Information Sharing Among Federal Home Loan Banks, 6045-6056 [2013-01428]
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Federal Register / Vol. 78, No. 19 / Tuesday, January 29, 2013 / Proposed Rules
FEDERAL HOUSING FINANCE
AGENCY
12 CFR Part 1260
RIN 2590–AA35
Information Sharing Among Federal
Home Loan Banks
AGENCY:
Federal Housing Finance
Agency.
Notice of proposed rulemaking;
request for comments.
ACTION:
Section 1207 of the Housing
and Economic Recovery Act of 2008
(HERA) amended the Federal Home
Loan Bank Act (Bank Act) to require the
Federal Housing Finance Agency
(FHFA) to make available to each
Federal Home Loan Bank (Bank)
information relating to the financial
condition of all other Banks. Section
1207 also requires FHFA to promulgate
regulations to facilitate the sharing of
such information among the Banks.
FHFA published a proposed rule to
implement those HERA provisions in
late 2010, but, after reviewing the
comments and reconsidering the
proposed means of information sharing,
FHFA has determined that a number of
material changes to the rule are
necessary. Therefore, it is publishing
this second proposed rule to implement
the provisions of section 1207.
DATES: Written comments must be
received on or before April 1, 2013.
ADDRESSES: You may submit your
comments, identified by regulatory
information number (RIN) 2590–AA35,
by any of the following methods:
• Email: Comments to Alfred M.
Pollard, General Counsel may be sent by
email to RegComments@fhfa.gov. Please
include ‘‘RIN 2590–AA35’’ 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 email to FHFA at
RegComments@fhfa.gov to ensure
timely receipt by FHFA. Please include
‘‘RIN 2590–AA35’’ in the subject line of
the message.
• U.S. Mail, United Parcel Service,
Federal Express, or Other Mail Service:
The mailing address for comments is:
Alfred M. Pollard, General Counsel,
Attention: Comments/RIN 2590–AA35,
Federal Housing Finance Agency,
Eighth Floor, 400 Seventh Street SW.,
Washington, DC 20024.
• Hand Delivered/Courier: The hand
delivery address is: Alfred M. Pollard,
General Counsel, Attention: Comments/
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SUMMARY:
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RIN 2590–AA35, Federal Housing
Finance Agency, Eighth Floor, 400 7th
Street SW., Washington, DC 20024. The
package should be logged at the FHFA
Guard Desk, First Floor, on business
days between 9 a.m. and 5 p.m.
FOR FURTHER INFORMATION CONTACT: Eric
M. Raudenbush, Assistant General
Counsel, Office of General Counsel,
Eric.Raudenbush@fhfa.gov, (202) 649–
3084 (this is not a toll-free number); or
Amy Bogdon, Associate Director for
Regulatory Policy and Programs, Office
of Program Support, Division of Bank
Regulation, Amy.Bogdon@fhfa.gov,
(202) 649–3320 (this is not a toll-free
number), Federal Housing Finance
Agency, 400 Seventh Street SW.,
Washington, DC 20024. 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 proposed rule and will take all
comments into consideration before
issuing the final rule. All comments
received will be posted without change
on the FHFA web site at https://
www.fhfa.gov, and will include any
personal information provided, such as
name, address (mailing and email), and
telephone numbers. In addition, copies
of all comments received will be
available without change for public
inspection on business days between
the hours of 10:00 a.m. and 3:00 p.m.,
at the Federal Housing Finance Agency,
400 Seventh Street SW., Washington,
DC 20024. To make an appointment to
inspect comments, please call the Office
of General Counsel at (202) 649–3804.
II. Background
A. The Federal Home Loan Bank System
The Federal Home Loan Bank System
(Bank System) consists of twelve Banks
and the Office of Finance (OF). The
Banks are wholesale financial
institutions organized under the Bank
Act.1 The Banks are cooperatives; only
members of a Bank may purchase its
capital stock, 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.2 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
1 See
2 See
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12 U.S.C. 1423, 1432(a).
12 U.S.C. 1426(a)(4), 1430(a), 1430b.
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member institutions.3 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.4
B. Banks’ Joint and Several Liability and
Disclosure Requirements on COs
The Banks fund their operations
principally through the issuance of
consolidated obligations (COs), which
are debt instruments issued on behalf of
the Banks by the OF, a joint office of the
Banks, pursuant to section 11 of the
Bank Act,5 and part 1270 of the
regulations of FHFA.6 Under these
regulations, the COs may be issued only
through OF as agent for the Banks, and
the Banks are jointly and severally liable
for the timely payment of principal and
interest on all COs when due.7
Accordingly, even when COs are issued
with one Bank being the primary
obligor, the ultimate liability for the
timely payment of principal and interest
thereon remains with all of the Banks
collectively, which creates a need for
each Bank to be able to assess the
financial condition of the other Banks.
Although the COs themselves are not
registered securities under the federal
securities laws, the Federal Housing
Finance Board (Finance Board) 8
adopted regulations in 2004 requiring
each Bank to register a class of its
common stock (which is issued only to
its member institutions) with the
Securities and Exchange Commission
(SEC) under section 12(g) of the
Securities Exchange Act of 1934 (1934
Act).9 Each Bank subsequently
registered a class of its common stock
with the SEC in compliance with that
regulation. Separately, HERA included a
provision requiring the Banks to register
their common stock under section 12(g)
of the 1934 Act, and to maintain that
registration.10 Accordingly, each Bank
remains subject to the periodic
disclosure requirements established
3 See
12 U.S.C. 1427.
12 U.S.C. 1424; 12 CFR part 1263.
5 12 U.S.C. 1431.
6 12 CFR part 1270.
7 See 12 CFR 1270.4(a), 1270.10(a).
8 The Federal Housing Finance Board was the
regulator of the Bank System from 1989 through
2008. HERA, which abolished the Finance Board
and established FHFA, provides that all regulations
of the Finance Board shall remain in effect and
shall be enforceable by the Director of FHFA until
modified, terminated, set aside or superseded by
the Director. See Public Law 110–289, § 1312, 122
Stat. 2798 (2008).
9 15 U.S.C. 78l(g). See 69 FR 38811 (June 29,
2004), codified at 12 CFR part 998.
10 See 15 U.S.C. 78oo(b).
4 See
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under the 1934 Act, as interpreted and
administered by the SEC.
C. New Statutory Provision Requiring
the Sharing of Bank Information
Section 1207 of HERA added a new
section 20A to the Bank Act that
requires FHFA to make available to each
Bank such reports, records, or other
information as may be available, relating
to the condition of any other Bank in
order to enable each Bank to evaluate
the financial condition of the other
Banks and the Bank System as a
whole.11 The underlying objective for
that requirement is to better enable each
Bank to assess the likelihood that it may
be required to make payments on behalf
of another Bank under its joint and
several liability on the COs, as well as
to comply with disclosure obligations
under the 1934 Act regarding its
potential joint and several liability.12
Section 20A further requires FHFA to
promulgate regulations to facilitate the
sharing of such financial information
among the Banks.13 Section 20A permits
a Bank to request that FHFA determine
that particular information that may
otherwise be made available is
‘‘proprietary’’ (a term that is not defined
in the Bank Act) and that the public
interest requires that such information
not be shared.14 Finally, section 20A
provides that it does not affect the
obligations of the Banks under the 1934
Act and related regulations of the SEC,
and that the sharing of Bank information
thereunder shall not cause FHFA to
waive any privilege applicable to the
shared information.15
D. The First Proposed Rule
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On September 30, 2010, FHFA
published in the Federal Register a
proposed rule to implement section 20A
of the Bank Act by adding to FHFA’s
regulations a new part 1260 to govern
the sharing of information among the
Banks and the OF. Under the proposed
rule, FHFA also proposed to move to
new part 1260, without substantive
change, existing regulations of the
Finance Board relating to the filing of
regulatory reports by the Banks. The 60day comment period closed on
November 29, 2010.16
Under the first proposed rule, FHFA
would have routinely distributed each
Bank’s report of examination (or such
portions thereof deemed appropriate by
FHFA), as well as any other supervisory
11 See
12 U.S.C. 1440a.
12 U.S.C. 1440a(a).
13 See 12 U.S.C. 1440a(b)(1).
14 See 12 U.S.C. 1440a(b)(2).
15 See 12 U.S.C. 1440a(c), (d).
16 See 75 FR 60347 (Sept. 30, 2010).
12 See
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report that FHFA presented to a Bank’s
board of directors, to each of the other
Banks and the OF. This distribution
would have occurred after affording the
subject Bank a ten business day period
following the presentation of the report
to the Bank’s board of directors within
which to request that particular
information contained in the report be
withheld from distribution on the basis
that it is proprietary and the public
interest requires that it not be shared.
The proposed rule would have provided
that any sharing of information
thereunder would not constitute a
waiver by FHFA of any privileges with
respect to the shared information and
that, to the extent that the shared
information qualified as ’’unpublished
information’’ under part 911 of the
regulations of the Finance Board, it
would continue to qualify as such and
would continue to be subject to the
restrictions on disclosure set forth in
part 911.17
FHFA received ten comment letters in
response to the first proposed rule, all
of which were sent by representatives of
individual Banks—specifically, the
Atlanta, Chicago, Dallas, Des Moines,
Indianapolis, New York, Pittsburgh, San
Francisco, Seattle, and Topeka Banks.
Seven of the commenters expressed
general support for the rule, although
several of those expressed concerns
about possible disclosure of sensitive or
confidential information that may be
contained in Banks’ reports of
examination and several provided a
number of recommendations regarding
other changes and clarifications to be
made in the final rule. The three
remaining commenters expressed
general opposition to the first proposed
rule as written because they believed
that the types of information proposed
to be distributed thereunder—i.e., the
Banks’ reports of examination and other
supervisory reports presented to a
Bank’s board of directors—would not
serve the purposes underlying section
20A of the Bank Act. These commenters
suggested alternative categories of
financial information to be disseminated
by FHFA (which are discussed in more
detail below) that they asserted would
better fulfill the intent behind section
20A, but did not otherwise comment on
specific aspects of the first proposed
rule.
III. The Second Proposed Rule
Following the close of the comment
period on the first proposed rule, FHFA
reviewed all of the comments received
and also analyzed more closely a
number of issues underlying the rule,
17 See
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12 CFR part 911.
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including the scope of information to be
shared and how that scope might evolve
over time. As a result of this analysis,
FHFA concluded that the scope of
information to be shared under the rule
should be broader than that
contemplated in the first proposed rule
and that, because of frequent changes in
the content and format of reports,
analyses and databases that FHFA might
distribute or make available under the
rule, the precise items to be shared
should be established by order of the
Director of FHFA or his designee, as
opposed to being enshrined in the rule
text. The agency believes that these
changes represent a significant enough
departure from the approach taken in
the first proposed rule to warrant the
publication of this second proposed
rule, which supersedes the first
proposed rule.
Under the new approach, the
regulatory text of the proposed rule
continues to address the procedures
through which the information sharing
is to be carried out and to set forth
requirements intended to prevent or
limit the disclosure of shared
information to outside parties. With
respect to the latter issue, FHFA has
made a number of additions and
changes in response to comments
received. Specific comments, FHFA’s
responses, and differences between the
first and second proposed rules are
described in greater detail below in the
sections describing the relevant rule
provisions. In addition, the specific
items that FHFA expects to distribute
pursuant to the initial order issued by
the Director or his designee under the
rule are also discussed in detail.
In addition to a number of substantive
differences, this second proposed rule is
also organized somewhat differently
than the first proposal. Under the first
proposed rule, the material currently
contained in section 914.2 of the
regulations of the Finance Board (which
requires each Bank to file regulatory
reports as required by its regulator), as
well as related definitions set forth in
section 914.1, would have been
transferred to new part 1260 without
substantive change.18 FHFA is no longer
proposing to transfer this material to
part 1260 because the agency now
contemplates that it will separately
adopt an equivalent regulatory
provision that would be applicable to all
of its regulated entities.19 Because part
1260 (and subchapter D of chapter XII,
of which it is a part) is intended to
18 See
12 CFR part 914.
addition to the Banks, FHFA is also the
regulator of Fannie Mae and Freddie Mac. See 12
U.S.C. 4502(20), 4511.
19 In
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apply only to the Banks, the agency
determined that it is not an appropriate
location for that new provision. Also, in
the first proposed rule, all of the new
material governing the sharing of
information among Banks (other than
definitions) was contained in a single
CFR section. In this second proposed
rule, that substantive material has been
broken into four separate CFR sections
in order to provide greater clarity.
A. Section 1260.1—Definitions
As in the first proposed rule, § 1260.1
of this proposed rule sets forth
definitions of terms to be used in part
1260. Because the material that would
have been transferred from part 914 of
the Finance Board’s regulations under
the first proposed rule is not included
in this proposed rule, the defined terms
relating to that material have been
removed from proposed § 1260.1. In
addition, definitions of the short forms
‘‘Bank’’ (for a Federal Home Loan Bank),
‘‘Bank Act’’ (for the Federal Home Loan
Bank Act), and FHFA (for the Federal
Housing Finance Agency) have been
removed because those terms are now
defined in 12 CFR 1201.1, which sets
forth definitions of basic terms that are
used throughout FHFA’s regulations.20
Section 1201.1 also defines the terms
‘‘SEC’’ (meaning the United States
Securities and Exchange Commission)
and ‘‘1934 Act’’ (meaning the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.)), which are used in this proposed
rule, but which were not used in the
first proposed rule.
In this second proposed rule, FHFA
has added definitions for the terms
‘‘proprietary information’’ (which is
discussed below) and ‘‘unpublished
information’’ (cross-referencing the
definition for that term set forth in 12
CFR 911.1). None of the commenters
addressed the definitions set forth in the
first proposed rule.
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B. Section 1260.2—Sharing of
Information Among the Banks
Reasoning Behind Revised Approach
Section 1260.3(a) of the first proposed
rule would have required that FHFA
periodically distribute to each Bank and
to the OF the final reports of
examination (or such portions thereof
that FHFA deemed appropriate) of all
other Banks, as well as any other
supervisory reports that FHFA
presented to the board of directors of a
Bank, subject to the requirements set
forth in the remainder of the rule. In the
20 See 78 Fed. Reg. 2319 (Jan. 11, 2013). New
§ 1201.1 and related revisions to FHFA’s regulations
and those of the Finance Board become effective on
February 11, 2013.
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first proposed rule, the agency also
requested comments on whether the
rule should allow the Director or his
designee to expand the categories of
information to be distributed thereunder
by means of an order or other agency
action without the need for subsequent
amendment of the rule.
Seven commenters expressly
supported the sharing of final reports of
examination for each Bank, and six also
expressly supported the sharing of other
supervisory reports presented to a
Bank’s board of directors by FHFA. Five
commenters expressly supported the
exclusion of findings and conclusions
memoranda, work programs and other
supervisory materials not presented to a
Bank’s board of directors from the
information sharing required under the
rule, while no commenters favored
sharing these types of materials. Several
of the commenters who generally
supported the sharing of final
supervisory reports requested that
FHFA also distribute any response from
a Bank’s management to a report of
examination, stating that this would
provide insight into how other Banks
address the issues raised. All of the
commenters who supported the sharing
of final reports of examination also
expressed concern about the possible
disclosure of sensitive or confidential
information that may be contained in
the reports and offered a number of
suggestions about how such disclosure
could be prevented. As discussed
further below, three of the commenters
generally opposed the sharing of final
reports of examination because they
believed the reports would be of
questionable usefulness in assessing a
Bank’s current and future ability to
make payments on its COs.
As stated in the SUPPLEMENTARY
INFORMATION to the first proposed rule,
each Bank already has access to a
significant amount of information about
the financial condition of the other
Banks, including reports filed with the
SEC under the 1934 Act, call reports
filed with FHFA, quarterly certifications
filed with FHFA attesting to each Bank’s
ability to make full and timely payments
on its current obligations during the
next quarter, FHFA’s Annual Report to
Congress (required under 12 U.S.C.
4521(a)), and various other reports and
summaries prepared by FHFA. FHFA
approached the first proposed rule
principally as a means of providing for
the distribution of additional types of
Bank information above and beyond the
substantial amount of information to
which the Banks already have access.
As reflected in the first proposed rule,
the agency believed that, given the
volume of information that is already
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6047
available to the Banks, the most useful
source of additional information would
be the Banks’ reports of examination.
Thus, the first proposed rule focused
upon providing each Bank’s full report
of examination to all of the other Banks,
with appropriate redactions for
proprietary information meeting the
criteria stated in section 20A of the
Bank Act.
In the process of developing a final
rule, FHFA reconsidered both the
procedural and substantive aspects of
the first proposed rule and, based on
both comments received and on internal
discussions, ultimately concluded that
two major changes were warranted that
would improve on the substance of the
first proposed rule. First, FHFA
concluded that the specific categories of
information to be distributed under the
regulation should not be identified in
the rule itself, but by means of a
Director’s order. Second, FHFA
concluded that such an order should
address not only new categories of
information to be shared, but also the
many types of Bank-related financial
data and reports that FHFA already
distributes, or makes available, to the
Banks. Accordingly, § 1260.2 of this
proposed rule provides that the specific
categories of information to be
distributed to the Banks and the OF
would be established by means of an
order issued by the Director of FHFA or
by a senior agency official designated by
the Director pursuant to an appropriate
delegation of authority. In keeping with
the apparent intent behind section 20A
of the Bank Act, the categories of
information that could be included in
such an order would be limited to
financial and supervisory information
regarding the Banks, either individually
or collectively.
FHFA believes that, on balance, this
approach will better fulfill the purposes
of section 20A by allowing the scope of
information shared to evolve more
readily to meet the information needs of
the Banks. Depending on the types of
financial and supervisory issues that the
Bank System may be facing at any given
time, FHFA may occasionally prepare a
single report on a specific topic, or may
prepare a particular report for a limited
period of time and then, for various
reasons, either discontinue the report or
combine it with another report. Even
reports that are prepared regularly over
an extended period of time often evolve
in terms of format, content or title—
again, sometimes in response to the
changing issues that the Bank System
may be facing, or sometimes merely to
make them more useful for the purposes
for which they were intended. This
flexible approach to the preparation and
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distribution of Bank information has
worked well to this point, and FHFA
believes that it would be appropriate to
incorporate that approach into this
proposed information sharing
regulation, rather than to continue with
the original approach of specifying the
items of shared information in the
regulatory text. FHFA believes that to
impose upon itself the obligation to
undertake a full notice-and-comment
rulemaking every time it seeks to alter
the format or content of a report, or
determine that it is appropriate to share
a new category of information, would
undermine its ability to provide the
Banks with the type of appropriate and
timely financial information that section
20A requires to be shared.
In the SUPPLEMENTARY INFORMATION to
the first proposed rule, FHFA requested
comment on whether the final rule
should allow FHFA to expand the
categories of information to be
disseminated to the Banks without
undertaking a subsequent rulemaking.
Three commenters expressly supported
allowing FHFA to expand the categories
of information to be shared without a
rulemaking, as long as the Banks are
given a reasonable opportunity for
informal review and comment on any
changes in advance. No commenters
objected to including such a provision.
FHFA recognizes that there are
advantages to allowing the Banks an
informal opportunity to provide input
on the types of information that would
be most useful to them and also on the
types of information that they believe
should not be disclosed to other Banks.
To this end, § 1260.2 of this proposed
rule would require that FHFA provide
the Banks with reasonable notice and an
opportunity to comment before issuing
an order that would establish or amend
the scope of information to be shared
under the rule. The inclusion of this
provision will allow FHFA, in
consultation with the Banks, to make
appropriate adjustments to the scope of
information being shared as both gain
more experience in the process, without
the necessity of revising the rule. Thus,
if it becomes apparent over time that it
is appropriate to distribute a wider
range of information, this can be
accomplished by means of a written
order issued under § 1260.2.
In order to provide the Banks and the
OF, as well as other interested parties,
the fullest opportunity to consider and
comment upon the range of information
that FHFA expects to include in the
initial order issued under a final
information sharing rule, these items are
set out and discussed below. Similarly,
the agency intends to publish the final
rule and the initial distribution order
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concurrently so as to provide the
greatest possible clarity regarding the
scope and effect of the final rule. If the
list of information to be shared under
the distribution order that is published
with the final rule is substantially
identical to that described in this
Supplementary Information, no further
opportunity to comment on the contents
of the order will be provided to the
Banks—i.e., FHFA will consider the
notice and opportunity to comment
provided by this proposed rule to have
fulfilled the requirements of § 1260.2.
However, if the list of information to be
shared under that order differs
materially from that described in this
Supplementary Information, a further
opportunity to comment will be
provided to the Banks in accordance
with the provisions of the rule. To be
clear, proposed § 1260.2 would not
require this type of formal notice-andcomment process when a distribution
order is issued or amended; and if that
provision is adopted substantially as
proposed, the agency anticipates that it
would typically use a less formal noticeand-comment process when it issues or
amends a distribution order.
Anticipated Scope of Information
Sharing Under Initial Distribution Order
As mentioned, FHFA already
provides each Bank with a substantial
amount of financial information about
the other Banks—both in the form of
raw data and in the form of analytical
reports based on raw data. FHFA
believes that, for the sake of clarity and
efficiency, as well as to be consistent
with the HERA mandate for information
sharing, those existing distributions of
information should also be governed by
the procedures and requirements that
would be established under a final
information sharing rule. Thus, the
agency expects that the initial
distribution order issued under the rule
would bring within the purview of the
rule the following categories of
information that are currently made
available to the Banks: (1) Information
uploaded by each Bank to FHFA’s call
report system (CRS) electronic database
(excluding Bank membership
information) 21; (2) information about
the Banks that is presented in FHFA’s
semi-annual ‘‘Profile of the Federal
Home Loan Bank System’’ report
prepared by FHFA’s Division of Bank
21 Banks currently are not permitted to access
detailed information about other Banks’ members
that is contained in the CRS database because FHFA
considers this to be proprietary information. FHFA
does not intend to share this information under the
initial distribution order to be issued under a final
rule.
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Regulation (DBR) 22; (3) information
relating to the weekly report on Bank
liquidity prepared by DBR; and (4)
information relating to the quarterly
report on Bank membership prepared by
DBR. In addition, FHFA anticipates that
the initial order would also provide for
the distribution of three new categories
of information: (1) The ‘‘Summary and
Conclusions’’ portion of each Bank’s
report of examination; (2) a quarterly
statement, to be prepared by FHFA,
indicating whether each Bank has
timely filed with FHFA the quarterly
liquidity certification required pursuant
to 12 CFR 1270.10(b)(1); and (3) a
statement, to be prepared by FHFA as
circumstances warrant, identifying any
Bank that has notified FHFA pursuant
to 12 CFR 1270.10(b)(2) of any actual or
anticipated liquidity problems and
describing the nature of the liquidity
problems. Each of these new categories
of information is described below.
Banks’ Reports of Examination
The first proposed rule contemplated
that FHFA would routinely distribute
each Bank’s report of examination in its
entirety, subject to the proviso that
FHFA reserved the right to narrow the
distribution to those portions of the
report that FHFA deemed appropriate.
FHFA carefully considered comments
received, as well as the requirements of
section 20A of the Bank Act, and the
agency’s statutory responsibilities as
regulator and supervisor of the Bank
System and has decided that a narrower
approach to the sharing of the reports of
examination would be more
appropriate. The reason for this
modified approach is to ensure that
each Bank receives the information
necessary to assess the condition of the
other Banks and to make legal
disclosures regarding its potential joint
and several liability without damaging
the integrity of the Bank examination
process. Candid communication—both
by Bank employees and by FHFA
examiners—is a critical element of the
examination process. The agency has
reconsidered whether the distribution of
full final reports of examination, as
provided in the first proposed rule,
might inhibit candid communications
between Bank employees and FHFA
examiners, thereby compromising the
Bank examination process and
22 DBR also prepares more detailed semi-annual
profiles of the individual Banks which currently are
shared only with the subject Bank and not with
other Banks or the OF. Because these individual
Bank profiles often contain proprietary information
regarding a Bank’s members, as well as assessments
based upon detailed information from the Bank’s
report of examination, FHFA does not intend to
share this information under the initial distribution
order to be issued under a final rule.
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undermining FHFA’s ability to carry out
its supervisory responsibilities. These
concerns regarding the examination
process were reflected indirectly in
§ 1260.3(a) of the first proposed rule,
under which FHFA would have
reserved the authority to distribute only
‘‘such portions’’ of the reports of
examination that the agency ‘‘deem[ed]
appropriate.’’ Despite the fact that the
first proposed rule would have allowed
FHFA to redact certain portions of a
report of examination, the agency now
believes that it is preferable to take a
more explicit and standardized
approach to identifying the portions of
the report of examination that will be
provided to the other Banks and the OF.
Accordingly, FHFA expects that,
under the initial distribution order, it
would routinely distribute to the Banks
and the OF the material that is currently
contained in the ‘‘Summary and
Conclusions’’ portion of each Bank’s
final annual report of examination. With
respect to the timing of these
distributions, FHFA anticipates that the
initial order will reflect the approach
from the first proposed rule, which is
that each distribution would be made
soon after FHFA has presented the final
report to the subject Bank’s board of
directors. The Federal Home Loan Bank
Examination Manual issued by FHFA
requires that the Summary and
Conclusions section contain an
evaluation of the overall condition and
practices of the Bank, as well as a table
that depicts the date and examination
ratings (both composite and component
ratings) for the current examination and
the previous examination.23 This must
be followed by a concise discussion of
the composite rating which addresses
any component that is a significant
factor in the composite rating or has
changed since the previous
examination. Thus, the agency
anticipates that the order would provide
for the distribution of those portions of
each Bank’s exam report that set forth:
(i) The Bank’s composite rating and
component ratings for the current and
prior examination; (ii) a summary of the
basis for the current composite rating
(including any component that is a
significant factor in the composite
rating) and any changes to the
composite or component ratings since
the last examination; and (iii) the
conclusion regarding the overall
condition and practices of the Bank and
the analysis used to reach that
conclusion. FHFA would not distribute
the portions of any report of
23 The Federal Home Loan Bank Examination
Manual can be found at https://www.fhfa.gov/
webfiles/2652/FHFB%20Manual.pdf.
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examination in which the component
examination ratings are discussed or
analyzed in detail or in which the
‘‘matters requiring attention’’ of the
Bank’s board of directors are
enumerated or discussed.24
Under the initial order, FHFA would
not distribute any other supervisory
reports that it may present to the board
of directors of a Bank, as would have
been the case under the first proposed
rule. In addition, FHFA does not
anticipate providing in the initial order
for the sharing of Bank managements’
responses to reports of examination, as
suggested by one commenter. FHFA
examiners discuss findings with Bank
management prior to the preparation of
a final report of examination, which
discussions provide examiners with
insights into the opinions and reactions
of Bank management. FHFA believes
that disclosure of such communications
between management and the
examination team is not essential to
understanding the financial condition of
the Bank, and could hamper the open
and honest communication that is
required to carry out the examination
process effectively.
Banks’ Quarterly Liquidity
Certifications and Related Liquidity
Notices
As mentioned above, three
commenters generally opposed the
sharing of final reports of examination
and other supervisory reports presented
by FHFA to a Bank’s board of directors.
All three of these viewed the purpose
behind section 20A of the Bank Act as
being limited strictly to providing each
Bank with sufficient information to
evaluate the financial condition of the
other Banks in order to assess the
likelihood that it may be called upon to
make payments on another Bank’s COs
under the joint and several liability
provisions of the Bank Act. None of
these commenters believed that the
sharing of final supervisory reports
would be an effective method of
achieving this goal because they argued
that these reports address topics that are
not necessarily related to a Bank’s
financial condition and are not designed
to provide real-time financial
information that would aid in
evaluating joint and several liability. All
three of these commenters advocated
24 Component ratings are currently given for: (1)
Corporate governance; (2) market risk; (3) credit
risk; (4) operational risk; and (5) financial condition
and performance. FHFA is adopting a new
examination ratings system, effective January 1,
2013, under which component ratings will be given
for: (1) Capital; (2) asset quality; (3) management;
(4) earnings; (5) liquidity; (6) sensitivity to market
risk; and (7) operational risk. See 77 FR 67644 (Nov.
13, 2012).
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that FHFA include in its final rule an
alternative provision requiring FHFA to
confirm to all of the Banks, on a
quarterly basis, that each of the other
Banks has submitted a certification that
it remains capable of making full and
timely payment of all of its current
obligations coming due during the next
quarter, as required under
§ 1270.10(b)(1) of FHFA’s regulations.25
In response to this comment, FHFA
proposes that the initial distribution
order provide for the regular
distribution of a statement by FHFA
confirming that each Bank has filed its
quarterly liquidity certification, as well
as a statement by FHFA about any
notices that may be submitted by a Bank
about liquidity problems, as required by
§ 1270.10(b)(2) of the regulations.26
Section 1270.10(b)(1) of the
regulations requires that, before the end
of each calendar quarter, and before
declaring or paying any dividend for
that quarter, the President of each Bank
certify in writing to FHFA that, based on
known current facts and financial
information, the Bank will remain in
compliance with all statutory and
regulatory liquidity requirements and
will remain capable of making full and
timely payment of all of its current
obligations coming due during the next
quarter. In addition, § 1270.10(b)(2)
requires that a Bank provide immediate
notice to FHFA if the Bank: (i) Is unable
to provide the written certification
required by paragraph (b)(1); (ii) projects
at any time that it will fail to comply
with statutory or regulatory liquidity
requirements, or will be unable to
timely and fully meet all of its current
obligations due during the quarter; (iii)
actually fails to comply with statutory
or regulatory liquidity requirements or
to timely and fully meet all of its current
obligations due during the quarter; or
(iv) negotiates or enters into an
agreement with one or more other Banks
to obtain financial assistance to meet its
current obligations due during the
quarter.
FHFA proposes that the initial
distribution order provide that,
following the end of each calendar
quarter, FHFA distribute a statement
indicating whether each Bank has
timely filed the quarterly certification
relating to the Bank’s anticipated
compliance with liquidity requirements
and its anticipated ability to meet its
obligations coming due during the
following calendar quarter, as required
by § 1270.10(b)(1). For example, soon
after the end of the first calendar quarter
of a year, FHFA would distribute a
25 12
26 12
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CFR 1270.10(b)(2).
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statement indicating for each Bank
whether, prior to the end of the first
quarter, the Bank filed the required
certification regarding its ability to meet
liquidity requirements and meet its
obligations during the second quarter.
The order would also provide that,
following its receipt of any notice filed
under § 1270.10(b)(2), FHFA distribute
to all of the other Banks and the OF a
statement identifying the Bank that filed
the notice and describing the nature of
the notice. In this statement, FHFA
would provide whatever additional
information about the notice that it
deems appropriate under the
circumstances. At present, certain of the
Banks individually ask FHFA whether
the other Banks have made their
quarterly liquidity certifications, and
FHFA responds to those requests
individually by confirming its receipt of
the certifications from the other Banks.
By incorporating this information into
the HERA-mandated information
sharing regime, FHFA would make this
information available to all of the Banks,
not just those who ask for it.
Other Information Which May Be
Shared in the Future
In various combinations, the three
commenters who advocated the sharing
of information about the liquidity filings
made under § 1270.10(b) also supported
the quarterly distribution of certain
other financial information regarding
each Bank. The suggested financial
information included, for each Bank: net
income projections and anticipated
material losses; projected dividend
rates; impairments of assets;
concentrations of advances and
exposures to derivatives counterparties
and mortgage insurers; market risk limit
measures, including key rate durations;
liquidity information; member collateral
shortfalls; unsecured credit exposures;
and FHFA’s intended actions if a Bank
is expected to default on its upcoming
obligations. Certain of this financial
information, such as that relating to
concentration of advances to members,
exposures to derivatives counterparties,
other unsecured credit exposures, and
liquidity requirements, is already
available through the Banks’ federal
securities filings, which may lessen the
need to include it within the HERAmandated information sharing regime.
Because of that, FHFA does not
currently anticipate that the initial
distribution order would require the
distribution of those items, but
recognizes that, after FHFA and the
Banks have gained further experience
with the substance and mechanics of the
information sharing process, it may be
appropriate to include similar types of
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information within the information
sharing regime. Accordingly, FHFA
requests comments on what types of
financial information, beyond those
already available to the Banks through
the federal securities filings and the
FHFA’s call report data base, might be
appropriate for FHFA to include within
the information sharing regime, either as
part of the initial distribution order or
subsequently.
FHFA also requests comments on
whether it would be useful for the
agency to distribute under this rule a
weekly DBR report on the Banks’
unsecured credit exposure. As required
under § 1273.6(f) of FHFA’s regulations,
the OF currently collects from each
Bank data relating to the Bank’s
unsecured credit exposure to individual
counterparties and, from this data,
compiles and distributes to the Banks a
monthly report.27 These reports may be
of limited practical value given that the
data is typically about 20 days old by
the time the report is distributed and
that the vast majority of the Banks’
unsecured credit exposure occurs in the
form of overnight transactions. In order
to address these shortcomings, DBR
recently has been preparing for its own
internal use a weekly report that covers
the Banks’ credit exposures arising from
repurchase transactions (which are not
covered by the existing OF report, but
which can constitute a significant
portion of the Banks’ exposure to
foreign counterparties), as well as the
forms of unsecured credit exposure that
are addressed in the OF report. The new
DBR report is typically completed
within one day of FHFA’s receipt of the
data and assesses the Banks’ exposure
based upon seven-day averages, rather
than as of a single point-in-time, as is
the case with the OF report. Although
FHFA has not yet determined whether
it will continue to compile these reports
or whether it will distribute them to the
Banks on a regular basis, the agency
seeks comment on whether regular
distribution of these reports to the
Banks would further the purposes of
section 20A of the Bank Act.
FHFA as Information Clearinghouse
Like the first proposed rule, this
proposed rule requires that FHFA act as
the clearinghouse for the sharing of
information under section 20A of the
Bank Act, and provides no mechanism
for the direct sharing of such
information among Banks. Four
commenters expressly supported this
approach, and none objected. One
commenter requested that the final rule
contain an explicit statement that it
27 See
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governs the entirety of a Bank’s right to
receive shared information under
section 20A of the Bank Act and that no
Bank is permitted to receive such
information unilaterally from FHFA or
another Bank. FHFA has not included
such a statement in this proposed rule.
In part, this is because part 911 of the
Finance Board’s regulations, which
continues to govern the control of
unpublished information,28 already
prohibits a Bank from disclosing
information created or obtained by the
Finance Board or FHFA in connection
with the performance of official duties,
including reports of examination and
supervisory correspondence, without
prior written authorization from
FHFA.29 The first proposed rule would
not have authorized any direct sharing
of unpublished information among the
Banks and no such authorization has
been included in this proposed rule. In
order to preserve its ability to provide
written authorization for the disclosure
of unpublished information as
circumstances warrant, FHFA has
declined to include in this proposed
rule a blanket prohibition on the direct
sharing of such materials. In addition,
there is no basis upon which FHFA may
prohibit a Bank from sharing financial
information that does not qualify as
unpublished information under part
911, even if it is shared with one or
several Banks to the exclusion of others.
Moreover, the Banks currently share
certain non-confidential information
among themselves on an informal
basis—a practice that FHFA does not
want to discourage, as could be the case
if the proposed rule were to include a
28 In this issue of the Federal Register, FHFA is
also publishing a proposed rule which would
replace part 911 with new regulations governing the
control of unpublished information (which is
referred to as ‘‘non-public information’’ in that
proposed rule). If adopted in final form as
proposed, those new regulations would be identical
in effect to the provisions of part 911 that are
referenced in the regulatory text of this proposed
rule and that are discussed in this Supplementary
Information. Should FHFA’s final rule on nonpublic information differ materially from the
proposed rule with respect to those provisions,
these changes will be addressed and appropriately
accounted for in the final version of this rule.
29 See 12 CFR 911.3(c)(1). In 2006, the Finance
Board issued an Advisory Bulletin that permitted a
Bank to disclose the factual content of information
contained in its report of examination, if necessary
in the preparation of its SEC disclosures, but
continued to prohibit the Banks from releasing the
report of examination itself, or any portion of the
report. See Federal Housing Finance Board
Advisory Bulletin 2006–AB–03 (July 18, 2006)
(available online at https://www.fhfa.gov/webfiles/
13094/2006–AB–03.pdf). The Advisory Bulletin also
specifically prohibited the sharing of reports of
examination among the Banks, and nothing in the
second proposed rule is intended to override this
restriction.
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prohibition such as that raised by the
commenters.
The centralized distribution process
reflected in this proposed rule
represents the agency’s best initial
judgment as to the appropriate way to
implement section 20A. FHFA intends
to undertake the distribution of Bank
information within the parameters of
part 1260, but will assess the process on
an ongoing basis and make such
adjustments within those parameters, or
take such other steps (including
amending the rule if appropriate), as it
determines are necessary to most
effectively fulfill the statutory
information sharing mandate.
For similar reasons, FHFA has
declined a request made by three
commenters that the final rule specify
that FHFA is to distribute information
directly to the chief executive officer of
each Bank and of the OF. Although the
agency intends to provide guidance as
to the specifics of the distribution
process (probably as part of the
distribution orders), FHFA believes that
these specifics should not be enshrined
in the regulation. FHFA already
communicates with the Banks through
various secure means, and other such
approaches may be developed over
time. To require FHFA to undertake a
new rulemaking to make the necessary
adjustments would hinder the ability of
the agency to carry out the distribution
process in the most effective manner.
FHFA believes that the restrictions on
disclosure of information by Banks and
their directors, officers and employees
set forth in § 1260.5 of this proposed
rule (discussed in detail below) and
elsewhere are sufficient to protect
confidential information. Within those
parameters, each Bank must establish its
own policies and procedures to govern
access to the shared information.
C. Section 1260.3—Requests To
Withhold Proprietary Information
As required under section 20A of the
Bank Act, § 1260.3(b)(1) of the first
proposed rule would have permitted a
Bank to request in writing that FHFA
withhold from distribution particular
information contained in a report of
examination, so long as the Bank could
demonstrate that the information is
proprietary and the public interest
requires that it not be shared. The first
proposed rule would have given a Bank
ten business days following the
presentation of a report to its board of
directors within which to make such a
request. Section 1260.3(b)(2) of the first
proposed rule would have required the
Director of FHFA or his designee to
make a prompt, non-appealable
determination as to whether to redact
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the subject information from the report
to be distributed and to notify the
affected Bank of its decision.
In this proposed rule, FHFA has
restructured the provisions regarding
the withholding of proprietary
information, primarily to correspond to
the changes that are proposed to be
made to the scope of information to be
shared under the rule, but also to
provide greater clarity and in response
to some of the comments received on
the first proposed rule. Those provisions
are located in § 1260.3 of this proposed
rule. It has also added a definition of the
term ‘‘proprietary information’’ to
§ 1260.1 in order to clarify the standards
to be applied in making proprietary
determinations under the rule and to
ensure that those standards are
consistent with standards that FHFA
applies when it makes proprietary
determinations in other contexts.
Section 1260.3(a) provides that a Bank
may request in writing that FHFA
withhold from distribution particular
information relating to the Bank on the
grounds that it is proprietary
information and the public interest
requires that it not be shared. Section
1260.3(a) would also require that, in
order for a request to be considered by
FHFA, the request must identify the
particular information the Bank believes
should be withheld and provide support
for the assertions that it is proprietary
information and that withholding such
information from the other Banks and
the OF is necessary to protect the public
interest. The primary purpose of this
provision is to make clear that, in
preparing a request to withhold
particular information, a Bank must be
able to demonstrate that it meets both
the ‘‘public interest’’ and the
‘‘proprietary information’’ elements of
the statutory test. An assertion that a
piece of information is ‘‘proprietary
information,’’ without more, is not
sufficient under the statute to justify
withholding the information.
Proposed § 1260.1 defines the term
‘‘proprietary information’’ to mean
‘‘information that contains trade secrets,
or privileged or confidential commercial
or financial information that, if shared
among the Banks and the Office of
Finance as provided under this part,
would likely cause substantial
competitive harm to the Bank to which
the information pertains.’’ Because
neither section 20A nor any other
provision of the Bank Act defines the
term ‘‘proprietary,’’ FHFA looked to the
Freedom of Information Act (FOIA) and
related case law in formulating the
proposed definition. Specifically, the
definition is based largely upon the
language of section 552(b)(4) of FOIA
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6051
(Exemption 4), which exempts from
FOIA’s public disclosure requirements
‘‘trade secrets and commercial or
financial information obtained from a
person and privileged or
confidential.’’ 30 The definition also
incorporates language from a line of
judicial interpretations of Exemption 4
requiring that disclosure of the
information in question be ‘‘likely
* * * to cause substantial harm to the
competitive position of the person from
whom the information was obtained’’ in
order for that information to qualify for
exemption from FOIA disclosure
pursuant to that provision.31
Although the term ‘‘proprietary’’ does
not actually appear in the statutory text
of FOIA, courts interpreting FOIA
Exemption 4 generally have treated that
provision as referring to proprietary
information.32 FHFA has chosen to take
this approach in part because it will
allow the agency to draw upon the
substantial body of case law interpreting
Exemption 4 if called upon to make a
proprietary determination under section
20A (although in doing so FHFA will
not be bound by FOIA, its legislative
history, or Exemption 4 case law). In
addition, the proposed definition
parallels the regulatory definition that
FHFA applies when determining
whether particular data constitutes
‘‘proprietary information’’ that must be
excluded from the electronic ‘‘Public
Use Database’’ of information on
mortgages purchased by Fannie Mae
and Freddie Mac that the agency is
required by statute to maintain and
make available to the public.33
However, unlike determinations made
30 See
5 U.S.C. 552(b)(4).
e.g., National Parks & Conservation Ass’n
v. Morton, 498 F.2d 765, 770 (DC Cir. 1974).
32 See, e.g., Public Citizen Health Research Group
v. FDA, 704 F.2d 1280 (DC Cir. 1983). In Public
Citizen, the U.S. Court of Appeals for the District
of Columbia Circuit clarified that, in order to meet
the ‘‘competitive harm’’ requirement imposed by
National Parks and its progeny, the harm arising
from disclosure of the information at issue must
‘‘flow[] from the affirmative use of proprietary
information by competitors.’’ See id. at 1291 n.30.
33 See 12 U.S.C. 4543. The definition of
‘‘proprietary information’’ that FHFA uses in such
cases is actually contained in the regulations of the
Department of Housing and Urban Development
(HUD), see 24 CFR 81.2, which was responsible for
maintaining the Public Use Database (PUDB) until
Congress transferred responsibility for that function
to FHFA in 2008. In developing its definition of
‘‘proprietary information,’’ HUD drew from FOIA
Exemption 4 and related case law in part so that
it would be able to draw upon the body of FOIA
law when making proprietary determinations under
its PUDB regulations. See 60 Fed. Reg. 61846, 61877
(Dec. 1, 1995). FHFA expects to propose new PUDB
regulations in the near future and anticipates that
those regulations will contain a definition of
‘‘proprietary information’’ that is substantially
similar to the one contained in the current HUDpromulgated PUDB regulations.
31 See,
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under the Public Use Database
regulations, in order for information to
be withheld from distribution under
section 20A and this rule, a Bank must
establish not only that the information
is proprietary, but also that the public
interest requires that it not be
distributed. Accordingly, it is possible
that, under this rule, FHFA may find it
necessary to distribute information that
qualifies as ‘‘proprietary’’ where the
distribution of that information is
necessary or appropriate to fulfill the
purposes of section 20A.
Section 1260.3(b) of this proposed
rule addresses the required timing of
requests from the Banks to withhold
proprietary information. Paragraph
(b)(1) establishes general rules for
requests relating to information
submitted by the Banks, as well as for
requests relating to information created
by FHFA, such as reports of
examination. Paragraph (b)(2) provides
an exception to the general rules, which
would allow the Director to establish
different timeframes for particular
categories of information that may be
distributed pursuant to a distribution
order issued under § 1260.2. For
information that a Bank submits to
FHFA, subparagraph (b)(1)(i) provides
that the agency would consider only
those requests that were received prior
to, or simultaneously with, the Bank’s
submission of the information to FHFA.
For example, if a Bank were to believe
that elements of the data that it uploads
into FHFA’s CRS database met the
statutory standards for being withheld
from distribution, it would be required
to submit its request to FHFA no later
than the time at which it uploads the
data. Otherwise, it would forgo the right
to object at a later time to FHFA’s
distribution of that data—whether the
data was made available in raw form
(for example, as data accessible to other
Banks in the CRS) or in modified form
(for example, as part of comparisons
with the data of other Banks, as
presented in the Bank System Profile
Book or other reports on the Banks or
Bank System).
The reasoning behind this approach
for Bank-submitted information is threefold. First, this type of information is
likely to serve the purposes underlying
section 20A of the Bank Act only if
other Banks are able to access it in a
timely fashion. To allow a Bank a multiday period within which to ask that
portions of the information be withheld
would introduce an unnecessary delay
in the process and could lead to the risk
that the information will be stale by the
time it is received by other Banks, thus
undermining the purpose of the
information sharing scheme. For
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example, FHFA currently distributes to
the Banks a weekly liquidity report,
which it could not continue to do with
the same timeliness if Banks had an
opportunity to object to the distribution
of portions of each week’s data. Second,
because the Banks themselves prepare
the information and would be aware of
its probable distribution, the marginal
utility of providing them with an
additional period of time in which to
review the information for proprietary
material would not outweigh the need
to distribute the information in a timely
manner. Finally, the vast majority of the
data that Banks submit to FHFA through
the CRS and in response to special data
requests is in the form of numbers
reflecting past financial performance,
which data is unlikely to contain
anything that could be considered
proprietary in nature.
For information to be distributed
other than that which is submitted to
FHFA by the Banks themselves,
subparagraph (b)(1)(ii) would permit
each Bank ten business days after being
provided a copy of the information
within which to review that information
for proprietary material and to deliver to
FHFA a request to withhold. This is
substantially identical to the approach
reflected in the first proposed rule with
respect to Banks’ reports of examination
and, in fact, would apply in the same
way to that information under this
proposed rule.
As mentioned, paragraph (b)(2) of
§ 1260.3 would allow FHFA, as part of
an order issued by the Director or his
designee under § 1260.2, to establish
requirements for the timing of requests
to withhold for any category of
information to be distributed under
such an order. Paragraph (b)(2) requires
that, in establishing any such
requirements, the Director or his
designee must consider the volume and
complexity of the information to be
reviewed, the Bank’s existing familiarity
with the information, the frequency of
submission or distribution of the
information, the likelihood that the
information will contain proprietary
information, and the effect that any
delay in the distribution of the
information would have on the
fulfillment of the purposes of section
20A(a) of the Bank Act.
FHFA anticipates that, for the sake of
clarity, when it issues the initial
distribution order identifying the
particular categories of information to
be disclosed, it also would specify
which information is subject to the
‘‘time of submission’’ provision and
which is subject to the ‘‘10 business
day’’ provision, described above. For
example, FHFA anticipates that the
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initial order would specify that a Bank
will have ten business days following
the date on which FHFA presents a
report of examination to the Bank’s
board of directors within which to
request that FHFA redact particular
proprietary information before
distributing it to the other Banks—i.e.,
the request would need to be filed
before the close of business on the tenth
business day following the presentation
of the report to the Bank’s board.
Similarly, the initial distribution order
would likely reiterate that the Banks
will be required to file requests to
withhold data uploaded to the CRS,
information submitted in response to a
special data request or liquidity
certifications and notices at or before
the time that such information is
submitted to FHFA.
Section 1260.3(c) of this proposed
rule provides that, after receiving a
written request that meets the form and
timing requirements of paragraphs (a)
and (b) of § 1260.3, the Director or his
designee shall promptly determine
whether to withhold any information
from distribution, which determination
is final. Paragraph (c) would also require
that FHFA notify the affected Bank of its
determination and prohibit FHFA from
distributing the information that is the
subject of the request until it has
provided the required notice to the
Bank.
Three commenters supported the first
proposed rule’s provision for the
withholding of proprietary information
when doing so is found to be in the
public interest, while no commenters
objected to the withholding of such
information, or to the finality of FHFA’s
determination regarding the information
requested to be withheld. A number of
commenters requested that the final rule
provide a mechanism for the
withholding of categories of information
in addition to that which FHFA deems
to be proprietary and in the public
interest to withhold. Seven commenters
expressed concern over the possible
disclosure of information that is subject
to confidentiality agreements with third
parties, or confidentiality provisions of
license agreements. Five commenters
stated that because each Bank is a
separate legal entity, providing a Bank
with access to sensitive or confidential
strategic, operational, regulatory and
business information may not be
appropriate. Six commenters stated that
sensitive information, such as that
identifying personnel, or describing
personnel matters, should not be
distributed.
FHFA has declined to include in this
proposed rule additional bases upon
which the Banks may request the
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withholding of information beyond that
which is mandated by section 20A of
the Bank Act. While section 20A does
not expressly limit the bases upon
which a Bank may request that FHFA
withhold information, the fact that the
statute expressly permits Banks to
request the withholding only of
proprietary information and requires a
conclusion that any withholding of such
information be in the public interest is
a strong indication that the intent of
Congress was to limit the types of
information which the Banks could
request to be withheld. FHFA believes
that the concerns raised by the
commenters will be mitigated by the
fact that only the summary portions of
the Banks’ reports of examination would
be distributed under the anticipated
initial distribution order. In addition,
FHFA is cognizant of the concerns
expressed by the commenters and will
prepare reports of examination with
those concerns in mind.
Seven commenters expressly
supported the ten business day period
in which a Bank would be permitted to
request the withholding of proprietary
information from distribution. However,
all of these commenters also asked that
the final rule require FHFA to notify the
subject Bank prior to distribution if the
request is fully or partially denied, and
to identify the information that will not
be withheld, in order to allow the Bank
to make timely and appropriate
securities law or contractual
disclosures. Section 1260.3(b)(2) of the
first proposed rule would have required
FHFA to provide notice of any
determination regarding a request to
withhold information, and this
provision appears in revised form in
§ 1260.3(c) of this proposed rule, which
specifies that FHFA must provide such
notice to the requesting Bank and may
not distribute any of the information in
question until it has provided that
notice.
D. Section 1260.4—Timing and Form of
Information Distribution
Section 1260.3(c) of the first proposed
rule would have required FHFA to
distribute a Bank’s report of
examination after the ten-business-day
period had expired without a request to
withhold proprietary information or, if
a Bank had made such a request, after
the Director or his designee had acted
on the request. If the Director or his
designee were to determine that the
report of examination included
proprietary information that should not
be shared, that proposed rule would
have required FHFA to distribute an
appropriately redacted version of the
report. The first proposed rule also
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would have allowed FHFA to distribute
the reports in either tangible or
electronic form, as deemed appropriate
on either an ongoing or case-by-case
basis. FHFA received no comments on
this provision of the rule.
Section 1260.4 of this proposed rule
is substantially similar to § 1260.3(c) of
the first proposal, although the wording
has been altered slightly to reflect the
more generic approach to the scope of
information to be distributed. Section
1260.4(a) provides that FHFA may
distribute information to the other
Banks and the OF after the expiration of
the applicable time period for asking
that FHFA withhold proprietary
information, unless the affected Bank
has asked that particular information be
withheld from distribution. Section
1260.4(a) further provides that when a
Bank has filed a request to withhold
information, FHFA may not distribute
the information that is the subject of the
request until after the Director or his
designee has acted on the request and
has provided the affected Bank with
notice of the decision. Under this
provision, the Director or his designee
would be free to reach any appropriate
decision regarding the distribution of
the information in question—i.e., to
withhold all of the information, to
distribute all of the information or to
withhold part and distribute part of the
information in question. Subsequently,
FHFA would distribute the subject
information in conformity with that
decision. Under § 1260.4(b), as under
the first proposed rule, FHFA would be
permitted to distribute the information
in either tangible or electronic form, as
it deems appropriate.
E. Section 1260.5—Control of Shared
Information
Section 1260.3(d) of the first proposed
rule provided that the sharing of
information under the rule did not
constitute a waiver by FHFA of any
privilege, or its right to control,
supervise, or impose limitations on, the
subsequent use and disclosure of any
information concerning a Bank. The first
proposed rule also provided that, to the
extent that any reports of examination
or other materials provided to a Bank or
the OF under the rule otherwise qualify
as ‘‘unpublished information’’ under 12
CFR part 911 (or any future regulatory
provisions dealing with the same
subject matter that may be promulgated
by FHFA), those materials would
continue to qualify as such and would
continue to be subject to the restrictions
on disclosure of such information set
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6053
forth therein.34 Two commenters
expressly supported this provision and
none opposed it. In this proposed rule,
FHFA has carried over that provision
from the first proposed rule (with
additions described below), and has
redesignated that provision as
§ 1260.5(a). This proposed rule also
adds three new provisions, contained in
paragraphs (b), (c), and (d) of § 1260.5,
to address more comprehensively the
protection of unpublished information.
Section 20A of the Bank Act makes
clear that a primary reason for requiring
the sharing of information among the
Banks is to enable each Bank to better
assess the likelihood that it will need to
make payments pursuant to its joint and
several liability on Bank System COs
and to enable it to better fulfill its duty
to disclose material information
regarding the likelihood of such
payments as required by applicable
provisions of the federal securities laws
or regulations issued thereunder by the
SEC. Citing the restrictions on the
disclosure of unpublished information
set forth in 12 CFR part 911, several
commenters requested that FHFA
provide in the final rule, or in other
guidance, authorization for each Bank to
disclose in its SEC disclosure
documents material information derived
from the reports of examination of other
Banks received under the rule after
giving prior notice to the Bank to which
the information pertains.
In 2006, the Finance Board issued
written guidance authorizing each Bank
to use and disclose in its SEC disclosure
documents information contained in its
own report of examination, provided
that the disclosure is limited to a recital
of the factual content of the report and
does not involve the release of the
report of examination itself, or any
portion of it.35 FHFA has added to
§ 1260.5(a) of this proposed rule
language to extend this treatment to
unpublished information regarding
other Banks received pursuant to an
order issued under § 1260.2, provided
that the Bank meets the requirements
regarding disclosure of this information
that are set out in § 1260.5(b) of the rule.
In this proposed rule, FHFA has added
34 Under 12 CFR part 911 ‘‘unpublished
information’’ refers to any information or document
created or obtained by FHFA in connection with the
performance of official duties, regardless of who
possesses it, except for information or documents
that the agency is required by statute or its own
regulations to disclose or that were previously
published or disclosed or are customarily furnished
to the public in the course of the performance of
official duties. See 12 CFR 911.1 (definition refers
to the former Federal Housing Finance Board as
regulator, but now applies to FHFA).
35 See Federal Housing Finance Board Advisory
Bulletin 2006–AB–03 (July 18, 2006).
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§ 1260.5(b) to permit a Bank to disclose
unpublished information received
under § 1260.2 in its SEC disclosure
documents provided that its
determination that such disclosure is
required under applicable provisions of
the federal securities laws has been
made in good faith, and that the Bank
provides to FHFA and to the Bank to
which the information pertains prior
notice of the content and the anticipated
timing of the disclosure. FHFA believes
it is unlikely that information received
regarding one Bank would prompt an
SEC disclosure obligation by another
Bank if the subject Bank has not
determined that the information was
material to the first Bank and thus
warranted disclosure under the federal
securities laws.36 Nonetheless, because
each Bank makes its own determination
as to materiality and the content of its
own disclosures under the federal
securities laws, such a result is at least
possible and, for that reason, FHFA has
decided to address the matter in this
proposed rule.
While the first proposed rule would
have addressed the maintenance of the
privileged status of reports of
examination from the perspective of
FHFA, it would not have addressed the
confidentiality of shared information
from the perspective of the Banks. Two
commenters requested that the final rule
clarify that the release of information
under the rule will not be deemed a
waiver by the subject Bank of any
privilege or right to control the
underlying information. In addition,
four commenters advocated including a
requirement in the final rule that would
require each Bank to take measures to
ensure that the confidentiality of other
Banks’ supervisory information is
maintained by those that will have
access to it. One commenter stated that
the final rule should require that all
Banks use reasonable means, but not
less than that used to protect their own
proprietary information, to safeguard
the information contained in another
Bank’s report of examination and avoid
unauthorized disclosure, dissemination
or use.
In response to these concerns, FHFA
has included in this proposed rule a
new § 1260.5(c), which expressly states
that a Bank may use unpublished
information received under the rule
only for the purposes described in
section 20A(a) of the Bank Act (i.e., to
36 Each Bank is subject to the periodic reporting
requirements of section 13(a) of the 1934 Act, 15
U.S.C. 78m(a), and, therefore, upon the occurrence
of a material corporate event, is required to file with
the SEC (in most cases within four business days
of the material event) a current report on Form 8–
K. See 17 CFR 240.13a–11; 17 CFR 249.308.
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evaluate the financial condition of one
or more other Banks and to comply with
its obligations under the 1934 Act), and
prohibits the disclosure of any
unpublished information received
under § 1260.2, except as otherwise
provided in the rule (e.g., in the case of
a disclosure made under the federal
securities laws pursuant to § 1260.5(a)
and (b)). Proposed § 1260.5(c) would
further require that each Bank and the
OF implement policies and procedures
to prevent the improper disclosure of
such information and to limit the access
of its personnel to such information.
Under this proposed rule, these policies
and procedures must be no less
stringent than those that apply to the
entity’s own confidential and
supervisory information. As with other
internal controls, these procedures and
their implementation will be subject to
FHFA scrutiny as part of the Bank
examination process.
Finally, like the first proposed rule,
this proposed rule does not provide for
any formal sharing of information
pertaining to the OF because all twelve
Bank presidents are members of the
OF’s board of directors and, therefore,
already have access to its report of
examination and other financial
information. Three commenters
expressly agreed that, for the reason
stated, reports of examination for the OF
do not need to be formally distributed
to the Banks, while no commenters
advocated the formal distribution of the
OF reports or other information.
However, all three supported inclusion
of a specific provision stating that Bank
presidents be permitted to share
information regarding the OF with the
boards of directors and appropriate staff
of his or her Bank, subject to the
restrictions on disclosure and adoption
of policies and procedures required
under the rule. FHFA has included such
a provision in § 1260.5(d) of this
proposed rule.
IV. Consideration of Differences
Between the Banks and the Enterprises
Section 1201 of HERA amended the
Federal Housing Enterprises Financial
Safety and Soundness Act of 1992 to
add a new section 1313(f), which
requires the Director of FHFA, when
promulgating regulations relating to the
Banks, to consider the differences
between the Banks and the Enterprises
(Fannie Mae and Freddie Mac) as they
relate to: the Banks’ cooperative
ownership structure; the mission of
providing liquidity to members; the
affordable housing and community
development mission; their capital
structure; and their joint and several
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liability on consolidated obligations.37
The Director also may consider any
other differences that are deemed
appropriate. In preparing this second
proposed rule, FHFA considered the
differences between the Banks and the
Enterprises as they relate to the above
factors, and determined that the rule is
appropriate. No commenters raised any
issues relating to this statutory
requirement, as it applied to the first
proposed rule.
V. Paperwork Reduction Act
This proposed rule 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.
VI. Regulatory Flexibility Act
This proposed rule 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, FHFA certifies that this proposed
rule will not have significant economic
impact on a substantial number of small
entities.
List of Subjects
12 CFR Part 1260
Confidential business information,
Federal home loan banks, Reporting and
recordkeeping requirements.
Accordingly, for the reasons stated in
the SUPPLEMENTARY INFORMATION and
under the authority of 12 U.S.C. 4526,
the Federal Housing Finance Agency
proposes to amend subchapter D of
chapter XII of title 12 of the Code of
Federal Regulations as follows:
CHAPTER XII—FEDERAL HOUSING
FINANCE AGENCY
Subchapter D—Federal Home Loan Banks
■
1. Add part 1260 to read as follows:
PART 1260—SHARING OF
INFORMATION AMONG FEDERAL
HOME LOAN BANKS
Sec.
1260.1 Definitions.
1260.2 Bank information to be shared.
1260.3 Requests to withhold proprietary
information.
1260.4 Distribution of Bank information by
FHFA.
1260.5 Disclosure of shared Bank
information.
Authority: 12 U.S.C. 1440a, 4511 and 4513.
37 See
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§ 1260.1
Definitions.
As used in this part:
Proprietary information means
information that contains trade secrets,
or privileged or confidential commercial
or financial information that, if shared
among the Banks and the Office of
Finance as provided under this part,
would likely cause substantial
competitive harm to the Bank to which
the information pertains.
Unpublished information has the
meaning set forth in § 911.1 of this title.
§ 1260.2
Bank information to be shared.
In order to enable each Bank to
evaluate the financial condition of any
one or more of the other Banks and the
Bank System, FHFA shall distribute to
each Bank and to the Office of Finance
such categories of financial and
supervisory information regarding each
Bank and the Bank system as the
Director or his designee may specify
from time to time by written order,
subject to the requirements of this part.
Prior to issuing or amending such an
order, FHFA shall notify each Bank and
the Office of Finance of the proposed
contents of the order and allow them a
reasonable period within which to
comment.
sroberts on DSK5SPTVN1PROD with
§ 1260.3 Requests to withhold proprietary
information.
(a) General. A Bank may request in
writing that FHFA withhold from
distribution particular information
relating to the Bank that may otherwise
be subject to distribution under § 1260.2
on the basis that it is proprietary
information and the public interest
requires that it not be shared. Any such
request shall identify the particular
information the Bank believes should be
withheld and provide support for the
assertions that it is proprietary
information and that withholding it
from the other Banks and the Office of
Finance is necessary to protect the
public interest.
(b) Timing of requests.—(1) General.
Unless otherwise specified by written
order as described in paragraph (b)(2) of
this section, the period within which a
Bank may make a request to withhold
proprietary information under
paragraph (a) of this section shall be as
follows:
(i) For information that a Bank
submits to FHFA, the request shall be
delivered to FHFA no later than the
time at which the Bank submits the
subject information to FHFA.
(ii) For information that FHFA creates
(not including compilations of data
submitted by the Banks), prior to
distributing any information relating to
a particular Bank, FHFA shall provide
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that Bank with a copy of the information
to be distributed, after which the Bank
shall have ten (10) business days within
which to deliver the request to FHFA.
(2) As specified by written order. Any
order issued by the Director or his
designee under § 1260.2 may establish
requirements for the timing of requests
to withhold proprietary information that
are different from those specified under
paragraph (b)(1) of this section for any
category of information to be distributed
thereunder. In establishing such
requirements, the Director or his
designee shall give due regard to the
volume and complexity of the
information to be reviewed, the Bank’s
existing familiarity with the
information, the frequency of
submission or distribution of the
information, the likelihood that the
information will contain proprietary
information, and the effect that any
delay in the distribution of the
information would have on the
fulfillment of the purposes of section
20A(a) of the Bank Act.
(c) Determination and notice by
FHFA. After receiving a written request
that meets the requirements of
paragraphs (a) and (b) of this section,
the Director or his designee shall
promptly determine whether to
withhold any information from
distribution pursuant to the request,
which determination shall be final.
FHFA shall promptly notify the affected
Bank of that determination and shall not
distribute any information that is the
subject of the request until it has
provided the required notice to the
Bank.
§ 1260.4 Distribution of Bank information
by FHFA.
(a) Timing. FHFA may distribute
information authorized to be distributed
pursuant to § 1260.2 after the expiration
of the applicable time period specified
in § 1260.3(b) unless, within that time
period, the affected Bank has filed with
FHFA a written request to withhold
particular proprietary information that
meets the requirements of § 1260.3(a).
When a Bank has filed such a request,
FHFA shall not distribute the
information that is the subject of the
request until the Director or his
designee has made the determination
and provided the notice required by
§ 1260.3(c) and shall distribute or
withhold the subject information in
conformity with that determination.
(b) Form. FHFA may distribute
information under this part in either
tangible or electronic form, as it deems
appropriate.
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6055
§ 1260.5 Disclosure of shared Bank
information.
(a) No waiver of privilege. The release
of information under this part does not
constitute a waiver by FHFA of any
privilege, or of its right to control,
supervise or impose limitations on the
subsequent use and disclosure of any
information concerning a Bank. To the
extent that any information provided to
a Bank or the Office of Finance pursuant
to this part qualifies as unpublished
information under part 911 of this title
or any successor provision, that
information shall continue to qualify as
such and shall continue to be subject to
the restrictions on disclosure set forth in
those provisions, provided that a Bank
shall not be deemed to have violated
§ 911.3(c) of this title or any successor
provision by disclosing in filings with
the SEC unpublished information about
another Bank that was obtained
pursuant to this part if the disclosure is
limited to a recital of the relevant
factual content of the underlying
information and the Bank has provided
the notice required by paragraph (b) of
this section.
(b) Disclosures under the Federal
securities laws. If a Bank determines in
good faith that it is required by any
applicable provisions of the 1934 Act or
of the regulations issued by the SEC
thereunder to disclose unpublished
information relating to another Bank
that it has received pursuant to this part,
it shall provide to FHFA and to the
Bank to which the information pertains
prior written notice of such
determination and of the content and
anticipated timing of the disclosure,
which notice shall be provided as far in
advance of the anticipated disclosure as
is feasible under the circumstances.
(c) Safeguarding of information. A
Bank may use unpublished information
distributed pursuant to this part only for
the purposes described in section
20A(a) of the Bank Act. Except as
otherwise provided in this part, neither
the Office of Finance, nor any Bank, nor
any officer, director or employee
thereof, may disclose or permit the use
or disclosure of any unpublished
information regarding another Bank or
the Office of Finance, received pursuant
to this part, in any manner or for any
purpose. Each Bank and the Office of
Finance shall implement policies and
procedures to prevent the improper
disclosure of such information and to
limit the access of its personnel to such
information, which policies and
procedures shall be no less stringent
than those that apply to the entity’s own
confidential and supervisory
information.
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(d) Information regarding the Office of
Finance. A Bank president that receives
any information regarding the Office of
Finance in his or her capacity as a
member of the board of directors of the
Office of Finance may share the
information with the board of directors
of the Bank at which he or she is
employed, as well as with the
appropriate officers and employees of
the Bank, subject to the limitations of
this part.
Dated: January 17, 2013.
Edward J. DeMarco,
Acting Director, Federal Housing Finance
Agency.
[FR Doc. 2013–01428 Filed 1–28–13; 8:45 am]
BILLING CODE 8070–01–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
21 CFR Part 1142
[Docket No. FDA–2012–N–1032]
Smokeless Tobacco Product Warning
Statements; Request for Comments
and Scientific Evidence
AGENCY:
Food and Drug Administration,
HHS.
Notification; request for
comments.
ACTION:
The Food and Drug
Administration (FDA) is establishing a
public docket to obtain comments,
supported by scientific evidence,
regarding what changes to the smokeless
tobacco product warnings, if any, would
promote greater public understanding of
the risks associated with the use of
smokeless tobacco products.
DATES: Submit electronic or written
comments by April 1, 2013.
ADDRESSES: Submit electronic
comments to https://
www.regulations.gov. Submit written
comments to the Division of Dockets
Management (HFA–305), Food and Drug
Administration, 5630 Fishers Lane, Rm.
1061, Rockville, MD 20852. Identify
comments with the docket number
found in brackets in the heading of this
document.
FOR FURTHER INFORMATION CONTACT: Gail
Schmerfeld, Center for Tobacco
Products, 9200 Corporate Blvd.,
Rockville, MD 20850–3229, 1–877–287–
1373, gail.schmerfeld@fda.hhs.gov.
SUPPLEMENTARY INFORMATION:
sroberts on DSK5SPTVN1PROD with
SUMMARY:
I. Background
On June 22, 2009, the President
signed the Family Smoking Prevention
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and Tobacco Control Act (Pub. L. 111–
31) (Tobacco Control Act) into law. The
Tobacco Control Act grants FDA
authority to regulate the manufacture,
marketing, and distribution of tobacco
products to protect public health
generally and to reduce tobacco use by
minors.
Section 204 of the Tobacco Control
Act amended section 3 of the
Comprehensive Smokeless Tobacco
Health Education Act (Smokeless
Tobacco Act) (15 U.S.C. 4402) to
prescribe new requirements for health
warnings that must appear on smokeless
tobacco product packages and
advertising. The Smokeless Tobacco Act
(15 U.S.C. 4402(a)(1) and (b)(1)),
requires that smokeless tobacco product
packages and advertising must bear one
of four required warning statements.
The four required warning statements
are:
‘‘WARNING: This product can cause
mouth cancer.’’
‘‘WARNING: This product can cause
gum disease and tooth loss.’’
‘‘WARNING: This product is not a
safe alternative to cigarettes.’’
‘‘WARNING: Smokeless tobacco is
addictive.’’ (15 U.S.C. 4402(a)(1))
One of the four required warning
statements must be located on each of
the two principal display panels of the
package and comprise at least 30
percent of each such display panel (15
U.S.C. 4402(a)(2)(A)). The Smokeless
Tobacco Act (15 U.S.C. 4402(a)(2) and
(b)(2)), also sets forth requirements for
the placement, type, size, and color of
warnings on packaging and
advertisements, respectively.
Section 205(a) of the Tobacco Control
Act further amended section 3 of the
Smokeless Tobacco Act to give FDA the
authority to ‘‘adjust the format, type size
and text of any of the label
requirements, require color graphics to
accompany the text, increase the
required label area from 30 up to 50
percent of the front and rear panels of
the package, or establish the format,
type size, and text of any other
disclosures required under the Federal
Food, Drug, and Cosmetic Act’’ through
rulemaking conducted under the
Administrative Procedures Act (5 U.S.C.
552, et seq.) if FDA ‘‘finds that such a
change would promote greater public
understanding of the risks associated
with the use of smokeless tobacco
products’’ (15 U.S.C. 4402(d)).
II. Request for Scientific Evidence and
Information
We are interested in comments,
supported by scientific evidence,
regarding what changes, if any, to the
smokeless tobacco product warnings
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would promote greater public
understanding of the risks associated
with the use of smokeless tobacco
products. The ‘‘public’’ includes both
tobacco users and nonusers (i.e., never
users and former users). Comments and
supporting evidence should address
how any changes in the warnings would
affect both users’ and nonusers’
understanding of the risks associated
with the use of smokeless tobacco
products.
III. Comments
Interested persons may submit either
written comments regarding this
document to the Division of Dockets
Management (see ADDRESSES) or
electronic comments to https://
www.regulations.gov. It is only
necessary to send one set of comments.
Identify comments with the docket
number found in brackets in the
heading of this document. Received
comments may be seen in the Division
of Dockets Management between 9 a.m.
and 4 p.m., Monday through Friday, and
will be posted to the docket at https://
www.regulations.gov.
Dated: January 18, 2013.
Leslie Kux,
Assistant Commissioner for Policy.
[FR Doc. 2013–01626 Filed 1–28–13; 8:45 am]
BILLING CODE 4160–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[REG–102966–10]
RIN 1545–BJ31
Designation of Payor as Agent To
Perform Acts Required of an Employer
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
This document contains
proposed regulations under section
3504 of the Internal Revenue Code
(Code) providing circumstances under
which a person (payor) is designated as
an agent to perform the acts required of
an employer and is liable for
employment taxes with respect to wages
or compensation paid by the payor to
individuals performing services for the
payor’s client pursuant to a service
agreement between the payor and the
client.
SUMMARY:
Written or electronic comments
must be received by April 29, 2013.
DATES:
E:\FR\FM\29JAP1.SGM
29JAP1
Agencies
[Federal Register Volume 78, Number 19 (Tuesday, January 29, 2013)]
[Proposed Rules]
[Pages 6045-6056]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01428]
[[Page 6045]]
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FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1260
RIN 2590-AA35
Information Sharing Among Federal Home Loan Banks
AGENCY: Federal Housing Finance Agency.
ACTION: Notice of proposed rulemaking; request for comments.
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SUMMARY: Section 1207 of the Housing and Economic Recovery Act of 2008
(HERA) amended the Federal Home Loan Bank Act (Bank Act) to require the
Federal Housing Finance Agency (FHFA) to make available to each Federal
Home Loan Bank (Bank) information relating to the financial condition
of all other Banks. Section 1207 also requires FHFA to promulgate
regulations to facilitate the sharing of such information among the
Banks. FHFA published a proposed rule to implement those HERA
provisions in late 2010, but, after reviewing the comments and
reconsidering the proposed means of information sharing, FHFA has
determined that a number of material changes to the rule are necessary.
Therefore, it is publishing this second proposed rule to implement the
provisions of section 1207.
DATES: Written comments must be received on or before April 1, 2013.
ADDRESSES: You may submit your comments, identified by regulatory
information number (RIN) 2590-AA35, by any of the following methods:
Email: Comments to Alfred M. Pollard, General Counsel may
be sent by email to RegComments@fhfa.gov. Please include ``RIN 2590-
AA35'' 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 email
to FHFA at RegComments@fhfa.gov to ensure timely receipt by FHFA.
Please include ``RIN 2590-AA35'' in the subject line of the message.
U.S. Mail, United Parcel Service, Federal Express, or
Other Mail Service: The mailing address for comments is: Alfred M.
Pollard, General Counsel, Attention: Comments/RIN 2590-AA35, Federal
Housing Finance Agency, Eighth Floor, 400 Seventh Street SW.,
Washington, DC 20024.
Hand Delivered/Courier: The hand delivery address is:
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA35,
Federal Housing Finance Agency, Eighth Floor, 400 7th Street SW.,
Washington, DC 20024. The package should be logged at the FHFA Guard
Desk, First Floor, on business days between 9 a.m. and 5 p.m.
FOR FURTHER INFORMATION CONTACT: Eric M. Raudenbush, Assistant General
Counsel, Office of General Counsel, Eric.Raudenbush@fhfa.gov, (202)
649-3084 (this is not a toll-free number); or Amy Bogdon, Associate
Director for Regulatory Policy and Programs, Office of Program Support,
Division of Bank Regulation, Amy.Bogdon@fhfa.gov, (202) 649-3320 (this
is not a toll-free number), Federal Housing Finance Agency, 400 Seventh
Street SW., Washington, DC 20024. 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 proposed rule and will
take all comments into consideration before issuing the final rule. All
comments received will be posted without change on the FHFA web site at
https://www.fhfa.gov, and will include any personal information
provided, such as name, address (mailing and email), and telephone
numbers. In addition, copies of all comments received will be available
without change for public inspection on business days between the hours
of 10:00 a.m. and 3:00 p.m., at the Federal Housing Finance Agency, 400
Seventh Street SW., Washington, DC 20024. To make an appointment to
inspect comments, please call the Office of General Counsel at (202)
649-3804.
II. Background
A. The Federal Home Loan Bank System
The Federal Home Loan Bank System (Bank System) consists of twelve
Banks and the Office of Finance (OF). The Banks are wholesale financial
institutions organized under the Bank Act.\1\ The Banks are
cooperatives; only members of a Bank may purchase its capital stock,
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.\2\ 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.\3\ 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.\4\
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\1\ See 12 U.S.C. 1423, 1432(a).
\2\ See 12 U.S.C. 1426(a)(4), 1430(a), 1430b.
\3\ See 12 U.S.C. 1427.
\4\ See 12 U.S.C. 1424; 12 CFR part 1263.
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B. Banks' Joint and Several Liability and Disclosure Requirements on
COs
The Banks fund their operations principally through the issuance of
consolidated obligations (COs), which are debt instruments issued on
behalf of the Banks by the OF, a joint office of the Banks, pursuant to
section 11 of the Bank Act,\5\ and part 1270 of the regulations of
FHFA.\6\ Under these regulations, the COs may be issued only through OF
as agent for the Banks, and the Banks are jointly and severally liable
for the timely payment of principal and interest on all COs when
due.\7\ Accordingly, even when COs are issued with one Bank being the
primary obligor, the ultimate liability for the timely payment of
principal and interest thereon remains with all of the Banks
collectively, which creates a need for each Bank to be able to assess
the financial condition of the other Banks.
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\5\ 12 U.S.C. 1431.
\6\ 12 CFR part 1270.
\7\ See 12 CFR 1270.4(a), 1270.10(a).
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Although the COs themselves are not registered securities under the
federal securities laws, the Federal Housing Finance Board (Finance
Board) \8\ adopted regulations in 2004 requiring each Bank to register
a class of its common stock (which is issued only to its member
institutions) with the Securities and Exchange Commission (SEC) under
section 12(g) of the Securities Exchange Act of 1934 (1934 Act).\9\
Each Bank subsequently registered a class of its common stock with the
SEC in compliance with that regulation. Separately, HERA included a
provision requiring the Banks to register their common stock under
section 12(g) of the 1934 Act, and to maintain that registration.\10\
Accordingly, each Bank remains subject to the periodic disclosure
requirements established
[[Page 6046]]
under the 1934 Act, as interpreted and administered by the SEC.
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\8\ The Federal Housing Finance Board was the regulator of the
Bank System from 1989 through 2008. HERA, which abolished the
Finance Board and established FHFA, provides that all regulations of
the Finance Board shall remain in effect and shall be enforceable by
the Director of FHFA until modified, terminated, set aside or
superseded by the Director. See Public Law 110-289, Sec. 1312, 122
Stat. 2798 (2008).
\9\ 15 U.S.C. 78l(g). See 69 FR 38811 (June 29, 2004), codified
at 12 CFR part 998.
\10\ See 15 U.S.C. 78oo(b).
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C. New Statutory Provision Requiring the Sharing of Bank Information
Section 1207 of HERA added a new section 20A to the Bank Act that
requires FHFA to make available to each Bank such reports, records, or
other information as may be available, relating to the condition of any
other Bank in order to enable each Bank to evaluate the financial
condition of the other Banks and the Bank System as a whole.\11\ The
underlying objective for that requirement is to better enable each Bank
to assess the likelihood that it may be required to make payments on
behalf of another Bank under its joint and several liability on the
COs, as well as to comply with disclosure obligations under the 1934
Act regarding its potential joint and several liability.\12\ Section
20A further requires FHFA to promulgate regulations to facilitate the
sharing of such financial information among the Banks.\13\ Section 20A
permits a Bank to request that FHFA determine that particular
information that may otherwise be made available is ``proprietary'' (a
term that is not defined in the Bank Act) and that the public interest
requires that such information not be shared.\14\ Finally, section 20A
provides that it does not affect the obligations of the Banks under the
1934 Act and related regulations of the SEC, and that the sharing of
Bank information thereunder shall not cause FHFA to waive any privilege
applicable to the shared information.\15\
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\11\ See 12 U.S.C. 1440a.
\12\ See 12 U.S.C. 1440a(a).
\13\ See 12 U.S.C. 1440a(b)(1).
\14\ See 12 U.S.C. 1440a(b)(2).
\15\ See 12 U.S.C. 1440a(c), (d).
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D. The First Proposed Rule
On September 30, 2010, FHFA published in the Federal Register a
proposed rule to implement section 20A of the Bank Act by adding to
FHFA's regulations a new part 1260 to govern the sharing of information
among the Banks and the OF. Under the proposed rule, FHFA also proposed
to move to new part 1260, without substantive change, existing
regulations of the Finance Board relating to the filing of regulatory
reports by the Banks. The 60-day comment period closed on November 29,
2010.\16\
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\16\ See 75 FR 60347 (Sept. 30, 2010).
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Under the first proposed rule, FHFA would have routinely
distributed each Bank's report of examination (or such portions thereof
deemed appropriate by FHFA), as well as any other supervisory report
that FHFA presented to a Bank's board of directors, to each of the
other Banks and the OF. This distribution would have occurred after
affording the subject Bank a ten business day period following the
presentation of the report to the Bank's board of directors within
which to request that particular information contained in the report be
withheld from distribution on the basis that it is proprietary and the
public interest requires that it not be shared. The proposed rule would
have provided that any sharing of information thereunder would not
constitute a waiver by FHFA of any privileges with respect to the
shared information and that, to the extent that the shared information
qualified as ''unpublished information'' under part 911 of the
regulations of the Finance Board, it would continue to qualify as such
and would continue to be subject to the restrictions on disclosure set
forth in part 911.\17\
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\17\ See 12 CFR part 911.
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FHFA received ten comment letters in response to the first proposed
rule, all of which were sent by representatives of individual Banks--
specifically, the Atlanta, Chicago, Dallas, Des Moines, Indianapolis,
New York, Pittsburgh, San Francisco, Seattle, and Topeka Banks. Seven
of the commenters expressed general support for the rule, although
several of those expressed concerns about possible disclosure of
sensitive or confidential information that may be contained in Banks'
reports of examination and several provided a number of recommendations
regarding other changes and clarifications to be made in the final
rule. The three remaining commenters expressed general opposition to
the first proposed rule as written because they believed that the types
of information proposed to be distributed thereunder--i.e., the Banks'
reports of examination and other supervisory reports presented to a
Bank's board of directors--would not serve the purposes underlying
section 20A of the Bank Act. These commenters suggested alternative
categories of financial information to be disseminated by FHFA (which
are discussed in more detail below) that they asserted would better
fulfill the intent behind section 20A, but did not otherwise comment on
specific aspects of the first proposed rule.
III. The Second Proposed Rule
Following the close of the comment period on the first proposed
rule, FHFA reviewed all of the comments received and also analyzed more
closely a number of issues underlying the rule, including the scope of
information to be shared and how that scope might evolve over time. As
a result of this analysis, FHFA concluded that the scope of information
to be shared under the rule should be broader than that contemplated in
the first proposed rule and that, because of frequent changes in the
content and format of reports, analyses and databases that FHFA might
distribute or make available under the rule, the precise items to be
shared should be established by order of the Director of FHFA or his
designee, as opposed to being enshrined in the rule text. The agency
believes that these changes represent a significant enough departure
from the approach taken in the first proposed rule to warrant the
publication of this second proposed rule, which supersedes the first
proposed rule.
Under the new approach, the regulatory text of the proposed rule
continues to address the procedures through which the information
sharing is to be carried out and to set forth requirements intended to
prevent or limit the disclosure of shared information to outside
parties. With respect to the latter issue, FHFA has made a number of
additions and changes in response to comments received. Specific
comments, FHFA's responses, and differences between the first and
second proposed rules are described in greater detail below in the
sections describing the relevant rule provisions. In addition, the
specific items that FHFA expects to distribute pursuant to the initial
order issued by the Director or his designee under the rule are also
discussed in detail.
In addition to a number of substantive differences, this second
proposed rule is also organized somewhat differently than the first
proposal. Under the first proposed rule, the material currently
contained in section 914.2 of the regulations of the Finance Board
(which requires each Bank to file regulatory reports as required by its
regulator), as well as related definitions set forth in section 914.1,
would have been transferred to new part 1260 without substantive
change.\18\ FHFA is no longer proposing to transfer this material to
part 1260 because the agency now contemplates that it will separately
adopt an equivalent regulatory provision that would be applicable to
all of its regulated entities.\19\ Because part 1260 (and subchapter D
of chapter XII, of which it is a part) is intended to
[[Page 6047]]
apply only to the Banks, the agency determined that it is not an
appropriate location for that new provision. Also, in the first
proposed rule, all of the new material governing the sharing of
information among Banks (other than definitions) was contained in a
single CFR section. In this second proposed rule, that substantive
material has been broken into four separate CFR sections in order to
provide greater clarity.
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\18\ See 12 CFR part 914.
\19\ In addition to the Banks, FHFA is also the regulator of
Fannie Mae and Freddie Mac. See 12 U.S.C. 4502(20), 4511.
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A. Section 1260.1--Definitions
As in the first proposed rule, Sec. 1260.1 of this proposed rule
sets forth definitions of terms to be used in part 1260. Because the
material that would have been transferred from part 914 of the Finance
Board's regulations under the first proposed rule is not included in
this proposed rule, the defined terms relating to that material have
been removed from proposed Sec. 1260.1. In addition, definitions of
the short forms ``Bank'' (for a Federal Home Loan Bank), ``Bank Act''
(for the Federal Home Loan Bank Act), and FHFA (for the Federal Housing
Finance Agency) have been removed because those terms are now defined
in 12 CFR 1201.1, which sets forth definitions of basic terms that are
used throughout FHFA's regulations.\20\ Section 1201.1 also defines the
terms ``SEC'' (meaning the United States Securities and Exchange
Commission) and ``1934 Act'' (meaning the Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.)), which are used in this proposed rule,
but which were not used in the first proposed rule.
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\20\ See 78 Fed. Reg. 2319 (Jan. 11, 2013). New Sec. 1201.1 and
related revisions to FHFA's regulations and those of the Finance
Board become effective on February 11, 2013.
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In this second proposed rule, FHFA has added definitions for the
terms ``proprietary information'' (which is discussed below) and
``unpublished information'' (cross-referencing the definition for that
term set forth in 12 CFR 911.1). None of the commenters addressed the
definitions set forth in the first proposed rule.
B. Section 1260.2--Sharing of Information Among the Banks
Reasoning Behind Revised Approach
Section 1260.3(a) of the first proposed rule would have required
that FHFA periodically distribute to each Bank and to the OF the final
reports of examination (or such portions thereof that FHFA deemed
appropriate) of all other Banks, as well as any other supervisory
reports that FHFA presented to the board of directors of a Bank,
subject to the requirements set forth in the remainder of the rule. In
the first proposed rule, the agency also requested comments on whether
the rule should allow the Director or his designee to expand the
categories of information to be distributed thereunder by means of an
order or other agency action without the need for subsequent amendment
of the rule.
Seven commenters expressly supported the sharing of final reports
of examination for each Bank, and six also expressly supported the
sharing of other supervisory reports presented to a Bank's board of
directors by FHFA. Five commenters expressly supported the exclusion of
findings and conclusions memoranda, work programs and other supervisory
materials not presented to a Bank's board of directors from the
information sharing required under the rule, while no commenters
favored sharing these types of materials. Several of the commenters who
generally supported the sharing of final supervisory reports requested
that FHFA also distribute any response from a Bank's management to a
report of examination, stating that this would provide insight into how
other Banks address the issues raised. All of the commenters who
supported the sharing of final reports of examination also expressed
concern about the possible disclosure of sensitive or confidential
information that may be contained in the reports and offered a number
of suggestions about how such disclosure could be prevented. As
discussed further below, three of the commenters generally opposed the
sharing of final reports of examination because they believed the
reports would be of questionable usefulness in assessing a Bank's
current and future ability to make payments on its COs.
As stated in the SUPPLEMENTARY INFORMATION to the first proposed
rule, each Bank already has access to a significant amount of
information about the financial condition of the other Banks, including
reports filed with the SEC under the 1934 Act, call reports filed with
FHFA, quarterly certifications filed with FHFA attesting to each Bank's
ability to make full and timely payments on its current obligations
during the next quarter, FHFA's Annual Report to Congress (required
under 12 U.S.C. 4521(a)), and various other reports and summaries
prepared by FHFA. FHFA approached the first proposed rule principally
as a means of providing for the distribution of additional types of
Bank information above and beyond the substantial amount of information
to which the Banks already have access. As reflected in the first
proposed rule, the agency believed that, given the volume of
information that is already available to the Banks, the most useful
source of additional information would be the Banks' reports of
examination. Thus, the first proposed rule focused upon providing each
Bank's full report of examination to all of the other Banks, with
appropriate redactions for proprietary information meeting the criteria
stated in section 20A of the Bank Act.
In the process of developing a final rule, FHFA reconsidered both
the procedural and substantive aspects of the first proposed rule and,
based on both comments received and on internal discussions, ultimately
concluded that two major changes were warranted that would improve on
the substance of the first proposed rule. First, FHFA concluded that
the specific categories of information to be distributed under the
regulation should not be identified in the rule itself, but by means of
a Director's order. Second, FHFA concluded that such an order should
address not only new categories of information to be shared, but also
the many types of Bank-related financial data and reports that FHFA
already distributes, or makes available, to the Banks. Accordingly,
Sec. 1260.2 of this proposed rule provides that the specific
categories of information to be distributed to the Banks and the OF
would be established by means of an order issued by the Director of
FHFA or by a senior agency official designated by the Director pursuant
to an appropriate delegation of authority. In keeping with the apparent
intent behind section 20A of the Bank Act, the categories of
information that could be included in such an order would be limited to
financial and supervisory information regarding the Banks, either
individually or collectively.
FHFA believes that, on balance, this approach will better fulfill
the purposes of section 20A by allowing the scope of information shared
to evolve more readily to meet the information needs of the Banks.
Depending on the types of financial and supervisory issues that the
Bank System may be facing at any given time, FHFA may occasionally
prepare a single report on a specific topic, or may prepare a
particular report for a limited period of time and then, for various
reasons, either discontinue the report or combine it with another
report. Even reports that are prepared regularly over an extended
period of time often evolve in terms of format, content or title--
again, sometimes in response to the changing issues that the Bank
System may be facing, or sometimes merely to make them more useful for
the purposes for which they were intended. This flexible approach to
the preparation and
[[Page 6048]]
distribution of Bank information has worked well to this point, and
FHFA believes that it would be appropriate to incorporate that approach
into this proposed information sharing regulation, rather than to
continue with the original approach of specifying the items of shared
information in the regulatory text. FHFA believes that to impose upon
itself the obligation to undertake a full notice-and-comment rulemaking
every time it seeks to alter the format or content of a report, or
determine that it is appropriate to share a new category of
information, would undermine its ability to provide the Banks with the
type of appropriate and timely financial information that section 20A
requires to be shared.
In the SUPPLEMENTARY INFORMATION to the first proposed rule, FHFA
requested comment on whether the final rule should allow FHFA to expand
the categories of information to be disseminated to the Banks without
undertaking a subsequent rulemaking. Three commenters expressly
supported allowing FHFA to expand the categories of information to be
shared without a rulemaking, as long as the Banks are given a
reasonable opportunity for informal review and comment on any changes
in advance. No commenters objected to including such a provision.
FHFA recognizes that there are advantages to allowing the Banks an
informal opportunity to provide input on the types of information that
would be most useful to them and also on the types of information that
they believe should not be disclosed to other Banks. To this end, Sec.
1260.2 of this proposed rule would require that FHFA provide the Banks
with reasonable notice and an opportunity to comment before issuing an
order that would establish or amend the scope of information to be
shared under the rule. The inclusion of this provision will allow FHFA,
in consultation with the Banks, to make appropriate adjustments to the
scope of information being shared as both gain more experience in the
process, without the necessity of revising the rule. Thus, if it
becomes apparent over time that it is appropriate to distribute a wider
range of information, this can be accomplished by means of a written
order issued under Sec. 1260.2.
In order to provide the Banks and the OF, as well as other
interested parties, the fullest opportunity to consider and comment
upon the range of information that FHFA expects to include in the
initial order issued under a final information sharing rule, these
items are set out and discussed below. Similarly, the agency intends to
publish the final rule and the initial distribution order concurrently
so as to provide the greatest possible clarity regarding the scope and
effect of the final rule. If the list of information to be shared under
the distribution order that is published with the final rule is
substantially identical to that described in this Supplementary
Information, no further opportunity to comment on the contents of the
order will be provided to the Banks--i.e., FHFA will consider the
notice and opportunity to comment provided by this proposed rule to
have fulfilled the requirements of Sec. 1260.2. However, if the list
of information to be shared under that order differs materially from
that described in this Supplementary Information, a further opportunity
to comment will be provided to the Banks in accordance with the
provisions of the rule. To be clear, proposed Sec. 1260.2 would not
require this type of formal notice-and-comment process when a
distribution order is issued or amended; and if that provision is
adopted substantially as proposed, the agency anticipates that it would
typically use a less formal notice-and-comment process when it issues
or amends a distribution order.
Anticipated Scope of Information Sharing Under Initial Distribution
Order
As mentioned, FHFA already provides each Bank with a substantial
amount of financial information about the other Banks--both in the form
of raw data and in the form of analytical reports based on raw data.
FHFA believes that, for the sake of clarity and efficiency, as well as
to be consistent with the HERA mandate for information sharing, those
existing distributions of information should also be governed by the
procedures and requirements that would be established under a final
information sharing rule. Thus, the agency expects that the initial
distribution order issued under the rule would bring within the purview
of the rule the following categories of information that are currently
made available to the Banks: (1) Information uploaded by each Bank to
FHFA's call report system (CRS) electronic database (excluding Bank
membership information) \21\; (2) information about the Banks that is
presented in FHFA's semi-annual ``Profile of the Federal Home Loan Bank
System'' report prepared by FHFA's Division of Bank Regulation (DBR)
\22\; (3) information relating to the weekly report on Bank liquidity
prepared by DBR; and (4) information relating to the quarterly report
on Bank membership prepared by DBR. In addition, FHFA anticipates that
the initial order would also provide for the distribution of three new
categories of information: (1) The ``Summary and Conclusions'' portion
of each Bank's report of examination; (2) a quarterly statement, to be
prepared by FHFA, indicating whether each Bank has timely filed with
FHFA the quarterly liquidity certification required pursuant to 12 CFR
1270.10(b)(1); and (3) a statement, to be prepared by FHFA as
circumstances warrant, identifying any Bank that has notified FHFA
pursuant to 12 CFR 1270.10(b)(2) of any actual or anticipated liquidity
problems and describing the nature of the liquidity problems. Each of
these new categories of information is described below.
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\21\ Banks currently are not permitted to access detailed
information about other Banks' members that is contained in the CRS
database because FHFA considers this to be proprietary information.
FHFA does not intend to share this information under the initial
distribution order to be issued under a final rule.
\22\ DBR also prepares more detailed semi-annual profiles of the
individual Banks which currently are shared only with the subject
Bank and not with other Banks or the OF. Because these individual
Bank profiles often contain proprietary information regarding a
Bank's members, as well as assessments based upon detailed
information from the Bank's report of examination, FHFA does not
intend to share this information under the initial distribution
order to be issued under a final rule.
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Banks' Reports of Examination
The first proposed rule contemplated that FHFA would routinely
distribute each Bank's report of examination in its entirety, subject
to the proviso that FHFA reserved the right to narrow the distribution
to those portions of the report that FHFA deemed appropriate. FHFA
carefully considered comments received, as well as the requirements of
section 20A of the Bank Act, and the agency's statutory
responsibilities as regulator and supervisor of the Bank System and has
decided that a narrower approach to the sharing of the reports of
examination would be more appropriate. The reason for this modified
approach is to ensure that each Bank receives the information necessary
to assess the condition of the other Banks and to make legal
disclosures regarding its potential joint and several liability without
damaging the integrity of the Bank examination process. Candid
communication--both by Bank employees and by FHFA examiners--is a
critical element of the examination process. The agency has
reconsidered whether the distribution of full final reports of
examination, as provided in the first proposed rule, might inhibit
candid communications between Bank employees and FHFA examiners,
thereby compromising the Bank examination process and
[[Page 6049]]
undermining FHFA's ability to carry out its supervisory
responsibilities. These concerns regarding the examination process were
reflected indirectly in Sec. 1260.3(a) of the first proposed rule,
under which FHFA would have reserved the authority to distribute only
``such portions'' of the reports of examination that the agency
``deem[ed] appropriate.'' Despite the fact that the first proposed rule
would have allowed FHFA to redact certain portions of a report of
examination, the agency now believes that it is preferable to take a
more explicit and standardized approach to identifying the portions of
the report of examination that will be provided to the other Banks and
the OF.
Accordingly, FHFA expects that, under the initial distribution
order, it would routinely distribute to the Banks and the OF the
material that is currently contained in the ``Summary and Conclusions''
portion of each Bank's final annual report of examination. With respect
to the timing of these distributions, FHFA anticipates that the initial
order will reflect the approach from the first proposed rule, which is
that each distribution would be made soon after FHFA has presented the
final report to the subject Bank's board of directors. The Federal Home
Loan Bank Examination Manual issued by FHFA requires that the Summary
and Conclusions section contain an evaluation of the overall condition
and practices of the Bank, as well as a table that depicts the date and
examination ratings (both composite and component ratings) for the
current examination and the previous examination.\23\ This must be
followed by a concise discussion of the composite rating which
addresses any component that is a significant factor in the composite
rating or has changed since the previous examination. Thus, the agency
anticipates that the order would provide for the distribution of those
portions of each Bank's exam report that set forth: (i) The Bank's
composite rating and component ratings for the current and prior
examination; (ii) a summary of the basis for the current composite
rating (including any component that is a significant factor in the
composite rating) and any changes to the composite or component ratings
since the last examination; and (iii) the conclusion regarding the
overall condition and practices of the Bank and the analysis used to
reach that conclusion. FHFA would not distribute the portions of any
report of examination in which the component examination ratings are
discussed or analyzed in detail or in which the ``matters requiring
attention'' of the Bank's board of directors are enumerated or
discussed.\24\
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\23\ The Federal Home Loan Bank Examination Manual can be found
at https://www.fhfa.gov/webfiles/2652/FHFB%20Manual.pdf.
\24\ Component ratings are currently given for: (1) Corporate
governance; (2) market risk; (3) credit risk; (4) operational risk;
and (5) financial condition and performance. FHFA is adopting a new
examination ratings system, effective January 1, 2013, under which
component ratings will be given for: (1) Capital; (2) asset quality;
(3) management; (4) earnings; (5) liquidity; (6) sensitivity to
market risk; and (7) operational risk. See 77 FR 67644 (Nov. 13,
2012).
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Under the initial order, FHFA would not distribute any other
supervisory reports that it may present to the board of directors of a
Bank, as would have been the case under the first proposed rule. In
addition, FHFA does not anticipate providing in the initial order for
the sharing of Bank managements' responses to reports of examination,
as suggested by one commenter. FHFA examiners discuss findings with
Bank management prior to the preparation of a final report of
examination, which discussions provide examiners with insights into the
opinions and reactions of Bank management. FHFA believes that
disclosure of such communications between management and the
examination team is not essential to understanding the financial
condition of the Bank, and could hamper the open and honest
communication that is required to carry out the examination process
effectively.
Banks' Quarterly Liquidity Certifications and Related Liquidity Notices
As mentioned above, three commenters generally opposed the sharing
of final reports of examination and other supervisory reports presented
by FHFA to a Bank's board of directors. All three of these viewed the
purpose behind section 20A of the Bank Act as being limited strictly to
providing each Bank with sufficient information to evaluate the
financial condition of the other Banks in order to assess the
likelihood that it may be called upon to make payments on another
Bank's COs under the joint and several liability provisions of the Bank
Act. None of these commenters believed that the sharing of final
supervisory reports would be an effective method of achieving this goal
because they argued that these reports address topics that are not
necessarily related to a Bank's financial condition and are not
designed to provide real-time financial information that would aid in
evaluating joint and several liability. All three of these commenters
advocated that FHFA include in its final rule an alternative provision
requiring FHFA to confirm to all of the Banks, on a quarterly basis,
that each of the other Banks has submitted a certification that it
remains capable of making full and timely payment of all of its current
obligations coming due during the next quarter, as required under Sec.
1270.10(b)(1) of FHFA's regulations.\25\ In response to this comment,
FHFA proposes that the initial distribution order provide for the
regular distribution of a statement by FHFA confirming that each Bank
has filed its quarterly liquidity certification, as well as a statement
by FHFA about any notices that may be submitted by a Bank about
liquidity problems, as required by Sec. 1270.10(b)(2) of the
regulations.\26\
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\25\ 12 CFR 1270.10(b)(1).
\26\ 12 CFR 1270.10(b)(2).
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Section 1270.10(b)(1) of the regulations requires that, before the
end of each calendar quarter, and before declaring or paying any
dividend for that quarter, the President of each Bank certify in
writing to FHFA that, based on known current facts and financial
information, the Bank will remain in compliance with all statutory and
regulatory liquidity requirements and will remain capable of making
full and timely payment of all of its current obligations coming due
during the next quarter. In addition, Sec. 1270.10(b)(2) requires that
a Bank provide immediate notice to FHFA if the Bank: (i) Is unable to
provide the written certification required by paragraph (b)(1); (ii)
projects at any time that it will fail to comply with statutory or
regulatory liquidity requirements, or will be unable to timely and
fully meet all of its current obligations due during the quarter; (iii)
actually fails to comply with statutory or regulatory liquidity
requirements or to timely and fully meet all of its current obligations
due during the quarter; or (iv) negotiates or enters into an agreement
with one or more other Banks to obtain financial assistance to meet its
current obligations due during the quarter.
FHFA proposes that the initial distribution order provide that,
following the end of each calendar quarter, FHFA distribute a statement
indicating whether each Bank has timely filed the quarterly
certification relating to the Bank's anticipated compliance with
liquidity requirements and its anticipated ability to meet its
obligations coming due during the following calendar quarter, as
required by Sec. 1270.10(b)(1). For example, soon after the end of the
first calendar quarter of a year, FHFA would distribute a
[[Page 6050]]
statement indicating for each Bank whether, prior to the end of the
first quarter, the Bank filed the required certification regarding its
ability to meet liquidity requirements and meet its obligations during
the second quarter. The order would also provide that, following its
receipt of any notice filed under Sec. 1270.10(b)(2), FHFA distribute
to all of the other Banks and the OF a statement identifying the Bank
that filed the notice and describing the nature of the notice. In this
statement, FHFA would provide whatever additional information about the
notice that it deems appropriate under the circumstances. At present,
certain of the Banks individually ask FHFA whether the other Banks have
made their quarterly liquidity certifications, and FHFA responds to
those requests individually by confirming its receipt of the
certifications from the other Banks. By incorporating this information
into the HERA-mandated information sharing regime, FHFA would make this
information available to all of the Banks, not just those who ask for
it.
Other Information Which May Be Shared in the Future
In various combinations, the three commenters who advocated the
sharing of information about the liquidity filings made under Sec.
1270.10(b) also supported the quarterly distribution of certain other
financial information regarding each Bank. The suggested financial
information included, for each Bank: net income projections and
anticipated material losses; projected dividend rates; impairments of
assets; concentrations of advances and exposures to derivatives
counterparties and mortgage insurers; market risk limit measures,
including key rate durations; liquidity information; member collateral
shortfalls; unsecured credit exposures; and FHFA's intended actions if
a Bank is expected to default on its upcoming obligations. Certain of
this financial information, such as that relating to concentration of
advances to members, exposures to derivatives counterparties, other
unsecured credit exposures, and liquidity requirements, is already
available through the Banks' federal securities filings, which may
lessen the need to include it within the HERA-mandated information
sharing regime. Because of that, FHFA does not currently anticipate
that the initial distribution order would require the distribution of
those items, but recognizes that, after FHFA and the Banks have gained
further experience with the substance and mechanics of the information
sharing process, it may be appropriate to include similar types of
information within the information sharing regime. Accordingly, FHFA
requests comments on what types of financial information, beyond those
already available to the Banks through the federal securities filings
and the FHFA's call report data base, might be appropriate for FHFA to
include within the information sharing regime, either as part of the
initial distribution order or subsequently.
FHFA also requests comments on whether it would be useful for the
agency to distribute under this rule a weekly DBR report on the Banks'
unsecured credit exposure. As required under Sec. 1273.6(f) of FHFA's
regulations, the OF currently collects from each Bank data relating to
the Bank's unsecured credit exposure to individual counterparties and,
from this data, compiles and distributes to the Banks a monthly
report.\27\ These reports may be of limited practical value given that
the data is typically about 20 days old by the time the report is
distributed and that the vast majority of the Banks' unsecured credit
exposure occurs in the form of overnight transactions. In order to
address these shortcomings, DBR recently has been preparing for its own
internal use a weekly report that covers the Banks' credit exposures
arising from repurchase transactions (which are not covered by the
existing OF report, but which can constitute a significant portion of
the Banks' exposure to foreign counterparties), as well as the forms of
unsecured credit exposure that are addressed in the OF report. The new
DBR report is typically completed within one day of FHFA's receipt of
the data and assesses the Banks' exposure based upon seven-day
averages, rather than as of a single point-in-time, as is the case with
the OF report. Although FHFA has not yet determined whether it will
continue to compile these reports or whether it will distribute them to
the Banks on a regular basis, the agency seeks comment on whether
regular distribution of these reports to the Banks would further the
purposes of section 20A of the Bank Act.
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\27\ See 12 CFR 1273.6(f).
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FHFA as Information Clearinghouse
Like the first proposed rule, this proposed rule requires that FHFA
act as the clearinghouse for the sharing of information under section
20A of the Bank Act, and provides no mechanism for the direct sharing
of such information among Banks. Four commenters expressly supported
this approach, and none objected. One commenter requested that the
final rule contain an explicit statement that it governs the entirety
of a Bank's right to receive shared information under section 20A of
the Bank Act and that no Bank is permitted to receive such information
unilaterally from FHFA or another Bank. FHFA has not included such a
statement in this proposed rule. In part, this is because part 911 of
the Finance Board's regulations, which continues to govern the control
of unpublished information,\28\ already prohibits a Bank from
disclosing information created or obtained by the Finance Board or FHFA
in connection with the performance of official duties, including
reports of examination and supervisory correspondence, without prior
written authorization from FHFA.\29\ The first proposed rule would not
have authorized any direct sharing of unpublished information among the
Banks and no such authorization has been included in this proposed
rule. In order to preserve its ability to provide written authorization
for the disclosure of unpublished information as circumstances warrant,
FHFA has declined to include in this proposed rule a blanket
prohibition on the direct sharing of such materials. In addition, there
is no basis upon which FHFA may prohibit a Bank from sharing financial
information that does not qualify as unpublished information under part
911, even if it is shared with one or several Banks to the exclusion of
others. Moreover, the Banks currently share certain non-confidential
information among themselves on an informal basis--a practice that FHFA
does not want to discourage, as could be the case if the proposed rule
were to include a
[[Page 6051]]
prohibition such as that raised by the commenters.
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\28\ In this issue of the Federal Register, FHFA is also
publishing a proposed rule which would replace part 911 with new
regulations governing the control of unpublished information (which
is referred to as ``non-public information'' in that proposed rule).
If adopted in final form as proposed, those new regulations would be
identical in effect to the provisions of part 911 that are
referenced in the regulatory text of this proposed rule and that are
discussed in this Supplementary Information. Should FHFA's final
rule on non-public information differ materially from the proposed
rule with respect to those provisions, these changes will be
addressed and appropriately accounted for in the final version of
this rule.
\29\ See 12 CFR 911.3(c)(1). In 2006, the Finance Board issued
an Advisory Bulletin that permitted a Bank to disclose the factual
content of information contained in its report of examination, if
necessary in the preparation of its SEC disclosures, but continued
to prohibit the Banks from releasing the report of examination
itself, or any portion of the report. See Federal Housing Finance
Board Advisory Bulletin 2006-AB-03 (July 18, 2006) (available online
at https://www.fhfa.gov/webfiles/13094/2006-AB-03.pdf). The Advisory
Bulletin also specifically prohibited the sharing of reports of
examination among the Banks, and nothing in the second proposed rule
is intended to override this restriction.
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The centralized distribution process reflected in this proposed
rule represents the agency's best initial judgment as to the
appropriate way to implement section 20A. FHFA intends to undertake the
distribution of Bank information within the parameters of part 1260,
but will assess the process on an ongoing basis and make such
adjustments within those parameters, or take such other steps
(including amending the rule if appropriate), as it determines are
necessary to most effectively fulfill the statutory information sharing
mandate.
For similar reasons, FHFA has declined a request made by three
commenters that the final rule specify that FHFA is to distribute
information directly to the chief executive officer of each Bank and of
the OF. Although the agency intends to provide guidance as to the
specifics of the distribution process (probably as part of the
distribution orders), FHFA believes that these specifics should not be
enshrined in the regulation. FHFA already communicates with the Banks
through various secure means, and other such approaches may be
developed over time. To require FHFA to undertake a new rulemaking to
make the necessary adjustments would hinder the ability of the agency
to carry out the distribution process in the most effective manner.
FHFA believes that the restrictions on disclosure of information by
Banks and their directors, officers and employees set forth in Sec.
1260.5 of this proposed rule (discussed in detail below) and elsewhere
are sufficient to protect confidential information. Within those
parameters, each Bank must establish its own policies and procedures to
govern access to the shared information.
C. Section 1260.3--Requests To Withhold Proprietary Information
As required under section 20A of the Bank Act, Sec. 1260.3(b)(1)
of the first proposed rule would have permitted a Bank to request in
writing that FHFA withhold from distribution particular information
contained in a report of examination, so long as the Bank could
demonstrate that the information is proprietary and the public interest
requires that it not be shared. The first proposed rule would have
given a Bank ten business days following the presentation of a report
to its board of directors within which to make such a request. Section
1260.3(b)(2) of the first proposed rule would have required the
Director of FHFA or his designee to make a prompt, non-appealable
determination as to whether to redact the subject information from the
report to be distributed and to notify the affected Bank of its
decision.
In this proposed rule, FHFA has restructured the provisions
regarding the withholding of proprietary information, primarily to
correspond to the changes that are proposed to be made to the scope of
information to be shared under the rule, but also to provide greater
clarity and in response to some of the comments received on the first
proposed rule. Those provisions are located in Sec. 1260.3 of this
proposed rule. It has also added a definition of the term ``proprietary
information'' to Sec. 1260.1 in order to clarify the standards to be
applied in making proprietary determinations under the rule and to
ensure that those standards are consistent with standards that FHFA
applies when it makes proprietary determinations in other contexts.
Section 1260.3(a) provides that a Bank may request in writing that
FHFA withhold from distribution particular information relating to the
Bank on the grounds that it is proprietary information and the public
interest requires that it not be shared. Section 1260.3(a) would also
require that, in order for a request to be considered by FHFA, the
request must identify the particular information the Bank believes
should be withheld and provide support for the assertions that it is
proprietary information and that withholding such information from the
other Banks and the OF is necessary to protect the public interest. The
primary purpose of this provision is to make clear that, in preparing a
request to withhold particular information, a Bank must be able to
demonstrate that it meets both the ``public interest'' and the
``proprietary information'' elements of the statutory test. An
assertion that a piece of information is ``proprietary information,''
without more, is not sufficient under the statute to justify
withholding the information.
Proposed Sec. 1260.1 defines the term ``proprietary information''
to mean ``information that contains trade secrets, or privileged or
confidential commercial or financial information that, if shared among
the Banks and the Office of Finance as provided under this part, would
likely cause substantial competitive harm to the Bank to which the
information pertains.'' Because neither section 20A nor any other
provision of the Bank Act defines the term ``proprietary,'' FHFA looked
to the Freedom of Information Act (FOIA) and related case law in
formulating the proposed definition. Specifically, the definition is
based largely upon the language of section 552(b)(4) of FOIA (Exemption
4), which exempts from FOIA's public disclosure requirements ``trade
secrets and commercial or financial information obtained from a person
and privileged or confidential.'' \30\ The definition also incorporates
language from a line of judicial interpretations of Exemption 4
requiring that disclosure of the information in question be ``likely *
* * to cause substantial harm to the competitive position of the person
from whom the information was obtained'' in order for that information
to qualify for exemption from FOIA disclosure pursuant to that
provision.\31\
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\30\ See 5 U.S.C. 552(b)(4).
\31\ See, e.g., National Parks & Conservation Ass'n v. Morton,
498 F.2d 765, 770 (DC Cir. 1974).
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Although the term ``proprietary'' does not actually appear in the
statutory text of FOIA, courts interpreting FOIA Exemption 4 generally
have treated that provision as referring to proprietary
information.\32\ FHFA has chosen to take this approach in part because
it will allow the agency to draw upon the substantial body of case law
interpreting Exemption 4 if called upon to make a proprietary
determination under section 20A (although in doing so FHFA will not be
bound by FOIA, its legislative history, or Exemption 4 case law). In
addition, the proposed definition parallels the regulatory definition
that FHFA applies when determining whether particular data constitutes
``proprietary information'' that must be excluded from the electronic
``Public Use Database'' of information on mortgages purchased by Fannie
Mae and Freddie Mac that the agency is required by statute to maintain
and make available to the public.\33\ However, unlike determinations
made
[[Page 6052]]
under the Public Use Database regulations, in order for information to
be withheld from distribution under section 20A and this rule, a Bank
must establish not only that the information is proprietary, but also
that the public interest requires that it not be distributed.
Accordingly, it is possible that, under this rule, FHFA may find it
necessary to distribute information that qualifies as ``proprietary''
where the distribution of that information is necessary or appropriate
to fulfill the purposes of section 20A.
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\32\ See, e.g., Public Citizen Health Research Group v. FDA, 704
F.2d 1280 (DC Cir. 1983). In Public Citizen, the U.S. Court of
Appeals for the District of Columbia Circuit clarified that, in
order to meet the ``competitive harm'' requirement imposed by
National Parks and its progeny, the harm arising from disclosure of
the information at issue must ``flow[] from the affirmative use of
proprietary information by competitors.'' See id. at 1291 n.30.
\33\ See 12 U.S.C. 4543. The definition of ``proprietary
information'' that FHFA uses in such cases is actually contained in
the regulations of the Department of Housing and Urban Development
(HUD), see 24 CFR 81.2, which was responsible for maintaining the
Public Use Database (PUDB) until Congress transferred responsibility
for that function to FHFA in 2008. In developing its definition of
``proprietary information,'' HUD drew from FOIA Exemption 4 and
related case law in part so that it would be able to draw upon the
body of FOIA law when making proprietary determinations under its
PUDB regulations. See 60 Fed. Reg. 61846, 61877 (Dec. 1, 1995). FHFA
expects to propose new PUDB regulations in the near future and
anticipates that those regulations will contain a definition of
``proprietary information'' that is substantially similar to the one
contained in the current HUD-promulgated PUDB regulations.
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Section 1260.3(b) of this proposed rule addresses the required
timing of requests from the Banks to withhold proprietary information.
Paragraph (b)(1) establishes general rules for requests relating to
information submitted by the Banks, as well as for requests relating to
information created by FHFA, such as reports of examination. Paragraph
(b)(2) provides an exception to the general rules, which would allow
the Director to establish different timeframes for particular
categories of information that may be distributed pursuant to a
distribution order issued under Sec. 1260.2. For information that a
Bank submits to FHFA, subparagraph (b)(1)(i) provides that the agency
would consider only those requests that were received prior to, or
simultaneously with, the Bank's submission of the information to FHFA.
For example, if a Bank were to believe that elements of the data that
it uploads into FHFA's CRS database met the statutory standards for
being withheld from distribution, it would be required to submit its
request to FHFA no later than the time at which it uploads the data.
Otherwise, it would forgo the right to object at a later time to FHFA's
distribution of that data--whether the data was made available in raw
form (for example, as data accessible to other Banks in the CRS) or in
modified form (for example, as part of comparisons with the data of
other Banks, as presented in the Bank System Profile Book or other
reports on the Banks or Bank System).
The reasoning behind this approach for Bank-submitted information
is three-fold. First, this type of information is likely to serve the
purposes underlying section 20A of the Bank Act only if other Banks are
able to access it in a timely fashion. To allow a Bank a multi-day
period within which to ask that portions of the information be withheld
would introduce an unnecessary delay in the process and could lead to
the risk that the information will be stale by the time it is received
by other Banks, thus undermining the purpose of the information sharing
scheme. For example, FHFA currently distributes to the Banks a weekly
liquidity report, which it could not continue to do with the same
timeliness if Banks had an opportunity to object to the distribution of
portions of each week's data. Second, because the Banks themselves
prepare the information and would be aware of its probable
distribution, the marginal utility of providing them with an additional
period of time in which to review the information for proprietary
material would not outweigh the need to distribute the information in a
timely manner. Finally, the vast majority of the data that Banks submit
to FHFA through the CRS and in response to special data requests is in
the form of numbers reflecting past financial performance, which data
is unlikely to contain anything that could be considered proprietary in
nature.
For information to be distributed other than that which is
submitted to FHFA by the Banks themselves, subparagraph (b)(1)(ii)
would permit each Bank ten business days after being provided a copy of
the information within which to review that information for proprietary
material and to deliver to FHFA a request to withhold. This is
substantially identical to the approach reflected in the first proposed
rule with respect to Banks' reports of examination and, in fact, would
apply in the same way to that information under this proposed rule.
As mentioned, paragraph (b)(2) of Sec. 1260.3 would allow FHFA, as
part of an order issued by the Director or his designee under Sec.
1260.2, to establish requirements for the timing of requests to
withhold for any category of information to be distributed under such
an order. Paragraph (b)(2) requires that, in establishing any such
requirements, the Director or his designee must consider the volume and
complexity of the information to be reviewed, the Bank's existing
familiarity with the information, the frequency of submission or
distribution of the information, the likelihood that the information
will contain proprietary information, and the effect that any delay in
the distribution of the information would have on the fulfillment of
the purposes of section 20A(a) of the Bank Act.
FHFA anticipates that, for the sake of clarity, when it issues the
initial distribution order identifying the particular categories of
information to be disclosed, it also would specify which information is
subject to the ``time of submission'' provision and which is subject to
the ``10 business day'' provision, described above. For example, FHFA
anticipates that the initial order would specify that a Bank will have
ten business days following the date on which FHFA presents a report of
examination to the Bank's board of directors within which to request
that FHFA redact particular proprietary information before distributing
it to the other Banks--i.e., the request would need to be filed before
the close of business on the tenth business day following the
presentation of the report to the Bank's board. Similarly, the initial
distribution order would likely reiterate that the Banks will be
required to file requests to withhold data uploaded to the CRS,
information submitted in response to a special data request or
liquidity certifications and notices at or before the time that such
information is submitted to FHFA.
Section 1260.3(c) of this proposed rule provides that, after
receiving a written request that meets the form and timing requirements
of paragraphs (a) and (b) of Sec. 1260.3, the Director or his designee
shall promptly determine whether to withhold any information from
distribution, which determination is final. Paragraph (c) would also
require that FHFA notify the affected Bank of its determination and
prohibit FHFA from distributing the information that is the subject of
the request until it has provided the required notice to the Bank.
Three commenters supported the first proposed rule's provision for
the withholding of proprietary information when doing so is found to be
in the public interest, while no commenters objected to the withholding
of such information, or to the finality of FHFA's determination
regarding the information requested to be withheld. A number of
commenters requested that the final rule provide a mechanism for the
withholding of categories of information in addition to that which FHFA
deems to be proprietary and in the public interest to withhold. Seven
commenters expressed concern over the possible disclosure of
information that is subject to confidentiality agreements with third
parties, or confidentiality provisions of license agreements. Five
commenters stated that because each Bank is a separate legal entity,
providing a Bank with access to sensitive or confidential strategic,
operational, regulatory and business information may not be
appropriate. Six commenters stated that sensitive information, such as
that identifying personnel, or describing personnel matters, should not
be distributed.
FHFA has declined to include in this proposed rule additional bases
upon which the Banks may request the
[[Page 6053]]
withholding of information beyond that which is mandated by section 20A
of the Bank Act. While section 20A does not expressly limit the bases
upon which a Bank may request that FHFA withhold information, the fact
that the statute expressly permits Banks to request the withholding
only of proprietary information and requires a conclusion that any
withholding of such information be in the public interest is a strong
indication that the intent of Congress was to limit the types of
information which the Banks could request to be withheld. FHFA believes
that the concerns raised by the commenters will be mitigated by the
fact that only the summary portions of the Banks' reports of
examination would be distributed under the anticipated initial
distribution order. In addition, FHFA is cognizant of the concerns
expressed by the commenters and will prepare reports of examination
with those concerns in mind.
Seven commenters expressly supported the ten business day period in
which a Bank would be permitted to request the withholding of
proprietary information from distribution. However, all of these
commenters also asked that the final rule require FHFA to notify the
subject Bank prior to distribution if the request is fully or partially
denied, and to identify the information that will not be withheld, in
order to allow the Bank to make timely and appropriate securities law
or contractual disclosures. Section 1260.3(b)(2) of the first proposed
rule would have required FHFA to provide notice of any determination
regarding a request to withhold information, and this provision appears
in revised form in Sec. 1260.3(c) of this proposed rule, which
specifies that FHFA must provide such notice to the requesting Bank and
may not distribute any of the information in question until it has
provided that notice.
D. Section 1260.4--Timing and Form of Information Distribution
Section 1260.3(c) of the first proposed rule would have required
FHFA to distribute a Bank's report of examination after the ten-
business-day period had expired without a request to withhold
proprietary information or, if a Bank had made such a request, after
the Director or his designee had acted on the request. If the Director
or his designee were to determine that the report of examination
included proprietary information that should not be shared, that
proposed rule would have required FHFA to distribute an appropriately
redacted version of the report. The first proposed rule also would have
allowed FHFA to distribute the reports in either tangible or electronic
form, as deemed appropriate on either an ongoing or case-by-case basis.
FHFA received no comments on this provision of the rule.
Section 1260.4 of this proposed rule is substantially similar to
Sec. 1260.3(c) of the first proposal, although the wording has been
altered slightly to reflect the more generic approach to the scope of
information to be distributed. Section 1260.4(a) provides that FHFA may
distribute information to the other Banks and the OF after the
expiration of the applicable time period for asking that FHFA withhold
proprietary information, unless the affected Bank has asked that
particular information be withheld from distribution. Section 1260.4(a)
further provides that when a Bank has filed a request to withhold
information, FHFA may not distribute the information that is the
subject of the request until after the Director or his designee has
acted on the request and has provided the affected Bank with notice of
the decision. Under this provision, the Director or his designee would
be free to reach any appropriate decision regarding the distribution of
the information in question--i.e., to withhold all of the information,
to distribute all of the information or to withhold part and distribute
part of the information in question. Subsequently, FHFA would
distribute the subject information in conformity with that decision.
Under Sec. 1260.4(b), as under the first proposed rule, FHFA would be
permitted to distribute the information in either tangible or
electronic form, as it deems appropriate.
E. Section 1260.5--Control of Shared Information
Section 1260.3(d) of the first proposed rule provided that the
sharing of information under the rule did not constitute a waiver by
FHFA of any privilege, or its right to control, supervise, or impose
limitations on, the subsequent use and disclosure of any information
concerning a Bank. The first proposed rule also provided that, to the
extent that any reports of examination or other materials provided to a
Bank or the OF under the rule otherwise qualify as ``unpublished
information'' under 12 CFR part 911 (or any future regulatory
provisions dealing with the same subject matter that may be promulgated
by FHFA), those materials would continue to qualify as such and would
continue to be subject to the restrictions on disclosure of such
information set forth therein.\34\ Two commenters expressly supported
this provision and none opposed it. In this proposed rule, FHFA has
carried over that provision from the first proposed rule (with
additions described below), and has redesignated that provision as
Sec. 1260.5(a). This proposed rule also adds three new provisions,
contained in paragraphs (b), (c), and (d) of Sec. 1260.5, to address
more comprehensively the protection of unpublished information.
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\34\ Under 12 CFR part 911 ``unpublished information'' refers to
any information or document created or obtained by FHFA in
connection with the performance of official duties, regardless of
who possesses it, except for information or documents that the
agency is required by statute or its own regulations to disclose or
that were previously published or disclosed or are customarily
furnished to the public in the course of the performance of official
duties. See 12 CFR 911.1 (definition refers to the former Federal
Housing Finance Board as regulator, but now applies to FHFA).
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Section 20A of the Bank Act makes clear that a primary reason for
requiring the sharing of information among the Banks is to enable each
Bank to better assess the likelihood that it will need to make payments
pursuant to its joint and several liability on Bank System COs and to
enable it to better fulfill its duty to disclose material information
regarding the likelihood of such payments as required by applicable
provisions of the federal securities laws or regulations issued
thereunder by the SEC. Citing the restrictions on the disclosure of
unpublished information set forth in 12 CFR part 911, several
commenters requested that FHFA provide in the final rule, or in other
guidance, authorization for each Bank to disclose in its SEC disclosure
documents material information derived from the reports of examination
of other Banks received under the rule after giving prior notice to the
Bank to which the information pertains.
In 2006, the Finance Board issued written guidance authorizing each
Bank to use and disclose in its SEC disclosure documents information
contained in its own report of examination, provided that the
disclosure is limited to a recital of the factual content of the report
and does not involve the release of the report of examination itself,
or any portion of it.\35\ FHFA has added to Sec. 1260.5(a) of this
proposed rule language to extend this treatment to unpublished
information regarding other Banks received pursuant to an order issued
under Sec. 1260.2, provided that the Bank meets the requirements
regarding disclosure of this information that are set out in Sec.
1260.5(b) of the rule. In this proposed rule, FHFA has added
[[Page 6054]]
Sec. 1260.5(b) to permit a Bank to disclose unpublished information
received under Sec. 1260.2 in its SEC disclosure documents provided
that its determination that such disclosure is required under
applicable provisions of the federal securities laws has been made in
good faith, and that the Bank provides to FHFA and to the Bank to which
the information pertains prior notice of the content and the
anticipated timing of the disclosure. FHFA believes it is unlikely that
information received regarding one Bank would prompt an SEC disclosure
obligation by another Bank if the subject Bank has not determined that
the information was material to the first Bank and thus warranted
disclosure under the federal securities laws.\36\ Nonetheless, because
each Bank makes its own determination as to materiality and the content
of its own disclosures under the federal securities laws, such a result
is at least possible and, for that reason, FHFA has decided to address
the matter in this proposed rule.
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\35\ See Federal Housing Finance Board Advisory Bulletin 2006-
AB-03 (July 18, 2006).
\36\ Each Bank is subject to the periodic reporting requirements
of section 13(a) of the 1934 Act, 15 U.S.C. 78m(a), and, therefore,
upon the occurrence of a material corporate event, is required to
file with the SEC (in most cases within four business days of the
material event) a current report on Form 8-K. See 17 CFR 240.13a-11;
17 CFR 249.308.
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While the first proposed rule would have addressed the maintenance
of the privileged status of reports of examination from the perspective
of FHFA, it would not have addressed the confidentiality of shared
information from the perspective of the Banks. Two commenters requested
that the final rule clarify that the release of information under the
rule will not be deemed a waiver by the subject Bank of any privilege
or right to control the underlying information. In addition, four
commenters advocated including a requirement in the final rule that
would require each Bank to take measures to ensure that the
confidentiality of other Banks' supervisory information is maintained
by those that will have access to it. One commenter stated that the
final rule should require that all Banks use reasonable means, but not
less than that used to protect their own proprietary information, to
safeguard the information contained in another Bank's report of
examination and avoid unauthorized disclosure, dissemination or use.
In response to these concerns, FHFA has included in this proposed
rule a new Sec. 1260.5(c), which expressly states that a Bank may use
unpublished information received under the rule only for the purposes
described in section 20A(a) of the Bank Act (i.e., to evaluate the
financial condition of one or more other Banks and to comply with its
obligations under the 1934 Act), and prohibits the disclosure of any
unpublished information received under Sec. 1260.2, except as
otherwise provided in the rule (e.g., in the case of a disclosure made
under the federal securities laws pursuant to Sec. 1260.5(a) and (b)).
Proposed Sec. 1260.5(c) would further require that each Bank and the
OF implement policies and procedures to prevent the improper disclosure
of such information and to limit the access of its personnel to such
information. Under this proposed rule, these policies and procedures
must be no less stringent than those that apply to the entity's own
confidential and supervisory information. As with other internal
controls, these procedures and their implementation will be subject to
FHFA scrutiny as part of the Bank examination process.
Finally, like the first proposed rule, this proposed rule does not
provide for any formal sharing of information pertaining to the OF
because all twelve Bank presidents are members of the OF's board of
directors and, therefore, already have access to its report of
examination and other financial information. Three commenters expressly
agreed that, for the reason stated, reports of examination for the OF
do not need to be formally distributed to the Banks, while no
commenters advocated the formal distribution of the OF reports or other
information. However, all three supported inclusion of a specific
provision stating that Bank presidents be permitted to share
information regarding the OF with the boards of directors and
appropriate staff of his or her Bank, subject to the restrictions on
disclosure and adoption of policies and procedures required under the
rule. FHFA has included such a provision in Sec. 1260.5(d) of this
proposed rule.
IV. Consideration of Differences Between the Banks and the Enterprises
Section 1201 of HERA amended the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992 to add a new section
1313(f), which requires the Director of FHFA, when promulgating
regulations relating to the Banks, to consider the differences between
the Banks and the Enterprises (Fannie Mae and Freddie Mac) as they
relate to: the Banks' cooperative ownership structure; the mission of
providing liquidity to members; the affordable housing and community
development mission; their capital structure; and their joint and
several liability on consolidated obligations.\37\ The Director also
may consider any other differences that are deemed appropriate. In
preparing this second proposed rule, FHFA considered the differences
between the Banks and the Enterprises as they relate to the above
factors, and determined that the rule is appropriate. No commenters
raised any issues relating to this statutory requirement, as it applied
to the first proposed rule.
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\37\ See 12 U.S.C. 4513(f).
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V. Paperwork Reduction Act
This proposed rule 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.
VI. Regulatory Flexibility Act
This proposed rule 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, FHFA certifies that this proposed rule
will not have significant economic impact on a substantial number of
small entities.
List of Subjects
12 CFR Part 1260
Confidential business information, Federal home loan banks,
Reporting and recordkeeping requirements.
Accordingly, for the reasons stated in the SUPPLEMENTARY
INFORMATION and under the authority of 12 U.S.C. 4526, the Federal
Housing Finance Agency proposes to amend subchapter D of chapter XII of
title 12 of the Code of Federal Regulations as follows:
CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY
Subchapter D--Federal Home Loan Banks
0
1. Add part 1260 to read as follows:
PART 1260--SHARING OF INFORMATION AMONG FEDERAL HOME LOAN BANKS
Sec.
1260.1 Definitions.
1260.2 Bank information to be shared.
1260.3 Requests to withhold proprietary information.
1260.4 Distribution of Bank information by FHFA.
1260.5 Disclosure of shared Bank information.
Authority: 12 U.S.C. 1440a, 4511 and 4513.
[[Page 6055]]
Sec. 1260.1 Definitions.
As used in this part:
Proprietary information means information that contains trade
secrets, or privileged or confidential commercial or financial
information that, if shared among the Banks and the Office of Finance
as provided under this part, would likely cause substantial competitive
harm to the Bank to which the information pertains.
Unpublished information has the meaning set forth in Sec. 911.1 of
this title.
Sec. 1260.2 Bank information to be shared.
In order to enable each Bank to evaluate the financial condition of
any one or more of the other Banks and the Bank System, FHFA shall
distribute to each Bank and to the Office of Finance such categories of
financial and supervisory information regarding each Bank and the Bank
system as the Director or his designee may specify from time to time by
written order, subject to the requirements of this part. Prior to
issuing or amending such an order, FHFA shall notify each Bank and the
Office of Finance of the proposed contents of the order and allow them
a reasonable period within which to comment.
Sec. 1260.3 Requests to withhold proprietary information.
(a) General. A Bank may request in writing that FHFA withhold from
distribution particular information relating to the Bank that may
otherwise be subject to distribution under Sec. 1260.2 on the basis
that it is proprietary information and the public interest requires
that it not be shared. Any such request shall identify the particular
information the Bank believes should be withheld and provide support
for the assertions that it is proprietary information and that
withholding it from the other Banks and the Office of Finance is
necessary to protect the public interest.
(b) Timing of requests.--(1) General. Unless otherwise specified by
written order as described in paragraph (b)(2) of this section, the
period within which a Bank may make a request to withhold proprietary
information under paragraph (a) of this section shall be as follows:
(i) For information that a Bank submits to FHFA, the request shall
be delivered to FHFA no later than the time at which the Bank submits
the subject information to FHFA.
(ii) For information that FHFA creates (not including compilations
of data submitted by the Banks), prior to distributing any information
relating to a particular Bank, FHFA shall provide that Bank with a copy
of the information to be distributed, after which the Bank shall have
ten (10) business days within which to deliver the request to FHFA.
(2) As specified by written order. Any order issued by the Director
or his designee under Sec. 1260.2 may establish requirements for the
timing of requests to withhold proprietary information that are
different from those specified under paragraph (b)(1) of this section
for any category of information to be distributed thereunder. In
establishing such requirements, the Director or his designee shall give
due regard to the volume and complexity of the information to be
reviewed, the Bank's existing familiarity with the information, the
frequency of submission or distribution of the information, the
likelihood that the information will contain proprietary information,
and the effect that any delay in the distribution of the information
would have on the fulfillment of the purposes of section 20A(a) of the
Bank Act.
(c) Determination and notice by FHFA. After receiving a written
request that meets the requirements of paragraphs (a) and (b) of this
section, the Director or his designee shall promptly determine whether
to withhold any information from distribution pursuant to the request,
which determination shall be final. FHFA shall promptly notify the
affected Bank of that determination and shall not distribute any
information that is the subject of the request until it has provided
the required notice to the Bank.
Sec. 1260.4 Distribution of Bank information by FHFA.
(a) Timing. FHFA may distribute information authorized to be
distributed pursuant to Sec. 1260.2 after the expiration of the
applicable time period specified in Sec. 1260.3(b) unless, within that
time period, the affected Bank has filed with FHFA a written request to
withhold particular proprietary information that meets the requirements
of Sec. 1260.3(a). When a Bank has filed such a request, FHFA shall
not distribute the information that is the subject of the request until
the Director or his designee has made the determination and provided
the notice required by Sec. 1260.3(c) and shall distribute or withhold
the subject information in conformity with that determination.
(b) Form. FHFA may distribute information under this part in either
tangible or electronic form, as it deems appropriate.
Sec. 1260.5 Disclosure of shared Bank information.
(a) No waiver of privilege. The release of information under this
part does not constitute a waiver by FHFA of any privilege, or of its
right to control, supervise or impose limitations on the subsequent use
and disclosure of any information concerning a Bank. To the extent that
any information provided to a Bank or the Office of Finance pursuant to
this part qualifies as unpublished information under part 911 of this
title or any successor provision, that information shall continue to
qualify as such and shall continue to be subject to the restrictions on
disclosure set forth in those provisions, provided that a Bank shall
not be deemed to have violated Sec. 911.3(c) of this title or any
successor provision by disclosing in filings with the SEC unpublished
information about another Bank that was obtained pursuant to this part
if the disclosure is limited to a recital of the relevant factual
content of the underlying information and the Bank has provided the
notice required by paragraph (b) of this section.
(b) Disclosures under the Federal securities laws. If a Bank
determines in good faith that it is required by any applicable
provisions of the 1934 Act or of the regulations issued by the SEC
thereunder to disclose unpublished information relating to another Bank
that it has received pursuant to this part, it shall provide to FHFA
and to the Bank to which the information pertains prior written notice
of such determination and of the content and anticipated timing of the
disclosure, which notice shall be provided as far in advance of the
anticipated disclosure as is feasible under the circumstances.
(c) Safeguarding of information. A Bank may use unpublished
information distributed pursuant to this part only for the purposes
described in section 20A(a) of the Bank Act. Except as otherwise
provided in this part, neither the Office of Finance, nor any Bank, nor
any officer, director or employee thereof, may disclose or permit the
use or disclosure of any unpublished information regarding another Bank
or the Office of Finance, received pursuant to this part, in any manner
or for any purpose. Each Bank and the Office of Finance shall implement
policies and procedures to prevent the improper disclosure of such
information and to limit the access of its personnel to such
information, which policies and procedures shall be no less stringent
than those that apply to the entity's own confidential and supervisory
information.
[[Page 6056]]
(d) Information regarding the Office of Finance. A Bank president
that receives any information regarding the Office of Finance in his or
her capacity as a member of the board of directors of the Office of
Finance may share the information with the board of directors of the
Bank at which he or she is employed, as well as with the appropriate
officers and employees of the Bank, subject to the limitations of this
part.
Dated: January 17, 2013.
Edward J. DeMarco,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2013-01428 Filed 1-28-13; 8:45 am]
BILLING CODE 8070-01-P