Federal Home Loan Bank Elective Directors, 40643-40648 [E6-11306]

Agencies

• Federal Housing Finance Board

[Federal Register Volume 71, Number 137 (Tuesday, July 18, 2006)]
[Rules and Regulations]
[Pages 40643-40648]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-11306]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 915

[No. 2006-12]
RIN 3069-AB31


Federal Home Loan Bank Elective Directors

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is amending 
its rules relating to the election of Federal Home Loan Bank (Bank) 
directors to allow each Bank greater latitude in providing members 
information about the range of skills and experience among board 
members the Bank believes is best suited to administer its affairs. The 
final rule is intended to enhance the corporate governance of each Bank 
by allowing a Bank to provide to its members, during the election 
process, information about the expertise the Bank has identified as 
appropriate to enhance the board of directors in providing overall 
board management of the Bank. The final rule also revises and 
reorganizes the prohibitions on actions during the election process.

DATES: Effective Date: The final rule is effective July 18, 2006.

FOR FURTHER INFORMATION CONTACT: John P. Kennedy, General Counsel, 202-
408-2983, kennedyj@fhfb.gov; or Thomas P. Jennings, Senior Attorney 
Advisor, Office of General Counsel, 202-408-2553, jenningst@fhfb.gov. 
You can send mail to the Federal Housing Finance Board, 1625 Eye 
Street, NW., Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    Congress has delegated to the Finance Board broad authority to 
fulfill its statutory mandates. Section 2B of the Federal Home Loan 
Bank Act (Bank Act) states that the Finance Board has the power ``[t]o 
supervise the Federal Home Loan Banks and to promulgate and enforce 
such regulations and orders as are necessary from time to time to carry 
out the provisions of'' the Bank Act. 12 U.S.C. 1422b(a)(1).
    The primary mandate for the Finance Board is to ``ensure that the 
Federal Home Loan Banks operate in a financially safe and sound 
manner.'' 12 U.S.C. 1422a(a)(3)(A). Within this broad authority, 
Congress also specifically authorized the Finance Board to ``prescribe 
such rules and regulations as it may deem necessary or appropriate for 
the nomination and election of directors of Federal home loan banks.'' 
12 U.S.C. 1427(d).
    The Finance Board has long had in place regulations addressing the 
manner in which persons are nominated and elected to the boards of the 
Banks. Effective December 30, 1998, the Finance Board amended various 
provisions of its regulations relating to director elections to devolve 
to each Bank, through its board of directors, the responsibility for 
administering the process for electing Bank directors. See Resolution 
Number 1998-47, published at 63 FR 65683 (November 30, 1998) (available 
electronically in the FOIA Reading Room on the Finance Board Web site 
at: https://www.fhfb.gov/Default.aspx?Page=59). Notwithstanding that 
devolution of authority to the Banks, the Finance Board remains 
responsible for the safety and soundness of the Banks and for 
periodically reviewing its regulations to ensure that they continue to 
carry out their intended purposes in a logical and efficient manner.
    The Finance Board believes that an informed and capable board of 
directors is one of the more important elements in maintaining a safe 
and sound Bank. In recent months, the Finance Board has received 
suggestions that the electoral process could be improved if certain 
provisions of its regulations were revised to permit the Banks to be 
more involved in the process of identifying qualified and capable 
individuals to serve on the boards.
    Accordingly, on April 18, 2006, the Finance Board published a 
proposed regulation with a 45-day comment period that would amend part 
915--the provision of its regulations dealing with the election of 
directors--to allow the Banks more flexibility in providing information 
to their members during the election process. Briefly stated, the 
proposed rule would have allowed any Bank to assess the skills and 
experience of the existing individuals on the board of directors, to 
determine what skills or experience might be useful in enhancing the 
capabilities of the board, and to communicate its assessment of 
existing and desired skills to the members when soliciting nominations 
from and providing ballots to the members of the Bank. The proposed 
rule also would have removed certain provisions of the regulations that 
prohibit persons associated with the Finance Board from being involved 
in the elections process, because those provisions dated to a time at 
which the Finance Board actually administered the elections at each of 
the Banks. See Resolution Number 2006-04, published at 71 FR 19832 
(April 18, 2006) (available electronically in the FOIA Reading Room on 
the Finance Board Web site at: https://www.fhfb.gov/
Default.aspx?Page=59). The final rule generally amends the various 
provisions of part 915 as set forth in the proposed rule.

II. Analysis of the Public Comments and Final Rule

    The Finance Board received 17 comments in response to the proposed 
rule, which addressed the Finance Board's proposal to expand the 
ability of the Banks to communicate with their members during the 
election process and its proposal to remove prohibitions on the conduct 
of persons associated with the Finance Board. The commenters included 6 
Banks. Most commenters supported the proposal, though almost all 
offered suggested revisions to the rule. Three commenters opposed the 
proposal, 2 citing a perceived potential for the process to further 
impede the ability of some members to obtain representation on the Bank 
boards of directors, and 1 expressing a concern about the possible bias 
in the information to be provided to the members as well as the 
perception created by the deletion of prohibitions barring the 
involvement of Finance Board employees in the elections process. The 
comments can be divided into 6 substantive areas, which are discussed 
separately below.

A. Self-Assessments Under Sec.  915.9(a)

    Section 915.9(a) of the proposed rule would have allowed the board 
of directors of each Bank to conduct an annual assessment of the skills 
and experience needed on the board of directors and to inform its 
members of those identified needs. The final rule adopts this provision 
substantially as proposed.
    Section 915.9(a) of the final rule is permissive in nature--it 
authorizes, but does not require, a board of directors to assess how 
well the skills and experience of the incumbent board members align 
with the needs of the Bank. It also authorizes, but does not require, a 
board to determine whether it could benefit from the addition of

[[Page 40644]]

persons with particular skills or experience and, if so, whether to 
provide the members with that information in advance of the nominations 
and voting process. The Finance Board believes that the board of 
directors of a Bank, as the body charged by Congress to ``administer 
the affairs of the bank fairly and impartially and without 
discrimination in favor of or against any member,'' 12 U.S.C. 1427(j), 
is the most appropriate body to oversee the self-assessment. The final 
rule does not prescribe the process or the procedures through which the 
board of directors is to conduct a self-assessment of its needs, 
although it vests ultimate responsibility for these decisions with the 
board. Thus, the rule would allow a board of directors to consult with 
the members or with management in assessing what skills and experience 
would be of most use to the board.
    Although the rule includes a list of skills and experience as part 
of Sec.  915.9(a), it is intended only as an example of the types of 
skills that a Bank might determine it needs on its board of directors. 
A board may well decide that it could benefit from the addition of 
persons with other skills, and it could include those skills as part of 
its assessment. Indeed, because the business plans of the Banks vary, 
the needs of the individual Banks with respect to the skill sets of the 
boards as a whole also will likely vary. The rule is intended to allow 
each Bank adequate flexibility to determine its own particular needs.
    The commenters addressed several issues relating to the assessment 
of director skills and experience. Some commenters suggested that the 
rule include a more expansive list of skills, while others were 
concerned that identifying specific skills in the rule might make it 
more difficult for the chief executive officer of a member--who may 
have a broad range of business and financial skills, rather than the 
individual skills listed--to be nominated or elected. Because the list 
of skills is intended to be illustrative rather than exclusive, the 
Finance Board does not believe that the list needs to be expanded. In a 
similar fashion, the Finance Board believes that the concerns about 
chief executive officers being handicapped in their ability to be 
nominated or elected are not well-founded. The rule does not affect the 
ability of a member to nominate a person of its choosing, and any 
member can nominate its own officers or directors. The rule also does 
not limit the right of a member to vote for whomever it believes to be 
the best qualified, regardless of whether that person possesses the 
qualifications identified by the assessment. Moreover, because all 
elected directors must either be an officer or a director of a member 
of the Bank, it is likely that the list of nominees will continue to 
include a significant number of persons who serve as chief executives 
of their institution.
    Other commenters questioned the need or usefulness of the rule, 
contending that there is no need for such a rule because such 
assessments are not barred by statute or regulation, it would allow 
certain members to perpetuate their representation on the board, or 
would be unlikely to produce better candidates than are nominated under 
the current structure.
    Although it is correct that there are no statutory or regulatory 
impediments to conducting a self-assessment, the final rule responds to 
concerns expressed by some parties that the rules be amended to state 
more clearly that such actions are permissible. Moreover, certain 
provisions of the existing regulations--Sec. Sec.  915.6 and 915.8--do 
regulate the content of the notice that the Banks provide to their 
members regarding nominations, which starts the election process, as 
well as the content of the ballots. Given both of those facts, the 
Finance Board believes that it is appropriate to include these new 
provisions as part of the rules that already address communications 
with the members during the elections process. Moreover, such 
provisions will ensure--for those Banks that undertake the assessment 
and inform their members of the desired skills and experience--that 
members receive the information at a time when it can assist them in 
deciding who they may want to nominate.
    As to the concern about a self-perpetuating board, the Finance 
Board notes that all directors not only have a statutory duty to act 
fairly and impartially to all members, as set forth in 12 U.S.C. 
1427(j), but also a fiduciary duty as representatives of the members. 
The Finance Board believes that any conduct by a director that placed 
the interests of the individual director or the director's institution 
above the interests of the Bank likely would violate both of those 
duties and would be sanctioned accordingly.
    The Finance Board acknowledges, as suggested by the comments, that 
the process of assessing the qualifications of the board as a whole and 
identifying the needs of a Bank will not by itself result in the 
election of a more qualified board. The objective of the rule, however, 
is to provide both the Banks and their members an avenue through which 
they may improve the quality of the boards. The Finance Board believes 
that key factors in achieving that result include information as to the 
needs of the Bank's board and information as to the qualifications of 
the nominees for the directorships. To the extent that the collective 
skills and experience of a Bank's board of directors may not align 
precisely with the needs of the Bank despite efforts to achieve that 
result, the board of directors still would retain the authority to hire 
consultants to advise it in any areas where the collective skills of 
the board members may be less than optimum. The Finance Board believes 
that a Bank should do all that it reasonably can to obtain a well-
performing board of directors, even if those efforts are not guaranteed 
to succeed every time.
    Other commenters suggested that the Finance Board allow members a 
greater role in conducting the self-assessment, allow Banks to form 
nominations committees composed of Bank directors and other 
representatives from members, and allow management to work with the 
board in the nominations and election process. As noted previously, by 
statute the board of directors of each Bank is charged with 
responsibility for administering the affairs of the Bank and the 
Finance Board believes that the board is the appropriate body to 
determine what skills and experience are most likely to enhance its 
ability to carry out its duties. Moreover, the suggestions that the 
final rule allow the establishment of nominations committees and the 
greater involvement of management in the nominations process go beyond 
the scope of the proposed rule. The proposal was intended to allow an 
opportunity for the Banks to develop and then provide to the members 
additional information regarding the needs of the boards and the skills 
and experience of individual candidates seeking election to the board. 
It was not intended to alter the substantive nature of the nominations 
process, which is tied closely to the statutory provisions that 
authorize the members, and not the Bank, to nominate persons to stand 
for election to the boards of the Banks. Accordingly, the final rule 
does not include provisions addressing the issues raised by those 
commenters. As the party responsible for conducting the assessment, the 
board also has the authority to determine what resources, if any, it 
needs in order to conduct any self-assessment. Clearly, Bank management 
works for the board of directors and, if so directed by the board, can 
undertake tasks to aid the board in doing the self-assessment.

[[Page 40645]]

B. Information at the Nominations Stage--Sec.  915.6(a)(3)

    Proposed Sec.  915.6(a)(3) would have authorized each Bank to send 
to the members, as part of the initial notice for nominations, a brief 
statement of the skills and experience that the Bank's board of 
directors has identified. The final rule adopts the substance of Sec.  
915.6(a)(3) as proposed with clarifying changes to the language used.
    Some commenters raised concerns about providing the members with 
such information at the start of the nominations process, including 
concerns that the information might steer nominations to a preferred 
candidate, or that it might cause persons with other qualifications not 
to be nominated, and suggested that the rule explicitly state that a 
member can nominate any eligible person without regard to whether that 
person has the experience identified by the Bank.
    As to the timing concern, the purpose of the rule is to allow both 
the Bank and its members to be better informed about the needs of the 
Bank at the board level and the qualifications that prospective 
nominees might bring to the board. If a Bank opts to undertake the 
self-assessment, the Finance Board believes that it is better for the 
members to receive the information at the beginning of the election 
process, before nominations are due. Accordingly, the final rule 
retains the provision allowing the information to be made available to 
the members prior to the submission of nominations.
    With respect to the concern about steering nominations, the Finance 
Board does not believe that the risks of that occurring are 
significant. As an initial matter, the information provided to the 
members will relate only to the needs of the Bank; it will not be 
specific to any individuals and should not cause any member to fail to 
nominate an individual the member believes is an appropriate candidate. 
Moreover, each member has a legal right to nominate any eligible 
person, without regard to whether the person possesses the skills or 
experience identified by the Bank. Having directors who meet the 
eligibility requirements is a minimum standard, while having directors 
with the skills and experience identified by the Banks is a goal to 
which the Banks would aspire.
    Commenters suggested that the rule require a Bank to include with 
the statement identifying the needed skills and experience a statement 
that a member may nominate any otherwise eligible persons. Existing 
Finance Board rules already include a provision stating that any member 
eligible to vote in an election may nominate persons for that election. 
Consequently, the Finance Board does not believe such a revision to the 
final rule is necessary and has not adopted that suggestion.
    Some commenters suggested that the final rule prescribe how a Bank 
must describe the identified skills and experience in any communication 
sent to the members, while others sought revisions to clearly state 
that only the board of directors can decide what information to include 
in the initial notice. Because the current regulations at 12 CFR 
915.6(a) provide that ``a Bank'' must provide the notice to the 
members, the Finance Board views the preparation and sending of the 
notice as a ministerial function which is subject to the oversight of a 
Bank's board of directors, which can determine how much, or how little, 
involvement to have. Moreover, Sec.  915.3(a) of the Finance Board 
regulations requires the disinterested directors, or a committee 
thereof, to provide the oversight with respect to the election of 
directors. The Finance Board views this provision as requiring that the 
disinterested directors carry out the details of providing the 
information to the members. Proposed Sec.  915.6(a)(3) would require 
that the statement of skills be brief and that it be a statement of the 
skills identified pursuant to Sec.  915.9, which are the skills 
identified by the board of directors. Prescriptive regulation should 
not be necessary in order to assure that the skills identified by the 
boards of directors are indeed described accurately and briefly, if at 
all, in the initial notice to members.

C. Information Accompanying the Ballots--Sec.  915.8(b).

    Proposed Sec.  915.8(b) would have allowed each Bank to send with 
the ballots a brief statement of the skills and experience that the 
Bank's board of directors has identified as needed on the board. The 
Finance Board has retained that provision in the final rule with some 
clarifying changes.
    The Finance Board received comments similar to those made with 
respect to the initial notice under proposed Sec.  915.6(a)(3). The 
Finance Board believes that its response to the comments on the initial 
notice are equally applicable to the similar comments on proposed Sec.  
915.8(b). The Finance Board also received comments raising other 
issues, including a request that the final rule authorize the Banks to 
form a nominations committee. One commenter recommended that the 
committee be permitted to make nominations, while the other suggested 
that the committee make recommendations to members, but allow the 
members to decide whether to nominate those persons. These commenters 
would allow the Banks to endorse particular candidates or to provide 
information in the form of a proxy statement that contains information 
about the candidates and the Bank's recommendations or endorsements of 
specific individuals.
    The Finance Board is not prepared to expand the final rule to 
incorporate the recommendations made by these commenters. As an initial 
matter, the suggestions relating to nominations committees and proxy 
statements go beyond the scope of the changes at the heart of the 
proposed rule, which were intended to allow the Banks to provide 
greater information to members about the needs of the Banks and the 
experience of the prospective directors. They were not intended to 
alter the nature of the nominations process, which each of those 
suggestions would do to some degree. Those suggestions also raise 
questions as to the legal limits on what type of changes to the 
nominations and election process would be permissible under the Bank 
Act, which the Finance Board has not addressed in the proposed rule. 
Moreover, since 1989, Finance Board rules have prohibited Bank 
personnel (other than incumbents acting in their personal capacity) 
from communicating that the Bank endorses specific individuals. In 
light of that history and the policy reasons underlying it, the Finance 
Board declines to go beyond authorizing the disclosures set forth in 
the final rule.
    Two commenters requested that the final rule prevent a Bank from 
altering the statement that it provides to its members between the 
initial distribution with the nominations announcement and the 
subsequent distribution of the ballots. Those persons were concerned 
that in the absence of such a provision a Bank would be free to change 
its directorship needs assessment for the purpose of directing votes to 
particular candidates. In the preamble to the proposed rule, the 
Finance Board stated that the two statements are not required to be the 
same. See 71 FR at 19834.
    Although the Finance Board believes that in most situations there 
would be no reason to change the information from one communication to 
the next, it is possible that events could occur after the initial 
distribution that could cause the initial communication to no longer be 
full, complete, or accurate. For example, directors could resign or 
become ineligible to serve between the

[[Page 40646]]

time of nominations and the election, thus creating a need that was not 
apparent when the Bank distributed the results of the assessment to its 
members at the nominations stage of the process. If such an event were 
to occur, the Finance Board believes that the board of directors should 
be able to provide its members with a revised statement of the most 
current skills assessment by the board, and the Finance Board is 
revising the rule accordingly. The Finance Board also is revising the 
final rule to require each Bank to explain to its voting members why 
any changes to the statement are warranted.
    The Finance Board recognizes that, for purposes of the elections 
occurring this year, it is likely that the Banks will not have included 
the results of a self-assessment with the nominations notice previously 
sent to the members. If any Bank has conducted a self-assessment prior 
to the distribution of the ballots, the Finance Board believes that the 
Bank and its members should be able to benefit from that effort. 
Accordingly, the Finance Board will permit any such Banks to include 
the results of their assessment with the ballots that it provides to 
its members. We anticipate that in subsequent years the Banks that 
choose to conduct a self-assessment and inform their members of that 
action will do so sufficiently in advance of the start of the 
nominations process to allow the inclusion of those materials with the 
nominations materials as well as with the ballots.

D. Ballot Information About the Nominees--Sec.  915.8(a).

    Proposed Sec.  915.8(a)(1) would have authorized the Banks to 
include on the ballots a brief description of each nominee's skills and 
experience. Like the authorizations in proposed Sec. Sec.  915.6(a) and 
915.8(b) with respect to information that could be included in the 
initial notice and with the ballots, such information would be 
permitted, but is not required to be on the ballots.
    Several commenters suggested revisions to the provisions addressing 
the information that may be provided on the ballots. Some suggested 
that the final rule prescribe how such information would be obtained 
and displayed on the ballots; others suggested that only the board of 
directors be permitted to decide how to describe a nominee's skills and 
experience, while others would allow each nominee to describe his or 
her skills and experience. Three commenters opposed any such statement 
on the ballots, believing that it could not be done in a purely neutral 
fashion.
    The Finance Board believes that the Banks, under the oversight of 
their disinterested directors and through the use of resources 
available to them, have the capability to obtain information on each 
candidate's skills and experience and to prepare a brief statement of 
such skills and experience, should they choose to do so. The intent of 
the proposed and final rule is to afford the Banks the opportunity to 
provide certain information to the members at various stages of the 
electoral process, but not to require that they do so. Given that the 
rule is not mandatory, and that the disinterested directors of the 
Banks already administer the elections, the Finance Board does not 
believe that it is necessary for the final rule to impose the level of 
detail that these comments suggest. The Finance Board, therefore, is 
adopting the language in Sec.  915.8(a) substantially as proposed, but 
is adding a new sentence to clarify that even though other provisions 
on the ballots are mandatory, the inclusion of the candidates' skills 
and experience is at the discretion of each Bank's disinterested 
directors.

E. Finance Board Involvement in the Election Process--Sec.  915.9(b) 
and (c)

    Proposed Sec.  915.9 would have reorganized the prohibitions in 
current Sec.  915.9 and authorized the board of directors of a Bank to 
assess its current and needed skills. Part of this reorganization would 
delete the prohibitions in current Sec.  915.9(a)(1), which bar persons 
associated with the Finance Board from being involved in the elections 
process. As explained in the preamble to the proposed rule (see 71 FR 
at 19834), the Finance Board believes that these prohibitions are no 
longer necessary, because the Finance Board no longer administers the 
elections, as it did when these prohibitions were implemented.
    Several comments expressed concern that removing the prohibitions 
would allow the Finance Board to become more involved in the election 
process. Other commenters expressed a similar concern that removal of 
the prohibition reflected a desire by the Finance Board to become more 
involved in the election process. On the other hand, another commenter 
suggested that the Finance Board remove all the prohibitions that limit 
the ability of other persons and entities to become involved in the 
elections process.
    As noted above, the prohibition on involvement by Finance Board 
personnel in the elections process ceased to have any significant 
effect on the administration of elections when the Finance Board 
devolved that responsibility to the individual Banks. Nevertheless, 
because some commenters believe that removal of the prohibition would 
allow or encourage Finance Board involvement in the election of 
directors, the Finance Board has accepted their suggestion that the 
prohibitions on the conduct of Finance Board directors, officers, 
attorneys, employees, and agents not be removed. The final rule revises 
proposed Sec.  915.9(c) to make the prohibition applicable to both Bank 
and Finance Board directors, officers, attorneys, employees, and 
agents.

F. Adequate Representation.

    Four commenters, 2 representing community banks and 2 representing 
credit unions, expressed concern that the proposed rule might adversely 
affect the ability of smaller members to have an adequate voice on the 
boards of directors of the Banks. In general, these commenters 
expressed a desire that the Finance Board take action that would enable 
more ``minority'' members to be represented on the boards of directors 
of the Banks, and expressed the view that the rule is likely to hinder 
the ability of such members to be represented on the boards.
    As an initial matter, adding provisions to the final rule to 
address the type of issues raised by these commenters, i.e., whether 
the interests of all members are equally represented on the boards of 
directors of the Banks, would go well beyond the scope of the proposed 
rule. The purpose of the proposed rule was to authorize a process 
through which the Banks could take certain actions to provide members 
with additional information to allow them to improve the quality of 
their boards of directors, if they so choose. The purpose was not to 
allocate representation on the boards of the Banks to particular 
segments of the membership base.
    Moreover, the Finance Board is not persuaded that the proposed 
rule, in and of itself, will have the effect perceived by those 
commenters, who have not offered any factual basis to support their 
concerns. The board structure of the Banks is set by statute, as are 
the voting rights of the members, which in certain respects already 
favor the smaller members. For example, the Bank Act limits the number 
of votes that each member may cast in an election to the average number 
of shares of stock required to be held by all members located in that 
state. 12 U.S.C. 1227(b). The effect of that provision is to 
disenfranchise the largest members of a Bank; to the extent that they 
own shares in excess of the average, those shares

[[Page 40647]]

have no voting rights. Smaller members are not affected by that 
limitation. While it may be true that at some Banks certain segments of 
the membership base do not have representatives from their industry on 
the boards of the Banks, that result reflects the fact that the Banks 
are cooperatives and operate with a board structure and voting rights 
that have been set by statute. If, as the Finance Board hopes, the 
final rule will facilitate a process wherein the members can nominate 
and vote for candidates who possess skills and experience needed by the 
Bank to carry out its housing finance mission in a safe and sound 
manner, then the interests of all members should benefit.

III. Effective Date

    Pursuant to 5 U.S.C. 553(d)(3), the Finance Board has found that 
``good cause'' exists to have the final rule take effect immediately 
upon publication in the Federal Register. First, the rule requires no 
mandatory actions on the part of the Banks. The rule authorizes the 
Banks to take actions during the election process, but it does not 
require that those actions be taken. Thus, no Banks are required to 
take any steps to prepare for the effective date of the final rule.
    Second, now is the time when most Banks begin their yearly election 
process. Some Banks already may have started the process by sending 
their first notice to the members. Having an effective date immediately 
upon publication in the Federal Register will give the Banks more of an 
opportunity to use the provisions of the final rule in this year's 
election process than they otherwise would have.
    Third, Sec.  915.9(b) and (c) removes prohibitions on certain 
conduct. This rule will not require any preparation efforts on the part 
of the Banks in order to adjust to the rule being in effect.

IV. Paperwork Reduction Act

    The 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 Finance Board has not submitted 
this rule to the Office of Management and Budget for review.

V. Regulatory Flexibility Act

    The final rule will apply only to the Banks, which do not come 
within the meaning of ``small entities'' as defined in the Regulatory 
Flexibility Act (RFA). See 5 U.S.C. 601(6). Thus, in accordance with 
section 605(b) of the RFA, 5 U.S.C. 605(b), the Finance Board hereby 
certifies that the final rule will not have a significant economic 
impact on a substantial number of small entities.

List of Subjects in 12 CFR Part 915

    Banks, Banking, Conflict of interests, Elections, Federal home loan 
banks, Reporting and recordkeeping requirements.


0
For the reasons stated in the preamble, the Finance Board hereby amends 
12 CFR part 915, as follows:

PART 915--BANK DIRECTOR ELIGIBILITY, APPOINTMENT AND ELECTIONS

0
1. The authority citation for part 915 continues to read as follows:

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1427, and 
1432.


0
2. Amend Sec.  915.6, by redesignating paragraphs (a)(3) and (a)(4) as 
paragraphs (a)(4) and (a)(5), respectively, adding a new paragraph 
(a)(3), and revising redesignated paragraph (a)(4) to read as follows:


Sec.  915.6  Elective director nominations.

    (a) * * *
    (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.  915.9 and the Bank has elected to provide the 
results of the assessment to the members;
    (4) An attachment indicating the name, location, and FHFB 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 in the 
election, as determined in accordance with Sec.  915.5; and
* * * * *

0
3. Amend Sec.  915.8, by revising paragraph (a), redesignating 
paragraphs (b), (c), (d), and (e) as paragraphs (c), (d), (e), and (f), 
respectively, and adding a new paragraph (b) to read as follows:


Sec.  915.8  Election process.

    (a) Ballots. Promptly after verifying the eligibility of all 
nominees in accordance with Sec.  915.7(a), a Bank shall prepare a 
ballot for each voting State for which an elective directorship is to 
be filled and shall mail the ballot to all members within that State 
that were members as of the record date.
    (1) A ballot shall include at least the following provisions:
    (i) An alphabetical listing of the names of each nominee for the 
member's voting state, the name, location, and FHFB ID number of the 
member each nominee serves, the nominee's title or position with the 
member, and the number of elective directorships to be filled by 
members in that voting state in the election;
    (ii) A statement that write-in candidates are not permitted; and
    (iii) 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 individual nominee.
    (b) Statement on skills and experience. If a Bank has conducted an 
annual assessment permitted by Sec.  915.9 and has included the results 
of the assessment as part of the notice to members required by Sec.  
915.6(a), it may include with each ballot a statement regarding the 
types of skills and experience the Bank has determined are most likely 
to add strength to the board of directors. If the statement differs 
from the statement provided under Sec.  915.6(a)(3), the Bank also 
shall include an explanation of why the statements differ.
* * * * *

0
4. Revise Sec.  915.9 to read as follows:


Sec.  915.9  Actions 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 persons 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 persons with particular qualifications, such 
as in financial management, accounting, hedging, risk management, 
capital markets, securities laws, or housing finance, it may identify 
those qualifications and so inform the members as part of the 
announcement of elections.
    (b) Incumbent Bank directors. A Bank director acting in his or her 
personal capacity may support the nomination or election of any person 
for an elective directorship, provided that no such director may 
purport to represent the views of the Bank or its board of directors in 
doing so.
    (c) Prohibition. Except as provided in paragraphs (a) and (b) of 
this section, no director, officer, attorney, employee, or agent of a 
Bank or the Finance Board may:

[[Page 40648]]

    (1) Communicate in any manner that a director, officer, attorney, 
employee, or agent of a Bank, directly or indirectly, supports the 
nomination or election of a particular person for an elective 
directorship; or
    (2) Take any other action to influence votes for a directorship.


Sec.  915.16  [Amended]

0
5. Amend the last sentence of Sec.  915.16(e) by revising the reference 
``Sec.  915.8(e)'' to read ``Sec.  915.8(f)''.


Sec.  915.17  [Amended]

0
6. Amend the last sentence of Sec.  915.17(b)(1) by revising the 
reference ``Sec.  915.8(b)'' to read ``Sec.  915.8(c)''.

    Dated: July 12, 2006.

    By the Board of Directors of the Federal Housing Finance Board.
Ronald A. Rosenfeld,
Chairman.
[FR Doc. E6-11306 Filed 7-17-06; 8:45 am]
BILLING CODE 6725-01-P