Federal Home Loan Bank Boards of Directors: Eligibility and Elections, 51452-51464 [E9-24063]

Agencies

• Federal Housing Finance Board
• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 74, Number 193 (Wednesday, October 7, 2009)]
[Rules and Regulations]
[Pages 51452-51464]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-24063]


=======================================================================
-----------------------------------------------------------------------

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 915

FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1261

RIN 2590-AA03


Federal Home Loan Bank Boards of Directors: Eligibility and 
Elections

AGENCY: Federal Housing Finance Board; Federal Housing Finance Agency.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Federal Housing Finance Agency (FHFA) is adopting a final 
regulation on the eligibility and election of Federal Home Loan Bank 
(Bank) directors. The final rule implements section 1202 of the Housing 
and Economic Recovery Act of 2008, which amended section 7 of the 
Federal Home Loan Bank Act (Bank Act) as it relates to the eligibility 
and election of individuals to serve on the boards of directors of the 
Banks.

DATES: This final rule will become effective on November 6, 2009.

FOR FURTHER INFORMATION CONTACT: Thomas P. Jennings, Senior Attorney 
Advisor, thomas.jennings@fhfa.gov, (202) 414-8948; or Patricia L. 
Sweeney, Management Analyst, pat.sweeney@fhfa.gov, (202) 408-2872.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    The Housing and Economic Recovery Act of 2008 (HERA), Public Law 
110-289, 122 Stat. 2654 (2008), transferred the supervisory and 
oversight responsibilities over the Federal National Mortgage 
Association, the Federal Home Loan Mortgage Corporation (collectively, 
Enterprises), and the Banks to FHFA, which is responsible for ensuring 
that the Enterprises and the Banks operate in a safe and sound manner 
and carry out their public policy missions. The Enterprises and the 
Banks continue to operate under regulations promulgated by the Office 
of Federal Housing Enterprise Oversight and the Federal Housing Finance 
Board (Finance Board), respectively, until FHFA issues its own 
regulations.
    Section 1202 of HERA amended section 7 of the Bank Act, 12 U.S.C. 
1427, which governs the directorship structure of the Banks. The 
Finance Board regulation implementing section 7 was codified at 12 CFR 
part 915. Part 915 governed the nomination and election only of those 
directors who are chosen from among the officers and directors of 
members of the Banks, which this final rule refers to as member 
directors. Section 1202(1) of HERA amended section 7(a) of the Bank Act 
to give the members the additional right to elect all of the other 
directors on the boards of directors of the Banks, which this rule 
refers to as independent directors.
    On September 26, 2008, FHFA published an interim final rule 
(interim rule) to implement the amendments made by section 1202 of 
HERA. See 73 FR 55710, September 26, 2008. FHFA retained the basic 
process of elections that existed in part 915 as applied to member 
directorships, making changes as necessary to comply with the 
amendments to section 7 of the Bank Act. FHFA also added new provisions 
to govern the process for nominating individuals for independent 
directorships and for conducting elections of independent directors in 
conjunction with the elections of the member directors.
    FHFA adopted the rule on an interim basis because there was 
insufficient time after the enactment of HERA for FHFA to conduct a 
full notice and comment rulemaking that would have allowed the Banks to 
conduct their 2008 elections before the end of 2008. Nonetheless, the 
interim rule afforded interested persons the opportunity to participate 
in the rulemaking process by submitting written comments on the interim 
rule, which FHFA has considered in adopting this final rule. The 
comment period closed on November 25, 2008.
    Section 1201 of HERA (codified at 12 U.S.C. 4513(f)) requires the 
Director of FHFA to consider the differences between the Banks and the 
Enterprises with respect to the Banks' cooperative ownership structure, 
mission of providing liquidity to members, affordable housing and 
community development mission, capital structure, and joint and several 
liability, whenever promulgating regulations that affect the Banks. In 
preparing this final rule, the Director considered these factors and 
determined that the rule is appropriate, particularly because this 
final rule implements a statutory provision that applies only to the 
Banks. See 12 U.S.C. 1427.

II. Analysis of the Public Comments and Final Rule

    FHFA received 15 public comments on the interim rule. Eleven Banks 
and one Bank member submitted comments. Two trade associations and a 
member of the United States House of

[[Page 51453]]

Representatives also submitted comments. There were common threads in 
the Bank comments, which FHFA considered in making revisions to the 
interim rule. The final rule establishes Subpart A-- Federal Home Loan 
Bank Boards of Directors: Eligibility and Elections of part 1261 of the 
FHFA regulations, which now will be titled ``Federal Home Loan Bank 
Directors.'' Comments on specific issues are addressed in the section-
by-section discussion below.

A. Section 1261.1 Definitions

    FHFA received no comments on the definitions in the interim rule, 
but has made technical changes to some of the definitions that were in 
part 915, without changing their meanings. For example, in some 
definitions the final rule has replaced the word ``person'' with 
``individual'' for purposes of consistency.

B. Section 1261.2 General Provisions

    Section 1261.2 of the final rule includes two substantive 
amendments from the interim rule, noted below, as well as certain 
technical revisions. Section 7(a) of the Bank Act sets the size of a 
Bank's board of directors at 13, or such other number as the Director 
may determine, provided the member directorships always constitute a 
majority and the independent directorships comprise at least 40 percent 
of the entire board. As a practical matter, however, the 
``grandfather'' provision of section 7(c) of the Bank Act, which 
guarantees each State at least as many member directorships as it had 
in 1960, requires that nearly all of the Banks must have at least 8 
member directorships. As a result, the minimum size board that could 
comply with both of those provisions is 14 persons, with 8 member 
directorships and 6 independent directorships. Section 1261.2(a) of the 
interim rule provided that the FHFA Director annually will set the 
number of directorships for each Bank and will designate the 
directorships as either member directorships or independent 
directorships. At least two independent directorships are required by 
the Bank Act to be public interest directorships. Some Banks commented 
that the boards of directors of the Banks should have the discretion to 
determine how many of the independent directors should be designated as 
public interest directors. In response to those comments, section 
1261.2(a) of the final rule has been changed to require the board of 
directors of each Bank annually to determine how many of its 
independent directorships should be designated as public interest 
directorships, provided that the Bank at all times has at least two 
public interest directorships.
    Section 1261.2(c) of the interim rule carried forward the 
requirement in Sec.  915.3(a) that the Banks conduct their elections, 
and provided that each Bank must hold one election each year for all 
directors, rather than separate elections for the independent directors 
and member directors. The final rule has amended the latter provision 
to clarify that the purpose of an election occurring in a particular 
year is to elect directors whose terms will commence on January 1 of 
the following year. Two commenters advocated that FHFA become more 
involved in the election process to help assure that elections result 
in an appropriate board composition. One trade association requested 
that FHFA ``monitor the extent to which credit unions and other 
minority interests'' are represented on the boards of the Banks and 
take actions, including encouraging nominations of individuals who are 
associated with minority interests, when such interests are not 
represented adequately. A member of the House of Representatives 
requested that FHFA consider ``implementing safeguards'' to assure that 
individuals from the general population, including minorities and 
women, are considered for nomination and are represented adequately on 
the boards.
    FHFA believes that diversity among the members of each board of 
directors of the Banks would be beneficial to the Banks, and thus 
encourages the Banks to consider the diversity of their boards, both as 
to representation among the general population and as to representation 
of its members, as it requests nominees for member directorships from 
its members and as it goes through the process of nominating candidates 
for independent directorships. Each Bank could be assisted in the 
nomination of candidates for independent directorships by effectively 
integrating its process of consulting with the Bank's Advisory Council, 
as required by Sec.  1261.6(d) of the final rule, into the election 
process. Nonetheless, the final rule does not include any provisions 
mandating that the boards of the Banks include representatives from any 
particular industry groups or other populations. Such a provision could 
be contrary to the statutory provisions vesting the nominations of 
member and independent directors in the members and the boards of 
directors of the Banks, respectively, as well as to HERA's repeal of 
the authority for the Finance Board to appoint directors to the boards 
of the Banks. Moreover, the Banks have gone through only one election 
cycle since the enactment of HERA, and therefore it is difficult to 
assess the extent to which the new process will generate diverse 
boards.

C. Section 1261.3 Designation of Member Directorships

    Section 1261.3 of the interim rule addressed the process by which 
the Director annually designates the member directorships at each Bank. 
The final rule adopts this provision with one substantive change, noted 
below, as well as several wording changes, none of which has 
substantive effect. Section 1261.3(c)(1) of the interim rule required 
that the designation of directorships be conducted in accordance with 
section 7(b) and (c) of the Bank Act. Section 1261.3(c)(2) of the 
interim rule further provided that if an existing directorship were to 
cease to exist as a result of the annual designation of directorships, 
then the incumbent director sitting in that directorship would not be 
eligible to serve after December 31 of that year. The final rule 
deletes section 1261.3(c)(2) in its entirety because it is largely 
duplicative of another provision of the interim rule, which is codified 
at Sec.  1261.4(e) of the final rule.

D. Section 1261.4 Director Eligibility

    Section 1261.4(a) of the interim rule carried forward Sec.  
915.7(b) of the Finance Board rule regarding the eligibility 
requirements of member directors. Several Banks commented that the 
final rule should clarify how these requirements should be applied when 
a Bank's board must fill a vacancy. Specifically, these commenters 
asked whether a board of directors is limited to choosing officers or 
directors of institutions that were members at the time the position 
initially was filled, or may consider candidates from any institutions 
that are members when the board acts.
    Section 7(f)(2) of the Bank Act requires a vacancy to be filled by 
an individual who meets the eligibility requirements applicable to his 
or her predecessor. The Bank Act, however, does not include a single 
list of provisions that are labeled ``eligibility'' requirements. 
Instead, certain requirements for directors are contained within the 
definitions of the types of directorships, while others exist elsewhere 
in the form of qualifications for persons to serve as directors. 
Section 1261.4(a)(2) of the interim rule included as part of the 
regulatory eligibility requirements for member directors a requirement 
that the person be an officer or director of an institution that

[[Page 51454]]

was a member as of the record date prior to the election. Commenters 
expressed concern about applying the record date requirement to a 
replacement director, and suggested that the final rule make clear that 
an institution's membership status as of the record date should not be 
deemed an eligibility requirement for a replacement director. FHFA 
agrees that this provision of the rule should be clarified and, because 
the Bank Act does not address the issue of the time of membership in 
determining whether a candidate is an officer or director of a member, 
believes that the rule should distinguish between directors elected by 
the members and those elected by the board to fill a vacancy. 
Accordingly, Sec.  1261.4(a)(2) of the final rule provides that in the 
case of member directors elected by the members, the institution at 
which a candidate serves must have been a member as of the record date, 
but in the case of the board filling a vacancy, the institution at 
which the candidate serves as an officer or director must be a member 
of the Bank at the time the individual is elected by the board, whether 
or not it was a member as of the record date for the election of the 
predecessor.
    Section 1261.4(a)(2) of the final rule also has been changed by 
replacing a reference to a member being located in a ``voting State'' 
with a reference to the member being located in the Bank's 
``district'', which conforms more closely to the statutory language. 
The requirements relating to a voting State are located in a new 
paragraph (b) of the final rule. This has been added to maintain the 
requirement that each individual filling a member directorship must be 
an officer or director of a member that is located in the State to 
which the Director has allocated that directorship. This requirement 
applies to all individuals serving as member directors, though it is 
not designated as an eligibility requirement.
    As a result of the addition of new Sec.  1261.4(b), the final rule 
also redesignates Sec.  1261.4(b)-(d) of the interim rule as Sec.  
1261.4(c)-(e) of the final rule and revises portions of the 
redesignated paragraphs (d) and (e). Section 1261.4(c)(1) of the 
interim rule described situations in which otherwise eligible 
individuals would not be eligible to serve, while Sec.  1261.4(c)(2) 
clarified the application of the statutory term limits provision. The 
final rule makes certain changes relating to the application of the 
term limits, which are described below. The term limit provisions of 
section 7(d) of the Bank Act limit service of individuals who have been 
elected to and served all or part of three consecutive full terms. Such 
individuals are ineligible for the two years following such service. 
Although Sec.  1261.4(c)(2)(i) of the interim rule provided that terms 
adjusted subsequent to HERA would not be considered to be full terms, 
some commenters construed this to mean that FHFA would apply that 
provision only to the terms that commenced on January 1, 2009, but not 
to terms adjusted subsequently. It is possible that the discussion of 
the term limits provisions in the preamble to the interim rule, which 
focused primarily on the 2008 election, may have caused some 
misunderstanding about this provision, which is intended to apply 
whenever a term is adjusted by FHFA to fewer than four years, and not 
just to terms commencing on January 1, 2009. Because the language of 
that provision of the interim rule is clear, it has not been changed in 
the final rule, although the provision has been redesignated as Sec.  
1261.4(d)(2)(i).
    Section 1261.4(c)(2)(iii) of the interim rule provided that a 
director's election to a three-year term prior to HERA constituted 
service in a full-term directorship. This provision also applied only 
to the terms of member directors. Some Bank commenters requested that 
this provision be changed to apply to all directors holding three-year 
directorships as of the effective date of HERA, and one trade 
association commented that only four-year terms should count toward the 
term limit provision. FHFA believes that the provision as it currently 
reads is in accordance with the Bank Act. The term limits provisions 
apply only to terms to which a director ``has been elected.'' Prior to 
HERA, the minority members of the board of the Banks were appointed to 
three-year terms by the Finance Board. Because section 7(d) applies 
only to persons who have been elected, terms served by persons 
appointed by the Finance Board cannot count toward the consecutive term 
limitation. With regard to the other issue, prior to HERA a three-year 
term constituted a full term as a matter of law and FHFA cannot 
disregard that fact by limiting the application of the term limits 
provision solely to four-year terms. Accordingly, Sec.  
1261.4(c)(2)(iii) of the interim rule will remain the same in this 
respect, except that in the final rule it is redesignated as Sec.  
1261.4(d)(2)(ii) and includes certain other nonsubstantive wording 
changes.
    One Bank asked FHFA to clarify whether the period of time served by 
a person who is elected to fill a vacancy constitutes a full term for 
purposes of the term limits provision. In the past, the Finance Board 
has interpreted section 7(d) of the Bank Act as applying only when the 
director is elected by the members, and not to persons elected by the 
board of directors of a Bank to fill a vacancy. Moreover, because 
replacement directors serve only the unexpired portion of an existing 
term of office, they are not elected to serve a full term. Accordingly, 
the final rule includes a new provision, Sec.  1261.4(d)(2)(iv), that 
makes clear that the time served by a replacement director filling a 
vacancy does not constitute a full term for purposes of the term limit 
provision.
    Section 1261.4(d) of the interim rule addressed situations in which 
an incumbent Bank director becomes ineligible to remain in office if 
the directorship in which he serves is eliminated or is designated to 
another State as part of the annual designation of directorships before 
its term expires. The final rule redesignates this provision as section 
1261.4(e), but does not make any substantive changes to the regulation. 
Paragraph (e)(2) has been revised slightly to include a cross reference 
to section 1261.14(a) of the final rule, which includes language that 
had previously been included in paragraph (e)(2) regarding how the 
board fills a redesignated directorship. Although the final rule does 
not change this provision, certain comments related to the issue of 
vacancies arising from the redesignation of a directorship to another 
State have prompted FHFA to consider whether the rule should be revised 
to allow the members in the affected States to select the person to 
fill the redesignated directorship, rather than the board of directors, 
which is the current practice. The Finance Board treated the 
redesignation of a directorship from one State to another as creating a 
vacancy on the board, which is to be filled by a Bank's board of 
directors. FHFA believes, however, that the relevant provisions of the 
Bank Act allow it to construe the redesignation of directorship to 
another State as the termination of the original directorship and the 
creation of a new directorship, which would allow the members in the 
new State to elect a person to fill the new directorship. Such 
treatment would have no effect on the staggering of the directorships, 
so long as the Director adjusts the term of the new directorship to 
match the unexpired portion of the original directorship. Because such 
a change would constitute a change in the policy established by the 
Finance Board, however, FHFA has not included that provision in this 
final rule, but intends to address this issue in a separate proposed 
rulemaking, which it intends

[[Page 51455]]

to publish in the Federal Register shortly after the final rule takes 
effect.

E. Section 1261.5 Determination of Member Votes

    Section 1261.5 of the interim rule carried forward Sec.  915.5 of 
the Finance Board rule, which sets forth how the Banks must determine 
the number of votes of each member. The final rule makes no changes to 
Sec.  1261.5 of the interim rule, except that the reference to the 
specific Finance Board rules in paragraph (b) has been modified to 
reflect that they may at some time be replaced by FHFA rules that 
succeed them.

F. Section 1261.6 Nominations for Member and Independent Directorships

    Section 1261.6 of the interim rule carried forth, in modified form, 
the requirements of Sec.  915.6 of the Finance Board regulations 
regarding nominations for member directorships, and added provisions 
relating to the nomination of independent directorship candidates. In 
the final rule, Sec.  1261.6(a)-(c) remain essentially the same as the 
corresponding provisions of the interim rule. The final rule does 
modify certain language used in paragraph (a)(5), relating to the 
nominating certificate that a Bank's election notice must include, and 
in paragraph (c), which includes certain editorial changes, none of 
which affect the substance of those provisions. Section 1261.6(d) of 
the interim rule addressed independent directorship nominations and 
implemented Section 7(b)(2) of the Bank Act, which requires independent 
directors to be nominated by each Bank's board of directors but to be 
elected by the members of each Bank. The final rule includes some 
modest revisions to certain provisions of Sec.  1261.6(d), which are 
noted below, but otherwise does not differ from the interim rule. HERA 
amended the Bank Act to require that independent directors either must 
possess demonstrated knowledge or experience in certain specified 
subject matter areas, or must have more than four years of experience 
in representing certain consumer or community interests.
    Section 1261.6(d)(1) of the interim rule generally reiterated those 
statutory requirements, which are somewhat more rigorous than were the 
pre-HERA requirements for the appointed directors. Certain Banks 
expressed concern about the effect of the new qualifications on their 
holdover appointed directors, and asked that the final rule allow those 
incumbent directors that do not satisfy the HERA requirements to stand 
for election so long as they continue to comply with the pre-HERA 
requirements under which they were appointed initially. These Banks 
assert that the changes in qualifications are not significant and that 
board continuity with well-performing directors is more important than 
is compliance with the new qualifications. The final rule does not 
include the revisions suggested by the commenters because that would be 
contrary to the unambiguous language of the Bank Act, which does not 
allow a person who does not meet the new qualifications to stand for 
election as an independent director. Any such holdover appointed 
directors are deemed to be independent directors while they serve out 
the remainder of their terms, and any persons who were designated as 
public interest directors prior to HERA may retain that status until 
their term expires.
    Section 1261.6(d)(2) of the interim rule required each Bank to 
include in its bylaws the procedures that it will follow for nominating 
and electing independent directors, and it is not being changed in any 
substantive way in the final rule. The Banks commented that this 
provision should be modified to allow them to incorporate the 
procedures in this rule into their bylaws by reference. While 
incorporation of this rule into the bylaws might be one method of 
including procedures in a Bank's bylaws, FHFA declines to include that 
in the regulation.
    FHFA expects that each Bank will include in its bylaws provisions 
relating to the procedures that it believes will work best in 
identifying nominees and presenting them to the members, and FHFA 
prefers that approach over an approach that would prescribe bylaw 
provisions by regulation. The provisions adopted by each Bank should 
address how and when the board will consult with its Advisory Council, 
how applications from prospective nominees will be processed, and how 
the board will nominate candidates for independent directorships.
    Section 1261.6(d)(3) of the interim rule required each Bank to 
determine the number of public interest directorships its board would 
have, subject to the statutory minimum of two, and to nominate at least 
as many individuals as there are independent directorships to be filled 
in the elections for that year.
    The Banks commenting on this provision believe that their boards 
should have the flexibility to determine how many independent 
directorships should be designated as public interest directorships, 
provided they have at least two public interest directors. They also 
believe that they should determine how many persons should be nominated 
for each type of directorship for which elections will be held, stating 
that the directors' fiduciary duties will ensure that they make 
appropriate decisions. One member commenting on this provision, 
however, contended that each Bank should be required to nominate all 
qualified candidates who apply, so that the members can decide who will 
serve as the independent directors.
    The Bank Act does not require the board of directors to nominate 
any specific number of candidates for the independent directorships 
that are up for election, but it does require that each independent 
directorship be filled by the vote of the members. The FHFA has decided 
to leave this provision unchanged in the final rule, although the final 
rule does include other revisions, at Sec.  1261.7(f), that are 
intended to strike a balance between the right of a board to nominate 
independent directors and the right of the members to elect those 
directors. As discussed later in this preamble, that provision would 
allow a board to nominate as few as one person for each open 
independent directorship, but if only one person is nominated for an 
open independent directorship, that person could not be elected without 
receiving at least 20 percent of the eligible votes. The provision is 
intended to ensure that the members retain a meaningful role in the 
election process.
    Section 1261.6(e) of the interim rule implemented provisions of 
section 7(a) of the Bank Act that specify the qualifications that each 
independent director, other than public interest directors, must have. 
Section 7(a) also authorizes the Director to establish other knowledge 
or experience requirements that an independent director may have in 
addition to those specified in section 7(a). The interim rule provided 
that independent directors will be qualified if they have knowledge or 
experience in law or in the statutorily prescribed subjects, which are 
auditing or accounting, derivatives, financial management, 
organizational management, project development or risk management 
practices. In each case, the interim rule required a candidate's 
knowledge or experience to be commensurate with the knowledge or 
experience needed to oversee a business of the size and complexity of 
the Bank.
    One Bank requested that the Director consider adding up to eight 
additional qualifications to the statutory list of qualifications, as 
authorized by section 7(a)(3)(B)(i) of the Bank Act. The Bank asserts 
that it has found each of the

[[Page 51456]]

additional qualifications to be helpful for corporate governance at the 
Bank. Although each of the suggested additional qualifications may be 
of value, the Bank Act heretofore has not specified qualifications for 
the independent directors, and the Director believes that the Banks 
should gain further experience applying the qualifications set forth in 
the statute and interim rule before FHFA considers adding additional 
qualifications. Other qualifications, indeed, may deserve 
consideration, and FHFA intends periodically to review whether 
additional qualifications should be added to the rule.
    Section 1261.6(e) of the interim rule also addressed the knowledge 
or experience qualifications that each independent director must have. 
The final rule is retaining the substance of the provisions from the 
interim rule, but the final rule divides Sec.  1261.6(e) into two 
paragraphs, one addressing independent directors generally, and one 
addressing only the public interest directors. The general 
qualifications for independent directors who are not also public 
interest directors remain as set forth in the interim rule, with some 
clarifying language, and are located in paragraph (1). The statutory 
qualifications for public interest directors have been added in 
paragraph (2).
    As set forth in Sec.  1261.6(f) of the interim rule, Banks must 
verify the eligibility of nominees for directorships before placing 
their names on the ballots. To verify eligibility for member director 
nominees, the Banks must use information on certification forms 
prescribed by FHFA. To verify eligibility and qualifications for 
nominees for independent directorships, the Banks must use information 
on the appropriate application forms. For incumbent nominees for 
independent directorships, the Banks may verify eligibility by using 
information on eligibility certification forms or, if a director was 
recently elected, on application forms. For all persons to be proposed 
as independent directorship nominees, the interim rule required the 
Banks to deliver the names and contemporaneously executed director 
application forms of the nominees to FHFA for its review before 
announcing the nominees. FHFA will review the information submitted 
and, if it has concerns about a nominee's qualifications, may so inform 
the Bank.
    FHFA received several comments questioning how the FHFA review 
provision of the interim rule is intended to work, particularly how 
long a Bank should wait to receive comments from FHFA on the nominees. 
Some Banks raised questions about when certification forms, but not 
application forms, are appropriate for verification. As a result of 
those comments, FHFA has revised Sec.  1261.6(f) to set forth its 
requirements more clearly. The final rule separately sets forth the 
requirements with respect to member directors and independent 
directors. The final rule also provides for a two-week period after a 
Bank delivers application forms to FHFA before it may resume the next 
step in the election process, which previously was located in Sec.  
1261.7(a) of the interim rule. The final rule provides that the two-
week period is to allow FHFA an opportunity to comment on nominees. 
FHFA expects that it will not comment in all cases, but if it does, the 
final rule gives the Bank's board of directors discretion to reopen the 
nominations and consider other candidates in light of those comments. 
FHFA believes that a two-week interval to allow for review and 
potential comments by FHFA should not disrupt the nomination process.

G. Section 1261.7 Election Process

    Section 1261.7 of the interim rule addressed how the Banks must 
conduct the elections process, from the distribution of ballots to the 
members through the reporting of the election results to their members 
and FHFA. Apart from the revisions described below, the final rule 
generally retains the substance of the provisions of the interim rule.
    Section 1261.7(a) of the interim rule addressed the content and 
distribution of the ballots, and included a provision regarding the 
two-week period for FHFA review of nominee application forms. As 
discussed above, FHFA received comments about how the two-week period 
for FHFA comments should work and has addressed that issue by 
relocating the provisions relating to the review period to Sec.  
1261.6(f) of the final rule. The final rule includes no other 
substantive changes to paragraphs (a) or (b) of this provision. Section 
1261.7(c) of the interim rule addressed how a Bank is to proceed if the 
number of nominees for member directorships is equal to or less than 
the number of directorships to fill in an election. That provision 
directs a Bank to declare elected all eligible nominees, without 
holding an election, and provides that any unfilled directorship shall 
be deemed vacant on January 1 of the following year.
    Several Banks commented that Sec.  1261.7(c) should be revised to 
allow a Bank's board of directors to elect someone to fill the vacancy 
as soon as the nomination process is closed because after that date the 
seat cannot be filled through election by the members and will become 
vacant on the following January 1. The final rule does not include the 
requested changes to Sec.  1261.7(c) because FHFA has incorporated 
other revisions into Sec.  1261.14(a) of the final rule, relating to 
vacancies generally, that would allow a Bank's board of directors to 
fill an anticipated vacancy under certain circumstances, which could be 
applied if a vacancy were to occur as a result of no persons being 
nominated for a member directorship. FHFA, therefore, has not changed 
Sec.  1261.7(c) of the interim rule, except to provide some clarifying 
language.
    The final rule has adopted without change Sec.  1261.7(d) and (e) 
of the interim rule, which deal with the voting process and the 
counting of ballots, respectively. One Bank commented that the final 
rule should allow members the option of voting ``no'' for any 
independent director nominee, which would serve as an alternative to 
the requirement in Sec.  1261.7(f) that a nominee for an independent 
directorship must receive 20 percent of the vote. FHFA has not adopted 
this suggestion, in light of the changes to the 20 percent requirement 
made in Sec.  1261.7(f), discussed immediately below.
    Section 1261.7(f) of the interim rule addressed the manner in which 
a Bank is to declare the results of its elections for the member and 
independent directorships and included a requirement that any nominee 
for an independent directorship must receive at least 20 percent of the 
number of votes eligible to be cast in order to be declared elected. 
FHFA included the 20 percent vote requirement in the interim rule as a 
means of ensuring that the members would maintain a meaningful role in 
the selection of the independent directors, and that the nomination 
process would not result in the board of directors effectively choosing 
the independent directors. FHFA also requested comment on whether the 
final rule should require that each Bank nominate more than one person 
for each independent directorship, as an alternative means of ensuring 
that the members retain a meaningful role in the process.
    All of the commenting Banks and one trade association requested 
that the 20 percent vote requirement for independent directors be 
removed or reduced to a more manageable number, such as 10 percent. 
Some expressed concern about being able to obtain a minimum of 20 
percent of the eligible

[[Page 51457]]

votes on the election of individuals who are not affiliated with the 
voting members, and others commented that the rule will have the effect 
of reducing the number of nominees in order to increase the likelihood 
that those nominated will receive 20 percent of the vote.
    After reviewing the comments, FHFA has decided to modify, rather 
than to eliminate, the requirement that an independent director must 
receive at least 20 percent of the eligible votes in order to be 
elected. Accordingly, the final rule provides that if a Bank's board of 
directors nominates only one individual for each directorship, receipt 
of 20 percent of the eligible votes by that individual is the minimum 
level at which one could deem the members to have endorsed the board's 
choice, especially given the need for only a plurality of the votes. 
If, however, a Bank's board of directors nominates more persons for the 
type of independent directorship to be filled, either a public interest 
or other independent directorship, than there are directorships of that 
type to be filled in the election, then the final rule would allow the 
person with the highest number of votes to be declared elected, even if 
the total received was less than 20 percent of the votes eligible to be 
cast in the election. FHFA believes this change strikes an appropriate 
balance between allowing the boards of the Banks to identify and 
nominate individuals who are well qualified and ensuring that the 
members have a meaningful role in determining whether the nominees are 
to become independent directors.
    Section 1261.7(g) of the interim rule required each Bank promptly 
to report the results of each election to its members, each nominee, 
and FHFA. The report must contain the number of voting members, the 
number of votes cast, and the number of votes received by each nominee, 
as well as other information specified therein. Although the interim 
rule did not require the submission of the total number of eligible 
votes that may be cast, FHFA needs this information to verify that the 
20 percent vote, if required, has been met, and thus added a 
requirement to the final rule to provide this information.
    If a Bank cannot fill an independent directorship because no 
nominee has received 20 percent of the eligible votes, Sec.  1261.7(h) 
of the interim rule required a Bank to continue the election for such 
directorship by starting again with consideration of nominees by its 
board of directors and going through all the steps thereafter. The Bank 
must continue repeated election procedures until the directorship is 
filled by a vote of 20 percent of the votes eligible to be cast. In 
their comments, the Banks requested more specific guidance on what 
steps should be taken in carrying out the repeated elections, and 
requested that they be allowed to shorten the amount of time required 
for various stages of the process. The Banks also suggested that a 
nominee's failure to receive 20 percent of the vote may have been 
caused by any number of factors, ranging from having too many nominees 
to voter apathy, and that the final rule should not prohibit their 
boards from renominating some or all of the original nominees.
    After considering the comments, FHFA is revising Sec.  1261.7(h) in 
the final rule to state more clearly what the Banks must do, starting 
with making nominations by the board of directors. The final rule 
allows the Banks to nominate any of the original nominees, as well as 
to shorten the voting period, provided they provide what they consider 
to be a reasonable voting period. However, because the original vote 
will have failed, the final rule requires the Banks to withhold placing 
names on ballots until FHFA has had an opportunity to approve them, 
without regard to any two-week time period.

H. Section 1261.9 Actions Affecting Director Elections

    Section 1261.9 of the interim rule pertained to actions that 
representatives of a Bank may take in connection with the nomination 
and election of directors. Paragraphs (a) and (c) of the final rule are 
unchanged from the interim rule, apart from a wording change in 
paragraph (c).
    Section 1261.9(b) of the interim rule generally authorized a Bank 
and its representatives to support any nominee for election to an 
independent directorship, but allowed support for a nominee to a member 
directorship only if the persons are acting in their personal capacity 
and, as to Bank directors only, do not purport to represent the views 
of the Bank.
    Seven Banks requested that FHFA revise paragraph (b)(1) (which 
allowed Bank representatives to support member director nominees only 
when acting in their personal capacity and if not purporting to 
represent the views of the Bank) so that it would apply to all 
directorships, not just member directorships. Those commenters also 
asked that the prohibition on purporting to represent the views of the 
Bank be applied to all agents of the Bank, not just to the directors. 
The effect of that change would be to prohibit all such agents from 
stating that their views on any candidate are the same as the Bank's 
views. Two other Banks advocated allowing directors to state that their 
views were the same as those of the Bank, so long as the statements 
were true.
    Because all candidates for member directorships are nominated by 
the members, not the Banks, FHFA believes that a Bank should not take a 
position favoring any particular nominee for a member directorship. 
Revising the rule to allow an agent of a Bank to represent that his or 
her personal views are the same as those of the Bank could undermine 
that policy, and FHFA declines to broaden the rule in that respect. The 
interim rule had allowed certain representatives of a Bank, when acting 
in their personal capacity, to support member director nominees, but 
prohibited only Bank directors from purporting to represent the views 
of the Bank. Section 1261.9(b)(1) of the final rule corrects that 
discrepancy by providing that none of the listed representatives shall 
purport to represent the views of the Bank when they act in their 
personal capacity to support a nominee for any Bank directorship. FHFA 
believes that differences do exist in how member directors and 
independent directors are chosen and that those differences justify 
separate rules on support and nomination, so Sec.  1261.9(b)(1) of the 
interim rule has not been expanded to cover actions with respect to 
independent directors.
    Section 1261.9(b)(2) of the interim rule governs what is further 
allowed in one situation: After an individual has been nominated for an 
independent directorship. In this situation, individuals who are 
directors, officers, attorneys, employees or other agents of a Bank, as 
well as the Bank's board and Advisory Council may support those 
nominees, and the section does not prohibit supporters from stating 
that their views represent the views of the Bank. Some Banks request 
that the final rule specifically authorize members of the Advisory 
Council to support independent directorship nominees, since the interim 
rule specifically authorizes members of a Bank's board of directors to 
do so. FHFA has modified the final rule to clarify that members of the 
Advisory Council are included among those who may support a nominee for 
an independent directorship. Other clarifying changes also have been 
made to Sec.  1261.9(b)(2) of the interim rule.

[[Page 51458]]

I. Section 1261.10 Independent Director Conflict of Interests

    Section 1261.10(a) of the interim rule prohibits an independent 
director from serving as an officer of any Bank and from serving as a 
director, officer, or employee of any member of the Bank on whose board 
the director sits, or of any recipient of any advances from that Bank. 
It also requires any independent director or nominee to disclose such 
interests.
    One Bank and one trade association commented that directors, 
officers and employees of nonmember institutions that are recipients of 
advances should not be disqualified from becoming independent directors 
solely because of that affiliation. They believe that such recipients 
of advances are treated unfairly by such a rule because their officers 
and directors also are not eligible to become member directors. 
However, the provision of the interim rule that prompted the comments 
simply reiterates a statutory prohibition, which FHFA cannot change. 
Accordingly, Sec.  1261.10(a) has not been changed in the final rule, 
other than two instances in which the word ``shall'' has replaced 
``may''.
    Section 1261.10(b) of the interim rule addressed situations in 
which a person's service with a holding company having subsidiaries 
that are members of, or that receive advances from, the Bank on whose 
board the independent director serves would be deemed to be service 
with a member. The interim rule included a reference to institutions 
that were members of, or received advances from, ``any'' Bank, which 
would have included institutions that were members of other Banks. In 
order to clarify the intended reach of this provision, the final rule 
has added language limiting the reach of this provision to institutions 
that are member of, or that receive advances from, the Bank at which 
the independent director serves.

J. Section 1261.11 Conflict-of-Interests Policy for Bank Directors

    Section 1261.11 of the interim rule required each Bank to adopt a 
conflict-of-interests policy for the members of its board of directors, 
and set forth the minimum contents of the policy. The final rule adopts 
these provisions as they were stated in the interim rule, with the 
exception of the revisions noted below. Section 1261.11(a) specifies 
six specific minimum requirements that each Bank's conflict-of-
interests policy must address, and allows a Bank to adopt a more 
expansive policy to address other issues if the Bank's board of 
directors deems it appropriate to do so. Some commenters were unclear 
about what FHFA intends in one area, so the final rule modifies the 
fifth requirement of paragraph (a), relating to internal controls, to 
provide that the conflict-of-interests policy must require Bank 
management to establish internal controls with respect to disclosure 
and resolution of conflicts of interests.
    Section 1261.11(d) of the interim rule prohibits the acceptance of 
gifts that are given with the intent to influence the director's 
actions as a member of the board of directors, or would have that 
appearance, and requires directors to discourage their family members 
from accepting gifts given with the intent of influencing the actions 
of the directors. The commenting Banks believed that the interim rule 
was too restrictive and argued that directors should be allowed to 
accept de minimis gifts and gifts that directors of insured depository 
institutions may accept.
    The interim rule was intended to preclude gifts that are given with 
the intent to influence the actions of a director, as well as those 
that a director reasonably believes to have been given with that intent 
and those that have the appearance of being given with that intent. 
FHFA believes that any gift that is intended to influence a director's 
official actions is inappropriate and that it is not possible to 
eliminate the ``corrupt intent'' of the person giving the gift by 
establishing a de minimis exception. For that reason, Sec.  1261.11(d) 
of the final rule has not adopted the comments that sought to relax the 
scope of the rule. Nonetheless, FHFA recognizes that at times it is 
customary for persons in business relationships to give insubstantial 
gifts without any intent to influence the business decisions of the 
recipients of those gifts. FHFA expects that such insubstantial gifts 
could not reasonably be viewed by a director as having been given with 
the intent to influence, nor would an objective person view the gift as 
having been given for the purpose of influencing business decisions, 
and it has included a provision to that effect in the final rule. FHFA 
expects that the Banks will include in their codes of conduct 
provisions governing the views of their board on what constitutes an 
insubstantial gift and how to determine whether any gift violates the 
provisions of the final rule.

K. Section 1261.12 Reporting Requirements for Bank Directors

    Section 1261.12(a) of the interim rule required each sitting 
director to execute an annual eligibility certification form applicable 
to the directorship held by the director. Section 1261.12(b) of the 
interim rule requires any sitting director of a Bank who believes or 
has reason to believe that she or he no longer meets the statutory or 
regulatory eligibility requirements to notify promptly both the Bank 
and FHFA. Likewise, any Bank that believes or has reason to believe 
that any of its directors no longer meets the eligibility requirements 
must notify FHFA promptly. The final rule does not change the interim 
rule in any substantive manner.

L. Section 1261.13 Ineligible Bank Directors

    Section 1261.13 of the interim rule implemented section 7(f) of the 
Bank Act, which provides that a director's failure to meet any 
statutory requirements causes the directorship to become vacant 
immediately. The section provides that a vacancy occurs whenever FHFA 
or a Bank determines that the director has failed to meet any 
eligibility requirement set forth in the Bank Act or in part 1261 or 
has failed to comply with the reporting requirements in Sec.  1261.12. 
As discussed above in section D. Director Eligibility, a Bank director 
must satisfy certain eligibility requirements as well as other 
qualifications in order to remain in office. Section 1261.13 is 
intended to encompass all such requirements, so the final rule makes 
this clarifying change.

M. Section 1261.14 Vacant Bank Directorships

    Section 1261.14 of the interim rule implemented the requirements of 
section 7(f) of the Bank Act relating to how vacancies in Bank 
directorships are to be filled. Paragraph (a) of that provision stated 
that the board of the Bank must fill such a vacancy ``as soon as 
practicable after any vacancy occurs''. Banks commenting on this 
provision asked that they also be allowed to elect a director to fill 
an anticipated vacancy that they know will occur, such as when a 
director resigns with an effective date some months into the future. 
FHFA believes that section 7(f) of the Bank Act, which uses the phrase 
``[i]n the event of a vacancy'' to preface when a Bank can act, allows 
sufficient latitude for a Bank to fill an anticipated vacancy under 
certain circumstances. FHFA further believes that Banks could benefit 
from selecting persons to fill anticipated vacancies, such as by 
eliminating gaps in service that might otherwise arise and by allowing 
a new director more time to prepare for service prior to participating 
in his or her first board meeting. Section 1261.14(a) of the final 
rule, therefore, has been modified to allow a Bank to select a 
replacement director prior to the

[[Page 51459]]

occurrence of the vacancy, provided that it does so no earlier than the 
date of the board meeting that is scheduled to occur immediately prior 
to the date of the anticipated vacancy. The final rule also provides 
that in any event the board of a Bank must act as soon as practicable 
after a vacancy actually occurs.
    Section 1261.14(b) of the interim rule required the board of 
directors to fill any vacancy with an individual who meets the 
eligibility requirements and the qualifications that applied to the 
predecessor director, except in the case of vacant public interest 
directorship where the Bank continues to have at least two other 
sitting public interest directors. In that case, the board of directors 
could fill the vacancy with an individual meeting the eligibility and 
qualification requirements for any independent directorship. Some Banks 
asked how they should apply the requirement that the replacement 
director satisfy the eligibility and qualification requirements that 
applied to the predecessor director if the predecessor was an appointed 
director who does not satisfy the HERA qualifications for independent 
directors. FHFA believes that the Bank Act distinguishes between 
eligibility requirements and qualifications for the independent 
directors and that a replacement director need only satisfy the 
eligibility requirements that applied to the predecessor, i.e., 
citizenship and residency in the district, and not the other 
qualifications, as to which the replacement director may meet the 
requirements of the Bank Act and the rule in the same manner as any 
independent director. Section 1261.14(b) of the interim rule did not 
make this distinction, which the final rule does, albeit in Sec.  
1261.14(a)(3).
    As to member directorships, some Banks expressed concern that the 
interim rule would limit them to filling a vacancy with an individual 
who is an officer or director of an institution that was a member of 
the Bank as of the record date preceding the election in which the 
predecessor director was elected. The commenters suggested that the 
final rule allow them to elect a person that is an officer or director 
of an institution that is a member of the Bank as of the date that the 
board votes to fill the vacancy. FHFA believes that there is merit in 
this suggestion and that revising the final rule in this manner would 
be consistent with the applicable provisions of the Bank Act. Section 
1261.14(a)(3) of the final rule provides that a successor member 
director must satisfy the eligibility requirements and the other 
qualifications of the predecessor director as of the date that the 
board acts and that a successor independent director must satisfy the 
eligibility requirements for independent directors and have at least 
one of the qualifications for an independent director. Thus, a Bank may 
fill a vacant member directorship with an individual who is a citizen 
of the United States and is an officer or director of a current member 
that is located in the State to which the Director has allocated the 
directorship.
    The comments from the Banks also indicate some confusion about how 
to meet the requirements in Sec.  1261.14(b) to verify eligibility for 
vacant directorships to be filled by the board of directors of a Bank. 
FHFA intends that the Banks verify eligibility for member directorships 
in the same manner as they verify eligibility of nominees for member 
directorships under Sec.  1261.6(c) of the interim rule, which is by 
using the eligibility certification form prescribed by FHFA. FHFA 
intends that both eligibility and qualification for independent 
directorships be verified by using the independent director application 
form prescribed by FHFA. In addition, FHFA intends that the Banks 
deliver to FHFA, for its review, the application forms of all 
individuals that their boards will consider to fill independent 
directorship vacancies. The final rule has been revised to more clearly 
set forth these requirements.

N. Section 1261.16 Temporary Rule for 2008 Election of Directors

    This temporary director election schedule ceased to be effective 
after December 31, 2008. The final rule reserves this section for 
future use.

III. Paperwork Reduction Act

    The final rule will have no substantive effect on any collection of 
information covered by the Paperwork Reduction Act of 1995 (PRA). See 
44 U.S.C. 3501 et seq. Therefore, FHFA has not submitted this final 
rule to the Office of Management and Budget (OMB) for review. The 
Finance Board used application and certification forms to collect 
information on prospective and incumbent directors, and those forms had 
been assigned control number 3069-0002 by the OMB. FHFA will direct the 
Banks to use a revised version of those forms, which revised version 
will not modify materially the approved information collection, pending 
the assignment by OMB of control numbers to the revised forms. FHFA 
will submit only the revised forms to OMB for review under the PRA.

IV. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities, small businesses, or small organizations must 
include an initial regulatory flexibility analysis describing the 
regulation's impact on small entities. Such an analysis need not be 
undertaken if the agency has certified that the regulation will not 
have a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 605(b). FHFA has considered the impact of the final 
rule under the Regulatory Flexibility Act. FHFA certifies that the 
final rule is not likely to have a significant economic impact on a 
substantial number of small business entities because the regulation is 
applicable only to the Banks, which are not small entities for the 
purposes of the Regulatory Flexibility Act.

List of Subjects in 12 CFR Parts 915 and 1261

    Banks, Banking, Conflicts of interest, Elections, Ethical conduct, 
Federal home loan banks, Financial disclosure, Reporting and 
recordkeeping requirements.

0
Accordingly, the interim final rule removing part 915 of Title 12 CFR 
chapter IX and adding part 1261 of Title 12 CFR chapter XII, published 
at 73 FR 55710 on September 26, 2008, is adopted as a final rule, with 
the following changes:

PART 1261--FEDERAL HOME LOAN BANK DIRECTORS

0
1. The authority citation for 12 CFR part 1261 is revised to read as 
follows:

    Authority: 12 U.S.C. 1426, 1427, 1432, 4511 and 4526.


0
2. The heading for part 1261 is revised to read as set forth above.

0
3. Designate Sec. Sec.  1261.1 through 1261.16 as Subpart A and add a 
new Subpart A heading above Sec.  1261.1 to read as follows:

Subpart A--Federal Home Loan Bank Boards of Directors: Eligibility 
and Elections

0
4. Subpart B is added after Sec.  1261.16 and reserved to read as 
follows:

Subpart B--Federal Home Loan Bank Directors' Compensation and 
Expenses [Reserved]

0
5. Subpart C is added after Subpart B and reserved to read as follows:

[[Page 51460]]

Subpart C--[Reserved]

0
6. The Table of Contents is revised to read as follows:
Subpart A--Federal Home Loan Bank Boards of Directors: Eligibility and 
Elections
Sec.
1261.1 Definitions.
1261.2 General provisions.
1261.3 Designation of member directorships.
1261.4 Director eligibility.
1261.5 Determination of member votes.
1261.6 Nominations for member and independent directorships.
1261.7 Election process.
1261.8 [Reserved].
1261.9 Actions affecting director elections.
1261.10 Independent director conflict of interests.
1261.11 Conflict-of-interests policy for Bank directors.
1261.12 Reporting requirements for Bank directors.
1261.13 Ineligible Bank directors.
1261.14 Vacant Bank directorships.
1261.15 Minimum number of member directorships.
1261.16 [Reserved].
Subpart B--Federal Home Loan Bank Directors' Compensation and Expenses 
[Reserved]
Subpart C--[Reserved]

0
7. Amend Sec.  1261.1 by revising the introductory text and the 
definitions of ``Director'', ``FHFA'', ``FHFA ID number'', 
``Independent directorship'', ``Member directorship'', ``Method of 
equal proportions'', ``Public interest director'', ``Stock 
directorship'', and ``Voting State'' to read as follows:


Sec.  1261.1  Definitions.

    As used in this Subpart A:
* * * * *
    Director means the Director of the Federal Housing Finance Agency.
    FHFA means Federal Housing Finance Agency.
    FHFA ID number means the number assigned to a member by FHFA and 
used by FHFA and the Banks to identify a particular member.
* * * * *
    Independent directorship means a directorship, as defined by 
section 7(a)(4)(A) of the Act, 12 U.S.C. 1427(a)(4)(A), that is filled 
by a plurality vote of the members at large by an individual having the 
qualifications specified by section 7(a)(3)(B)(i) or (ii), 12 U.S.C. 
1427(a)(3)(B)(i) or (ii).
    Member directorship means a directorship, as defined by section 
7(a)(4)(A) of the Act, 12 U.S.C. 1427(a)(4)(A), that is filled by a 
plurality vote of the members located in a particular State by an 
individual who is an officer or director of a member located in that 
State, and includes guaranteed directorships and stock directorships.
    Method of equal proportions means the mathematical formula used by 
FHFA to allocate member directorships among the States in a Bank's 
district based on the relative amounts of Bank stock required to be 
held as of the record date by members located in each State.
    Public interest director means an individual serving in a public 
interest directorship.
* * * * *
    Stock directorship means a member directorship that is designated 
by FHFA as representing the members located in a particular voting 
State based on the amount of Bank stock required to be held by the 
members in that State as of the record date, other than a guaranteed 
directorship.
    Voting State means the District of Columbia, Puerto Rico, or the 
State of the United States in which a member's principal place of 
business, as determined in accordance with 12 CFR part 925, or any 
successor provision, is located as of the record date. The voting State 
of a member with a principal place of business located in the U.S. 
Virgin Islands as of the record date is Puerto Rico, and the voting 
State of a member with a principal place of business located in 
American Samoa, Guam, or the Commonwealth of the Northern Mariana 
Islands as of the record date is Hawaii.

0
8. Amend Sec.  1261.2 by revising paragraphs (a), (b), and (c) to read 
as follows:


Sec.  1261.2  General provisions.

    (a) Board size and composition. Annually, the FHFA Director will 
determine the size of the board of directors for each Bank and will 
designate at least a majority, but no more than 60 percent, of the 
directorships as member directorships and the remainder as independent 
directorships. Annually, the board of directors of each Bank shall 
determine how many, if any, of the independent directorships with terms 
beginning the following January 1 shall be public interest 
directorships, ensuring that at all times the Bank will have at least 
two public interest independent directorships.
    (b) Term of directorships. The term of office of each directorship 
commencing on or after January 1, 2009 shall be four years, except as 
adjusted pursuant to section 7(d) of the Act (12 U.S.C 1427(d)) to 
achieve a staggered board, and shall commence on January 1 of the 
calendar year so designated by FHFA.
    (c) Annual elections. Each Bank annually shall conduct an election 
the purpose of which is to fill all directorships designated by FHFA as 
commencing on January 1 of the calendar year immediately following the 
year in which such election is commenced. Subject to the provisions of 
the Act and in accordance with the requirements of this subpart, the 
disinterested members of the board of directors of each Bank, or a 
committee of disinterested directors, shall administer and conduct the 
annual election of directors. In so doing, the disinterested directors 
may use Bank staff or independent contractors to perform ministerial 
and administrative functions concerning the elections process.
* * * * *

0
9. Revise Sec.  1261.3 to read as follows:


Sec.  1261.3  Designation of member directorships.

    (a) Determination of voting stock. (1) On or before April 10 of 
each year, each Bank shall deliver to FHFA a capital stock report that 
indicates, as of the record date, the number of members located in each 
voting State in the Bank's district, the number of shares of Bank stock 
that each member (identified by its FHFA ID number) was required to 
hold, and the number of shares of Bank stock that all members located 
in each voting State were required to hold. If a Bank has issued more 
than one class of stock, it shall report the total shares of stock of 
all classes required to be held by the members. The Bank shall certify 
to FHFA that, to the best of its knowledge, the information provided in 
the capital stock report is accurate and complete, and that it has 
notified each member of its minimum capital stock holding requirement 
as of the record date.
    (2) If a Bank's capital plan was not in effect as of the record 
date, the number of shares of Bank stock that any member was required 
to hold as of the record date shall be determined in accordance with 12 
CFR 925.20 and 925.22, or any successor provisions. If a Bank's capital 
plan was in effect as of the record date, the number of shares of Bank 
stock that any member was required to hold as of the record date shall 
be determined in accordance with the minimum investment established by 
the capital plan for that Bank; however, for any member whose Bank 
stock is less than the minimum investment during a transition period, 
the amount of Bank stock to be reported shall be the number

[[Page 51461]]

of shares of Bank stock actually owned by the member as of the record 
date.
    (b) Designation of member directorships as stock directorships. 
Using the method of equal proportions, the Director annually will 
conduct a designation of member directorships for each Bank based on 
the number of shares of Bank stock required to be held by the members