Information Sharing Among Federal Home Loan Banks, 73407-73414 [2013-28824]

Download as PDF Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations loan or of the contract governing the servicing; (ii) During a period when no payment is required on a post-secondary education loan, (A) Maintaining account records for the loan and (B) Communicating with the borrower regarding the loan, on behalf of the loan’s holder; or (iii) Interactions with a borrower, including activities to help prevent default on obligations arising from postsecondary education loans, conducted to facilitate the activities described in paragraph (i) or (ii) of this definition. (b) Test to define larger participants. A nonbank covered person that offers or provides student loan servicing is a larger participant of the student loan servicing market if the nonbank covered person’s account volume exceeds one million. Dated: December 3, 2013. Richard Cordray, Director, Bureau of Consumer Financial Protection. [FR Doc. 2013–29145 Filed 12–5–13; 8:45 am] BILLING CODE 4810–AM–P FEDERAL HOUSING FINANCE AGENCY 12 CFR Part 1260 RIN 2590–AA35 Information Sharing Among Federal Home Loan Banks Federal Housing Finance Agency. ACTION: Final rule. AGENCY: Section 1207 of the Housing and Economic Recovery Act of 2008 (HERA) amended the Federal Home Loan Bank Act (Bank Act) to add a new section 20A, which requires 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 20A also requires FHFA to promulgate regulations to facilitate the sharing of such information among the Banks. This final rule implements the provisions of section 20A of the Bank Act. DATES: The final rule is effective on January 6, 2014. FOR FURTHER INFORMATION CONTACT: Eric M. Raudenbush, Assistant General Counsel, Office of General Counsel, Eric.Raudenbush@fhfa.gov, (202) 649– 3084; or Jonathan Curtis, Financial Analyst, Office of Program Support, Division of Bank Regulation, maindgalligan on DSK5TPTVN1PROD with RULES SUMMARY: VerDate Mar<15>2010 16:51 Dec 05, 2013 Jkt 232001 Jonathan.Curtis@fhfa.gov, (202) 649– 3321 (these are not a toll-free numbers), 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. 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 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 1 See 12 U.S.C. 1423, 1432(a). 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. 5 12 U.S.C. 1431. 6 12 CFR part 1270. 7 See 12 CFR 1270.4(a), 1270.10(a). 2 See PO 00000 Frm 00029 Fmt 4700 Sfmt 4700 73407 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 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 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, section 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, repealed, 78 FR 15869 (March 13, 2013). 10 See 15 U.S.C. 78oo(b). 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). E:\FR\FM\06DER1.SGM 06DER1 73408 Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations 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 maindgalligan on DSK5TPTVN1PROD with RULES D. The Proposed Rules On September 30, 2010, FHFA published a proposed rule to implement section 20A of the Bank Act by adding to its regulations a new part 1260 to govern the sharing of information among the Banks and the OF.16 Following the close of the 60-day comment period on November 29, 2010, the agency reviewed and considered 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. Ultimately, FHFA concluded that a number of revisions to the proposed rule were necessary and that those revisions were significant enough to require the publication of a second proposed rule. On January 29, 2013, FHFA published a second proposed rule that, again, proposed to implement section 20A by adding a new part 1260 to its regulations.17 As re-proposed, new part 1260 addressed the procedures through which FHFA would share with all of the Banks non-public financial and supervisory information about each individual Bank, including procedures through which a Bank could request that FHFA withhold from distribution qualifying proprietary information, and set forth requirements intended to prevent or limit the disclosure of that shared information to outside parties. However, in contrast to the first proposed rule, the regulatory text of the second proposed rule did not enumerate the specific categories of information that FHFA would distribute under the rule. Instead, it provided that the Director would identify those categories through an order, which could be updated or superseded from time to time as necessary. In the SUPPLEMENTARY INFORMATION to the second proposed rule, FHFA identified and described seven categories of information that it expected to make available under the initial distribution order to be issued under a final rule and requested comments on those categories. FHFA also requested comments on one additional category of information that 15 See 12 U.S.C. 1440a(c), (d). 16 See 75 FR 60347 (Sept. 30, 2010). 17 See 78 FR 6045 (Jan. 29, 2013). VerDate Mar<15>2010 16:51 Dec 05, 2013 Jkt 232001 it was considering including in the initial distribution order. The 60-day comment period for the second proposed rule ended on April 1, 2013. FHFA received two comment letters in response to the proposed rule, both of which were sent by representatives of individual Banks— specifically, the San Francisco and Topeka Banks. Neither Bank’s letter expressed general support for, or opposition to, the second proposed rule. Instead, each Bank’s letter requested a specific change to the regulatory text. Both Bank’s comments are discussed below in the analysis of the final rule text. II. The Final Rule In developing the final rule, FHFA considered the suggestions made in the comment letters, but decided not to adopt those suggestions. The agency ultimately decided to adopt a final rule that is substantially similar to the second proposed rule, but that differs from that proposal in two respects. First, while the second proposed rule provided that the categories of information to be distributed would be identified through an order of the Director or his designee, the final rule provides that these categories will be identified in a written notice to be issued by the agency. Second, revisions have been made to the rule text in several sections to address the possibility that FHFA may in the future determine that certain types of information are best shared directly between the Banks, as opposed to being distributed to the Banks by or through FHFA, which was the only method of distribution contemplated under the second proposed rule. These revisions, as well as a few non-substantive changes to the rule text are discussed below. FHFA has also decided that the information to be distributed initially under the final rule will consist of the eight categories that were described in the Supplementary Information to the second proposed rule. The initial information sharing notice, which sets forth those categories, is also being published by FHFA in this issue of the Federal Register. Each of the categories of information enumerated in that notice are to be distributed to the Banks and the OF by FHFA. Although additions to the final rule text address the possibility of direct sharing of information between Banks, no such direct sharing will occur initially. A. Section 1260.1—Definitions Section 1260.1 of the final rule sets forth definitions of the terms PO 00000 Frm 00030 Fmt 4700 Sfmt 4700 ‘‘proprietary information’’ and ‘‘nonpublic information’’ to be used in part 1260. The definition of ‘‘proprietary information’’ is identical to that set forth in § 1260.1 of the second proposed rule. This meaning of that term is discussed below in the context of the substantive portions of the rule. The term ‘‘non-public information’’ is defined to have the same meaning as that set forth in 12 CFR 1214.1, which generally defines the term to include ‘‘information that FHFA has not made public that is created by, obtained by, or communicated to an FHFA employee in connection with the performance of official duties, regardless of who is in possession of the information.’’ 18 It replaces the term ‘‘unpublished information,’’ which had been used in the second proposed rule. At the time the second proposed rule was published, the availability and control of that type of information was governed by 12 CFR part 911, which was a regulation of the former Federal Housing Finance Board that continued in effect after that agency was abolished and replaced by FHFA as regulator of the Banks in 2008. Since the publication of the second proposed rule, FHFA has adopted its own regulation, located at 12 CFR part 1214, to address the same subject matter.19 Although the agency chose to use the term ‘‘non-public information,’’ as opposed to ‘‘unpublished information,’’ in that rule and defined the term using somewhat different wording than that which was used in part 911, there is no substantive difference in the meaning of the two terms. 18 12 CFR 1214.1. The full definition reads ‘‘Nonpublic information means information that FHFA has not made public that is created by, obtained by, or communicated to an FHFA employee in connection with the performance of official duties, regardless of who is in possession of the information. This includes confidential supervisory information as defined above. It does not include information or documents that FHFA has disclosed under the Freedom of Information Act (5 U.S.C. 552; 12 CFR Part 1202), or Privacy Act of 1974 (5 U.S.C. 552a; 12 CFR Part 1204). It also does not include specific information or documents that were previously disclosed to the public at large or information or documents that are customarily furnished to the public at large in the course of the performance of official FHFA duties, including but not limited to: disclosures made by the Director pursuant to the Enterprise Public Use Database Rule (currently located at 24 CFR subpart F, and any FHFA successor rule); the annual report that FHFA submits to Congress pursuant to the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.), press releases, FHFA blank forms, and materials published in the Federal Register.’’ 19 See 78 FR 39957 (July 3, 2013). E:\FR\FM\06DER1.SGM 06DER1 maindgalligan on DSK5TPTVN1PROD with RULES Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations B. Section 1260.2—Bank Information To Be Shared Under § 1260.2 of the second proposed rule, FHFA would have distributed to each Bank and to the OF the categories of information specified in an order to be issued by the Director of FHFA or by an agency official designated by the Director pursuant to an appropriate delegation of authority. Proposed § 1260.2 would have further required that, prior to issuing or amending such a distribution order, FHFA notify each Bank and the OF of the proposed contents of the new or revised order and allow them a reasonable period within which to comment. In the final rule, § 1260.2 has been revised to incorporate the two changes mentioned above: (1) To provide that the categories of information to be distributed are to be identified by means of a written notice to be issued by FHFA, as opposed to an order of the Director or his designee; and (2) to provide for the possibility that certain types of information may be shared directly between the Banks, as opposed to being distributed only by or through FHFA. In addition, the revised material in § 1260.2 has now been divided into three subsections. Final § 1260.2(a) provides that ‘‘FHFA shall distribute to each Bank and to the Office of Finance, or shall require each Bank to distribute directly to each other Bank and the Office of Finance, such categories of financial and supervisory information regarding each Bank and the Bank system as it determines to be appropriate.’’ Final § 1260.2(b) requires that FHFA prepare and issue to each Bank and the OF a notice setting forth the categories of information that it will distribute, or that the Banks will share directly, under the rule. It also requires that FHFA review the information sharing notice on a periodic basis, and add or delete items as necessary to ensure that the information sharing under part 1260 continues to fulfill the purposes of section 20A of the Bank Act. As was the case with the distribution order contemplated under the second proposed rule, final § 1260.2(b) also requires that, prior to issuing a new or revised information sharing notice, FHFA notify each Bank and the OF of the proposed contents of the new or revised notice and allow them a reasonable period within which to comment. Finally, § 1260.2(c) of the final rule provides that the Director of FHFA or his designee may issue any orders that are necessary to effect the distribution of the information set forth in the information sharing notice and VerDate Mar<15>2010 16:51 Dec 05, 2013 Jkt 232001 otherwise to carry out the provisions of part 1260. Shared Information To Be Specified in Notice, Not Order The distribution order referred to in § 1260.2 of the second proposed rule would not have actually ordered anyone to do anything, but would have merely informed the Banks and the OF of the information that FHFA intended to share and, in some cases, of the time within which a Bank must file a request to hold proprietary information, so in the final rule FHFA has restyled that order as a notice. In some future cases, the agency may find it necessary to issue an order to require the Banks to share certain information directly. Thus, despite the fact that the Director of FHFA always has the power to issue orders to govern matters within his or her authority, § 1260.2(c) has been included to make clear that the Director may issue any orders that are necessary to effect the preparation and distribution of particular items and that these orders are to be separate from the information sharing notice. Direct Sharing of Information Between Banks In drafting both the first and second proposed rules, FHFA contemplated that it alone would act as the clearinghouse for all required sharing of information under section 20A of the Bank Act. Accordingly, in the second proposed rule, § 1260.2 referred only to the distribution of information by FHFA, and the rule did not otherwise address the possibility that FHFA might require a Bank to share information directly with the other Banks and the OF. FHFA still anticipates that it will serve as the clearinghouse for most of the information sharing under the final rule, and will do so for all of the categories of information enumerated in the initial information sharing notice. However, in some circumstances, direct sharing of information between the Banks may be the most timely, efficient, or secure approach. Therefore, upon further consideration, FHFA has decided to provide in the final rule for the option of direct sharing so as not to limit the agency’s ability to implement the most appropriate method of information sharing in any particular case. Although the second proposed rule did not address the direct sharing of information between Banks, the rule would not have prohibited such direct sharing. In the Supplementary Information to the second proposed rule, FHFA declined a commenter’s request to include in the rule text an PO 00000 Frm 00031 Fmt 4700 Sfmt 4700 73409 explicit provision stating that part 1260 governs the entirety of a Bank’s right to receive shared information under section 20A and that no Bank is permitted to receive such information unilaterally from FHFA or another Bank. The agency explained that its regulations already prohibit a Bank from disclosing non-public information without prior written authorization from FHFA and that it wished to preserve its ability to provide written authorization for the disclosure of such information as circumstances warrant. FHFA further explained that there is no basis upon which it may generally prohibit Banks from sharing financial information that does not qualify as non-public information under the regulations, and that it did not want to discourage the voluntary sharing of information among Banks that already occurs. To be clear, this final rule is intended to govern only mandatory direct sharing of information between Banks as set forth in an information sharing notice issued under § 1260.2 of the rule; voluntary sharing of information between Banks is not subject to the requirements or procedural protections of part 1260. Types of Information Sharing Addressed by the Rule In keeping with the apparent intent behind section 20A of the Bank Act, § 1260.2 limits the type of information that may be shared under the provisions of the rule to financial and supervisory information regarding the Banks, either individually or collectively. Even before the enactment of section 20A in 2008, a great deal of financial information about the Banks, both individually and collectively, was already being made available to the public on an ongoing basis both by FHFA and by the Banks themselves (for example, through the Banks’ SEC filings). FHFA believes that section 20A was intended primarily to foster the sharing among the Banks of financial and supervisory information that was not already available to them or to the public-at-large under any existing statutory authority. The provision of Section 20A that authorizes FHFA to make such information available to the Banks without negating any privilege that may be attached to it, subject to the required procedural protections for information that a Bank claims to be proprietary, supports that interpretation. Part 1260 is intended to implement section 20A by establishing a process through which each Bank may gain access to financial and supervisory information about the other Banks that is not available to the wider public. Its requirements do not apply to the E:\FR\FM\06DER1.SGM 06DER1 73410 Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations distribution of information that has already been made available to the public, or that is available to the public upon request. maindgalligan on DSK5TPTVN1PROD with RULES Issuance or Revision of an Information Sharing Notice Section 1260.2(b) requires that, prior to issuing a new or revised information sharing notice, FHFA notify each Bank and the OF of the proposed contents of the notice and allow them a reasonable period within which to comment. The Supplementary Information to the second proposed rule enumerated and discussed the categories of information that FHFA was considering to include in the initial distribution order (as it was then styled) so as to allow the Banks and the OF the fullest opportunity to consider and comment upon them, as well as to provide the proper context in which to assess the rule itself. However, the rule does not require that the notice appear in the Federal Register or meet any of the other notice-and-comment requirements associated with a rulemaking under the Administrative Procedure Act, and the agency anticipates that it will typically use a less formal notice-and-comment process prior to issuing a new or revised information sharing notice in the future. FHFA enumerated and discussed in the second proposed rule seven categories of information it expected to share initially under the rule, and requested comments on whether an eighth category of information should also be included. As discussed below, the information to be shared initially under the rule includes all eight of the categories that were discussed in the second proposed rule, and does not include any categories of information that were not discussed in that rule. Accordingly, FHFA considers the notice and opportunity to comment provided by the second proposed rule to have fulfilled the requirements of § 1260.2(b) and, thus, it is not providing the Banks with any further opportunity to comment on the contents of the initial information sharing notice. Information To Be Shared Initially Under the Rule The initial information sharing notice provides for the sharing of the following categories of information under part 1260: (1) Information submitted by a Bank to FHFA’s call report system (CRS) electronic database, excluding Bank membership information; 20 20 The Banks 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. VerDate Mar<15>2010 16:51 Dec 05, 2013 Jkt 232001 (2) Information about each Bank, and the Banks collectively, 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); 21 (3) Information about each Bank, and the Banks collectively, that is contained in the weekly report on Bank liquidity prepared by DBR; (4) Information about each Bank, and the Banks collectively, that is contained in the quarterly report on Bank membership prepared by DBR; (5) Information about each Bank, and the Banks collectively, that is contained in the weekly report on the Banks’ unsecured credit exposure prepared by DBR; (6) A quarterly statement, prepared by FHFA, indicating whether each Bank has timely filed with FHFA the quarterly liquidity certification required under 12 CFR 1270.10(b)(1); (7) 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; and (8) Beginning with the calendar year 2014 Bank examination cycle, information contained in the ‘‘Summary and Conclusions’’ portion of each Bank’s report of examination. Categories (1) through (4) above are already made available to the Banks. Their inclusion in the information sharing notice is intended merely to bring their distribution within the purview of part 1260. Categories (5) through (8) will be distributed for the first time under this final rule and the initial information sharing notice. Each of these categories of information except for the weekly report on the Banks’ unsecured credit exposure described in category (5) was discussed in the second proposed rule as a category that was likely to be included in the initial distribution order. The second proposed rule discussed the report on the Banks’ unsecured credit exposure (which is currently used only internally at FHFA) as a category of information that FHFA might possibly include in the distribution order and requested comments on whether it would be useful for the Banks to receive the 21 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 that information at this time. PO 00000 Frm 00032 Fmt 4700 Sfmt 4700 information contained in that report. Although the agency received no comments on that issue, it has determined that regular distribution of the information contained in the report will advance the purposes of section 20A of the Bank Act and, accordingly, has included that category of information in the initial information sharing notice. In response to the second proposed rule, FHFA received only one comment letter—from the Topeka Bank—on the categories of information proposed to be shared initially. In its comment letter, the Bank opposed FHFA’s decision to share only the Summary and Conclusions portion of each Bank’s report of examination and stated that the initial distribution order should provide for the sharing of each Bank’s entire report of examination, except for the ‘‘Management Discussion’’ portion. The Bank expressed its view that FHFA could best enable each Bank to assess the likelihood that it may be required to make payments on behalf of another Bank under the joint and several liability on the Banks’ consolidated obligations by providing the full reports of examination. The agency has decided against taking this approach. The first proposed rule contemplated that FHFA would routinely distribute each Bank’s report of examination in its entirety. In the second proposed rule, FHFA explained that it had carefully weighed the Banks’ need to receive information sufficient to assess the financial condition of the other Banks and to make legal disclosures regarding their potential joint and several liability against the possibility that the distribution of full reports of examination could hinder the candid communication between Bank employees and FHFA examiners that is critical to the examination process, and that it planned to distribute only the material that is contained in what is currently referred to as the ‘‘Summary and Conclusions’’ section of each Bank’s report of examination under the initial distribution order. This material includes only: (i) The Bank’s composite rating and component ratings for the current and prior examinations; (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. The Summary and Conclusions section includes no detailed discussion or analysis of a E:\FR\FM\06DER1.SGM 06DER1 Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations maindgalligan on DSK5TPTVN1PROD with RULES Bank’s component examination ratings and no discussion or analysis of ‘‘matters requiring attention’’ of the Bank’s board of directors.22 FHFA agrees that the additional information that a Bank would receive as part of a full report of examination would provide it with more complete information that could be used to assess its exposure to joint and several liability. However, in the agency’s assessment, the Summary and Conclusions section of a Bank’s report of examination will sufficiently identify any significant issues relating to the Bank’s financial condition and performance that might possibly implicate the joint and several liability of the other Banks. The marginal benefit of receiving the more detailed supervisory information that is contained in the remainder of a report of examination is outweighed by the negative effects that the sharing of such information, and the knowledge that such information would be shared, could have on the Bank examination process. In further support of its position, the Topeka Bank asserted that the detailed information contained in a full report of examination could be used to assess factors and trends that might affect a Bank’s funding, and to gain insight into ways of dealing with issues and risks that are common among the Banks. While the sharing of the full reports of examination may in some cases provide those benefits, they are at best only tangentially related to the purpose of information sharing under section 20A, which is to ‘‘enable each [Bank] to evaluate the financial condition of . . . the other [Banks] individually and the [Bank] System’’ as a whole.23 Accordingly, FHFA does not view this argument as persuasive as to the 22 During 2013, FHFA has been developing a new FHFA Examination Manual that, when completed, will establish a common examination program for both the Banks and the Enterprises (Fannie Mae and Freddie Mac). As each module of the new FHFA Examination Manual has been finalized, it has superseded the existing Federal Home Loan Bank Examination Manual with respect to the particular subject matter addressed in that module. Because FHFA has not yet finalized a new FHFA Examination Manual module to address the required contents and structure of a report of examination, including the material to be set forth in the Summary and Conclusions section of the report, the old Bank Examination Manual continues to govern those issues. The relevant section of the Bank Examination Manual can be found at http:// www.fhfa.gov/webfiles/2658/5ROE.1.pdf. When FHFA finalizes a new FHFA Examination Manual module addressing those issues, it will revise the paragraph of the information sharing notice referring to the Summary and Conclusions section of the Banks’ reports of examination if necessary so that the text continues to refer to the the specific types of information described above. 23 See 12 U.S.C. 1440a(a). VerDate Mar<15>2010 16:51 Dec 05, 2013 Jkt 232001 portions of the reports of examination that should be shared pursuant to part 1260. C. Section 1260.3—Requests To Withhold Proprietary Information Section 1260.3 of the final rule implements section 20A(b)(2) of the Bank Act, which permits a Bank to request that the Director of FHFA determine that particular information otherwise subject to distribution under section 20A ‘‘is proprietary and that the public interest requires that such information not be shared.’’ 24 Section 1260.3(a) provides that a Bank may request in writing that FHFA withhold from distribution, or determine that the Bank may 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) also requires that, in order for such a request to be considered by FHFA, it 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 the information from the other Banks and the OF is necessary to protect the public interest. Section 1260.1 of the final rule defines the term ‘‘proprietary information’’ to mean ‘‘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, in addition to demonstrating that the information in question qualifies as ‘‘proprietary information,’’ a Bank must meet the ‘‘public interest’’ element of the withholding test, it is possible that FHFA may find it necessary to distribute information that qualifies as ‘‘proprietary’’ where the distribution of that information to the Banks and the OF would not be harmful to the public interest. Substantively, final § 1260.3(a) is identical to the version that appeared in the second proposed rule. However, in this final rule, the wording of § 1260.3(a) has been revised slightly to make clear that a Bank that is required to share particular information directly with other Banks may request permission from FHFA to withhold information that meets the criteria set forth in this subsection from distribution. 24 See PO 00000 12 U.S.C. 1440a(b)(2). Frm 00033 Fmt 4700 Sfmt 4700 73411 Section 1260.3(b) 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 a Bank to FHFA (such as call report data), information created by FHFA (such as reports of examination), and information that a Bank is required to share directly with the other Banks and the OF. Paragraph (b)(2) provides an exception to the general rules, by allowing the Director to establish different timeframes for particular categories of information in the information sharing notice issued under § 1260.2(b). For information that a Bank submits to FHFA, subparagraph (b)(1)(i) provides that the agency will consider only requests that are received prior to, or simultaneously with, the Bank’s submission of the information to FHFA. For information to be distributed by FHFA, other than that which is submitted to FHFA by the Banks themselves, subparagraph (b)(1)(ii) permits 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. Subparagraphs (b)(1)(i) and (ii) are identical to the versions that appeared in the second proposed rule. Subparagraph (b)(1)(iii) has been added to the final rule to address the timing of requests to withhold information that a Bank is required to distribute directly to the other Banks and the OF. It requires a Bank to file a request to withhold no later than ten business days prior to the date on which the Bank would otherwise be required to distribute the information. As mentioned, paragraph (b)(2) of § 1260.3 would allow FHFA, as part of a information sharing notice issued under § 1260.2(b), to establish requirements for the timing of requests to withhold for any category of information enumerated in that notice. The default deadlines for submitting a request to withhold that are set forth in § 1260.3(b)(1) may be inappropriate in particular cases, and § 1260.3(b)(2) is intended to preserve FHFA’s ability to adjust those deadlines in cases where the facts require a different timetable. It requires that, in establishing any alternate timing 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 E:\FR\FM\06DER1.SGM 06DER1 maindgalligan on DSK5TPTVN1PROD with RULES 73412 Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations 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. The initial information sharing notice contains no special requirements as to the timing of requests to withhold. Therefore, the general requirements of § 1260.3(b)(1) will apply to the timing of requests to withhold proprietary information that falls within the categories of information enumerated in the notice. Section 1260.3(c) of the final rule requires 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 promptly determine whether to withhold any information from distribution, or permit a Bank to withhold information that is otherwise required to be shared directly, and provides that the determination shall be final. Paragraph (c) also requires that FHFA notify the affected Bank of its determination, and prohibits it from distributing the information that is the subject of the request until it has provided the required notice to the Bank. Substantively, final § 1260.3(c) is identical to the version that appeared in the second proposed rule, but the wording has been revised slightly to make clear that the provision applies to the direct sharing of information among Banks, as well as to the distribution of information by FHFA. In its comment letter, the San Francisco Bank supported the requirement of § 1260.3(c) that FHFA provide notice to the requesting Bank before it distributes any information that is the subject of a request to withhold. However, the Bank requested that the final rule require specifically that FHFA notify the requesting Bank at least four business days prior to distributing the information. The Bank explained that this would allow the Bank ‘‘sufficient time to prepare any disclosures required by the federal securities laws or contractual requirements.’’ FHFA has decided not to add this, or any specific, requirement as to the timing of the notice to the final rule. The agency is cognizant of the need to allow a Bank sufficient time to take any necessary measures prior to the disclosure of information that is the subject of a request to withhold— indeed, that is a purpose of the notice requirement. In many cases, allowing the affected Bank four days’ advance notice will be appropriate. In other cases—for example, if the affected Bank is experiencing severe liquidity problems—the information could be of VerDate Mar<15>2010 16:51 Dec 05, 2013 Jkt 232001 little or no use if it were to be withheld from distribution for an additional four days. In light of this, FHFA has concluded that the better approach is to address such situations on a case-bycase basis, balancing the extent to which the usefulness of the information would be compromised by delaying its disclosure against the legal or contractual requirements with which the Bank must comply in connection with the disclosure. D. Section 1260.4—Timing and Form of Information Distribution Section 1260.4 of the final rule governs the timing and form of the distribution of information under the rule. 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 requesting that FHFA withhold proprietary information, unless the affected Bank has actually submitted such a request. It further provides that, if 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 as required under § 1260.3(c). Subsequently, FHFA may distribute the subject information in conformity with that decision. Section 1260.4(b) has been added to the final rule to address the timing of the distribution of information that a Bank is required to share directly with the other Banks and the OF. It requires a Bank to distribute the information at the time specified in the information sharing notice unless it has submitted a proper request to withhold within the time period specified under § 1260.3(b)(1)(iii). It further provides that, if a Bank has filed a request to withhold information, it is not required to 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 as required under § 1260.3(c). Subsequently, the Bank must distribute or withhold the subject information in conformity with that decision. Section 1260.4(c), which was designated as § 1260.4(b) in the second proposed rule, permits FHFA to distribute information, or to require a Bank to distribute information, in either tangible or electronic form, as it deems appropriate in each particular case. The wording of this provision has been revised slightly in the final rule to make clear that it applies to the direct sharing of information between Banks, as well PO 00000 Frm 00034 Fmt 4700 Sfmt 4700 as to the distribution of information by FHFA. E. Section 1260.5—Control and Disclosure of Shared Information Section 1260.5 of the final rule sets forth requirements that each Bank must follow with respect to the control of information about other Banks that it receives under the rule. Section 1260.5(a) provides that the sharing of information under part 1260 does 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. It also provides that, to the extent that any information provided to a Bank or the OF under the rule qualifies as ‘‘nonpublic information’’ under 12 CFR part 1214 (which is discussed above in the analysis of § 1260.1), that information will continue to qualify as such and will continue to be subject to the restrictions on the disclosure of such information set forth in part 1214. In addition, § 1260.5(a) provides that a Bank may use and disclose in its SEC disclosure documents non-public information regarding other Banks it receives under the rule, provided that the disclosure is limited to a recital of the factual content of the underlying information and the Bank meets the requirements regarding the disclosure of information in SEC filings that are set out in § 1260.5(b).25 Section 1260.5(b) permits a Bank to disclose non-public information received under the rule 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 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. Section 1260.5(c) provides that a Bank may use non-public information received under the rule only for the purposes described in section 20A(a) of the Bank Act—that is, to evaluate the financial condition of one or more other Banks and to comply with its obligations under the 1934 Act. It also prohibits the disclosure of any nonpublic information received under part 1260, except as otherwise provided in the rule (for example, in the case of a disclosure made under the federal securities laws pursuant to § 1260.5(a) 25 This provision parallels the requirements that apply to a Bank’s disclosure in SEC filings of information contained in its own report of examination. See Federal Housing Finance Board Advisory Bulletin 2006–AB–03 (July 18, 2006). E:\FR\FM\06DER1.SGM 06DER1 Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations and (b)). Section 1260.5(c) further requires that each Bank and the OF implement policies and procedures to prevent the improper disclosure of, and to limit the access of its personnel to, such information. 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. In the second proposed rule, the second sentence of § 1260.5(c) provided, ‘‘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.’’ In this final rule, the reference in that sentence to ‘‘information regarding . . . the Office of Finance, received pursuant to [part 1260]’’ has been removed and, accordingly, the sentence now refers only to ‘‘information regarding another Bank received pursuant to [part 1260].’’ This change has been made in recognition of the fact that, as was the case with the second proposed rule, the final 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. Section 1260.5(d) permits each Bank’s president to share information regarding the OF received in his or her capacity as a member of the OF’s board 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. maindgalligan on DSK5TPTVN1PROD with RULES III. Consideration of Differences Between the Banks and the Enterprises Section 1313(f) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 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; their affordable housing and community development mission; their capital structure; and their joint and several liability on consolidated VerDate Mar<15>2010 16:51 Dec 05, 2013 Jkt 232001 obligations.26 The Director also may consider any other differences that are deemed appropriate. In preparing this final 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 second proposed rule. IV. Paperwork Reduction Act This final 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. V. Regulatory Flexibility Act This final 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 final rule will not have significant economic impact on a substantial number of small entities. List of Subjects in 12 CFR Part 1260 Confidential business information, Federal home loan banks, Reporting and recordkeeping requirements. Authority and Issuance Accordingly, for the reasons stated in the Supplementary Information and under the authority of 12 U.S.C. 4526, the Federal Housing Finance Agency hereby amends chapter XII of title 12 of the Code of Federal Regulations by adding new part 1260 to subchapter D 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 Timing and form of information distribution. 1260.5 Control and disclosure of shared information. Authority: 12 U.S.C. 1440a, 4511 and 4513. § 1260.1 Definitions. As used in this part: Non-public information has the meaning set forth in § 1214.1 of this chapter. 26 See PO 00000 12 U.S.C. 4513(f). Frm 00035 Fmt 4700 Sfmt 4700 73413 Proprietary information means 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. § 1260.2 Bank information to be shared. (a) General. 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, or shall require each Bank to distribute directly to each other Bank and the Office of Finance, such categories of financial and supervisory information regarding each Bank and the Bank system as it determines to be appropriate, subject to the requirements of this part. (b) Notice. FHFA shall prepare and issue to each Bank and the Office of Finance a notice setting forth the categories of information to be distributed, which it shall review from time to time and revise as necessary to ensure that the information distributed remains useful to the Banks in evaluating the financial strength of the other Banks and the Bank System. Prior to issuing a new or revised notice, FHFA shall notify each Bank and the Office of Finance of its proposed contents and allow them a reasonable period within which to comment. (c) Director’s orders. The Director or his designee may issue such orders as are necessary to effect the distribution of the information set forth in the notice issued under paragraph (b) of this section and to carry out the provisions of this part. § 1260.3 Requests to withhold proprietary information. (a) General. A Bank may request in writing that FHFA withhold from distribution, or determine that the Bank may 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 not be distributed 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 as described in paragraph (b)(2) of this section, the period within which a Bank may make E:\FR\FM\06DER1.SGM 06DER1 maindgalligan on DSK5TPTVN1PROD with RULES 73414 Federal Register / Vol. 78, No. 235 / Friday, December 6, 2013 / Rules and Regulations 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. (iii) For information that a Bank is required to distribute directly to the other Banks and the Office of Finance, the request shall be delivered to FHFA no later than ten (10) business days prior to the date on which the Bank would otherwise be required to distribute the information. (2) As otherwise specified by FHFA. Any notice issued by FHFA under § 1260.2(b) 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, FHFA 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 FHFA will, or the Bank may, 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 Timing and form of information distribution. (a) Timing of distribution by FHFA. FHFA may distribute information as provided in the notice issued under § 1260.2(b) after the expiration of the VerDate Mar<15>2010 16:51 Dec 05, 2013 Jkt 232001 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) Timing of distribution by Banks. A Bank that is required to distribute information directly to the other Banks and the Office of Finance shall distribute that information at the time specified in the notice issued under § 1260.2(b) unless, within the time period specified in § 1260.3(b)(1)(iii), the Bank has submitted to FHFA a request to withhold particular proprietary information that meets the requirements of § 1260.3(a). If the Bank has filed such a request, it need 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). Thereafter, the Bank shall distribute or withhold the subject information in conformity with that determination. (c) Form. FHFA may distribute information, or require a Bank to distribute information, under this part in either tangible or electronic form, as it deems appropriate. § 1260.5 Control and disclosure of shared 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 non-public information under part 1214 of this chapter, that information shall continue to qualify as such and shall continue to be subject to the restrictions on disclosure set forth in part 1214, provided that a Bank shall not be deemed to have violated any provision of § 1214.3 of this chapter by disclosing in its filings with the SEC non-public 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 PO 00000 Frm 00036 Fmt 4700 Sfmt 9990 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 provision of the 1934 Act or of 17 CFR chapter II to disclose nonpublic 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 non-public 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 non-public information regarding another Bank 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. (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: November 22, 2013. Edward J. DeMarco, Acting Director, Federal Housing Finance Agency. [FR Doc. 2013–28824 Filed 12–5–13; 8:45 am] BILLING CODE 8070–01–P E:\FR\FM\06DER1.SGM 06DER1

Agencies

[Federal Register Volume 78, Number 235 (Friday, December 6, 2013)]
[Rules and Regulations]
[Pages 73407-73414]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28824]


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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: Final rule.

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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 add a new 
section 20A, which requires 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 20A 
also requires FHFA to promulgate regulations to facilitate the sharing 
of such information among the Banks. This final rule implements the 
provisions of section 20A of the Bank Act.

DATES: The final rule is effective on January 6, 2014.

FOR FURTHER INFORMATION CONTACT: Eric M. Raudenbush, Assistant General 
Counsel, Office of General Counsel, Eric.Raudenbush@fhfa.gov, (202) 
649-3084; or Jonathan Curtis, Financial Analyst, Office of Program 
Support, Division of Bank Regulation, Jonathan.Curtis@fhfa.gov, (202) 
649-3321 (these are not a toll-free numbers), 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. 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 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, section 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, repealed, 78 FR 15869 (March 13, 2013).
    \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

[[Page 73408]]

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 Proposed Rules

    On September 30, 2010, FHFA published a proposed rule to implement 
section 20A of the Bank Act by adding to its regulations a new part 
1260 to govern the sharing of information among the Banks and the 
OF.\16\ Following the close of the 60-day comment period on November 
29, 2010, the agency reviewed and considered 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. Ultimately, FHFA concluded that a number 
of revisions to the proposed rule were necessary and that those 
revisions were significant enough to require the publication of a 
second proposed rule.
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    \16\ See 75 FR 60347 (Sept. 30, 2010).
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    On January 29, 2013, FHFA published a second proposed rule that, 
again, proposed to implement section 20A by adding a new part 1260 to 
its regulations.\17\ As re-proposed, new part 1260 addressed the 
procedures through which FHFA would share with all of the Banks non-
public financial and supervisory information about each individual 
Bank, including procedures through which a Bank could request that FHFA 
withhold from distribution qualifying proprietary information, and set 
forth requirements intended to prevent or limit the disclosure of that 
shared information to outside parties. However, in contrast to the 
first proposed rule, the regulatory text of the second proposed rule 
did not enumerate the specific categories of information that FHFA 
would distribute under the rule. Instead, it provided that the Director 
would identify those categories through an order, which could be 
updated or superseded from time to time as necessary. In the 
SUPPLEMENTARY INFORMATION to the second proposed rule, FHFA identified 
and described seven categories of information that it expected to make 
available under the initial distribution order to be issued under a 
final rule and requested comments on those categories. FHFA also 
requested comments on one additional category of information that it 
was considering including in the initial distribution order.
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    \17\ See 78 FR 6045 (Jan. 29, 2013).
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    The 60-day comment period for the second proposed rule ended on 
April 1, 2013. FHFA received two comment letters in response to the 
proposed rule, both of which were sent by representatives of individual 
Banks--specifically, the San Francisco and Topeka Banks. Neither Bank's 
letter expressed general support for, or opposition to, the second 
proposed rule. Instead, each Bank's letter requested a specific change 
to the regulatory text. Both Bank's comments are discussed below in the 
analysis of the final rule text.

II. The Final Rule

    In developing the final rule, FHFA considered the suggestions made 
in the comment letters, but decided not to adopt those suggestions. The 
agency ultimately decided to adopt a final rule that is substantially 
similar to the second proposed rule, but that differs from that 
proposal in two respects. First, while the second proposed rule 
provided that the categories of information to be distributed would be 
identified through an order of the Director or his designee, the final 
rule provides that these categories will be identified in a written 
notice to be issued by the agency. Second, revisions have been made to 
the rule text in several sections to address the possibility that FHFA 
may in the future determine that certain types of information are best 
shared directly between the Banks, as opposed to being distributed to 
the Banks by or through FHFA, which was the only method of distribution 
contemplated under the second proposed rule. These revisions, as well 
as a few non-substantive changes to the rule text are discussed below.
    FHFA has also decided that the information to be distributed 
initially under the final rule will consist of the eight categories 
that were described in the Supplementary Information to the second 
proposed rule. The initial information sharing notice, which sets forth 
those categories, is also being published by FHFA in this issue of the 
Federal Register. Each of the categories of information enumerated in 
that notice are to be distributed to the Banks and the OF by FHFA. 
Although additions to the final rule text address the possibility of 
direct sharing of information between Banks, no such direct sharing 
will occur initially.

A. Section 1260.1--Definitions

    Section 1260.1 of the final rule sets forth definitions of the 
terms ``proprietary information'' and ``non-public information'' to be 
used in part 1260. The definition of ``proprietary information'' is 
identical to that set forth in Sec.  1260.1 of the second proposed 
rule. This meaning of that term is discussed below in the context of 
the substantive portions of the rule.
    The term ``non-public information'' is defined to have the same 
meaning as that set forth in 12 CFR 1214.1, which generally defines the 
term to include ``information that FHFA has not made public that is 
created by, obtained by, or communicated to an FHFA employee in 
connection with the performance of official duties, regardless of who 
is in possession of the information.'' \18\ It replaces the term 
``unpublished information,'' which had been used in the second proposed 
rule. At the time the second proposed rule was published, the 
availability and control of that type of information was governed by 12 
CFR part 911, which was a regulation of the former Federal Housing 
Finance Board that continued in effect after that agency was abolished 
and replaced by FHFA as regulator of the Banks in 2008. Since the 
publication of the second proposed rule, FHFA has adopted its own 
regulation, located at 12 CFR part 1214, to address the same subject 
matter.\19\ Although the agency chose to use the term ``non-public 
information,'' as opposed to ``unpublished information,'' in that rule 
and defined the term using somewhat different wording than that which 
was used in part 911, there is no substantive difference in the meaning 
of the two terms.
---------------------------------------------------------------------------

    \18\ 12 CFR 1214.1. The full definition reads ``Non-public 
information means information that FHFA has not made public that is 
created by, obtained by, or communicated to an FHFA employee in 
connection with the performance of official duties, regardless of 
who is in possession of the information. This includes confidential 
supervisory information as defined above. It does not include 
information or documents that FHFA has disclosed under the Freedom 
of Information Act (5 U.S.C. 552; 12 CFR Part 1202), or Privacy Act 
of 1974 (5 U.S.C. 552a; 12 CFR Part 1204). It also does not include 
specific information or documents that were previously disclosed to 
the public at large or information or documents that are customarily 
furnished to the public at large in the course of the performance of 
official FHFA duties, including but not limited to: disclosures made 
by the Director pursuant to the Enterprise Public Use Database Rule 
(currently located at 24 CFR subpart F, and any FHFA successor 
rule); the annual report that FHFA submits to Congress pursuant to 
the Federal Housing Enterprises Financial Safety and Soundness Act 
of 1992 (12 U.S.C. 4501 et seq.), press releases, FHFA blank forms, 
and materials published in the Federal Register.''
    \19\ See 78 FR 39957 (July 3, 2013).

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[[Page 73409]]

B. Section 1260.2--Bank Information To Be Shared

    Under Sec.  1260.2 of the second proposed rule, FHFA would have 
distributed to each Bank and to the OF the categories of information 
specified in an order to be issued by the Director of FHFA or by an 
agency official designated by the Director pursuant to an appropriate 
delegation of authority. Proposed Sec.  1260.2 would have further 
required that, prior to issuing or amending such a distribution order, 
FHFA notify each Bank and the OF of the proposed contents of the new or 
revised order and allow them a reasonable period within which to 
comment.
    In the final rule, Sec.  1260.2 has been revised to incorporate the 
two changes mentioned above: (1) To provide that the categories of 
information to be distributed are to be identified by means of a 
written notice to be issued by FHFA, as opposed to an order of the 
Director or his designee; and (2) to provide for the possibility that 
certain types of information may be shared directly between the Banks, 
as opposed to being distributed only by or through FHFA. In addition, 
the revised material in Sec.  1260.2 has now been divided into three 
subsections.
    Final Sec.  1260.2(a) provides that ``FHFA shall distribute to each 
Bank and to the Office of Finance, or shall require each Bank to 
distribute directly to each other Bank and the Office of Finance, such 
categories of financial and supervisory information regarding each Bank 
and the Bank system as it determines to be appropriate.'' Final Sec.  
1260.2(b) requires that FHFA prepare and issue to each Bank and the OF 
a notice setting forth the categories of information that it will 
distribute, or that the Banks will share directly, under the rule. It 
also requires that FHFA review the information sharing notice on a 
periodic basis, and add or delete items as necessary to ensure that the 
information sharing under part 1260 continues to fulfill the purposes 
of section 20A of the Bank Act. As was the case with the distribution 
order contemplated under the second proposed rule, final Sec.  
1260.2(b) also requires that, prior to issuing a new or revised 
information sharing notice, FHFA notify each Bank and the OF of the 
proposed contents of the new or revised notice and allow them a 
reasonable period within which to comment. Finally, Sec.  1260.2(c) of 
the final rule provides that the Director of FHFA or his designee may 
issue any orders that are necessary to effect the distribution of the 
information set forth in the information sharing notice and otherwise 
to carry out the provisions of part 1260.
Shared Information To Be Specified in Notice, Not Order
    The distribution order referred to in Sec.  1260.2 of the second 
proposed rule would not have actually ordered anyone to do anything, 
but would have merely informed the Banks and the OF of the information 
that FHFA intended to share and, in some cases, of the time within 
which a Bank must file a request to hold proprietary information, so in 
the final rule FHFA has restyled that order as a notice. In some future 
cases, the agency may find it necessary to issue an order to require 
the Banks to share certain information directly. Thus, despite the fact 
that the Director of FHFA always has the power to issue orders to 
govern matters within his or her authority, Sec.  1260.2(c) has been 
included to make clear that the Director may issue any orders that are 
necessary to effect the preparation and distribution of particular 
items and that these orders are to be separate from the information 
sharing notice.
Direct Sharing of Information Between Banks
    In drafting both the first and second proposed rules, FHFA 
contemplated that it alone would act as the clearinghouse for all 
required sharing of information under section 20A of the Bank Act. 
Accordingly, in the second proposed rule, Sec.  1260.2 referred only to 
the distribution of information by FHFA, and the rule did not otherwise 
address the possibility that FHFA might require a Bank to share 
information directly with the other Banks and the OF. FHFA still 
anticipates that it will serve as the clearinghouse for most of the 
information sharing under the final rule, and will do so for all of the 
categories of information enumerated in the initial information sharing 
notice. However, in some circumstances, direct sharing of information 
between the Banks may be the most timely, efficient, or secure 
approach. Therefore, upon further consideration, FHFA has decided to 
provide in the final rule for the option of direct sharing so as not to 
limit the agency's ability to implement the most appropriate method of 
information sharing in any particular case.
    Although the second proposed rule did not address the direct 
sharing of information between Banks, the rule would not have 
prohibited such direct sharing. In the Supplementary Information to the 
second proposed rule, FHFA declined a commenter's request to include in 
the rule text an explicit provision stating that part 1260 governs the 
entirety of a Bank's right to receive shared information under section 
20A and that no Bank is permitted to receive such information 
unilaterally from FHFA or another Bank. The agency explained that its 
regulations already prohibit a Bank from disclosing non-public 
information without prior written authorization from FHFA and that it 
wished to preserve its ability to provide written authorization for the 
disclosure of such information as circumstances warrant. FHFA further 
explained that there is no basis upon which it may generally prohibit 
Banks from sharing financial information that does not qualify as non-
public information under the regulations, and that it did not want to 
discourage the voluntary sharing of information among Banks that 
already occurs.
    To be clear, this final rule is intended to govern only mandatory 
direct sharing of information between Banks as set forth in an 
information sharing notice issued under Sec.  1260.2 of the rule; 
voluntary sharing of information between Banks is not subject to the 
requirements or procedural protections of part 1260.
Types of Information Sharing Addressed by the Rule
    In keeping with the apparent intent behind section 20A of the Bank 
Act, Sec.  1260.2 limits the type of information that may be shared 
under the provisions of the rule to financial and supervisory 
information regarding the Banks, either individually or collectively. 
Even before the enactment of section 20A in 2008, a great deal of 
financial information about the Banks, both individually and 
collectively, was already being made available to the public on an 
ongoing basis both by FHFA and by the Banks themselves (for example, 
through the Banks' SEC filings). FHFA believes that section 20A was 
intended primarily to foster the sharing among the Banks of financial 
and supervisory information that was not already available to them or 
to the public-at-large under any existing statutory authority. The 
provision of Section 20A that authorizes FHFA to make such information 
available to the Banks without negating any privilege that may be 
attached to it, subject to the required procedural protections for 
information that a Bank claims to be proprietary, supports that 
interpretation. Part 1260 is intended to implement section 20A by 
establishing a process through which each Bank may gain access to 
financial and supervisory information about the other Banks that is not 
available to the wider public. Its requirements do not apply to the

[[Page 73410]]

distribution of information that has already been made available to the 
public, or that is available to the public upon request.
Issuance or Revision of an Information Sharing Notice
    Section 1260.2(b) requires that, prior to issuing a new or revised 
information sharing notice, FHFA notify each Bank and the OF of the 
proposed contents of the notice and allow them a reasonable period 
within which to comment. The Supplementary Information to the second 
proposed rule enumerated and discussed the categories of information 
that FHFA was considering to include in the initial distribution order 
(as it was then styled) so as to allow the Banks and the OF the fullest 
opportunity to consider and comment upon them, as well as to provide 
the proper context in which to assess the rule itself. However, the 
rule does not require that the notice appear in the Federal Register or 
meet any of the other notice-and-comment requirements associated with a 
rulemaking under the Administrative Procedure Act, and the agency 
anticipates that it will typically use a less formal notice-and-comment 
process prior to issuing a new or revised information sharing notice in 
the future.
    FHFA enumerated and discussed in the second proposed rule seven 
categories of information it expected to share initially under the 
rule, and requested comments on whether an eighth category of 
information should also be included. As discussed below, the 
information to be shared initially under the rule includes all eight of 
the categories that were discussed in the second proposed rule, and 
does not include any categories of information that were not discussed 
in that rule. Accordingly, FHFA considers the notice and opportunity to 
comment provided by the second proposed rule to have fulfilled the 
requirements of Sec.  1260.2(b) and, thus, it is not providing the 
Banks with any further opportunity to comment on the contents of the 
initial information sharing notice.
Information To Be Shared Initially Under the Rule
    The initial information sharing notice provides for the sharing of 
the following categories of information under part 1260:
    (1) Information submitted by a Bank to FHFA's call report system 
(CRS) electronic database, excluding Bank membership information; \20\
---------------------------------------------------------------------------

    \20\ The Banks 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.
---------------------------------------------------------------------------

    (2) Information about each Bank, and the Banks collectively, 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); \21\
---------------------------------------------------------------------------

    \21\ 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 that information at this time.
---------------------------------------------------------------------------

    (3) Information about each Bank, and the Banks collectively, that 
is contained in the weekly report on Bank liquidity prepared by DBR;
    (4) Information about each Bank, and the Banks collectively, that 
is contained in the quarterly report on Bank membership prepared by 
DBR;
    (5) Information about each Bank, and the Banks collectively, that 
is contained in the weekly report on the Banks' unsecured credit 
exposure prepared by DBR;
    (6) A quarterly statement, prepared by FHFA, indicating whether 
each Bank has timely filed with FHFA the quarterly liquidity 
certification required under 12 CFR 1270.10(b)(1);
    (7) 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; and
    (8) Beginning with the calendar year 2014 Bank examination cycle, 
information contained in the ``Summary and Conclusions'' portion of 
each Bank's report of examination.
    Categories (1) through (4) above are already made available to the 
Banks. Their inclusion in the information sharing notice is intended 
merely to bring their distribution within the purview of part 1260. 
Categories (5) through (8) will be distributed for the first time under 
this final rule and the initial information sharing notice. Each of 
these categories of information except for the weekly report on the 
Banks' unsecured credit exposure described in category (5) was 
discussed in the second proposed rule as a category that was likely to 
be included in the initial distribution order. The second proposed rule 
discussed the report on the Banks' unsecured credit exposure (which is 
currently used only internally at FHFA) as a category of information 
that FHFA might possibly include in the distribution order and 
requested comments on whether it would be useful for the Banks to 
receive the information contained in that report. Although the agency 
received no comments on that issue, it has determined that regular 
distribution of the information contained in the report will advance 
the purposes of section 20A of the Bank Act and, accordingly, has 
included that category of information in the initial information 
sharing notice.
    In response to the second proposed rule, FHFA received only one 
comment letter--from the Topeka Bank--on the categories of information 
proposed to be shared initially. In its comment letter, the Bank 
opposed FHFA's decision to share only the Summary and Conclusions 
portion of each Bank's report of examination and stated that the 
initial distribution order should provide for the sharing of each 
Bank's entire report of examination, except for the ``Management 
Discussion'' portion. The Bank expressed its view that FHFA could best 
enable each Bank to assess the likelihood that it may be required to 
make payments on behalf of another Bank under the joint and several 
liability on the Banks' consolidated obligations by providing the full 
reports of examination.
    The agency has decided against taking this approach. The first 
proposed rule contemplated that FHFA would routinely distribute each 
Bank's report of examination in its entirety. In the second proposed 
rule, FHFA explained that it had carefully weighed the Banks' need to 
receive information sufficient to assess the financial condition of the 
other Banks and to make legal disclosures regarding their potential 
joint and several liability against the possibility that the 
distribution of full reports of examination could hinder the candid 
communication between Bank employees and FHFA examiners that is 
critical to the examination process, and that it planned to distribute 
only the material that is contained in what is currently referred to as 
the ``Summary and Conclusions'' section of each Bank's report of 
examination under the initial distribution order. This material 
includes only: (i) The Bank's composite rating and component ratings 
for the current and prior examinations; (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. The Summary and 
Conclusions section includes no detailed discussion or analysis of a

[[Page 73411]]

Bank's component examination ratings and no discussion or analysis of 
``matters requiring attention'' of the Bank's board of directors.\22\
---------------------------------------------------------------------------

    \22\ During 2013, FHFA has been developing a new FHFA 
Examination Manual that, when completed, will establish a common 
examination program for both the Banks and the Enterprises (Fannie 
Mae and Freddie Mac). As each module of the new FHFA Examination 
Manual has been finalized, it has superseded the existing Federal 
Home Loan Bank Examination Manual with respect to the particular 
subject matter addressed in that module. Because FHFA has not yet 
finalized a new FHFA Examination Manual module to address the 
required contents and structure of a report of examination, 
including the material to be set forth in the Summary and 
Conclusions section of the report, the old Bank Examination Manual 
continues to govern those issues. The relevant section of the Bank 
Examination Manual can be found at http://www.fhfa.gov/webfiles/2658/5ROE.1.pdf. When FHFA finalizes a new FHFA Examination Manual 
module addressing those issues, it will revise the paragraph of the 
information sharing notice referring to the Summary and Conclusions 
section of the Banks' reports of examination if necessary so that 
the text continues to refer to the the specific types of information 
described above.
---------------------------------------------------------------------------

    FHFA agrees that the additional information that a Bank would 
receive as part of a full report of examination would provide it with 
more complete information that could be used to assess its exposure to 
joint and several liability. However, in the agency's assessment, the 
Summary and Conclusions section of a Bank's report of examination will 
sufficiently identify any significant issues relating to the Bank's 
financial condition and performance that might possibly implicate the 
joint and several liability of the other Banks. The marginal benefit of 
receiving the more detailed supervisory information that is contained 
in the remainder of a report of examination is outweighed by the 
negative effects that the sharing of such information, and the 
knowledge that such information would be shared, could have on the Bank 
examination process.
    In further support of its position, the Topeka Bank asserted that 
the detailed information contained in a full report of examination 
could be used to assess factors and trends that might affect a Bank's 
funding, and to gain insight into ways of dealing with issues and risks 
that are common among the Banks. While the sharing of the full reports 
of examination may in some cases provide those benefits, they are at 
best only tangentially related to the purpose of information sharing 
under section 20A, which is to ``enable each [Bank] to evaluate the 
financial condition of . . . the other [Banks] individually and the 
[Bank] System'' as a whole.\23\ Accordingly, FHFA does not view this 
argument as persuasive as to the portions of the reports of examination 
that should be shared pursuant to part 1260.
---------------------------------------------------------------------------

    \23\ See 12 U.S.C. 1440a(a).
---------------------------------------------------------------------------

C. Section 1260.3--Requests To Withhold Proprietary Information

    Section 1260.3 of the final rule implements section 20A(b)(2) of 
the Bank Act, which permits a Bank to request that the Director of FHFA 
determine that particular information otherwise subject to distribution 
under section 20A ``is proprietary and that the public interest 
requires that such information not be shared.'' \24\
---------------------------------------------------------------------------

    \24\ See 12 U.S.C. 1440a(b)(2).
---------------------------------------------------------------------------

    Section 1260.3(a) provides that a Bank may request in writing that 
FHFA withhold from distribution, or determine that the Bank may 
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) also 
requires that, in order for such a request to be considered by FHFA, it 
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 the information from the other Banks 
and the OF is necessary to protect the public interest. Section 1260.1 
of the final rule defines the term ``proprietary information'' to mean 
``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, in 
addition to demonstrating that the information in question qualifies as 
``proprietary information,'' a Bank must meet the ``public interest'' 
element of the withholding test, it is possible that FHFA may find it 
necessary to distribute information that qualifies as ``proprietary'' 
where the distribution of that information to the Banks and the OF 
would not be harmful to the public interest.
    Substantively, final Sec.  1260.3(a) is identical to the version 
that appeared in the second proposed rule. However, in this final rule, 
the wording of Sec.  1260.3(a) has been revised slightly to make clear 
that a Bank that is required to share particular information directly 
with other Banks may request permission from FHFA to withhold 
information that meets the criteria set forth in this subsection from 
distribution.
    Section 1260.3(b) 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 a Bank to FHFA (such as call report data), information 
created by FHFA (such as reports of examination), and information that 
a Bank is required to share directly with the other Banks and the OF. 
Paragraph (b)(2) provides an exception to the general rules, by 
allowing the Director to establish different timeframes for particular 
categories of information in the information sharing notice issued 
under Sec.  1260.2(b). For information that a Bank submits to FHFA, 
subparagraph (b)(1)(i) provides that the agency will consider only 
requests that are received prior to, or simultaneously with, the Bank's 
submission of the information to FHFA. For information to be 
distributed by FHFA, other than that which is submitted to FHFA by the 
Banks themselves, subparagraph (b)(1)(ii) permits 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.
    Subparagraphs (b)(1)(i) and (ii) are identical to the versions that 
appeared in the second proposed rule. Subparagraph (b)(1)(iii) has been 
added to the final rule to address the timing of requests to withhold 
information that a Bank is required to distribute directly to the other 
Banks and the OF. It requires a Bank to file a request to withhold no 
later than ten business days prior to the date on which the Bank would 
otherwise be required to distribute the information.
    As mentioned, paragraph (b)(2) of Sec.  1260.3 would allow FHFA, as 
part of a information sharing notice issued under Sec.  1260.2(b), to 
establish requirements for the timing of requests to withhold for any 
category of information enumerated in that notice. The default 
deadlines for submitting a request to withhold that are set forth in 
Sec.  1260.3(b)(1) may be inappropriate in particular cases, and Sec.  
1260.3(b)(2) is intended to preserve FHFA's ability to adjust those 
deadlines in cases where the facts require a different timetable. It 
requires that, in establishing any alternate timing 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

[[Page 73412]]

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. The 
initial information sharing notice contains no special requirements as 
to the timing of requests to withhold. Therefore, the general 
requirements of Sec.  1260.3(b)(1) will apply to the timing of requests 
to withhold proprietary information that falls within the categories of 
information enumerated in the notice.
    Section 1260.3(c) of the final rule requires 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 
promptly determine whether to withhold any information from 
distribution, or permit a Bank to withhold information that is 
otherwise required to be shared directly, and provides that the 
determination shall be final. Paragraph (c) also requires that FHFA 
notify the affected Bank of its determination, and prohibits it from 
distributing the information that is the subject of the request until 
it has provided the required notice to the Bank. Substantively, final 
Sec.  1260.3(c) is identical to the version that appeared in the second 
proposed rule, but the wording has been revised slightly to make clear 
that the provision applies to the direct sharing of information among 
Banks, as well as to the distribution of information by FHFA.
    In its comment letter, the San Francisco Bank supported the 
requirement of Sec.  1260.3(c) that FHFA provide notice to the 
requesting Bank before it distributes any information that is the 
subject of a request to withhold. However, the Bank requested that the 
final rule require specifically that FHFA notify the requesting Bank at 
least four business days prior to distributing the information. The 
Bank explained that this would allow the Bank ``sufficient time to 
prepare any disclosures required by the federal securities laws or 
contractual requirements.''
    FHFA has decided not to add this, or any specific, requirement as 
to the timing of the notice to the final rule. The agency is cognizant 
of the need to allow a Bank sufficient time to take any necessary 
measures prior to the disclosure of information that is the subject of 
a request to withhold--indeed, that is a purpose of the notice 
requirement. In many cases, allowing the affected Bank four days' 
advance notice will be appropriate. In other cases--for example, if the 
affected Bank is experiencing severe liquidity problems--the 
information could be of little or no use if it were to be withheld from 
distribution for an additional four days. In light of this, FHFA has 
concluded that the better approach is to address such situations on a 
case-by-case basis, balancing the extent to which the usefulness of the 
information would be compromised by delaying its disclosure against the 
legal or contractual requirements with which the Bank must comply in 
connection with the disclosure.

D. Section 1260.4--Timing and Form of Information Distribution

    Section 1260.4 of the final rule governs the timing and form of the 
distribution of information under the rule. 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 requesting that 
FHFA withhold proprietary information, unless the affected Bank has 
actually submitted such a request. It further provides that, if 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 as required under Sec.  
1260.3(c). Subsequently, FHFA may distribute the subject information in 
conformity with that decision.
    Section 1260.4(b) has been added to the final rule to address the 
timing of the distribution of information that a Bank is required to 
share directly with the other Banks and the OF. It requires a Bank to 
distribute the information at the time specified in the information 
sharing notice unless it has submitted a proper request to withhold 
within the time period specified under Sec.  1260.3(b)(1)(iii). It 
further provides that, if a Bank has filed a request to withhold 
information, it is not required to 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 as required under Sec.  1260.3(c). Subsequently, the Bank 
must distribute or withhold the subject information in conformity with 
that decision.
    Section 1260.4(c), which was designated as Sec.  1260.4(b) in the 
second proposed rule, permits FHFA to distribute information, or to 
require a Bank to distribute information, in either tangible or 
electronic form, as it deems appropriate in each particular case. The 
wording of this provision has been revised slightly in the final rule 
to make clear that it applies to the direct sharing of information 
between Banks, as well as to the distribution of information by FHFA.

E. Section 1260.5--Control and Disclosure of Shared Information

    Section 1260.5 of the final rule sets forth requirements that each 
Bank must follow with respect to the control of information about other 
Banks that it receives under the rule. Section 1260.5(a) provides that 
the sharing of information under part 1260 does 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. It also provides that, to the extent that any 
information provided to a Bank or the OF under the rule qualifies as 
``non-public information'' under 12 CFR part 1214 (which is discussed 
above in the analysis of Sec.  1260.1), that information will continue 
to qualify as such and will continue to be subject to the restrictions 
on the disclosure of such information set forth in part 1214.
    In addition, Sec.  1260.5(a) provides that a Bank may use and 
disclose in its SEC disclosure documents non-public information 
regarding other Banks it receives under the rule, provided that the 
disclosure is limited to a recital of the factual content of the 
underlying information and the Bank meets the requirements regarding 
the disclosure of information in SEC filings that are set out in Sec.  
1260.5(b).\25\
---------------------------------------------------------------------------

    \25\ This provision parallels the requirements that apply to a 
Bank's disclosure in SEC filings of information contained in its own 
report of examination. See Federal Housing Finance Board Advisory 
Bulletin 2006-AB-03 (July 18, 2006).
---------------------------------------------------------------------------

    Section 1260.5(b) permits a Bank to disclose non-public information 
received under the rule 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 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.
    Section 1260.5(c) provides that a Bank may use non-public 
information received under the rule only for the purposes described in 
section 20A(a) of the Bank Act--that is, to evaluate the financial 
condition of one or more other Banks and to comply with its obligations 
under the 1934 Act. It also prohibits the disclosure of any non-public 
information received under part 1260, except as otherwise provided in 
the rule (for example, in the case of a disclosure made under the 
federal securities laws pursuant to Sec.  1260.5(a)

[[Page 73413]]

and (b)). Section 1260.5(c) further requires that each Bank and the OF 
implement policies and procedures to prevent the improper disclosure 
of, and to limit the access of its personnel to, such information. 
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.
    In the second proposed rule, the second sentence of Sec.  1260.5(c) 
provided, ``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.'' In this final rule, the reference in that sentence to 
``information regarding . . . the Office of Finance, received pursuant 
to [part 1260]'' has been removed and, accordingly, the sentence now 
refers only to ``information regarding another Bank received pursuant 
to [part 1260].'' This change has been made in recognition of the fact 
that, as was the case with the second proposed rule, the final 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. Section 1260.5(d) permits 
each Bank's president to share information regarding the OF received in 
his or her capacity as a member of the OF's board 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.

III. Consideration of Differences Between the Banks and the Enterprises

    Section 1313(f) of the Federal Housing Enterprises Financial Safety 
and Soundness Act of 1992 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; their 
affordable housing and community development mission; their capital 
structure; and their joint and several liability on consolidated 
obligations.\26\ The Director also may consider any other differences 
that are deemed appropriate. In preparing this final 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 second proposed rule.
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    \26\ See 12 U.S.C. 4513(f).
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IV. Paperwork Reduction Act

    This final 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.

V. Regulatory Flexibility Act

    This final 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 final rule will not have 
significant economic impact on a substantial number of small entities.

List of Subjects in 12 CFR Part 1260

    Confidential business information, Federal home loan banks, 
Reporting and recordkeeping requirements.

Authority and Issuance

    Accordingly, for the reasons stated in the Supplementary 
Information and under the authority of 12 U.S.C. 4526, the Federal 
Housing Finance Agency hereby amends chapter XII of title 12 of the 
Code of Federal Regulations by adding new part 1260 to subchapter D 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 Timing and form of information distribution.
1260.5 Control and disclosure of shared information.

    Authority:  12 U.S.C. 1440a, 4511 and 4513.


Sec.  1260.1  Definitions.

    As used in this part:
    Non-public information has the meaning set forth in Sec.  1214.1 of 
this chapter.
    Proprietary information means 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.


Sec.  1260.2  Bank information to be shared.

    (a) General. 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, or 
shall require each Bank to distribute directly to each other Bank and 
the Office of Finance, such categories of financial and supervisory 
information regarding each Bank and the Bank system as it determines to 
be appropriate, subject to the requirements of this part.
    (b) Notice. FHFA shall prepare and issue to each Bank and the 
Office of Finance a notice setting forth the categories of information 
to be distributed, which it shall review from time to time and revise 
as necessary to ensure that the information distributed remains useful 
to the Banks in evaluating the financial strength of the other Banks 
and the Bank System. Prior to issuing a new or revised notice, FHFA 
shall notify each Bank and the Office of Finance of its proposed 
contents and allow them a reasonable period within which to comment.
    (c) Director's orders. The Director or his designee may issue such 
orders as are necessary to effect the distribution of the information 
set forth in the notice issued under paragraph (b) of this section and 
to carry out the provisions of this part.


Sec.  1260.3  Requests to withhold proprietary information.

    (a) General. A Bank may request in writing that FHFA withhold from 
distribution, or determine that the Bank may 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 not be distributed 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 as 
described in paragraph (b)(2) of this section, the period within which 
a Bank may make

[[Page 73414]]

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.
    (iii) For information that a Bank is required to distribute 
directly to the other Banks and the Office of Finance, the request 
shall be delivered to FHFA no later than ten (10) business days prior 
to the date on which the Bank would otherwise be required to distribute 
the information.
    (2) As otherwise specified by FHFA. Any notice issued by FHFA under 
Sec.  1260.2(b) 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, FHFA 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 
FHFA will, or the Bank may, 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  Timing and form of information distribution.

    (a) Timing of distribution by FHFA. FHFA may distribute information 
as provided in the notice issued under Sec.  1260.2(b) 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) Timing of distribution by Banks. A Bank that is required to 
distribute information directly to the other Banks and the Office of 
Finance shall distribute that information at the time specified in the 
notice issued under Sec.  1260.2(b) unless, within the time period 
specified in Sec.  1260.3(b)(1)(iii), the Bank has submitted to FHFA a 
request to withhold particular proprietary information that meets the 
requirements of Sec.  1260.3(a). If the Bank has filed such a request, 
it need 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). Thereafter, the 
Bank shall distribute or withhold the subject information in conformity 
with that determination.
    (c) Form. FHFA may distribute information, or require a Bank to 
distribute information, under this part in either tangible or 
electronic form, as it deems appropriate.


Sec.  1260.5  Control and disclosure of shared 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 non-public information under part 1214 of this 
chapter, that information shall continue to qualify as such and shall 
continue to be subject to the restrictions on disclosure set forth in 
part 1214, provided that a Bank shall not be deemed to have violated 
any provision of Sec.  1214.3 of this chapter by disclosing in its 
filings with the SEC non-public 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 
provision of the 1934 Act or of 17 CFR chapter II to disclose non-
public 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 non-public 
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 non-public information regarding another Bank 
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.
    (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: November 22, 2013.
Edward J. DeMarco,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2013-28824 Filed 12-5-13; 8:45 am]
BILLING CODE 8070-01-P