Capital Classifications and Critical Capital Levels for the Federal Home Loan Banks, 38508-38514 [E9-18581]
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available information, it is hereby found
that this rule, as hereinafter set forth,
will tend to effectuate the declared
policy of the Act.
Pursuant to 5 U.S.C. 553, it is also
found and determined upon good cause
that it is impracticable, unnecessary,
and contrary to the public interest to
give preliminary notice prior to putting
this rule into effect, and that good cause
exists for not postponing the effective
date of this rule until 30 days after
publication in the Federal Register
because: (1) The 2009–10 fiscal period
begins on August 1, 2009, and the
marketing order requires that the rate of
assessment for each fiscal period apply
to all assessable onions handled during
such fiscal period; (2) this action
decreases the assessment rate for
assessable onions beginning with the
2009–10 fiscal period; (3) handlers are
aware of this action which was
unanimously recommended by the
Committee at a public meeting and is
similar to other assessment rate actions
issued in past years; and (4) this interim
final rule provides a 60-day comment
period, and all comments timely
received will be considered prior to
finalization of this rule.
List of Subjects in 7 CFR Part 959
Marketing agreements, Onions,
Reporting and recordkeeping
requirements.
For the reasons set forth in the
preamble, 7 CFR part 959 is amended as
follows:
■
PART 959—ONIONS GROWN IN
SOUTH TEXAS
1. The authority citation for 7 CFR
part 959 continues to read as follows:
■
Authority: 7 U.S.C. 601–674.
2. Section 959.237 is revised to read
as follows:
■
§ 959.237
Assessment rate.
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On and after August 1, 2009, an
assessment rate of $0.025 per 50-pound
equivalent is established for South
Texas onions.
Dated: July 29, 2009.
Rayne Pegg,
Administrator, Agricultural Marketing
Service.
[FR Doc. E9–18540 Filed 8–3–09; 8:45 am]
BILLING CODE 3410–02–P
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FEDERAL HOUSING FINANCE
AGENCY
12 CFR Part 1229
I. Background
RIN 2590–AA21
Capital Classifications and Critical
Capital Levels for the Federal Home
Loan Banks
AGENCY: Federal Housing Finance
Agency.
ACTION: Final rule.
SUMMARY: The Federal Housing Finance
Regulatory Reform Act, Division A of
the Housing and Economic Recovery
Act of 2008 (HERA), requires the
Director of the Federal Housing Finance
Agency (FHFA) to establish criteria
based on the amount and type of capital
held by a Federal Home Loan Bank
(Bank) for each of the following capital
classifications: Adequately capitalized;
Undercapitalized; Significantly
undercapitalized; and Critically
undercapitalized. In addition, HERA
provides that the critical capital level
for each Bank shall be the amount of
capital that the Director by regulation
shall require. HERA also sets forth
prompt corrective action (PCA)
authority that the Director has for the
Banks. To implement these new
provisions, FHFA published in the
Federal Register on January 30, 2009 an
interim final rule to define critical
capital for the Banks, establish the
criteria for each of the capital
classifications identified in HERA and
delineate its PCA authority over the
Banks. FHFA requested comments on
all aspects of the regulation. It also
sought comment on whether it should
establish a ‘‘well-capitalized’’
classification and on what criteria may
be appropriate to define such a new
category. After considering the
comments received on the interim final
rule, FHFA is adopting the interim final
rule as a final regulation, subject to
amendments meant to clarify certain
provisions.
DATES: The final regulation is effective
August 4, 2009.
FOR FURTHER INFORMATION CONTACT: Julie
Paller, Senior Financial Analyst, (202)
408–2842, and Anthony G. Cornyn,
Senior Associate Director, (202) 408–
2522, Division of Federal Home Loan
Bank Regulation, Federal Housing
Finance Agency, 1625 Eye Street, NW.,
Washington, DC 20006; or Thomas E.
Joseph, Senior Attorney-Advisor, (202)
414–3095, Office of General Counsel,
Federal Housing Finance Agency, 1700
G St., NW., Washington, DC 20552. The
telephone number for the
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Telecommunications Device for the Deaf
is (800) 877–8339.
SUPPLEMENTARY INFORMATION:
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A. Federal Housing Finance Agency and
Recent Legislation
Effective July 30, 2008, HERA, Public
Law 110–289, 122 Stat. 2654 (2008),
transferred the supervisory and
oversight responsibilities of the Office of
Federal Housing Enterprise Oversight
(OFHEO) over the Federal National
Mortgage Association (Fannie Mae), and
the Federal Home Loan Mortgage
Corporation (Freddie Mac) (collectively,
the Enterprises) and the oversight
responsibilities of the Federal Housing
Finance Board (Finance Board) over the
Banks and the Office of Finance (which
acts as the Banks’ fiscal agent) to a new
independent executive branch agency,
FHFA. FHFA is responsible for ensuring
that the Enterprises and the Banks
operate in a safe and sound manner,
including that they maintain adequate
capital and internal controls, that their
activities foster liquid, efficient,
competitive and resilient national
housing finance markets, and that they
carry out their public policy missions
through authorized activities. See id. at
§ 1102, 122 Stat. 2663–64.
Section 1141 of HERA states that the
Director shall adopt regulations
specifying the critical capital level for
each Bank no later than the expiration
of the 180 day period from the date that
HERA was enacted. See id. at § 1141,
122 Stat. 2730 (adopting 12 U.S.C.
4613(b)). In establishing this
requirement, HERA provides that the
Director shall take due consideration of
the critical capital levels established for
the Enterprises, with such modifications
as the Director determines to be
appropriate to reflect the difference in
operations between the Banks and the
Enterprises.
In addition, section 1142 of HERA
requires that the Director, no later than
180 days from its enactment, establish
for the Banks criteria for each of the four
following capital classifications:
Adequately capitalized;
Undercapitalized; Significantly
undercapitalized; and Critically
undercapitalized. See id. at § 1142, 122
Stat. 2730–32. HERA specifies that the
criteria should be based on the amount
and types of capital held by a Bank and
the risk-based, minimum and critical
capital levels for the Banks, taking due
consideration of the capital
classifications established for the
Enterprises, with such modifications as
the Director determines to be
appropriate to reflect the difference in
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operations between the Banks and the
Enterprises. HERA also provides FHFA
prompt corrective action (PCA)
authority over the Banks and amends
the Federal Housing Enterprises
Financial Safety and Soundness Act of
1992 (Safety and Soundness Act) so that
specific mandatory or discretionary
supervisory actions and restrictions
under that statute would apply to any
Bank determined to be
undercapitalized, significantly
undercapitalized or critically
undercapitalized. See id. at §§ 1143–
1145, 122 Stat. 2732–34. The general
purpose for the PCA framework is to
supplement the FHFA’s other regulatory
and supervisory authority and provide
for timely and, in some situations,
mandatory intervention by the regulator.
B. The Bank System Generally
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The twelve Banks are
instrumentalities of the United States
organized under the Federal Home Loan
Bank Act (Bank Act).1 See 12 U.S.C.
1423, 1432(a). The Banks are
cooperatives. Only members of a Bank
may purchase the capital stock of a
Bank, and only members or certain
eligible housing associates (such as state
housing finance agencies) may obtain
access to secured loans, known as
advances or other products provided by
a Bank. See 12 U.S.C. 1426(a)(4),
1430(a), 1430b. Each Bank is managed
by its own board of directors and serves
the public interest by enhancing the
availability of residential mortgage and
community lending credit through its
member institutions. See 12 U.S.C.
1427. Any eligible institution (generally
a federally-insured depository
institution or state-regulated insurance
company) may become a member of a
Bank if it satisfies certain criteria and
purchases a specified amount of the
Bank’s capital stock. See 12 U.S.C. 1424;
12 CFR part 925. The Banks also require
members to purchase certain amounts of
stock to become a member of the Bank
and to undertake specific activities and
transactions with the Bank. These stock
purchase requirements are set forth in a
Bank’s capital structure plan as required
by amendments to the Bank Act made
by the Gramm Leach Bliley Act (GLB
Act) in 1999.2
1 Each Bank is generally referred to by the name
of the city in which it is located. The twelve Banks
are located in: Boston, New York, Pittsburgh,
Atlanta, Cincinnati, Indianapolis, Chicago, Des
Moines, Dallas, Topeka, San Francisco, and Seattle.
2 All the Banks but the Chicago Bank operate
pursuant to a capital structure plan required under
the GLB Act. The Chicago Bank, which has not yet
implemented its capital structure plan, still
operates in accordance with stock purchase
requirements set forth in the Bank Act prior to its
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C. Interim Final Rule
On January 30, 2009, the FHFA
published in the Federal Register an
interim final rule with requests for
comments, which added new subpart A
of part 1229 to 12 CFR chapter XII,
subchapter B. See 74 FR 5595. The
comment period for the interim final
rule originally was scheduled to close
on April 30, 2009, but on March 26,
2009, the FHFA published a notice
extending the comment period for an
additional 15 days. See 74 FR 13083.
FHFA received 14 comments on the
interim final rule, including comments
from all twelve of the Banks. Two
industry associations that represent
many Bank members also commented.
Comments are available at the FHFA
Web site, https://www.fhfa.gov.
The interim final rule implemented
the PCA provisions set forth in sections
1363 through 1369D of the Safety and
Soundness Act, as these provisions had
been amended and made applicable to
the Banks by HERA. The interim final
rule also incorporated certain
restrictions on capital distributions that
are imposed on the Banks by the Bank
Act and it’s implementing regulations,
and made clear that those restrictions
will continue to apply to any Banks that
do not meet their capital requirements
or that incur charges against their
capital, and that they will apply, in
addition to the new PCA restrictions
made applicable to the Banks by the
Safety and Soundness Act. See e.g., 12
U.S.C. 1426(f) and (h)(3); 12 CFR
917.9(b).
As required by HERA, the interim
final rule established the critical capital
level for the Banks. The interim final
rule also defined the criteria for the four
capital classification categories that
HERA applied to the Banks. It set forth
the process that govern the Director’s
required quarterly determination of each
Bank’s capital classification as well as
the mandatory and discretionary
restrictions and requirements that must
or can be imposed on a Bank that the
Director determines is less than
adequately capitalized.
FHFA asked for comments on all
aspects of the interim final rule. It
specifically requested comments on
whether consideration of the differences
between the Enterprises and the Banks
with regard 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 should
amendment by the GLB Act. See 12 U.S.C.
1426(a)(6).
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result in revision to the interim final
rule.
FHFA also sought comment on
whether it should adopt a fifth capital
classification of ‘‘well-capitalized’’ as
part of the regulation, although the
interim final rule did not adopt such a
category. Among the questions posed by
FHFA with regard to a potential wellcapitalized classification were:
(1) What criteria would be appropriate
to define a ‘‘well-capitalized’’ category?
(2) Whether a retained earnings or a
market value of equity to par value of
capital stock (MVE/PVCS) target would
be useful or appropriate for defining a
well-capitalized category? and
(3) What restrictions on an adequately
capitalized Bank would be appropriate
to create an incentive for a Bank to
achieve a well-capitalized rating?
The FHFA also asked whether it
should adopt a retained earnings or
MVE/PVCS target as part of the Banks’
risk-based capital regulations or as a
requirement that would be separate and
distinct from the risk-based capital
regulations.
II. Discussion of Comments and
Changes to the Interim Final Rule
A. Overview of Comments
Most commenters provided
suggestions for changes to the published
text of the interim final rule or asked
that clarifications be made to certain
provisions. Specifically, the comment
letters urged FHFA to exempt advances
from limits on asset growth applicable
to Banks that are not adequately
capitalized, alter the definition of
executive officer to narrow the scope of
persons covered, extend the time period
for submission of a capital restoration
plan, and clarify the scope of certain
mandatory restrictions on Bank
acquisitions and on payment of
executive compensation or bonuses that
become applicable once a Bank is
deemed to be undercapitalized or
significantly undercapitalized. Each of
the suggested changes is addressed more
fully below.
Commenters also responded to FHFA
questions about different aspects of
instituting a fifth capital classification of
well-capitalized. Nine of the comment
letters expressed at least mild support or
did not affirmatively oppose adopting
the fifth capital classification, although
most of these commenters did not
support any approach that would
effectively raise current minimum
capital standards. Five commenters
stated that such a classification was
unnecessary or inappropriate. To the
extent that they specifically addressed
the issue, commenters also believed that
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FHFA should not impose restrictions on
an adequately capitalized Bank if a wellcapitalized category were adopted. A
number of commenters suggested
specific positive regulatory incentives
that FHFA could adopt to encourage
Banks to achieve a well-capitalized
rating.
Generally, commenters believed that
if a well-capitalized category were
adopted, the defining criteria should
focus on the composition of Bank
capital (i.e., retained earnings) rather
than the level of capital. All but one of
the commenters specifically opposed
using an MVE/PVCS measure as part of
the defining criteria or as a separate
capital requirement. The one
commenter that did not specifically
oppose the MVE criteria, however,
thought that an MVE/PVCS requirement
should be adopted only after a separate
rulemaking in which FHFA provided a
more thorough analysis of the matter.
FHFA has determined that it will not
adopt the well-capitalized category as
part of this final regulation. Instead, it
will consider the comments and
suggestions in developing any proposed
future amendments to the PCA
regulation concerning a well-capitalized
category, including any proposals
related to the criteria for defining, and
for creating an incentive structure for
the Banks to achieve, a well-capitalized
rating. In developing any amendments,
FHFA also would consider any changes
that it may propose to the Banks’ riskbased capital requirements. FHFA also
will continue to weigh whether it would
be appropriate to propose a separate
target for retained earnings and/or MVE/
PVCS, either as a stand-alone regulation
or as part of any risk-based capital
proposal.
B. Specific Suggestions for Changing the
Interim Final Rule
Commenters addressed a number of
different provisions and suggested a
number of changes to the interim final
rule. FHFA has carefully considered
these comments. As is discussed below,
while FHFA has adopted some changes
to the interim final rule in response to
the comments, it did not feel that all the
suggested amendments were
appropriate in light of statutory
requirements and policy considerations.
Definition of Executive Officer
(§ 1229.1). A number of commenters
asked for specific changes to the
definition of ‘‘Executive Officer’’ set
forth in the regulation. This definition is
needed to implement the provision
limiting bonuses and compensation
paid to executive officers of
significantly undercapitalized Banks
under § 1229.8(f) of the regulation.
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Commenters requested three principal
changes be made to the definition in
§ 1229.1 to provide more clarity as to
which employees were executive
officers and establish a more
appropriate scope for the definition.
First, they asked that the regulation
require FHFA to inform the Banks, in
advance, which persons in charge of a
principal business unit, division or
function would be considered an
executive officer. This approach, the
commenters argued, would be
consistent with the treatment provided
the Enterprises. Second, they asked,
without providing further explanation,
that the reference to chief operating
officer in the regulation be changed to
chief executive officer. Finally,
commenters asked that the regulation
clarify that administrative or support
staff that answer directly to the
president or chief operating officer of
the Bank or the chairman or vicechairman of the Bank’s board of
directors not be considered executive
officers. One commenter further stated
that the regulation should specify that
positions or persons identified by
functional area would be within the
scope of the definition only if they truly
performed the duties of an executive
officer.
The Safety and Soundness Act, as
amended by HERA, refers to executive
officers of a regulated entity in various
provisions including the PCA provision
and a provision providing the Director
with oversight and approval authority
for compensation paid to executive
officers. It does not, however,
specifically define the term. Given that
the statute does not differentiate
between the term ‘‘executive officer’’ as
used in the PCA provision and as used
in the provision addressing executive
compensation and the two provisions
deal with the question of limiting
compensation or bonus to certain Bank
employees, FHFA believes the
definition used in the two regulations
ultimately should be the same.
The definition of executive officer in
§ 1229.1 is similar to the definition of
executive officer with respect to a Bank
that was proposed for comment as part
of the executive compensation
regulation on June 5, 2009. See
Proposed Rule: Executive
Compensation, 74 FR 26989. While
there are some wording differences
between the definition adopted in the
PCA regulation and that being proposed
in the executive compensation
regulation (and the proposed definition
in the executive compensation
regulation may provide the Director
with less discretion to remove persons
from coverage than does the definition
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in § 1229.1), the definitions remain
substantively the same. FHFA also
expects that the definition in the PCA
regulation will be amended in the future
to conform to what is ultimately
adopted in the executive compensation
regulation. In the meantime, FHFA
believes that the current definition of
executive officer in § 1229.1 sufficiently
identifies the persons that are subject to
the PCA regulation restrictions and
provides the Director with sufficient
flexibility to add or remove specific
persons from the list of Bank executive
officers so that the concerns raised in
the comments can be addressed on a
case-by-case basis, if needed. Therefore,
FHFA is not revising the definition of
executive officer in the PCA regulation
at this time.
Advances and Limitations on Asset
Growth (§ 1229.6(a)(4)). Most of the
commenters requested that the
mandatory limitation on asset growth
applicable to an undercapitalized Bank
and set forth in § 1229.6(a)(4) of the
interim final rule be modified to
exclude advances from its coverage.
This provision prevents the average
total assets of a Bank, that was less than
adequately capitalized, from exceeding
its average total assets of the previous
quarter, unless the Director determines
the increase is consistent with an
approved capital restoration plan and
meets other requirements. The
commenters argued that in light of the
safety and low-risk profile of advances,
the self-capitalizing nature of the
product and the centrality of advances
to the Bank’s mission, limits should not
be put on advance growth even if the
Bank were less than adequately
capitalized.
The regulatory language in the interim
final rule, however, closely follows the
statutory provision that was added to
section 1365(a)(4) of the Safety and
Soundness Act by section 1143 of
HERA. The statutory language appears
straightforward and contains no
exception for advances or other mission
assets of either the Banks or the
Enterprises. Instead, the statute allows
the Director to waive the limit on asset
growth when certain conditions are met.
These conditions are carried over to the
regulation and include that the growth
be consistent with the capital
restoration plan and that the ratio of the
Bank’s tangible equity to total assets is
increasing at a rate that will allow the
Bank to become adequately capitalized
in a reasonable period of time. Thus, it
is not clear that the language of the
statute provides flexibility to implement
this suggested change.
Moreover, § 1229.6(a)(4) imposes a
limit on total assets and not on
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advances, specifically, so that an
undercapitalized Bank would not face a
barrier to continued advances growth as
long as it reduces its investment
portfolio or other asset holdings. In
addition, despite commenters’ claims,
nothing assures that new advances will
be self- capitalizing, since a number of
the Banks’ capital structure plans
provide them discretion to set the
advances stock purchase requirement
below the level of their minimum
capital requirements. Further, Bank
members often do not have to buy
additional stock to take down new
advances, as they may have excess stock
that can be applied to meeting the stock
purchase requirement, or otherwise may
not have to buy additional stock, to
cover the new advances.3 Thus, a Bank
that did not meet its capital
requirements, unless it took some other
action (e.g., reduce other assets), could
become more highly leveraged if it were
allowed unconditionally to expand
advances. Arguably, the restrictions in
the PCA provisions are designed to
make sure the Bank has a plan of action
that has been reviewed by FHFA to
prevent this outcome from occurring.
Given these considerations FHFA has
decided not to adopt the changes to
§ 1229.6(a)(4) suggested by commenters.
Clarify Prohibition on Acquisition of
Assets (§ 1229.6(a)(5)). A number of
commenters asked that FHFA clarify the
scope of the restriction in § 1229.6(a)(5)
that prohibits a Bank that is not
adequately capitalized from acquiring
directly or indirectly, any interest in any
entity. They asked especially for FHFA
to confirm that this restriction would
not prevent the Banks from undertaking
authorized activities in the ordinary
course of business, such as making
otherwise authorized investments in
financial instruments. One commenter
also noted that existing regulations
would likely already require a Bank to
receive FHFA approval before making
an acquisition in another entity. After
considering these comments, FHFA
agrees that the language used in the
provision is vague, especially in light of
other restrictions placed on Bank
activities, and that some clarification
would be useful.
The regulatory language that is the
subject to these comments closely
follows the language that was added to
section 1365(a)(5) of the Safety and
Soundness Act by section 1143 of
3 All of the stock outstanding, including excess
stock, however, would already have been counted
as part of the Bank’s capital. Thus, in these cases
the new advances would increase the Bank’s assets
without necessarily increasing its capital from the
level which was already determined to be
insufficient to meet regulatory requirements.
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HERA. The restriction on the
acquisition of an interest in an entity is
one of a series of restrictions imposed
on regulated entities that are not
adequately capitalized, which includes
limits on asset growth, new business
activities and capital distributions. The
Director is allowed under the statute
and the regulation to waive this
restriction if the Bank has an approved
capital restoration plan, the Bank is
implementing that plan, the acquisition
of the interest is consistent with the
plan and with the Bank’s safe and sound
operations, and will further its
compliance with its capital
requirements.
There appears to be little or no
legislative history as to what Congress
intended by this restriction. Given that
the statute separately limits the ability
of a Bank that is less than adequately
capitalized to expand its activity
through asset growth or undertaking
new business activities, it would be
reasonable that this particular
restriction is meant to limit a Bank’s
expansion through acquisition of other
operating businesses or lines of business
in which the Bank already may be
involved. FHFA therefore has decided
to clarify the meaning of § 1229.6(a)(5)
by revising the restriction to apply to
the acquisition of any equity interest in
another operating entity.4 The revised
language also makes clear that the
restriction is not meant to prevent a
Bank from enforcing any security
interest granted to it or otherwise taking
possession of collateral in the normal
course of business.
FHFA recognizes that under current
regulations the Banks would have few if
any opportunities to take equity
positions in other operating entities
without first receiving FHFA’s approval.
Nevertheless, it is important to carry
over into the regulation all the statutory
restrictions even if such restrictions may
have limited practical effect at this time.
The revised language should clarify,
however, FHFA’s intent that the
restriction on the acquisition of interests
in any entity was not meant to restrict
a Bank’s investment in authorized
investments such as mortgage backed
securities or acquired member assets or
otherwise restrict the Bank’s ability to
accept pledges of security as part of its
business.
4 Such
an interpretation also would appear to
bring the meaning of this provision close to that of
a similar PCA restriction imposed on insured
depository institutions by § 38(e)(4) of the Federal
Deposit Insurance Act (FDI Act)(12 U.S.C.
§ 1831o(e)(4)). The FDI Act provision restricts an
undercapitalized institution’s acquisition of any
interest in any company or in another insured
depository institution and limits the right to
establish or acquire any additional branch offices.
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Submission of Capital Restoration
Plan (§ 1229.11(b)). Most of the
commenters supported extending the
period in which a Bank has to submit
a capital restoration plan from the 10
calendar-days required under
§ 1229.11(b) of the interim final rule.
The commenters recognized that the 10
day period was based on requirements
currently applicable to the Enterprises
but believed the difference in capital
structures between the Banks and the
Enterprises justified a longer period for
the Banks to prepare and submit their
capital restoration plans. In this respect,
a number of the commenters stated that
the Banks would need to amend their
GLB Act capital structure plans and take
other actions that would not be
applicable to the Enterprises to
implement the capital restoration plan.5
After consideration of these comments,
FHFA has decided there is merit to the
suggestions and is extending the period
of time for submitting a capital
restoration plan by a Bank to 15
business-days after a Bank receives
written notification that such a plan is
required.
The Safety and Soundness Act, as
amended by HERA, allows up to 45
days after the date of notification for a
regulated entity to submit a capital
restoration plan. While the majority of
the commenters suggested a 30
calendar-day period for submission of
the plan, FHFA believes that 30
calendar-days is too long a period given
that a Bank needs to begin taking action
immediately to restore capital when a
capital deficiency is identified.
Moreover, having an approved capital
restoration plan in place is a necessary
pre-condition imposed by the statute for
the Director’s granting an exception to
many of the restrictions that are
imposed on the activities of an
undercapitalized or a significantly
undercapitalized Bank. Given that the
Banks, in their comments, to other
regulation provisions have suggested
that some of these restrictions may be
problematic, FHFA does not want to
draw out the period for submission and
approval of a capital restoration plan
more than necessary. Moreover, Banks
will be aware of the likelihood that they
will be classified as less than adequately
capitalized before the Director issues a
5 This comment suggests that some Banks may
believe that they have to complete any
contemplated amendments to their GLB Act capital
structure plan prior to the submission of the capital
restoration plan. This is not the case, however.
Under § 1229.11 of the final rule, a Bank would
need to identify in its capital restoration plan any
changes to its stock purchase requirements that it
intends to make but it does not necessarily need to
have those changes in place at the time it submits
its capital restoration plan for approval.
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final notification, so a Bank could begin
work on its capital restoration plan prior
to receiving the final notification.6
Thus, FHFA believes that 15 businessdays should generally be sufficient for a
Bank to prepare its capital restoration
plan.
Executive Officers Bonuses and
Compensation (§§ 1229.8(e) and (f)). A
number of the commenters asked FHA
to clarify ‘‘whether, in light of
contractual and constitutional
concerns,’’ employment agreements
entered into prior to the effective date
of the regulation are subject to the
mandatory limits in §§ 1229.8(e) and (f)
on bonuses and compensation paid to
an executive officer of a significantly
undercapitalized Bank. The comments
do not further describe what these
concerns are or provide any arguments
addressing the constitutional issues.
The cited provisions prohibit a Bank
that is significantly undercapitalized
either from paying a bonus to any
executive officer without the prior
written approval of the Director or from
compensating an executive officer at a
rate exceeding the average rate of
compensation of that officer during the
12 months preceding the calendar
month in which the Bank became
significantly undercapitalized, without
the prior written approval of the
Director.
The regulatory language in
§§ 1229.8(e) and (f) closely corresponds
to the language in section 1366(c) the
Safety and Soundness Act as the
provision was amended by section 1144
of HERA. The statute does not provide
an exception for employment
agreements entered into before a certain
date or outstanding as of HERA’s
effective date. More importantly, this
restriction is triggered only if a Bank
becomes significantly
undercapitalized—a future event that is
unrelated to the date in which an
executive officer signed his or her
employment agreement. As a general
matter, the point of the provision seems
to be to preserve resources expended on
compensation and prevent executives
from benefiting from increased
compensation when their behavior,
decisions or leadership resulted in (or
failed to prevent) a Bank’s becoming
significantly undercapitalized. Thus,
6 For example, under the regulations, Banks first
will receive a preliminary notification that the
Director proposes to classify them at a level other
than adequately capitalized, prior to the final
classification. In addition, Banks are required to
notify the Director if their capital decreases to the
extent that they would expect to be reclassified at
a level lower than their previous preliminary or
final classification, so that Banks should monitor
and be aware of negative changes in their capital
levels at all times.
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15:40 Aug 03, 2009
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looking to the date of when employment
began seems irrelevant to the purpose of
the provision, which appears to be to
address a future capital deficiency and
discourage behavior that may cause
such capital problems.7
The regulation also allows the
Director to authorize a Bank to pay
compensation and/or bonuses in excess
of the limits established by the
provisions. This means that under the
regulation, a Bank has the right to make
a case once its receives notice of its
preliminary classification, or thereafter,
that the Director should approve higher
compensation or bonuses for executive
officers, and allows a Bank to present all
relevant information as to why the
compensation and bonus restrictions are
not appropriate in a particular case.8
Thus, FHFA sees no reason to provide
a blanket exemption from this
restriction in the regulation itself, and
believes that such a revision would
contradict both the plain language of the
statute and would undermine the policy
concerns that this provision addresses.
Other comments. One commenter
asked FHFA to incorporate into its
regulations previous Finance Board
guidance that Other Comprehensive
Income (OCI) is not included in
calculations of permanent and total
capital. The referenced guidance was
7 The provision related to executive officer
compensation and bonuses is similar to restrictions
on compensation in the FDI Act which become
applicable to senior executive officers of an insured
financial institution that becomes significantly
undercapitalized. See 12 U.S.C. 1831o(f)(4). When
federal banking regulators adopted rules
implementing this provision of the FDI Act, those
rules did not provide an exception for employment
agreements entered into prior to its effective date.
See 57 FR 44866 (Sept. 29, 1992).
8 The issue of whether the statutory language is
itself constitutionally flawed, as suggested by the
commenters, is difficult to address since the
comments fail to provide any specific arguments or
theory on this point. The constitutional argument
that usually arises in these types of cases is that the
parties have some fundamental right or protected
interest recognized by law so that the loss of that
right is subject to due process protection under the
Fifth Amendment. In this respect, the Supreme
Court has noted that the ‘‘fundamental requirement
of due process is the opportunity to be heard ‘at a
meaningful time and in a meaningful manner.’’’
Matthews v. Eldridge, 424 U.S. 319, 333 (1976)
(citations omitted). The Court has identified three
factors that should be balanced in deciding the
dictates of due process generally. See id. at 335.
These are: (i) The private interest that will be
affected by the official action; (ii) The risk of an
erroneous deprivation of such interest through the
procedures used and the value, if any, of additional
or substitute procedure; and (iii) The government’s
interests, including the function at issue and the
fiscal and administrative burdens of additional or
substitute procedures. See id. (citations omitted).
The fact that the Banks can seek the Director’s
review of the restriction and provide information as
to why the restrictions should not be applied in a
particular instance provides an opportunity to be
heard that should address the commenters
concerns.
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provided by the Finance Board when it
was proposing amendments to its
capital regulation based on an
Advanced Notice of Proposed
Rulemaking (ANPR), as well as
responding to some of the comments
received as part of that ANPR. See
Proposed Rules: Capital Requirements
for the Federal Home Loan Banks, 66 FR
41462, 41471–72 (Aug. 8, 2001).
Specifically, the Finance Board’s
guidance responded to comments that
the definitions of permanent and total
capital be clarified to exclude certain
elements of OCI. The Finance Board
noted, however, that there was no need
to change the definitions and clarified
that OCI was not included in retained
earnings as used in the calculation of
total and permanent capital. Id. Given
that this guidance was provided as part
of the rulemaking for the capital
regulation and addressed definitions in
that provision, FHFA is not going to
alter those regulations at this time as
part of its adoption of the final PCA
regulation. It will, however, affirm the
Finance Board’s prior interpretation that
OCI is not an element of the Bank’s
regulatory capital.
C. Other Changes in the Final
Regulation
In addition to making the changes
described above in response to the
comments submitted on the interim
final rule, FHFA is also making certain
clarifying changes to the regulation.
First, FHFA is adding new paragraphs
(g) and (h) to § 1229.8 to clarify its view
as to what mandatory or discretionary
restrictions or obligations that apply to
an undercapitalized Bank continue to
apply to a Bank found to be significantly
undercapitalized.
FHFA is also revising § 1229.10(d) to
make clear that restrictions and
obligations previously imposed on a
significantly undercapitalized Bank
continue to apply to a critically
undercapitalized Bank for which FHFA
has not yet been named conservator or
receiver. As originally adopted, this
provision only referred to ‘‘restrictions’’
on a significantly undercapitalized Bank
but FHFA recognizes that a Bank may
also be obligated to take positive actions
under the PCA provisions.
Finally, FHFA modified § 1229.11(a)
to clarify the type of information it
intends a Bank to submit in its capital
restoration plan. These changes make
clear that the Bank should describe, if
appropriate, any actions that it would
take to address any long term or
structural problems that led to its
becoming less than adequately
capitalized and that the Bank should
provide in it’s capital restoration plan
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Federal Register / Vol. 74, No. 148 / Tuesday, August 4, 2009 / Rules and Regulations
projections indicating how each
component of total and permanent
capital (including retained earnings)
and the major components of income,
assets and liabilities are expected to
change over the term of the plan. FHFA
believes that this information is the type
of information it would generally
request under § 1229.11(a)(5) and is
necessary for it to judge the adequacy of
the plan and to monitor the plan
effectively over time. Thus, § 1229.11(a)
is being updated to make clear that this
information should be submitted as part
of a capital restoration plan.
III. Paperwork Reduction Act
Authority: 12 U.S.C. 1426, 4513, 4526,
4613–4618, 4622, 4623.
2. Amend § 1229.6 by revising
paragraph (a)(5) to read as follows:
■
§ 1229.6 Mandatory actions applicable to
undercapitalized Banks.
The regulation applies only to the
Banks, which do not come within the
meaning of small entities as defined in
the Regulatory Flexibility Act (RFA).
See 5 U.S.C. 601(6). Therefore, in
accordance with section 605(b) of the
RFA, 5 U.S.C. 605(b), FHFA, hereby,
certifies that the regulation will not
have a significant economic impact on
a substantial number of small entities.
rmajette on DSK29S0YB1PROD with RULES
V. Effective Date
The Administrative Procedure Act
provides that the required publication of
a substantive regulation shall be made
not less than 30 days before its effective
date except for: A substantive regulation
that grants or recognizes an exemption
or relieves a restriction; An
interpretative regulation or statement of
policy; or As otherwise provided by the
agency for good cause found and
published with the regulation. See 5
U.S.C. 553(d). In publishing the interim
final rule, FHFA found that it had good
cause for the regulation to become
effective immediately. See 74 FR at
5604. These reasons are still true with
regard to the final rule and the changes
made to it. In addition, the changes
made to the interim final rule clarify the
scope of the provisions of the regulation
or ease requirements that had been
established in the interim final rule, as
in the case of the longer period for
submitting a capital restoration plan,
rather than add new requirements.
Thus, FHFA finds that there is good
cause for the regulation to become
effective on August 4, 2009.
Jkt 217001
PART 1229—CAPITAL
CLASSIFICATIONS AND PROMPT
CORRECTIVE ACTION
1. The authority citation for subpart A
continues to read as follows:
IV. Regulatory Flexibility Act
15:40 Aug 03, 2009
Capital, Federal home loan banks,
Government-sponsored enterprises,
Reporting and recordkeeping
requirements.
■ For the reasons stated in the preamble,
the Interim Final Rule at subpart A of
part 1229 of Title 12 CFR chapter XII,
subchapter B, which was published at
74 FR 5595 on January 30, 2009, is being
adopted by FHFA as a final regulation
with the following changes:
■
The regulation does not contain any
collections of information pursuant to
the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.). Therefore,
FHFA has not submitted any
information to the Office of
Management and Budget for review.
VerDate Nov<24>2008
List of Subjects in 12 CFR Part 1229
(a) * * *
(5) Not acquire, directly or indirectly,
an equity interest in any operating
entity (other than as necessary to
enforce a security interest granted to the
Bank) nor engage in any new business
activity unless:
(i) The Director has approved the
Bank’s capital restoration plan, the Bank
is implementing the capital restoration
plan and the Director determines that
proposed acquisition or activity will
further achievement of the goals set
forth in that plan; or
(ii) The Director determines that the
proposed acquisition or activity will be
consistent with the safe and sound
operation of the Bank and will further
the Bank’s compliance with its riskbased and minimum capital
requirements in a reasonable period of
time.
*
*
*
*
*
■ 3. Amend § 1229.8 by removing the
word ‘‘and’’ at the end of paragraph (e),
removing the period at the end of
paragraph (f) and adding a semi-colon in
its place, and adding new paragraphs (g)
and (h) to read as follows:
§ 1229.8 Mandatory actions applicable to
significantly undercapitalized Banks.
*
*
*
*
*
(g) Comply with § 1229.6(a)(4) and
(a)(5) of this subpart; and
(h) Comply with any on-going
restrictions or obligations that were
imposed on the Bank by the Director
under § 1229.7 of this subpart.
■ 4. Amend § 1229.10 by revising
paragraph (d) to read as follows:
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38513
§ 1229.10 Actions applicable to critically
undercapitalized Banks.
*
*
*
*
*
(d) Other applicable actions. Until
such time as FHFA is appointed as
conservator or receiver for a critically
undercapitalized Bank, a critically
undercapitalized Bank shall be subject
to all mandatory restrictions or
obligations applicable to a significantly
undercapitalized Bank under § 1229.8 of
this subpart and will remain subject to
any on-going restrictions or obligations
that the Director imposed on the Bank
under § 1229.7 or § 1229.9 of this
subpart, or any restrictions or
obligations that are applicable to the
Bank under the terms of an approved
capital restoration plan.
■ 5. Amend § 1229.11 by revising
paragraphs (a) and (b) to read as follows:
§ 1229.11
Capital restoration plans.
(a) Contents. Each capital restoration
plan submitted by a Bank shall set forth
a plan to restore its permanent and total
capital to levels sufficient to fulfill its
risk-based and minimum capital
requirements within a reasonable period
of time. Such plan must be feasible
given general market conditions and the
conditions of the Bank and, at a
minimum, shall:
(1) Describe the actions the Bank will
take, including any changes that the
Bank will make to member stock
purchase requirements, to assure that it
will become adequately capitalized
within the meaning of § 1229.3(a) of this
subpart and, if appropriate, to resolve
any structural or long term causes for
the capital deficiency;
(2) Specify the level of permanent and
total capital the Bank will achieve and
maintain and provide quarterly
projections indicating how each
component of total and permanent
capital and the major components of
income, assets and liabilities are
expected to change over the term of the
plan;
(3) Specify the types and levels of
activities in which the Bank will engage
during the term of the plan, including
any new business activities that it
intends to begin during such term;
(4) Describe any other actions the
Bank intends to take to comply with any
other requirements imposed on it under
this subpart A of part 1229;
(5) Provide a schedule which sets
forth dates for meeting specific goals
and benchmarks and taking other
actions described in the proposed
capital restoration plan, including
setting forth a schedule for it to restore
its permanent and total capital to levels
necessary for meeting its risk-based and
minimum capital requirements; and
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Federal Register / Vol. 74, No. 148 / Tuesday, August 4, 2009 / Rules and Regulations
(6) Address such other items that the
Director shall provide in writing in
advance of such submission.
(b) Deadline for submission. A Bank
must submit a proposed capital
restoration plan no later than 15
business-days after it receives written
notification that such a plan is required
either because the notice specifically
states that the Director has required the
submission of a plan or the notice
indicates that the Bank’s capital
classification or reclassification is to a
category for which a capital restoration
plan is a mandatory action required of
the Bank. The Director may extend this
deadline if the Director determines that
such extension is necessary. Any such
extension shall be in writing and
provide a specific date by which the
Bank must submit its proposed capital
restoration plan.
*
*
*
*
*
Dated: July 29, 2009.
James B. Lockhart, III,
Director, Federal Housing Finance Agency.
[FR Doc. E9–18581 Filed 8–3–09; 8:45 am]
BILLING CODE P
FEDERAL HOUSING FINANCE
AGENCY
12 CFR Part 1291
RIN 2590–AA04
Affordable Housing Program
Amendments: Federal Home Loan
Bank Mortgage Refinancing Authority
rmajette on DSK29S0YB1PROD with RULES
AGENCY: Federal Housing Finance
Agency.
ACTION: Interim final rule with request
for comments.
SUMMARY: Section 1218 of the Housing
and Economic Recovery Act of 2008
(HERA) requires the Federal Housing
Finance Agency (FHFA) to permit the
Federal Home Loan Banks (Banks) until
July 30, 2010, to use Affordable Housing
Program (AHP) homeownership setaside funds to refinance low- or
moderate-income households’ mortgage
loans. On October 17, 2008, FHFA
amended its AHP regulation to
authorize the Banks to provide AHP
direct subsidies under their
homeownership set-aside programs to
low- or moderate-income households
who qualify for refinancing assistance
under the Hope for Homeowners
Program established by the Federal
Housing Administration (FHA) under
Title IV of HERA. Based on the
comments received on the amendments
and continuing adverse conditions of
the mortgage market, FHFA has
VerDate Nov<24>2008
19:22 Aug 03, 2009
Jkt 217001
determined that in order for the AHP
set-aside refinancing program to be
implemented successfully for the
benefit of the intended households, the
scope of the program authority should
be broadened and the Banks should
have greater flexibility in implementing
the program. Accordingly, FHFA is
issuing and seeking comment on an
interim final rule that authorizes the
Banks to provide AHP subsidy through
their members to assist in the
refinancing of eligible households’
mortgages under eligible Federal, State
and local programs for targeted
refinancing in addition to the Hope for
Homeowners Program. These programs
would include the Administration’s
Making Home Affordable Refinancing
program. The interim final rule permits
the Banks to provide AHP direct
subsidy to members and to use the
subsidy for principal reduction and for
loan closing costs, and requires that
households obtain counseling for
qualification for refinancing and
foreclosure mitigation.
In addition, the interim final rule
enhances the ability of the Banks to
respond to the mortgage crisis by
providing greater flexibility to accelerate
their future annual statutory AHP
contributions for use in their AHP
homeownership set-aside programs in
the current year. The interim final rule
also permits the Banks to adopt multiple
housing needs under their Second
District Priority scoring criterion under
the AHP competitive application
program.
DATES: The interim final rule is effective
on August 4, 2009. FHFA will accept
written comments on the interim final
rule on or before October 5, 2009.
ADDRESSES: Submit comments,
identified by regulatory information
number (RIN) 2590–AA04, by any of the
following methods:
• Mail/Hand Delivery: Federal
Housing Finance Agency, Fourth Floor,
1700 G Street, NW., Washington, DC
20552, Attention: Public Comments/RIN
2590–AA04.
• E-mail: regcomments@fhfa.gov.
Please include ‘‘RIN 2590–AA04’’ in the
subject line of the message.
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments. If
you submit your comment to the
Federal eRulemaking Portal, please also
send it by e-mail to FHFA at
regcomments@fhfa.gov to ensure timely
receipt by the agency. Include the
following information in the subject line
of your submission ‘‘Affordable Housing
Program Amendments: Federal Home
PO 00000
Frm 00012
Fmt 4700
Sfmt 4700
Loan Bank Mortgage Refinancing
Authority; RIN 2590–AA04.’’
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 https://www.fhfa.gov.
FOR FURTHER INFORMATION CONTACT:
Nelson Hernandez, Senior Associate
Director, Housing Mission and Goals,
202–408–2819,
Nelson.Hernandez@fhfa.gov; Charles E.
McLean, Jr., Acting Manager, Housing
Mission and Goals, 202–408–2537,
Charles.McLean@fhfa.gov; or Melissa L.
Allen, Senior Policy Analyst, 202–408–
2524, Melissa.Allen@fhfa.gov, Federal
Housing Finance Agency, 1625 Eye
Street, NW., Washington, DC 20006; or
Sharon B. Like, Associate General
Counsel, 202–414–8950,
Sharon.Like@fhfa.gov, Federal Housing
Finance Agency, 1700 G Street, NW.,
Washington, DC 20552. The telephone
number for the Telecommunications
Device for the Hearing Impaired is 800–
877–8339.
SUPPLEMENTARY INFORMATION:
I. Comments
FHFA invites comments on all aspects
of the interim final rule, and will revise
the rule as appropriate after taking all
comments into consideration. Copies of
all comments will be posted on the
FHFA Internet Web site at https://
www.fhfa.gov. In addition, copies of all
comments received will be available for
examination by the public on business
days between the hours of 10 a.m. and
3 p.m., at the Federal Housing Finance
Agency, Fourth Floor, 1700 G Street,
NW., Washington, DC 20552. To make
an appointment to inspect comments,
please call the Office of General Counsel
at 202–414–6924.
II. Background
A. HERA
Effective July 30, 2008, Division A of
HERA, Public Law 110–289, 122 Stat.
2654 (2008), created FHFA as an
independent agency of the Federal
Government. HERA transferred the
supervisory and oversight
responsibilities over the Federal
National Mortgage Association (Fannie
Mae), Federal Home Loan Mortgage
Corporation (Freddie Mac) (collectively,
Enterprises), the Banks, and the Bank
System’s Office of Finance, from the
Office of Federal Housing Enterprise
Oversight (OFHEO) and the Federal
Housing Finance Board (FHFB) to
FHFA. HERA provides for the
abolishment of OFHEO and FHFB one
year after the date of enactment. FHFA
is responsible for ensuring that the
E:\FR\FM\04AUR1.SGM
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Agencies
[Federal Register Volume 74, Number 148 (Tuesday, August 4, 2009)]
[Rules and Regulations]
[Pages 38508-38514]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-18581]
=======================================================================
-----------------------------------------------------------------------
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1229
RIN 2590-AA21
Capital Classifications and Critical Capital Levels for the
Federal Home Loan Banks
AGENCY: Federal Housing Finance Agency.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Federal Housing Finance Regulatory Reform Act, Division A
of the Housing and Economic Recovery Act of 2008 (HERA), requires the
Director of the Federal Housing Finance Agency (FHFA) to establish
criteria based on the amount and type of capital held by a Federal Home
Loan Bank (Bank) for each of the following capital classifications:
Adequately capitalized; Undercapitalized; Significantly
undercapitalized; and Critically undercapitalized. In addition, HERA
provides that the critical capital level for each Bank shall be the
amount of capital that the Director by regulation shall require. HERA
also sets forth prompt corrective action (PCA) authority that the
Director has for the Banks. To implement these new provisions, FHFA
published in the Federal Register on January 30, 2009 an interim final
rule to define critical capital for the Banks, establish the criteria
for each of the capital classifications identified in HERA and
delineate its PCA authority over the Banks. FHFA requested comments on
all aspects of the regulation. It also sought comment on whether it
should establish a ``well-capitalized'' classification and on what
criteria may be appropriate to define such a new category. After
considering the comments received on the interim final rule, FHFA is
adopting the interim final rule as a final regulation, subject to
amendments meant to clarify certain provisions.
DATES: The final regulation is effective August 4, 2009.
FOR FURTHER INFORMATION CONTACT: Julie Paller, Senior Financial
Analyst, (202) 408-2842, and Anthony G. Cornyn, Senior Associate
Director, (202) 408-2522, Division of Federal Home Loan Bank
Regulation, Federal Housing Finance Agency, 1625 Eye Street, NW.,
Washington, DC 20006; or Thomas E. Joseph, Senior Attorney-Advisor,
(202) 414-3095, Office of General Counsel, Federal Housing Finance
Agency, 1700 G St., NW., Washington, DC 20552. The telephone number for
the Telecommunications Device for the Deaf is (800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
A. Federal Housing Finance Agency and Recent Legislation
Effective July 30, 2008, HERA, Public Law 110-289, 122 Stat. 2654
(2008), transferred the supervisory and oversight responsibilities of
the Office of Federal Housing Enterprise Oversight (OFHEO) over the
Federal National Mortgage Association (Fannie Mae), and the Federal
Home Loan Mortgage Corporation (Freddie Mac) (collectively, the
Enterprises) and the oversight responsibilities of the Federal Housing
Finance Board (Finance Board) over the Banks and the Office of Finance
(which acts as the Banks' fiscal agent) to a new independent executive
branch agency, FHFA. FHFA is responsible for ensuring that the
Enterprises and the Banks operate in a safe and sound manner, including
that they maintain adequate capital and internal controls, that their
activities foster liquid, efficient, competitive and resilient national
housing finance markets, and that they carry out their public policy
missions through authorized activities. See id. at Sec. 1102, 122
Stat. 2663-64.
Section 1141 of HERA states that the Director shall adopt
regulations specifying the critical capital level for each Bank no
later than the expiration of the 180 day period from the date that HERA
was enacted. See id. at Sec. 1141, 122 Stat. 2730 (adopting 12 U.S.C.
4613(b)). In establishing this requirement, HERA provides that the
Director shall take due consideration of the critical capital levels
established for the Enterprises, with such modifications as the
Director determines to be appropriate to reflect the difference in
operations between the Banks and the Enterprises.
In addition, section 1142 of HERA requires that the Director, no
later than 180 days from its enactment, establish for the Banks
criteria for each of the four following capital classifications:
Adequately capitalized; Undercapitalized; Significantly
undercapitalized; and Critically undercapitalized. See id. at Sec.
1142, 122 Stat. 2730-32. HERA specifies that the criteria should be
based on the amount and types of capital held by a Bank and the risk-
based, minimum and critical capital levels for the Banks, taking due
consideration of the capital classifications established for the
Enterprises, with such modifications as the Director determines to be
appropriate to reflect the difference in
[[Page 38509]]
operations between the Banks and the Enterprises. HERA also provides
FHFA prompt corrective action (PCA) authority over the Banks and amends
the Federal Housing Enterprises Financial Safety and Soundness Act of
1992 (Safety and Soundness Act) so that specific mandatory or
discretionary supervisory actions and restrictions under that statute
would apply to any Bank determined to be undercapitalized,
significantly undercapitalized or critically undercapitalized. See id.
at Sec. Sec. 1143-1145, 122 Stat. 2732-34. The general purpose for the
PCA framework is to supplement the FHFA's other regulatory and
supervisory authority and provide for timely and, in some situations,
mandatory intervention by the regulator.
B. The Bank System Generally
The twelve Banks are instrumentalities of the United States
organized under the Federal Home Loan Bank Act (Bank Act).\1\ See 12
U.S.C. 1423, 1432(a). The Banks are cooperatives. Only members of a
Bank may purchase the capital stock of a Bank, and only members or
certain eligible housing associates (such as state housing finance
agencies) may obtain access to secured loans, known as advances or
other products provided by a Bank. See 12 U.S.C. 1426(a)(4), 1430(a),
1430b. Each Bank is managed by its own board of directors and serves
the public interest by enhancing the availability of residential
mortgage and community lending credit through its member institutions.
See 12 U.S.C. 1427. Any eligible institution (generally a federally-
insured depository institution or state-regulated insurance company)
may become a member of a Bank if it satisfies certain criteria and
purchases a specified amount of the Bank's capital stock. See 12 U.S.C.
1424; 12 CFR part 925. The Banks also require members to purchase
certain amounts of stock to become a member of the Bank and to
undertake specific activities and transactions with the Bank. These
stock purchase requirements are set forth in a Bank's capital structure
plan as required by amendments to the Bank Act made by the Gramm Leach
Bliley Act (GLB Act) in 1999.\2\
---------------------------------------------------------------------------
\1\ Each Bank is generally referred to by the name of the city
in which it is located. The twelve Banks are located in: Boston, New
York, Pittsburgh, Atlanta, Cincinnati, Indianapolis, Chicago, Des
Moines, Dallas, Topeka, San Francisco, and Seattle.
\2\ All the Banks but the Chicago Bank operate pursuant to a
capital structure plan required under the GLB Act. The Chicago Bank,
which has not yet implemented its capital structure plan, still
operates in accordance with stock purchase requirements set forth in
the Bank Act prior to its amendment by the GLB Act. See 12 U.S.C.
1426(a)(6).
---------------------------------------------------------------------------
C. Interim Final Rule
On January 30, 2009, the FHFA published in the Federal Register an
interim final rule with requests for comments, which added new subpart
A of part 1229 to 12 CFR chapter XII, subchapter B. See 74 FR 5595. The
comment period for the interim final rule originally was scheduled to
close on April 30, 2009, but on March 26, 2009, the FHFA published a
notice extending the comment period for an additional 15 days. See 74
FR 13083. FHFA received 14 comments on the interim final rule,
including comments from all twelve of the Banks. Two industry
associations that represent many Bank members also commented. Comments
are available at the FHFA Web site, https://www.fhfa.gov.
The interim final rule implemented the PCA provisions set forth in
sections 1363 through 1369D of the Safety and Soundness Act, as these
provisions had been amended and made applicable to the Banks by HERA.
The interim final rule also incorporated certain restrictions on
capital distributions that are imposed on the Banks by the Bank Act and
it's implementing regulations, and made clear that those restrictions
will continue to apply to any Banks that do not meet their capital
requirements or that incur charges against their capital, and that they
will apply, in addition to the new PCA restrictions made applicable to
the Banks by the Safety and Soundness Act. See e.g., 12 U.S.C. 1426(f)
and (h)(3); 12 CFR 917.9(b).
As required by HERA, the interim final rule established the
critical capital level for the Banks. The interim final rule also
defined the criteria for the four capital classification categories
that HERA applied to the Banks. It set forth the process that govern
the Director's required quarterly determination of each Bank's capital
classification as well as the mandatory and discretionary restrictions
and requirements that must or can be imposed on a Bank that the
Director determines is less than adequately capitalized.
FHFA asked for comments on all aspects of the interim final rule.
It specifically requested comments on whether consideration of the
differences between the Enterprises and the Banks with regard 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 should result in
revision to the interim final rule.
FHFA also sought comment on whether it should adopt a fifth capital
classification of ``well-capitalized'' as part of the regulation,
although the interim final rule did not adopt such a category. Among
the questions posed by FHFA with regard to a potential well-capitalized
classification were:
(1) What criteria would be appropriate to define a ``well-
capitalized'' category?
(2) Whether a retained earnings or a market value of equity to par
value of capital stock (MVE/PVCS) target would be useful or appropriate
for defining a well-capitalized category? and
(3) What restrictions on an adequately capitalized Bank would be
appropriate to create an incentive for a Bank to achieve a well-
capitalized rating?
The FHFA also asked whether it should adopt a retained earnings or
MVE/PVCS target as part of the Banks' risk-based capital regulations or
as a requirement that would be separate and distinct from the risk-
based capital regulations.
II. Discussion of Comments and Changes to the Interim Final Rule
A. Overview of Comments
Most commenters provided suggestions for changes to the published
text of the interim final rule or asked that clarifications be made to
certain provisions. Specifically, the comment letters urged FHFA to
exempt advances from limits on asset growth applicable to Banks that
are not adequately capitalized, alter the definition of executive
officer to narrow the scope of persons covered, extend the time period
for submission of a capital restoration plan, and clarify the scope of
certain mandatory restrictions on Bank acquisitions and on payment of
executive compensation or bonuses that become applicable once a Bank is
deemed to be undercapitalized or significantly undercapitalized. Each
of the suggested changes is addressed more fully below.
Commenters also responded to FHFA questions about different aspects
of instituting a fifth capital classification of well-capitalized. Nine
of the comment letters expressed at least mild support or did not
affirmatively oppose adopting the fifth capital classification,
although most of these commenters did not support any approach that
would effectively raise current minimum capital standards. Five
commenters stated that such a classification was unnecessary or
inappropriate. To the extent that they specifically addressed the
issue, commenters also believed that
[[Page 38510]]
FHFA should not impose restrictions on an adequately capitalized Bank
if a well-capitalized category were adopted. A number of commenters
suggested specific positive regulatory incentives that FHFA could adopt
to encourage Banks to achieve a well-capitalized rating.
Generally, commenters believed that if a well-capitalized category
were adopted, the defining criteria should focus on the composition of
Bank capital (i.e., retained earnings) rather than the level of
capital. All but one of the commenters specifically opposed using an
MVE/PVCS measure as part of the defining criteria or as a separate
capital requirement. The one commenter that did not specifically oppose
the MVE criteria, however, thought that an MVE/PVCS requirement should
be adopted only after a separate rulemaking in which FHFA provided a
more thorough analysis of the matter.
FHFA has determined that it will not adopt the well-capitalized
category as part of this final regulation. Instead, it will consider
the comments and suggestions in developing any proposed future
amendments to the PCA regulation concerning a well-capitalized
category, including any proposals related to the criteria for defining,
and for creating an incentive structure for the Banks to achieve, a
well-capitalized rating. In developing any amendments, FHFA also would
consider any changes that it may propose to the Banks' risk-based
capital requirements. FHFA also will continue to weigh whether it would
be appropriate to propose a separate target for retained earnings and/
or MVE/PVCS, either as a stand-alone regulation or as part of any risk-
based capital proposal.
B. Specific Suggestions for Changing the Interim Final Rule
Commenters addressed a number of different provisions and suggested
a number of changes to the interim final rule. FHFA has carefully
considered these comments. As is discussed below, while FHFA has
adopted some changes to the interim final rule in response to the
comments, it did not feel that all the suggested amendments were
appropriate in light of statutory requirements and policy
considerations.
Definition of Executive Officer (Sec. 1229.1). A number of
commenters asked for specific changes to the definition of ``Executive
Officer'' set forth in the regulation. This definition is needed to
implement the provision limiting bonuses and compensation paid to
executive officers of significantly undercapitalized Banks under Sec.
1229.8(f) of the regulation. Commenters requested three principal
changes be made to the definition in Sec. 1229.1 to provide more
clarity as to which employees were executive officers and establish a
more appropriate scope for the definition.
First, they asked that the regulation require FHFA to inform the
Banks, in advance, which persons in charge of a principal business
unit, division or function would be considered an executive officer.
This approach, the commenters argued, would be consistent with the
treatment provided the Enterprises. Second, they asked, without
providing further explanation, that the reference to chief operating
officer in the regulation be changed to chief executive officer.
Finally, commenters asked that the regulation clarify that
administrative or support staff that answer directly to the president
or chief operating officer of the Bank or the chairman or vice-chairman
of the Bank's board of directors not be considered executive officers.
One commenter further stated that the regulation should specify that
positions or persons identified by functional area would be within the
scope of the definition only if they truly performed the duties of an
executive officer.
The Safety and Soundness Act, as amended by HERA, refers to
executive officers of a regulated entity in various provisions
including the PCA provision and a provision providing the Director with
oversight and approval authority for compensation paid to executive
officers. It does not, however, specifically define the term. Given
that the statute does not differentiate between the term ``executive
officer'' as used in the PCA provision and as used in the provision
addressing executive compensation and the two provisions deal with the
question of limiting compensation or bonus to certain Bank employees,
FHFA believes the definition used in the two regulations ultimately
should be the same.
The definition of executive officer in Sec. 1229.1 is similar to
the definition of executive officer with respect to a Bank that was
proposed for comment as part of the executive compensation regulation
on June 5, 2009. See Proposed Rule: Executive Compensation, 74 FR
26989. While there are some wording differences between the definition
adopted in the PCA regulation and that being proposed in the executive
compensation regulation (and the proposed definition in the executive
compensation regulation may provide the Director with less discretion
to remove persons from coverage than does the definition in Sec.
1229.1), the definitions remain substantively the same. FHFA also
expects that the definition in the PCA regulation will be amended in
the future to conform to what is ultimately adopted in the executive
compensation regulation. In the meantime, FHFA believes that the
current definition of executive officer in Sec. 1229.1 sufficiently
identifies the persons that are subject to the PCA regulation
restrictions and provides the Director with sufficient flexibility to
add or remove specific persons from the list of Bank executive officers
so that the concerns raised in the comments can be addressed on a case-
by-case basis, if needed. Therefore, FHFA is not revising the
definition of executive officer in the PCA regulation at this time.
Advances and Limitations on Asset Growth (Sec. 1229.6(a)(4)). Most
of the commenters requested that the mandatory limitation on asset
growth applicable to an undercapitalized Bank and set forth in Sec.
1229.6(a)(4) of the interim final rule be modified to exclude advances
from its coverage. This provision prevents the average total assets of
a Bank, that was less than adequately capitalized, from exceeding its
average total assets of the previous quarter, unless the Director
determines the increase is consistent with an approved capital
restoration plan and meets other requirements. The commenters argued
that in light of the safety and low-risk profile of advances, the self-
capitalizing nature of the product and the centrality of advances to
the Bank's mission, limits should not be put on advance growth even if
the Bank were less than adequately capitalized.
The regulatory language in the interim final rule, however, closely
follows the statutory provision that was added to section 1365(a)(4) of
the Safety and Soundness Act by section 1143 of HERA. The statutory
language appears straightforward and contains no exception for advances
or other mission assets of either the Banks or the Enterprises.
Instead, the statute allows the Director to waive the limit on asset
growth when certain conditions are met. These conditions are carried
over to the regulation and include that the growth be consistent with
the capital restoration plan and that the ratio of the Bank's tangible
equity to total assets is increasing at a rate that will allow the Bank
to become adequately capitalized in a reasonable period of time. Thus,
it is not clear that the language of the statute provides flexibility
to implement this suggested change.
Moreover, Sec. 1229.6(a)(4) imposes a limit on total assets and
not on
[[Page 38511]]
advances, specifically, so that an undercapitalized Bank would not face
a barrier to continued advances growth as long as it reduces its
investment portfolio or other asset holdings. In addition, despite
commenters' claims, nothing assures that new advances will be self-
capitalizing, since a number of the Banks' capital structure plans
provide them discretion to set the advances stock purchase requirement
below the level of their minimum capital requirements. Further, Bank
members often do not have to buy additional stock to take down new
advances, as they may have excess stock that can be applied to meeting
the stock purchase requirement, or otherwise may not have to buy
additional stock, to cover the new advances.\3\ Thus, a Bank that did
not meet its capital requirements, unless it took some other action
(e.g., reduce other assets), could become more highly leveraged if it
were allowed unconditionally to expand advances. Arguably, the
restrictions in the PCA provisions are designed to make sure the Bank
has a plan of action that has been reviewed by FHFA to prevent this
outcome from occurring.
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\3\ All of the stock outstanding, including excess stock,
however, would already have been counted as part of the Bank's
capital. Thus, in these cases the new advances would increase the
Bank's assets without necessarily increasing its capital from the
level which was already determined to be insufficient to meet
regulatory requirements.
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Given these considerations FHFA has decided not to adopt the
changes to Sec. 1229.6(a)(4) suggested by commenters.
Clarify Prohibition on Acquisition of Assets (Sec. 1229.6(a)(5)).
A number of commenters asked that FHFA clarify the scope of the
restriction in Sec. 1229.6(a)(5) that prohibits a Bank that is not
adequately capitalized from acquiring directly or indirectly, any
interest in any entity. They asked especially for FHFA to confirm that
this restriction would not prevent the Banks from undertaking
authorized activities in the ordinary course of business, such as
making otherwise authorized investments in financial instruments. One
commenter also noted that existing regulations would likely already
require a Bank to receive FHFA approval before making an acquisition in
another entity. After considering these comments, FHFA agrees that the
language used in the provision is vague, especially in light of other
restrictions placed on Bank activities, and that some clarification
would be useful.
The regulatory language that is the subject to these comments
closely follows the language that was added to section 1365(a)(5) of
the Safety and Soundness Act by section 1143 of HERA. The restriction
on the acquisition of an interest in an entity is one of a series of
restrictions imposed on regulated entities that are not adequately
capitalized, which includes limits on asset growth, new business
activities and capital distributions. The Director is allowed under the
statute and the regulation to waive this restriction if the Bank has an
approved capital restoration plan, the Bank is implementing that plan,
the acquisition of the interest is consistent with the plan and with
the Bank's safe and sound operations, and will further its compliance
with its capital requirements.
There appears to be little or no legislative history as to what
Congress intended by this restriction. Given that the statute
separately limits the ability of a Bank that is less than adequately
capitalized to expand its activity through asset growth or undertaking
new business activities, it would be reasonable that this particular
restriction is meant to limit a Bank's expansion through acquisition of
other operating businesses or lines of business in which the Bank
already may be involved. FHFA therefore has decided to clarify the
meaning of Sec. 1229.6(a)(5) by revising the restriction to apply to
the acquisition of any equity interest in another operating entity.\4\
The revised language also makes clear that the restriction is not meant
to prevent a Bank from enforcing any security interest granted to it or
otherwise taking possession of collateral in the normal course of
business.
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\4\ Such an interpretation also would appear to bring the
meaning of this provision close to that of a similar PCA restriction
imposed on insured depository institutions by Sec. 38(e)(4) of the
Federal Deposit Insurance Act (FDI Act)(12 U.S.C. Sec.
1831o(e)(4)). The FDI Act provision restricts an undercapitalized
institution's acquisition of any interest in any company or in
another insured depository institution and limits the right to
establish or acquire any additional branch offices.
---------------------------------------------------------------------------
FHFA recognizes that under current regulations the Banks would have
few if any opportunities to take equity positions in other operating
entities without first receiving FHFA's approval. Nevertheless, it is
important to carry over into the regulation all the statutory
restrictions even if such restrictions may have limited practical
effect at this time. The revised language should clarify, however,
FHFA's intent that the restriction on the acquisition of interests in
any entity was not meant to restrict a Bank's investment in authorized
investments such as mortgage backed securities or acquired member
assets or otherwise restrict the Bank's ability to accept pledges of
security as part of its business.
Submission of Capital Restoration Plan (Sec. 1229.11(b)). Most of
the commenters supported extending the period in which a Bank has to
submit a capital restoration plan from the 10 calendar-days required
under Sec. 1229.11(b) of the interim final rule. The commenters
recognized that the 10 day period was based on requirements currently
applicable to the Enterprises but believed the difference in capital
structures between the Banks and the Enterprises justified a longer
period for the Banks to prepare and submit their capital restoration
plans. In this respect, a number of the commenters stated that the
Banks would need to amend their GLB Act capital structure plans and
take other actions that would not be applicable to the Enterprises to
implement the capital restoration plan.\5\ After consideration of these
comments, FHFA has decided there is merit to the suggestions and is
extending the period of time for submitting a capital restoration plan
by a Bank to 15 business-days after a Bank receives written
notification that such a plan is required.
---------------------------------------------------------------------------
\5\ This comment suggests that some Banks may believe that they
have to complete any contemplated amendments to their GLB Act
capital structure plan prior to the submission of the capital
restoration plan. This is not the case, however. Under Sec. 1229.11
of the final rule, a Bank would need to identify in its capital
restoration plan any changes to its stock purchase requirements that
it intends to make but it does not necessarily need to have those
changes in place at the time it submits its capital restoration plan
for approval.
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The Safety and Soundness Act, as amended by HERA, allows up to 45
days after the date of notification for a regulated entity to submit a
capital restoration plan. While the majority of the commenters
suggested a 30 calendar-day period for submission of the plan, FHFA
believes that 30 calendar-days is too long a period given that a Bank
needs to begin taking action immediately to restore capital when a
capital deficiency is identified. Moreover, having an approved capital
restoration plan in place is a necessary pre-condition imposed by the
statute for the Director's granting an exception to many of the
restrictions that are imposed on the activities of an undercapitalized
or a significantly undercapitalized Bank. Given that the Banks, in
their comments, to other regulation provisions have suggested that some
of these restrictions may be problematic, FHFA does not want to draw
out the period for submission and approval of a capital restoration
plan more than necessary. Moreover, Banks will be aware of the
likelihood that they will be classified as less than adequately
capitalized before the Director issues a
[[Page 38512]]
final notification, so a Bank could begin work on its capital
restoration plan prior to receiving the final notification.\6\ Thus,
FHFA believes that 15 business-days should generally be sufficient for
a Bank to prepare its capital restoration plan.
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\6\ For example, under the regulations, Banks first will receive
a preliminary notification that the Director proposes to classify
them at a level other than adequately capitalized, prior to the
final classification. In addition, Banks are required to notify the
Director if their capital decreases to the extent that they would
expect to be reclassified at a level lower than their previous
preliminary or final classification, so that Banks should monitor
and be aware of negative changes in their capital levels at all
times.
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Executive Officers Bonuses and Compensation (Sec. Sec. 1229.8(e)
and (f)). A number of the commenters asked FHA to clarify ``whether, in
light of contractual and constitutional concerns,'' employment
agreements entered into prior to the effective date of the regulation
are subject to the mandatory limits in Sec. Sec. 1229.8(e) and (f) on
bonuses and compensation paid to an executive officer of a
significantly undercapitalized Bank. The comments do not further
describe what these concerns are or provide any arguments addressing
the constitutional issues. The cited provisions prohibit a Bank that is
significantly undercapitalized either from paying a bonus to any
executive officer without the prior written approval of the Director or
from compensating an executive officer at a rate exceeding the average
rate of compensation of that officer during the 12 months preceding the
calendar month in which the Bank became significantly undercapitalized,
without the prior written approval of the Director.
The regulatory language in Sec. Sec. 1229.8(e) and (f) closely
corresponds to the language in section 1366(c) the Safety and Soundness
Act as the provision was amended by section 1144 of HERA. The statute
does not provide an exception for employment agreements entered into
before a certain date or outstanding as of HERA's effective date. More
importantly, this restriction is triggered only if a Bank becomes
significantly undercapitalized--a future event that is unrelated to the
date in which an executive officer signed his or her employment
agreement. As a general matter, the point of the provision seems to be
to preserve resources expended on compensation and prevent executives
from benefiting from increased compensation when their behavior,
decisions or leadership resulted in (or failed to prevent) a Bank's
becoming significantly undercapitalized. Thus, looking to the date of
when employment began seems irrelevant to the purpose of the provision,
which appears to be to address a future capital deficiency and
discourage behavior that may cause such capital problems.\7\
---------------------------------------------------------------------------
\7\ The provision related to executive officer compensation and
bonuses is similar to restrictions on compensation in the FDI Act
which become applicable to senior executive officers of an insured
financial institution that becomes significantly undercapitalized.
See 12 U.S.C. 1831o(f)(4). When federal banking regulators adopted
rules implementing this provision of the FDI Act, those rules did
not provide an exception for employment agreements entered into
prior to its effective date. See 57 FR 44866 (Sept. 29, 1992).
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The regulation also allows the Director to authorize a Bank to pay
compensation and/or bonuses in excess of the limits established by the
provisions. This means that under the regulation, a Bank has the right
to make a case once its receives notice of its preliminary
classification, or thereafter, that the Director should approve higher
compensation or bonuses for executive officers, and allows a Bank to
present all relevant information as to why the compensation and bonus
restrictions are not appropriate in a particular case.\8\ Thus, FHFA
sees no reason to provide a blanket exemption from this restriction in
the regulation itself, and believes that such a revision would
contradict both the plain language of the statute and would undermine
the policy concerns that this provision addresses.
---------------------------------------------------------------------------
\8\ The issue of whether the statutory language is itself
constitutionally flawed, as suggested by the commenters, is
difficult to address since the comments fail to provide any specific
arguments or theory on this point. The constitutional argument that
usually arises in these types of cases is that the parties have some
fundamental right or protected interest recognized by law so that
the loss of that right is subject to due process protection under
the Fifth Amendment. In this respect, the Supreme Court has noted
that the ``fundamental requirement of due process is the opportunity
to be heard `at a meaningful time and in a meaningful manner.'''
Matthews v. Eldridge, 424 U.S. 319, 333 (1976) (citations omitted).
The Court has identified three factors that should be balanced in
deciding the dictates of due process generally. See id. at 335.
These are: (i) The private interest that will be affected by the
official action; (ii) The risk of an erroneous deprivation of such
interest through the procedures used and the value, if any, of
additional or substitute procedure; and (iii) The government's
interests, including the function at issue and the fiscal and
administrative burdens of additional or substitute procedures. See
id. (citations omitted). The fact that the Banks can seek the
Director's review of the restriction and provide information as to
why the restrictions should not be applied in a particular instance
provides an opportunity to be heard that should address the
commenters concerns.
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Other comments. One commenter asked FHFA to incorporate into its
regulations previous Finance Board guidance that Other Comprehensive
Income (OCI) is not included in calculations of permanent and total
capital. The referenced guidance was provided by the Finance Board when
it was proposing amendments to its capital regulation based on an
Advanced Notice of Proposed Rulemaking (ANPR), as well as responding to
some of the comments received as part of that ANPR. See Proposed Rules:
Capital Requirements for the Federal Home Loan Banks, 66 FR 41462,
41471-72 (Aug. 8, 2001). Specifically, the Finance Board's guidance
responded to comments that the definitions of permanent and total
capital be clarified to exclude certain elements of OCI. The Finance
Board noted, however, that there was no need to change the definitions
and clarified that OCI was not included in retained earnings as used in
the calculation of total and permanent capital. Id. Given that this
guidance was provided as part of the rulemaking for the capital
regulation and addressed definitions in that provision, FHFA is not
going to alter those regulations at this time as part of its adoption
of the final PCA regulation. It will, however, affirm the Finance
Board's prior interpretation that OCI is not an element of the Bank's
regulatory capital.
C. Other Changes in the Final Regulation
In addition to making the changes described above in response to
the comments submitted on the interim final rule, FHFA is also making
certain clarifying changes to the regulation. First, FHFA is adding new
paragraphs (g) and (h) to Sec. 1229.8 to clarify its view as to what
mandatory or discretionary restrictions or obligations that apply to an
undercapitalized Bank continue to apply to a Bank found to be
significantly undercapitalized.
FHFA is also revising Sec. 1229.10(d) to make clear that
restrictions and obligations previously imposed on a significantly
undercapitalized Bank continue to apply to a critically
undercapitalized Bank for which FHFA has not yet been named conservator
or receiver. As originally adopted, this provision only referred to
``restrictions'' on a significantly undercapitalized Bank but FHFA
recognizes that a Bank may also be obligated to take positive actions
under the PCA provisions.
Finally, FHFA modified Sec. 1229.11(a) to clarify the type of
information it intends a Bank to submit in its capital restoration
plan. These changes make clear that the Bank should describe, if
appropriate, any actions that it would take to address any long term or
structural problems that led to its becoming less than adequately
capitalized and that the Bank should provide in it's capital
restoration plan
[[Page 38513]]
projections indicating how each component of total and permanent
capital (including retained earnings) and the major components of
income, assets and liabilities are expected to change over the term of
the plan. FHFA believes that this information is the type of
information it would generally request under Sec. 1229.11(a)(5) and is
necessary for it to judge the adequacy of the plan and to monitor the
plan effectively over time. Thus, Sec. 1229.11(a) is being updated to
make clear that this information should be submitted as part of a
capital restoration plan.
III. Paperwork Reduction Act
The regulation does not contain any collections of information
pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et
seq.). Therefore, FHFA has not submitted any information to the Office
of Management and Budget for review.
IV. Regulatory Flexibility Act
The regulation applies only to the Banks, which do not come within
the meaning of small entities as defined in the Regulatory Flexibility
Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance with section
605(b) of the RFA, 5 U.S.C. 605(b), FHFA, hereby, certifies that the
regulation will not have a significant economic impact on a substantial
number of small entities.
V. Effective Date
The Administrative Procedure Act provides that the required
publication of a substantive regulation shall be made not less than 30
days before its effective date except for: A substantive regulation
that grants or recognizes an exemption or relieves a restriction; An
interpretative regulation or statement of policy; or As otherwise
provided by the agency for good cause found and published with the
regulation. See 5 U.S.C. 553(d). In publishing the interim final rule,
FHFA found that it had good cause for the regulation to become
effective immediately. See 74 FR at 5604. These reasons are still true
with regard to the final rule and the changes made to it. In addition,
the changes made to the interim final rule clarify the scope of the
provisions of the regulation or ease requirements that had been
established in the interim final rule, as in the case of the longer
period for submitting a capital restoration plan, rather than add new
requirements. Thus, FHFA finds that there is good cause for the
regulation to become effective on August 4, 2009.
List of Subjects in 12 CFR Part 1229
Capital, Federal home loan banks, Government-sponsored enterprises,
Reporting and recordkeeping requirements.
0
For the reasons stated in the preamble, the Interim Final Rule at
subpart A of part 1229 of Title 12 CFR chapter XII, subchapter B, which
was published at 74 FR 5595 on January 30, 2009, is being adopted by
FHFA as a final regulation with the following changes:
PART 1229--CAPITAL CLASSIFICATIONS AND PROMPT CORRECTIVE ACTION
0
1. The authority citation for subpart A continues to read as follows:
Authority: 12 U.S.C. 1426, 4513, 4526, 4613-4618, 4622, 4623.
0
2. Amend Sec. 1229.6 by revising paragraph (a)(5) to read as follows:
Sec. 1229.6 Mandatory actions applicable to undercapitalized Banks.
(a) * * *
(5) Not acquire, directly or indirectly, an equity interest in any
operating entity (other than as necessary to enforce a security
interest granted to the Bank) nor engage in any new business activity
unless:
(i) The Director has approved the Bank's capital restoration plan,
the Bank is implementing the capital restoration plan and the Director
determines that proposed acquisition or activity will further
achievement of the goals set forth in that plan; or
(ii) The Director determines that the proposed acquisition or
activity will be consistent with the safe and sound operation of the
Bank and will further the Bank's compliance with its risk-based and
minimum capital requirements in a reasonable period of time.
* * * * *
0
3. Amend Sec. 1229.8 by removing the word ``and'' at the end of
paragraph (e), removing the period at the end of paragraph (f) and
adding a semi-colon in its place, and adding new paragraphs (g) and (h)
to read as follows:
Sec. 1229.8 Mandatory actions applicable to significantly
undercapitalized Banks.
* * * * *
(g) Comply with Sec. 1229.6(a)(4) and (a)(5) of this subpart; and
(h) Comply with any on-going restrictions or obligations that were
imposed on the Bank by the Director under Sec. 1229.7 of this subpart.
0
4. Amend Sec. 1229.10 by revising paragraph (d) to read as follows:
Sec. 1229.10 Actions applicable to critically undercapitalized Banks.
* * * * *
(d) Other applicable actions. Until such time as FHFA is appointed
as conservator or receiver for a critically undercapitalized Bank, a
critically undercapitalized Bank shall be subject to all mandatory
restrictions or obligations applicable to a significantly
undercapitalized Bank under Sec. 1229.8 of this subpart and will
remain subject to any on-going restrictions or obligations that the
Director imposed on the Bank under Sec. 1229.7 or Sec. 1229.9 of this
subpart, or any restrictions or obligations that are applicable to the
Bank under the terms of an approved capital restoration plan.
0
5. Amend Sec. 1229.11 by revising paragraphs (a) and (b) to read as
follows:
Sec. 1229.11 Capital restoration plans.
(a) Contents. Each capital restoration plan submitted by a Bank
shall set forth a plan to restore its permanent and total capital to
levels sufficient to fulfill its risk-based and minimum capital
requirements within a reasonable period of time. Such plan must be
feasible given general market conditions and the conditions of the Bank
and, at a minimum, shall:
(1) Describe the actions the Bank will take, including any changes
that the Bank will make to member stock purchase requirements, to
assure that it will become adequately capitalized within the meaning of
Sec. 1229.3(a) of this subpart and, if appropriate, to resolve any
structural or long term causes for the capital deficiency;
(2) Specify the level of permanent and total capital the Bank will
achieve and maintain and provide quarterly projections indicating how
each component of total and permanent capital and the major components
of income, assets and liabilities are expected to change over the term
of the plan;
(3) Specify the types and levels of activities in which the Bank
will engage during the term of the plan, including any new business
activities that it intends to begin during such term;
(4) Describe any other actions the Bank intends to take to comply
with any other requirements imposed on it under this subpart A of part
1229;
(5) Provide a schedule which sets forth dates for meeting specific
goals and benchmarks and taking other actions described in the proposed
capital restoration plan, including setting forth a schedule for it to
restore its permanent and total capital to levels necessary for meeting
its risk-based and minimum capital requirements; and
[[Page 38514]]
(6) Address such other items that the Director shall provide in
writing in advance of such submission.
(b) Deadline for submission. A Bank must submit a proposed capital
restoration plan no later than 15 business-days after it receives
written notification that such a plan is required either because the
notice specifically states that the Director has required the
submission of a plan or the notice indicates that the Bank's capital
classification or reclassification is to a category for which a capital
restoration plan is a mandatory action required of the Bank. The
Director may extend this deadline if the Director determines that such
extension is necessary. Any such extension shall be in writing and
provide a specific date by which the Bank must submit its proposed
capital restoration plan.
* * * * *
Dated: July 29, 2009.
James B. Lockhart, III,
Director, Federal Housing Finance Agency.
[FR Doc. E9-18581 Filed 8-3-09; 8:45 am]
BILLING CODE P