has
issued more than one class of stock, the Director will designate the
directorships for each state in that Bank district based on the
combined number of shares required to be held by the members in that
state. For purposes of conducting the designation, if a Bank's capital
plan was not in effect on the immediately preceding December 31, the
number of shares of Bank stock required to be held by members as of
that date shall be determined in accordance with 12 CFR 925.20 and
925.22. If a Bank's capital plan was in effect on the immediately
preceding December 31, the number of shares of Bank stock required to
be held
[[Page 55717]]
by members as of that date shall be determined in accordance with the
minimum investment established by such capital plan; however, for any
members whose Bank stock is less than the minimum investment during a
transition period, the amount of stock to be used in the designation of
directorships shall be the number of shares of Bank stock actually
owned by those members as of that December 31. In all cases, the
Director will designate the directorships by using the information
provided by each Bank in its capital stock report required by paragraph
(a)(1) of this section.
(c) Allocation of directorships. (1) The member directorships
designated by the Director will be allocated among the states by the
Director in accordance with sections 7(b) and (c) of the Act.
(2) If the designation of directorships conducted by the Director
under paragraph (c)(1) of this section eliminates any existing
directorship, or if the allocation of directorships under this
paragraph (c) designates any existing stock directorship to another
state, the director elected or appointed to that existing directorship
shall not be eligible to serve after the close of business on the
immediately following December 31.
(d) Notification. On or before June 1 of each year, the FHFA will
notify each Bank in writing of the total number of directorships
established for the Bank and the number of member directorships
designated as representing the members in each voting state in the Bank
district. If the annual designation of member directorships results in
an existing directorship being redesignated as representing members in
a different state, the directorship shall be deemed to become vacant as
of December 31 of that year, and thereafter shall filled by the board
of directors of the Bank with an eligible person who is an officer or
director of a member located in the newly designated state, regardless
of whether the term for the incumbent director would have expired by
that date.
Sec. 1261.4 Director eligibility.
(a) Eligibility requirements for member directors. Each member
director, and each nominee to a member directorship, shall be:
(1) A citizen of the United States; and
(2) An officer or director of a member that is located in the
voting state to be represented by the member directorship, that was a
member of the Bank as of the record date, and that meets all minimum
capital requirements established by its appropriate Federal banking
agency or appropriate state regulator.
(b) Eligibility requirements for independent directors. Each
independent director, and each nominee to an independent directorship,
shall be:
(1) A citizen of the United States; and
(2) A bona fide resident of the district in which the Bank is
located.
(c) Restrictions. (1) A nominee is not eligible if he or she:
(i) Is an incumbent director, unless:
(A) The incumbent director's term of office would expire before the
new term of office would begin; and
(B) The new term of office would not be barred by the term limit
provision of section 7(d) of the Act (12 U.S.C. 1427(d)); or
(ii) Is a former director whose service would be barred by the term
limit provision of section 7(d) of the Act.
(2) For purposes of applying the term limit provision of section
7(d) of the Act (12 U.S.C. 1427(d)):
(i) A term of office that is adjusted after July 30, 2008 to a
period of fewer than four years shall not be deemed to be a full term;
(ii) Any three year term of office ending immediately before a term
of office that is adjusted after July 30, 2008 to a period of fewer
than four years and any term of office commencing immediately following
such adjusted term of office shall constitute consecutive full terms of
office; and
(iii) Any member director's service through election to any
directorship with a three year term of office existing on or before
July 30, 2008 shall be deemed to be service in a full term directorship
to which the director has been elected.
(d) Loss of eligibility. (1) A director shall become ineligible to
remain in office if, during his or her term of office, the directorship
to which he or she has been elected is eliminated or, with respect to a
member directorship, is redesignated by the FHFA as representing
members located in another state, in accordance with Sec.
1261.3(c)(2). The incumbent director shall become ineligible after the
close of business on December 31 of the year in which the directorship
is redesignated or eliminated. Any directorship ceasing through
elimination or redesignation shall not be deemed to be a full-term
directorship for purposes of the section.
(2) In the case of a redesignation to another state, the
redesignated directorship shall be filled by a majority vote of the
remaining Bank directors, sitting as a board, regardless of whether the
remaining directors constitute a quorum of the board.
Sec. 1261.5 Determination of member votes.
(a) In general. Each Bank shall determine, in accordance with this
section, the number of votes that each member of the Bank may cast for
each directorship that is to be filled by the vote of the members.
(b) Number of votes. For each member directorship and each
independent directorship that is to be filled in an election, each
member shall be entitled to cast one vote for each share of Bank stock
that the member was required to hold as of the record date.
Notwithstanding the preceding sentence, the number of votes that any
member may cast for any one directorship shall not exceed the average
number of shares of Bank stock required to be held as of the record
date by all members located in the same state as of the record date. If
a Bank has issued more than one class of stock, it shall calculate the
average number of shares separately for each class of stock, using the
total number of members in a state as the denominator, and shall apply
those limits separately in determining the maximum number of votes that
any member owning that class of stock may cast in the election. If a
Bank's capital plan was not in effect as of the record date, the number
of shares of Bank stock that a member was required to hold as of the
record date shall be determined in accordance with 12 CFR 925.20 and
925.22. If a Bank's capital plan was in effect as of the record date,
the number of shares of Bank stock that a member was required to hold
as of the record date shall be determined in accordance with the
minimum investment requirement established by the Bank's capital plan;
however, for any member whose Bank stock is less than the minimum
investment during a transition period, the amount of Bank stock to be
used shall be the number of shares of Bank stock actually owned by the
member as of the record date.
(c) Voting preferences. If the board of directors of a Bank
includes any voting preferences as part of its approved capital plan,
those preferences shall supersede the provisions of paragraph (b) of
this section that otherwise would allow a member to cast one vote for
each share of Bank stock it was required to hold as of the record date.
If a Bank establishes a voting preference for a class of stock, the
members with voting rights shall remain subject to the provisions of
section 7(b) of the Act (12 U.S.C. 1427(b)) that prohibit any member
from casting any vote in excess of the average number of shares of
stock
[[Page 55718]]
required to be held by all members in its state.
Sec. 1261.6 Nominations for member and independent directorships.
(a) Election announcement. Within a reasonable time in advance of
an election, a Bank shall notify each member in its district of the
commencement of the election process. Such notice shall include:
(1) The number of member directorships designated for each voting
state in the Bank district and the number of independent directorships
for the Bank;
(2) The name of each incumbent Bank director, the name and location
of the member at which each member director serves, and the name and
location of the organization with which each independent director is
affiliated, if any, and the expiration date of each Bank director's
term of office;
(3) A brief statement describing the skills and experience the Bank
believes are most likely to add strength to the board of directors,
provided that the Bank previously has conducted the annual assessment
permitted by Sec. 1261.9 and the Bank has elected to provide the
results of the assessment to the members;
(4) An attachment indicating the name, location, and FHFA ID number
of every member in the member's voting state, and the number of votes
each such member may cast for each directorship to be filled by such
members, as determined in accordance with Sec. 1261.5; and
(5) A nominating certificate.
(b) Member directorship nominations. (1) Any member that is
entitled to vote in the election may nominate an eligible individual to
fill each available member directorship for its voting state by
delivering to its Bank, prior to a deadline to be established by the
Bank and set forth in the notice required in paragraph (a) of this
section, a nominating certificate duly adopted by the member's
governing body or by an individual authorized by the member's governing
body to act on its behalf.
(2) The nominating certificate shall include the name of the
nominee and the name, location, and FHFA ID number of the member the
nominee serves as an officer or director.
(3) The Bank shall establish a deadline for delivery of nominating
certificates, which shall be no earlier than 30 calendar days after the
date on which the Bank delivers the notice required by paragraph (a) of
this section, and the Bank shall not accept certificates received after
that deadline. The Bank shall retain all accepted nominating
certificates for at least two years after the date of the election.
(c) Accepting member directorship nominations. A Bank shall notify
in writing any person nominated for a member directorship promptly upon
receipt of the nominating certificate. A person may accept the
nomination only by delivering to the Bank, prior to a deadline
established by the Bank and set forth in its notice, an executed
director eligibility certification form prescribed by the FHFA. A Bank
shall allow each nominee at least 30 calendar days after the date the
Bank delivered the notice of nomination within which to deliver the
executed form. A nominee may decline the nomination by so advising the
Bank in writing, or by failing to deliver a properly executed director
eligibility certification form prior to the deadline. Each Bank shall
retain all information received under this paragraph for at least two
years after the date of the election.
(d) Independent directorship nominations. (1) Any individual who
seeks to be an independent director of the board of directors of a Bank
may deliver to the Bank, on or before the deadline set by the Bank for
delivery of nominating certificates, an executed independent director
application form prescribed by the FHFA that demonstrates that the
individual both is eligible and has either of the following
qualifications:
(i) More than four years experience representing consumer or
community interests in banking services, credit needs, housing, or
consumer financial protections; or
(ii) Knowledge of or experience in one or more of the areas set
forth in paragraph (e) of this section.
(2) Any other interested party may recommend to the Bank that it
consider a particular individual as a nominee for an independent
directorship, but the Bank shall not nominate any individual unless the
individual has delivered to the Bank, on or before the date the Bank
has set for delivery of nominating certificates, an executed
independent director application form prescribed by the FHFA. The
application form prescribed by the FHFA will provide a means by which
an individual can indicate an intent to be considered for a public
interest directorship. Only individuals who indicate on the form that
they wish to be considered for a public interest directorship may be
nominated for such directorships. The board of directors of the Bank
may consider any individual for any independent directorship
nomination, provided it has determined that the individual is eligible
and qualified. The board of directors of the Bank shall consult with
the Bank's Advisory Council before nominating any individual for any
independent directorship. Each Bank shall include in its bylaws the
procedures it intends to use for the nomination and election of the
independent directors, and shall retain all information received under
this paragraph for at least two years after the date of the election.
(3) Each Bank shall determine the number of public interest
directorships to be included among its authorized independent
directorships, provided that each Bank shall at all times have at least
two such directorships, and shall announce that number to its members
in the notice required by paragraph (a) of this section. In submitting
nominations to its members, each Bank shall nominate at least as many
individuals as there are independent directorships to be filled in that
year's election.
(e) Independent director qualifications. Any independent director
or nominee for an independent directorship, other than a public
interest director, shall submit to the Bank an independent director
application form that includes information demonstrating how that
person satisfies the requirement that he or she have experience in, or
knowledge of, one or more of the following areas: Auditing and
accounting; derivatives; financial management; organizational
management; project development; risk management practices; and the
law. In considering the qualifications of each such nominee for an
independent directorship, the board of directors of a Bank shall
consider that the nominee's knowledge or experience musts be
commensurate with that needed to oversee a financial institution with a
size and complexity that is comparable to that of the Bank.
(f) Eligibility verification. Using the information provided on the
director eligibility certification forms and on the independent
director application forms prescribed by the FHFA, a Bank shall verify
that each nominee for each member directorship and independent
directorship meets all of the eligibility requirements for such
directorship, as set forth in the Act and this part. Before announcing
any independent director nominee, the Bank shall deliver to the FHFA a
copy of the independent director application forms executed by the
individuals proposed to be nominated for independent directorships by
the board of directors of the Bank.
[[Page 55719]]
Sec. 1261.7 Election process.
(a) Ballots. Promptly after verifying the eligibility of all
nominees in accordance with with Sec. 1261.6(f), and if, within two
weeks of the delivery of nominee application forms to the FHFA, the
FHFA has not informed a Bank of any objection to the nomination of any
independent director nominee, a Bank shall prepare and deliver a ballot
to all members that were members as of the record date. The Bank shall
include with each ballot a closing date for the Bank's receipt of voted
ballots, which date shall be no earlier than 30 calendar days after the
date such ballot is delivered to the member.
(1) A ballot shall include at least the following provisions:
(i) For states in which one or more member directorships are to be
filled in the election, an alphabetical listing of the names of each
nominee for such directorship, the name, location, and FHFA ID number
of the member each nominee serves, the nominee's title or position with
the member, and the number of member directorships to be filled by the
members in that voting state in the election;
(ii) An alphabetical listing of the names of each nominee for a
public interest directorship and a brief description of each nominee's
experience representing consumer and community interests;
(iii) An alphabetical listing of the names nominee for the other
independent directorships and a brief description of each nominee's
qualifications, including his or her knowledge or experience in the
areas of financial management, auditing and accounting, risk management
practices, derivatives, project development, organizational management
and any other area of knowledge or experience set forth in Sec.
1261.6(e);
(iv) A statement that write-in candidates are not permitted; and
(v) A confidentiality statement prohibiting the Banks from
disclosing how a member voted.
(2) At the election of the Bank, a ballot also may include, in the
body or as an attachment, a brief description of the skills and
experience of each nominee for a member directorship.
(b) Statement on skills and experience. If a Bank has conducted an
annual assessment permitted by Sec. 1261.9 and has included the
results of the assessment as part of the notice to members required in
Sec. 1261.6(a), it may include with each ballot a statement of the
results of that assessment or any subsequent assessment. If the
statement differs from the statement provided under Sec. 1261.6(a)(3),
the Bank also shall include an explanation of why the statements
differ.
(c) Lack of member directorship nominees. If, for any voting state,
the number of nominees for the member directorships for that state is
equal to or fewer than the number of such directorships to be filled in
that year's election, the Bank shall deliver a notice to the members in
the affected voting state (in lieu of providing a ballot) that such
nominees shall be deemed elected without further action, due to a lack
of nominees. Thereafter, the Bank shall declare elected all eligible
nominees and in doing so may designate particular nominees to
guaranteed directorships or stock directorships, respectively, if
necessary. The directors declared elected shall be included as
directors-elect in the report of election required under paragraph (g)
of this section. Any member directorship that is not filled due to a
lack of nominees shall be deemed vacant as of January 1 of the
following year and shall be filled by the Bank's board of directors in
accordance with Sec. 1261.14(a).
(d) Voting. For each directorship to be filled, a member may cast
the number of votes determined by the Bank pursuant to Sec. 1261.5. A
member may not split its votes among multiple nominees for a single
directorship, and, where there are multiple directorships to be filled,
either within the member's voting state or at large, in the case of
independent directorships, a member may not cumulatively vote for a
single nominee. If any member votes, it shall by resolution of its
governing body either authorize the voting for specific nominees or
delegate to an individual the authority to vote for specific nominees.
To vote, a member shall:
(1) Mark on the ballot the name of not more than one of the
nominees for each directorship to be filled. Each nominee so selected
shall receive all of the votes that the member is entitled to cast.
(2) Execute and deliver the ballot to the Bank on or before the
closing date. A Bank shall not allow a member to change a ballot after
it has been delivered to the Bank.
(e) Counting ballots. A Bank shall not review any ballot until
after the closing date, and shall not include in the election results
any ballot received after the closing date. Promptly after the closing
date, each Bank shall tabulate the votes cast in the election: for the
member directorships, the Bank shall tabulate votes by each voting
state; for the independent directorships, the Bank shall tabulate votes
for the district at-large. Any ballots cast in violation of paragraph
(d) of this section shall be void.
(f) Declaring results. (1) For a member directorship, the Bank
shall declare elected the nominee receiving the highest number of
votes. If more than one member directorship is to be filled for a
particular state, the Bank shall declare elected each successive
nominee receiving the next highest number of votes until all such open
directorships are filled.
(2) For an independent directorship, the Bank shall declare elected
the nominee that has received the highest number of votes and has
received at least 20 per cent of the number of votes eligible to be
cast in the election. If more than one independent directorship is to
be filled, the Bank shall declare elected each successive nominee
receiving the next highest number of votes for such directorship until
all such open directorships are filled, provided such successive
nominee has received at least 20 per cent of the number of votes
eligible to be cast in the election.
(3) In the event of a tie for the last available directorship, the
disinterested incumbent members of the board of directors of the Bank,
by a majority vote, shall declare elected one of the nominees for whom
the number of votes cast was tied.
(4) A Bank shall not declare elected a nominee that it has reason
to know is ineligible to serve, nor shall it seat a director-elect that
it has reason to know is ineligible to serve.
(5) The Bank shall retain all ballots it receives for at least two
years after the date of the election, and shall not disclose how any
member voted.
(g) Report of election. Promptly following the election, each Bank
shall deliver a notice to its members, to each nominee, and to the FHFA
that contains the following information:
(1) For each member directorship, the name of the director-elect,
the name and location of the member at which he or she serves, his or
her title or position at the member, the voting state represented, the
expiration date of the term of office, and the number of votes cast for
each nominee;
(2) For each independent directorship, the name of the director-
elect, whether the director-elect will fill a public interest
directorship and, if so, the consumer or community interest represented
by such directorship, any qualifications under Sec. 1261.6(e), the
expiration date of the term of office and the number of votes cast for
each nominee;
(3) The number of members voting in the election and the total
number of votes cast for each nominee for the member directorships,
which shall be reported by state, and the total number
[[Page 55720]]
of votes cast for each nominee for the independent directorships, which
shall be reported for the district at large.
(h) Failing to fill all independent directorships. If any
independent directorship of a Bank is not filled through the initial
election process set forth in this section, the board of directors of
the Bank shall identify additional nominee and shall conduct additional
election for the directorship, following the election process set forth
in this section. In any such election a nominee shall not be elected
unless he or she receives at least 20 percent of the votes eligible to
be cast.
Sec. 1261.8 [Reserved].
Sec. 1261.9 Action affecting director elections.
(a) Banks. Each Bank, acting through its board of directors, may
conduct an annual assessment of the skills and experience possessed by
the members of its board of directors as a whole and may determine
whether the capabilities of the board would be enhanced through the
addition of individuals with particular skills and experience. If the
board of directors determines that the Bank could benefit by the
addition to the board of directors of individuals with particular
qualifications, such as auditing and accounting, derivatives, financial
management, organizational management, project development, risk
management practices, or the law , it may identify those qualifications
and so inform the members as part of its announcement of elections
pursuant to Sec. 1261.6(a).
(b) Support for nomination or election. (1) A Bank director,
officer, attorney, employee, or agent, acting in his or her personal
capacity, may support the nomination or election of any individual for
a member directorship, provided that no such director may purport to
represent the views of the Bank or its board of directors in doing so.
(2) Notwithstanding paragraph (b)(1) of this section, a Bank
director, officer, attorney, employee or agent and the board of
directors and Advisory Council of a Bank may support the candidacy of
any person nominated by the board of directors for election to an
independent directorship.
(c) Prohibition. Except as provided in paragraphs (a) and (b) of
this section, no director, officer, attorney, employee, or agent of a
Bank may:
(1) Communicate in any manner that a director, officer, attorney,
employee, or agent of a Bank, directly or indirectly, supports or
opposes the nomination or election of a particular individual for a
directorship; or
(2) Take any other action to influence the voting with respect to
any particular individual.
Sec. 1261.10 Independent director conflict of interests.
(a) Employment interests. During any independent director's term of
service, such director may not serve as an officer, employee, or
director of any member of the Bank on whose board the individual sits,
or of any recipient of advances from such Bank, and may not serve as an
officer of any Bank. An independent director or nominee for any
independent directorship shall disclose all such interests to the Bank
on whose board of directors the individual serves or which is
considering the individual for nomination to its board of directors.
(b) Holding companies. Service as an officer, employee, or director
of a holding company that controls one or more members of, or one or
more recipients of advances from, any Bank is not deemed to be service
as an officer, employee or director of a member or recipient of
advances if the assets of all such members or all such recipients of
advances constitute less than 35 percent of the assets of the holding
company, on a consolidated basis.
(c) Attribution. For purposes of determining compliance with this
section, a Bank shall attribute to the independent director any officer
position, employee position, or directorship of the director's spouse.
Sec. 1261.11 Conflict of interests policy for Bank directors.
(a) Adoption of conflict of interests policy. Each Bank shall adopt
a written conflict of interests policy that applies to all members of
its board of directors. At a minimum, the conflict of interests policy
of each Bank shall:
(1) Require the directors to administer the affairs of the Bank
fairly and impartially and without discrimination in favor of or
against any member;
(2) Require independent directors to comply with Sec. 1261.10(a);
(3) Prohibit the use of a director's official position for personal
gain;
(4) Require directors to disclose actual or apparent conflicts of
interest and establish procedures for addressing such conflicts;
(5) Provide internal controls to ensure that reports are filed and
that conflicts are disclosed and resolved; and
(6) Establish procedures to monitor compliance with the conflict of
interests policy.
(b) Disclosure and recusal. A director shall disclose to the Bank's
board of directors any financial interests he or she has, as well as
any financial interests known to the director of any immediate family
member or business associate of the director, in any matter to be
considered by the Bank's board of directors and in any other business
matter or proposed business matter involving the Bank and any other
person or entity. A director shall disclose fully the nature of his or
her interests in the matter and shall provide to the Bank's board of
directors any information requested to aid in its consideration of the
director's interest. A director shall refrain from considering or
voting on any issue in which the director, any immediate family member,
or any business associate has any financial interest.
(c) Confidential Information. Directors shall not disclose or use
confidential information they receive solely by reason of their
position with the Bank to obtain any benefit for themselves or for any
other individual or entity.
(d) Gifts. Directors shall not accept, and shall discourage their
immediate family members from accepting, any gift that the director
believes or has reason to believe is given with the intent to influence
the director's actions as a member of the Bank's board of directors, or
where acceptance of such gift would have the appearance of intending to
influence the director's actions as a member of the board.
(e) Compensation. Directors shall not accept compensation for
services performed for the Bank from any source other than the Bank for
which the services are performed.
(f) Definitions. For purposes of this section:
(1) Immediate family member means parent, sibling, spouse, child,
or dependent, or any relative sharing the same residence as the
director.
(2) Financial interest means a direct or indirect financial
interest in any activity, transaction, property, or relationship that
involves receiving or providing something of monetary value, and
includes, but is not limited to any right, contractual or otherwise, to
the payment of money, whether contingent or fixed. It does not include
a deposit or savings account maintained with a member, nor does it
include a loan or extension of credit obtained from a member in the
normal course of business on terms that are available generally to the
public.
(3) Business associate means any individual or entity with whom a
director has a business relationship, including, but not limited to:
(i) Any corporation or organization of which the director is an
officer or partner, or in which the director
[[Page 55721]]
beneficially owns ten percent or more of any class of equity security,
including subordinated debt;
(ii) Any other partner, officer, or beneficial owner of ten percent
or more of any class of equity security, including subordinated debt,
of any such corporation or organization; and
(iii) Any trust or other estate in which a director has a
substantial beneficial interest or as to which the director serves as
trustee or in a similar fiduciary capacity.
Sec. 1261.12 Reporting requirements for Bank directors.
(a) Annual reporting. Annually, each Bank shall require each of its
directors to execute and deliver to the Bank the appropriate director
eligibility certification form prescribed by the FHFA for the type of
directorship held by such director. The Bank promptly shall deliver to
the FHFA a copy of the certification form delivered to it by each
director.
(b) Report of noncompliance. At any time that any director believes
or has reason to believe that he or she no longer meets the eligibility
requirements set forth in the Act or this part, the director promptly
shall so notify the Bank and the FHFA in writing. At any time that a
Bank believes or has reason to believe that any director no longer
meets the eligibility requirements set forth in the Act or this part,
the Bank promptly shall notify the FHFA in writing.
Sec. 1261.13 Ineligible Bank directors.
Upon a determination by the FHFA or a Bank that any director of the
Bank no longer satisfies the eligibility requirements set forth in the
Act or this part, or has failed to comply with the reporting
requirements of Sec. 1261.12, the directorship shall immediately
become vacant. Any director that is determined to have failed to comply
with the eligibility or reporting requirements shall not continue to
serve as a Bank director. Whenever a Bank makes such a determination,
the Bank promptly shall notify the Bank director and the FHFA in
writing.
Sec. 1261.14 Vacant Bank directorships.
(a) Filling unexpired terms. As soon as practicable after any
vacancy occurs, the board of directors of a Bank shall elect, by a
majority vote of the remaining Bank directors sitting as a board, an
individual to fill the unexpired term of office of the vacant
directorship, regardless of whether the remaining Bank directors
constitute a quorum of the Bank's board of directors.
(b) Verifying eligibility. The board of directors of a Bank shall
elect to a vacant directorship an individual who satisfies all of the
eligibility requirements and any of the qualification requirements set
forth in the Act and this part that were applicable to his or her
predecessor, except that if the vacant directorship is a public
interest directorship and the Bank has at least two other public
interest directorships that are not vacant, the board of directors of
the Bank may elect any individual who is eligible and qualified for any
independent directorship. The Bank shall obtain an executed director
eligibility certification form prescribed by the FHFA from the
individual filling a member directorship. The Bank shall obtain an
executed independent director application form prescribed by the FHFA
from the individual filling an independent directorship. The Bank shall
verify the individual's eligibility and shall deliver any independent
director application form to the FHFA for its review and comment before
allowing the individual to assume the directorship. The Bank shall
retain the information it receives in accordance with Sec. 1261.6.
(c) Notification. Promptly after allowing the individual to assume
the directorship, as provided in paragraph (b) of this section, a Bank
shall notify the FHFA and each member located in the Bank's district in
writing of the following:
(1) For each member directorship filled by the board of a Bank, the
name of the director, the name, location, and FHFA ID number of the
member the director serves, the director's title or position with the
member, the voting state that the director represents, and the
expiration date of the director's term of office; and
(2) For each independent directorship filled by the board of a
Bank, the name of the director, the name and location of the
organization with which the director is affiliated, if any, the
director's title or position with such organization, and the expiration
date of the director's term of office.
Sec. 1261.15 Minimum number of member directorships.
Except with respect to member directorships of a Bank resulting
from the merger of any two or more Banks, the number of member
directorships allocated to each state shall not be less than the number
of directorships allocated to that state on December 31, 1960. The
following list sets forth the states whose members held more than one
directorship on December 31, 1960:
------------------------------------------------------------------------
Number of elective
State directorships on
December 31, 1960
------------------------------------------------------------------------
California........................................ 3
Colorado.......................................... 2
Illinois.......................................... 4
Indiana........................................... 5
Iowa.............................................. 2
Kansas............................................ 3
Kentucky.......................................... 2
Louisiana......................................... 2
Massachusetts..................................... 3
Michigan.......................................... 3
Minnesota......................................... 2
Missouri.......................................... 2
New Jersey........................................ 4
New York.......................................... 4
Ohio.............................................. 4
Oklahoma.......................................... 2
Pennsylvania...................................... 6
Tennessee......................................... 2
Texas............................................. 3
Wisconsin......................................... 4
------------------------------------------------------------------------
Sec. 1261.16 Temporary rule for 2008 election of directors.
(a) This section applies to the scheduling provisions for the
election of directors of the Banks during calendar year 2008. Each Bank
shall schedule its elections to allow a reasonable time to accomplish
each act and complete the election process by December 31, 2008. As
described herein, this section operates in conjunction with Sec. Sec.
1261.3, 1261.6 and 1261.7, which govern generally the election of
directors. The special provisions of this section govern the process
for the 2008 elections for Bank directorships in the case of any
conflict with the provisions of the other sections of this part.
(b) Each Bank shall notify its members of the commencement of the
election process and shall establish a reasonable deadline after
delivery of such notice within which nominating certificates must be
received by the Bank, pursuant to the requirements of Sec. 1261.6.
(c) After a Bank has accepted member directorship nominations, the
Bank shall take the actions specified in Sec. 1261.6(c) within a
reasonable time.
(d) No Bank shall accept any completed and executed director
eligibility certification form or any independent director application
form referred to in Sec. 1261.6(c) and (d) beyond a reasonable
deadline established by the Bank.
(e) Each Bank shall deliver to each of its voting members a set of
ballot materials, pursuant to the requirements of Sec. 1261.7(a), and
shall establish a reasonable period of time for the voting of ballots.
(f) After the closing date established by a Bank, the Bank shall
commence the counting of ballots pursuant to the requirements of Sec.
1261.7(e).
[[Page 55722]]
(g) Not later than December 31, 2008, each Bank shall declare the
results of its election and report the results, pursuant to Sec.
1261.7(f) and (g).
(h) For any Bank that began a 2008 elective directorship election
process after having received the Federal Housing Finance Board's
Resolution titled 2008 Designation of Federal Home Loan Bank
Directorships, Resolution No. 2008-10 dated May 14, 2008, if the number
of elective directorships designated for election in 2008 in that
Resolution for any state is the same as, or is more than, the number of
member directorships designated for election in the state in 2008 in
the Order of the FHFA Director dated September 8, 2008, then, as to
such states to the extent that the Bank has completed the election
process for such directorships in accordance with Federal Housing
Finance Board rules up through and including verification of
eligibility of nominees, the Bank's election process for member
directorships shall be deemed to be in compliance with paragraphs (a),
(b), (c) and (d) of this section, as applicable.
(i) This section is effective from September 26, 2008 through
December 31, 2008.
Dated: September 22, 2008.
James B. Lockhart, III,
Director, Federal Housing Finance Agency.
[FR Doc. E8-22659 Filed 9-25-08; 8:45 am]
BILLING CODE 8070-01-P