Federal Home Loan Bank Capital Stock and Capital Plans, 12753-12758 [2015-05268]

Download as PDF 12753 Rules and Regulations Federal Register Vol. 80, No. 47 Wednesday, March 11, 2015 This section of the FEDERAL REGISTER contains regulatory documents having general applicability and legal effect, most of which are keyed to and codified in the Code of Federal Regulations, which is published under 50 titles pursuant to 44 U.S.C. 1510. The Code of Federal Regulations is sold by the Superintendent of Documents. Prices of new books are listed in the first FEDERAL REGISTER issue of each week. I. Background A. Creation of the Federal Housing Finance Agency FEDERAL HOUSING FINANCE BOARD 12 CFR Parts 931 and 933 FEDERAL HOUSING FINANCE AGENCY 12 CFR Part 1277 RIN 2590–AA71 Federal Home Loan Bank Capital Stock and Capital Plans Federal Housing Finance Board, Federal Housing Finance Agency. ACTION: Final rule. AGENCY: On October 8, 2014, the Federal Housing Finance Agency (FHFA) published a notice of proposed rulemaking in the Federal Register to transfer existing parts of the Federal Housing Finance Board (Finance Board) regulations to the FHFA regulations. These rules address Federal Home Loan Bank (Bank) capital stock and capital plans. FHFA did not propose to make any substantive changes to these requirements, but proposed to delete certain provisions that applied only to the one-time conversion of Bank stock to the new capital structure required by the Gramm-Leach-Bliley Act (GLB Act) and to make certain other clarifying changes. FHFA is now adopting the proposed rule as a final rule without change. SUMMARY: This final rule will become effective on April 10, 2015. DATES: Julie Paller, Senior Financial Analyst, Julie.Paller@FHFA.gov, 202–649–3201, Division of Federal Home Loan Bank Regulation; or Thomas E. Joseph, Associate General Counsel, Thomas.Joseph@FHFA.gov, 202–649– 3076 (these are not toll-free numbers), Office of General Counsel (OGC), Federal Housing Finance Agency, Rmajette on DSK2VPTVN1PROD with RULES FOR FURTHER INFORMATION CONTACT: VerDate Sep<11>2014 14:23 Mar 10, 2015 Jkt 235001 Constitution Center, 400 Seventh Street SW., Washington, DC 20024. The telephone number for the Telecommunications Device for the Hearing Impaired is 800–877–8339. SUPPLEMENTARY INFORMATION: Effective July 30, 2008, the Housing and Economic Recovery Act of 2008 (HERA) 1 created FHFA as a new independent agency of the Federal Government, and transferred to FHFA the supervisory and oversight responsibilities of the Office of Federal Housing Enterprise Oversight (OFHEO) over the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (collectively, the Enterprises), the oversight responsibilities of the Finance Board over the Banks and the Office of Finance (OF) (which acts as the Banks’ fiscal agent) and certain functions of the Department of Housing and Urban Development.2 Under the legislation, the Enterprises, the Banks, and the OF continue to operate under regulations promulgated by OFHEO and the Finance Board until such regulations are superseded by regulations issued by FHFA.3 While FHFA has amended or readopted and transferred most of the former Finance Board regulations, certain Finance Board regulations, including those which address Bank capital, have not yet been transferred by FHFA, although they continue to apply to the Banks. B. Bank Capital Stock and Capital Plans The twelve Banks are instrumentalities of the United States organized under the Federal Home Loan Bank Act (Bank Act).4 The Banks are cooperatives; only members of a Bank may purchase the capital stock of a Bank, and only members or certain eligible housing associates (such as state housing finance agencies) may obtain access to secured loans, known as advances, or other products provided by 1 Public Law 110–289, 122 Stat. 2654. 12 U.S.C. 4511. 3 See 12 U.S.C. 4511, note. 4 See 12 U.S.C. 1423 and 1432(a). The twelve Banks are located in: Boston, New York, Pittsburgh, Atlanta, Cincinnati, Indianapolis, Chicago, Des Moines, Dallas, Topeka, San Francisco, and Seattle. 2 See PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 a Bank.5 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.6 In 1999, the GLB Act 7 amended the Bank Act to replace the capital structure of the Bank System. Under the GLB Act, the Banks became subject to risk-based and leverage capital requirements similar to those applicable to depository institutions and other housing GSEs. The GLB Act also directed the Finance Board to adopt regulations prescribing uniform capital standards applicable to each Bank. It also required the Banks to replace their existing capital stock with new classes of capital stock that would have different terms from the stock then held by Bank System members. Specifically, the GLB Act authorized the Banks to issue new Class A stock, which the GLB Act defined as redeemable six months after filing of a notice by a member, and Class B stock, defined as redeemable five years after filing of a notice by a member. The GLB Act allowed Banks to issue Class A and Class B stock in any combination and to establish terms and preferences for each class or subclass of stock issued, consistent with Finance Board regulations and the Bank Act.8 As part of the process for converting the ‘‘old’’ capital stock to the new GLB Act Class A and Class B stock, the GLB Act required each Bank to adopt and maintain a capital plan that established the rights, terms and preferences of each class or subclass of capital stock that it would issue.9 The GLB Act also required that each Bank’s capital plan establish the minimum investment in capital stock required for its members to maintain membership and to conduct business with the Bank. Such minimum investment requirements needed to be sufficient for the Bank to meet its new minimum regulatory capital requirements. The GLB Act provided each Bank’s board of directors the discretion to develop and implement a capital plan that it determined was best suited for the conditions and operations 5 See 12 U.S.C. 1426(a)(4), 1430(a), and 1430b. 12 U.S.C. 1427. 7 Public Law 106–102, 113 Stat. 1338 (Nov. 12, 1999). 8 See 12 U.S.C. 1426, and 12 CFR parts 931 and 933. 9 Id. 6 See E:\FR\FM\11MRR1.SGM 11MRR1 12754 Federal Register / Vol. 80, No. 47 / Wednesday, March 11, 2015 / Rules and Regulations of the Bank and the interests of the Bank’s members.10 It also required Finance Board approval of each Bank’s capital plan prior to it taking effect. Under the Finance Board regulations, each Bank had discretion as to when it would convert to the new capital structure. The Finance Board regulations also addressed in detail the process for the one-time conversion to the new capital structure, including requirements for disclosure to be given to members prior to the conversion. Since the Finance Board originally adopted these regulations in 2001, all Banks have converted to the GLB Act capital structure. The original Finance Board regulations were never amended, however, to remove provisions that applied only to the initial conversion process.11 C. Considerations of Differences Between the Banks and the Enterprises Rmajette on DSK2VPTVN1PROD with RULES When promulgating regulations relating to the Banks, section 1313(f) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (Safety and Soundness Act) requires the Director of FHFA (Director) to consider the differences between the Banks and the Enterprises with respect to the Banks’ cooperative ownership structure; mission of providing liquidity to members; affordable housing and community development mission; capital structure; and joint and several liability.12 This requirement does not apply to regulations of the Finance Board that the Director reissues. The changes to the Bank capital stock and capital plan regulations proposed by FHFA in October 2014 were clarifying and conforming in nature and applied exclusively to the Banks. The proposed amendments did not alter the substance of the existing Finance Board regulations. Accordingly, the proposed rule did not trigger this statutory requirement. Nonetheless, FHFA, in preparing the proposed rule, considered the differences between the Banks and the Enterprises as they related to the above factors and specifically requested comments from the public about whether these differences should have resulted in any revisions to the proposed rule. FHFA received no comments in response to this request. 10 See 12 U.S.C. 1426(b)(1). Final Rule: Capital Requirements for Federal Home Loan Banks, 66 FR 8262 (Jan. 30, 2001); and Final Rule: Capital Requirements for Federal Home Loan Banks, 66 FR 54097 (Oct. 26, 2001) (amending capital requirements). 12 See 12 U.S.C. 4513 (as amended by section 1201 Public Law 110–289, 122 Stat. 2782–83). 11 See VerDate Sep<11>2014 14:23 Mar 10, 2015 Jkt 235001 II. Analysis of the Final Rule The Proposed Rule FHFA published a proposed rule on Bank capital stock and capital plans in the Federal Register on October 8, 2014, with a 60-day comment period.13 The proposed rule would have transferred the Finance Board Bank capital stock regulations from 12 CFR part 931 and the Bank capital plan regulations from 12 CFR part 933 to subparts C and D of new part 1277 of FHFA regulations, respectively. Relevant definitions for parts 931 and 933 also would have been transferred to subpart A of new part 1277.14 FHFA also proposed to make certain non-substantive, clarifying and conforming changes to these provisions and to remove requirements which applied only to the Banks’ initial conversion to the GLB Act capital structure. Among other changes, FHFA proposed to replace definitions for ‘‘regulatory risk-based capital requirement’’ and ‘‘regulatory total capital requirement’’ with a new single definition for ‘‘regulatory capital requirements.’’ It also proposed to define the term ‘‘former member’’ and to add relevant references to ‘‘former member’’ in the regulatory text to clarify that under the Bank Act and existing regulations, such institutions could be required to hold Bank stock in certain situations after termination of their Bank membership. With regard to existing capital stock provisions, FHFA proposed to transfer current 12 CFR part 931 to new subpart C of part 1277. Most of these provisions were to be transferred without change, beyond necessary conforming changes. FHFA, however, proposed to delete current § 931.9 which addresses various transition requirements related to the Banks’ conversion to the GLB Act capital structure. Given that all Banks have successfully completed this process, § 931.9 has no future applicability. FHFA also proposed to add clarifying language to § 1277.24 that any provision in a Bank’s capital plan related to stockholder rights in a liquidation, merger, or consolidation of the Bank cannot limit FHFA’s authority under the Bank Act or the Safety and Soundness Act to issue a regulation or order or to take any other action that may affect or 13 Proposed Rule: Federal Home Loan Bank capital Stock and Capital Plans, 79 FR 60783 (Oct. 8, 2014). 14 As part of a separate and future rulemaking, FHFA intends to amend and transfer the existing Bank capital regulations from part 932 of the Finance Board regulations to subpart B of new part 1277. PO 00000 Frm 00002 Fmt 4700 Sfmt 4700 otherwise alter the rights or privileges of stock holders in these situations. FHFA noted that it believed that the proposed change was consistent with existing provisions in each Bank’s approved capital plan. FHFA proposed to relocate relevant provisions in current part 933 to subpart D of new part 1277. As part of this process, it proposed to remove those provisions that related only to the Banks’ initial conversion to the GLB Act capital structure, given that the provisions had no continuing applicability.15 FHFA also proposed not to reissue duplicative provisions related to the calculation and application of a member’s, or former member’s, minimum investment requirements, and instead, incorporated into proposed § 1277.28(a) the requirements governing the calculation and maintenance of the minimum investment set forth in proposed § 1277.22 by reference. FHFA noted that this change was not intended to alter the current capital plan requirements in any substantive manner. FHFA also proposed to add to subpart D of new § 1277.29 to address the process for amending a Bank’s approved capital plan. The Finance Board rules did not specifically address the process for submitting capital plan amendments for approval, although the Bank Act allows Banks to amend their capital plans with FHFA approval.16 The amendments proposed in this new section reflected long-standing guidance first provided to the Banks in 2003 governing the submission of capital plan amendments for approval. FHFA also proposed to carry over in § 1277.29(c), current language from § 933.1(c) stating that the Director can approve an amendment to a capital plan subject to specific conditions. Finally, as discussed more fully in the SUPPLEMENTARY INFORMATION section of the proposed rule, FHFA also proposed other conforming or clarifying changes to the existing Finance Board regulations on Bank capital stock and capital plans. Final Rule FHFA received one comment on the proposed rule, but the comment did not address issues relevant to this rulemaking.17 As a result and for the reasons discussed above and in the notice of proposed rulemaking, FHFA is 15 Specifically, FHFA proposed not to reissue 12 CFR 933.2(d), (e), and (h), 933.3, 933.4, and 933.5. 16 See 12 U.S.C. 1426(b)(2). 17 Instead, the comment urged FHFA to recapitalize the Enterprises. E:\FR\FM\11MRR1.SGM 11MRR1 Federal Register / Vol. 80, No. 47 / Wednesday, March 11, 2015 / Rules and Regulations adopting the proposed rule as a final rule without change. III. Paperwork Reduction Act The information collection, entitled ‘‘Capital Requirements for the Federal Home Loan Banks,’’ contained in the 12 CFR parts 931 and 933 of the regulations that are being relocated to 12 CFR part 1277 by this final rule, has been assigned control number 2590–0002 by the Office of Management and Budget (OMB). The final rule does not substantively or materially modify the current, approved information collection. OMB has approved the relocation of this information collection to part 1277 as a non-substantive change under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501, et seq. IV. Regulatory Flexibility Act The 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 does not have a significant economic impact on a substantial number of small entities. List of Subjects 12 CFR Parts 931 and 933 Capital, Credit, Federal home loan banks, Investments, Reporting and recordkeeping requirements. 12 CFR Part 1277 Capital, Credit, Federal home loan banks, Investments, Reporting and recordkeeping requirements. Accordingly, for reasons stated in the SUPPLEMENTARY INFORMATION and under the authority of 12 U.S.C. 1426, 1436, 1440, 1443, 1446, 4511, 4513, 4526, FHFA hereby amends subchapter E of chapter IX and subchapter D of chapter XII of title 12 of the Code of Federal Regulations as follows: CHAPTER IX—FEDERAL HOUSING FINANCE BOARD Subchapter E—Federal Home Loan Bank Risk Management and Capital Standards PART 931—[REMOVED] ■ 1. Remove part 931. Rmajette on DSK2VPTVN1PROD with RULES PART 933—[REMOVED] ■ 2. Remove part 933. CHAPTER XII—FEDERAL HOUSING FINANCE AGENCY Subchapter D—Federal Home Loan Banks 3. Part 1277 is added to read as follows: ■ VerDate Sep<11>2014 14:23 Mar 10, 2015 Jkt 235001 PART 1277—FEDERAL HOME LOAN BANK CAPITAL REQUIREMENTS, CAPITAL STOCK AND CAPITAL PLANS Subpart A—Definitions Sec. 1277.1 Definitions. Subpart B—[Reserved] Subpart C—Bank Capital Stock 1277.20 Classes of capital stock. 1277.21 Issuance of capital stock. 1277.22 Minimum investment in capital stock. 1277.23 Dividends. 1277.24 Liquidation, merger, or consolidation. 1277.25 Transfer of capital stock. 1277.26 Redemption and repurchase of capital stock. 1277.27 Other restrictions on the repurchase or redemption of Bank stock. Subpart D—Bank Capital Plans 1277.28 Bank capital plans. 1277.29 Amendments to a Bank’s capital plan. Authority: 12 U.S.C. 1426, 1436(a), 1440, 1443, 1446, 4511, 4513, 4514, 4526, 4612. 12755 Class A or Class B stock at par value following the expiration of the sixmonth or five-year statutory redemption period, respectively, for the stock. Regulatory capital requirements means the minimum amounts of permanent and total capital that a Bank is required to maintain under section 6(a) of the Bank Act (12 U.S.C. 1426(a)) and any related regulations, as such requirements may be modified by the Director, or any similar requirement established for a Bank by regulation, order, written agreement or other action. Repurchase means the acquisition by a Bank of excess stock prior to the expiration of the six-month or five-year statutory redemption period for the stock. Total capital of a Bank means the sum of permanent capital, the amounts paidin for Class A stock, the amount of any general allowance for losses, and the amount of other instruments identified in a Bank’s capital plan that the Director has determined to be available to absorb losses incurred by such Bank. Subpart B—[Reserved] Subpart A—Definitions § 1277.1 Subpart C—Bank Capital Stock Definitions. As used in this part: Class A stock means capital stock issued by a Bank, including subclasses, that has the characteristics specified by § 1277.20(a). Class B stock means capital stock issued by a Bank, including subclasses, that has the characteristics specified by § 1277.20(b). Former member means an institution for which the membership in a Bank has been terminated but which continues to hold stock in the Bank as required by the Bank’s capital plan, and includes any successor to such institution that continues to hold the stock in the Bank that had been issued to the acquired institution. General allowance for losses means an allowance established by the Bank in accordance with GAAP for losses, but which does not include any amounts held against specific assets of the Bank. Minimum investment means the minimum amount of stock that an institution is required to own in order to be a member of a Bank and in order to obtain advances and to engage in other business activities with the Bank in accordance with § 1277.22. Permanent capital means the retained earnings of a Bank, determined in accordance with GAAP, plus the amount paid-in for the Bank’s Class B stock. Redeem or Redemption means the acquisition by a Bank of its outstanding PO 00000 Frm 00003 Fmt 4700 Sfmt 4700 § 1277.20 Classes of capital stock. The authorized capital stock of a Bank shall consist of the following instruments: (a) Class A stock, which shall: (1) Have a par value as determined by the board of directors of the Bank and stated in the Bank’s capital plan; (2) Be issued, redeemed, and repurchased only at its stated par value; and (3) Be redeemable in cash only on sixmonths written notice to the Bank. (b) Class B stock, which shall: (1) Have a par value as determined by the board of directors of the Bank and stated in the Bank’s capital plan; (2) Be issued, redeemed, and repurchased only at its stated par value; (3) Be redeemable in cash only on five-years written notice to the Bank; and (4) Confer an ownership interest in the retained earnings, surplus, undivided profits, and equity reserves of the Bank. (c) Any one or more subclasses of Class A or Class B stock, each of which may have different rights, terms, conditions, or preferences as may be authorized in the Bank’s capital plan, provided, however, that each subclass of stock shall have all of the characteristics of its respective class, as specified in paragraph (a) or (b) of this section. E:\FR\FM\11MRR1.SGM 11MRR1 12756 § 1277.21 Federal Register / Vol. 80, No. 47 / Wednesday, March 11, 2015 / Rules and Regulations Issuance of capital stock. A Bank may issue either one or both classes of its capital stock (including subclasses), as authorized by § 1277.20, and shall not issue any other class of capital stock. A Bank shall issue its stock only to its members, or to former members to the extent those institutions are required to maintain a minimum stock investment for existing activities under the capital plan, and only in book-entry form. The Bank shall act as its own transfer agent. All capital stock shall be issued in accordance with the Bank’s capital plan. Rmajette on DSK2VPTVN1PROD with RULES § 1277.22 stock. Minimum investment in capital (a) A Bank shall require each member to maintain a minimum investment in the capital stock of the Bank, both as a condition to becoming and remaining a member of the Bank and as a condition to transacting business with the Bank or obtaining advances and other services from the Bank. The amount of the required minimum investment shall be determined in accordance with the Bank’s capital plan and shall be sufficient to ensure that the Bank remains in compliance with its regulatory capital requirements. A Bank shall require each member to maintain its minimum investment for as long as the institution remains a member of the Bank and shall require each member and former member to maintain its minimum investment for as long as the institution engages in any activity with the Bank for which the capital plan requires the institution to maintain capital stock. (b) A Bank may establish the minimum investment as a percentage of the total assets of an institution, as a percentage of the advances outstanding to that institution, as a percentage of any other business activity conducted with the institution, on any other basis that is approved by the Director, or any combination thereof. (c) A Bank may require that the minimum investment requirement be satisfied through the purchase of either Class A or Class B stock, or through the purchase of one or more combinations of Class A and Class B stock that have been authorized by the board of directors of the Bank in its capital plan. A Bank, in its discretion, may establish a lower minimum investment to the extent the requirement is met through investment in Class B stock than if the requirement is met through investment in Class A stock, provided that such reduced investment provides sufficient capital for the Bank to remain in compliance with its regulatory capital requirements. VerDate Sep<11>2014 14:23 Mar 10, 2015 Jkt 235001 (d) Each member, or if applicable, former member, of a Bank shall at all times maintain an investment in the capital stock of the Bank in an amount that is sufficient to satisfy the minimum investment required under the Bank’s capital plan. stock transfers shall be at par value and shall be effective upon being recorded on the appropriate books and records of the Bank. The Bank may, in its capital plan, require that the transfer be approved by the Bank before such transfer can occur. § 1277.23 § 1277.26 Redemption and repurchase of capital stock. Dividends. (a) In general. A Bank may pay dividends on Class A or Class B stock, including any subclasses of such stock, only out of previously retained earnings or current net earnings, and shall declare and pay dividends only as provided by its capital plan. The capital plan may establish different dividend rates or preferences for each class or subclass of stock, which may include a dividend that tracks the economic performance of certain Bank assets, such as Acquired Member Assets. A member, including a member that has provided the Bank with a notice of intent to withdraw from membership, or a former member shall be entitled to receive any dividends that a Bank declares on its capital stock while such institution owns the stock. (b) Limitation on payment of dividends. In no event shall a Bank declare or pay any dividend on its capital stock if after doing so the Bank would fail to meet any of its regulatory capital requirements, nor shall a Bank that is not in compliance with any of its regulatory capital requirements declare or pay any dividend on its capital stock. § 1277.24 Liquidation, merger, or consolidation. The respective rights of the Class A and Class B stockholders, in the event that the Bank is liquidated, merged, or otherwise consolidated with another Bank, shall be determined in accordance with the capital plan of the Bank, provided, however, that nothing in the capital plan shall be construed to limit any rights or authority granted FHFA under the Bank Act or the Safety and Soundness Act to issue any regulation or order or to take any other action that may affect or otherwise alter the rights or privileges of stock holders in a liquidation, merger, or consolidation of a Bank. § 1277.25 Transfer of capital stock. A Bank in its capital plan may allow a member or former member to transfer any excess stock to a member of that Bank or to an institution that has been approved for membership in that Bank and that has satisfied all conditions for becoming a member, other than the purchase of the minimum amount of Bank stock that it is required to hold as a condition of membership. Any such PO 00000 Frm 00004 Fmt 4700 Sfmt 4700 (a) Redemption. (1) A member or former member may have its stock in a Bank redeemed by providing written notice to the Bank in accordance with this section. A member or former member shall provide six-months written notice for Class A stock and five-years written notice for Class B stock. The notice shall indicate the number of shares of Bank stock that are to be redeemed. No more than one notice of redemption may be outstanding at one time for the same shares of Bank stock. At the expiration of the applicable notice period, the Bank shall pay to the member or other institution holding the stock the stated par value of that stock in cash. (2) A member may cancel a notice of redemption by so informing the Bank in writing, and the Bank may impose a fee (to be specified in its capital plan) with respect to any cancellation of a pending notice of redemption. A request by a member (whose membership has not been terminated) to redeem specific shares of stock shall automatically be cancelled if the Bank is prevented from redeeming the member’s stock by paragraph (c) of this section within five business days from the end of the expiration of the applicable redemption notice period because the member would fail to maintain its minimum investment in the stock of the Bank after such redemption. The automatic cancellation of a member’s redemption request shall have the same effect as if the member had cancelled its notice to redeem stock prior to the end of the redemption notice period, and a Bank may impose a fee (to be specified in its capital plan) for automatic cancellation of a redemption request. (3) A Bank shall not be obligated to redeem its capital stock other than in accordance with this paragraph. (b) Repurchase. A Bank, in its discretion and without regard to the applicable redemption periods, may repurchase excess stock in accordance with the capital plan of that Bank. A Bank undertaking such a stock repurchase at its own initiative shall provide reasonable notice prior to repurchasing any excess stock, with the period of such notice to be specified in the Bank’s capital plan, and shall pay the stated par value of that stock in E:\FR\FM\11MRR1.SGM 11MRR1 Federal Register / Vol. 80, No. 47 / Wednesday, March 11, 2015 / Rules and Regulations cash. A member’s submission of a notice of intent to withdraw from membership, or its termination of membership in any other manner, shall not, in and of itself, cause any Bank stock to be deemed excess stock for purposes of this section. (c) Limitation. In no event may a Bank redeem or repurchase any stock if, following the redemption or repurchase, the Bank would fail to meet its regulatory capital requirements, or if the member or former member would fail to maintain its minimum investment in the stock of the Bank, as required by § 1277.22. Rmajette on DSK2VPTVN1PROD with RULES § 1277.27 Other restrictions on the repurchase or redemption of Bank stock. (a) Capital impairment. A Bank may not redeem or repurchase any capital stock without the prior written approval of the Director if the Director or the board of directors of the Bank has determined that the Bank has incurred or is likely to incur losses that result in or are likely to result in charges against the capital of the Bank. This prohibition shall apply even if a Bank is currently in compliance with its regulatory capital requirements, and shall remain in effect for however long the Bank continues to incur such charges or until the Director determines that such charges are not expected to continue. (b) Bank discretion to suspend redemption. A Bank, upon the approval of its board of directors, or of a subcommittee thereof, may suspend redemption of stock if the Bank reasonably believes that continued redemption of stock would cause the Bank to fail to meet its regulatory capital requirements, would prevent the Bank from maintaining adequate capital against a potential risk that may not be adequately reflected in its regulatory capital requirements, or would otherwise prevent the Bank from operating in a safe and sound manner. A Bank shall notify the Director in writing within two business days of the date of the decision to suspend the redemption of stock, providing the reasons for the suspension and the Bank’s strategies and time frames for addressing the conditions that led to the suspension. The Director may require the Bank to re-institute the redemption of stock. A Bank shall not repurchase any stock without the written permission of the Director during any period in which the Bank has suspended redemption of stock under this paragraph. VerDate Sep<11>2014 14:23 Mar 10, 2015 Jkt 235001 Subpart D—Bank Capital Plans § 1277.28 Bank capital plans. Each Bank shall have in place a capital plan approved by the Bank’s board of directors and the Director. The capital plan shall include, at a minimum, provisions addressing the following matters: (a) Minimum investment. (1) The capital plan shall require each member, and if applicable each former member, to purchase and maintain a minimum investment in the capital stock of the Bank and prescribe the manner for calculating the minimum investment, in accordance with § 1277.22. (2) The capital plan shall specify the amount and class (or classes) of Bank stock that an institution is required to own in order to become and remain a member of the Bank, and to obtain advances from, or to engage in other business transactions with, the Bank. If a Bank requires that the minimum investment be satisfied through the purchase of one or more combinations of Class A and Class B stock, the authorized combinations of stock shall be specified in the capital plan, which shall afford the option of satisfying the minimum investment through the purchase of any such combination of stock. (3) The capital plan shall require the board of directors of the Bank to monitor and, as necessary, to adjust, the minimum investment to ensure that outstanding stock remains sufficient for the Bank to comply with its regulatory capital requirements. The plan shall require each member or, where required by the plan, former member, to comply promptly with any adjusted minimum investment established by the board of directors of the Bank, but may allow a reasonable time to do so and may allow a reduction in outstanding business with the Bank as an alternative to purchasing additional stock. (b) Classes of capital stock. The capital plan shall specify the class or classes of stock (including subclasses, if any) that the Bank will issue, and shall establish the par value, rights, terms, and preferences associated with each class (or subclass) of stock. A Bank may establish preferences relating to, but not limited to, the dividend, voting, or liquidation rights for each class or subclass of Bank stock. Any voting preferences established by the Bank pursuant to § 1261.6 of this chapter shall expressly state the voting rights of each class of stock with regard to the election of Bank directors. The capital plan shall provide that the owners of the Class B stock own the retained earnings, surplus, undivided profits, and equity PO 00000 Frm 00005 Fmt 4700 Sfmt 4700 12757 reserves of the Bank, but shall have no right to receive any portion of those items, except through declaration of a dividend or capital distribution approved by the board of directors or through the liquidation of the Bank. (c) Dividends. The capital plan shall establish the manner in which the Bank will pay dividends, if any, on each class or subclass of stock, and shall provide that the Bank may not declare or pay any dividends if it is not in compliance with any regulatory capital requirement or if after paying the dividend it would not be in compliance with any regulatory capital requirement. (d) Stock transactions. The capital plan shall establish the criteria for the issuance, redemption, repurchase, transfer, and retirement of stock issued by the Bank. The capital plan also: (1) Shall provide that the Bank may not issue stock other than in accordance with § 1277.21; (2) Shall provide that the stock of the Bank may be issued only to and held only by the members of that Bank, and by former members to the extent necessary to meet requirements set forth in a capital plan; (3) Shall specify whether the stock of the Bank may be transferred, as allowed under § 1277.25, and, if such transfer is allowed, shall specify the procedures to effect such transfer, and provide that the transfer shall be undertaken only in accordance with § 1277.25; (4) Shall specify that the stock of the Bank may be traded only among the Bank and its members, and former members; (5) May provide for a minimum investment based on investment in Class B stock that is lower than a minimum investment based on investment in Class A stock, provided that the level of investment is sufficient for the Bank to comply with its regulatory capital requirements; (6) Shall specify the fee, if any, to be imposed upon cancellation of a request to redeem Bank stock or upon cancellation of a request to withdraw from membership; and (7) Shall specify the period of notice that the Bank will provide before the Bank, on its own initiative, determines to repurchase any excess Bank stock. (e) Termination of membership. The capital plan shall address the manner in which the Bank will provide for the disposition of its capital stock that is held by institutions that terminate their membership, and the manner in which the Bank will liquidate claims against such institutions, including claims resulting from prepayment of advances prior to their stated maturity. E:\FR\FM\11MRR1.SGM 11MRR1 12758 Rmajette on DSK2VPTVN1PROD with RULES § 1277.29 plan. Federal Register / Vol. 80, No. 47 / Wednesday, March 11, 2015 / Rules and Regulations Amendments to a Bank’s capital (a) In general. A Bank’s board of directors shall approve any amendments to the Bank’s capital plan and submit such amendment to the Director for approval. No such amendment may take effect until it has been approved by the Director. (b) Submission of amendments for approval. Any request for approval of capital plan amendments should be submitted to the Deputy Director for the Division of Federal Home Loan Bank Regulation and should include the following: (1) The name of the Bank making the request and the name, title, and contact information of the official filing the request; (2) The name, title and contact information of the staff member(s) whom FHFA may contact for additional information; (3) A certification by an executive officer of the Bank with knowledge of the facts that the representations made in the request are accurate and complete. The following form of certification may be used: ‘‘I hereby certify that the statements contained in the submission are true and complete to the best of my knowledge. [Name and Title]’’; (4) A written, narrative description of the proposed amendments to the Bank’s capital plan and a discussion of the Bank’s reasons for the proposed changes; (5) The amended capital plan as approved by the Bank’s board of directors; (6) A version of the Bank’s capital plan showing all proposed changes to its previously approved capital plan; (7) Resolutions of the Bank’s board of directors: (i) Approving the proposed capital plan amendments; and (ii) Authorizing the filing of the application for approval of the amendments and concurring in substance with the supporting documentation provided; (8) An opinion of counsel demonstrating that the proposed amendments comply with the Bank Act, FHFA regulations and any other applicable law or regulation. If the amendments would be identical in substance to provisions approved for other Banks’ capital plans, a Bank’s legal analysis may reference the other capital plans that contain the provisions in question; (9) An analysis of the effect of the proposed amendments, if any, on the Bank’s capital levels and the Bank’s VerDate Sep<11>2014 14:23 Mar 10, 2015 Jkt 235001 ability to meet its regulatory capital requirements; (10) Pro forma financial statements from the end of the quarter immediately prior to the date of submission of the request for approval through at least the end of the next two years, showing the impact of the proposed changes, if any, on capital levels; and (11) A discussion of and an explanation for changes to the Bank’s strategic plan, if any, which may be related to the capital plan amendments. (c) FHFA consideration of the amendment. The Director may approve any amendment to a Bank’s capital plan as submitted or may condition approval on the Bank’s compliance with certain stated conditions. Dated: March 2, 2015. Melvin L. Watt, Director, Federal Housing Finance Agency. [FR Doc. 2015–05268 Filed 3–10–15; 8:45 am] BILLING CODE 8070–01–P DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Part 389 [Docket No. RM15–10–000; Order No. 805] Display of OMB Control Numbers Federal Energy Regulatory Commission, DOE. ACTION: Final rule. AGENCY: The Commission is revising and updating its regulations related to the display of Office of Management and Budget (OMB) control numbers under the Paperwork Reduction Act. The Final Rule updates the existing table and revises the regulations to explain that an updated table displaying OMB control numbers is available on www.ferc.gov. DATES: This rule will become effective March 11, 2015. FOR FURTHER INFORMATION CONTACT: Ellen Brown (Technical Information), Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 502–8663, DataClearance@ ferc.gov. Christopher MacFarlane (Legal Information), Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, (202) 502–6761, christopher.macfarlane@ferc.gov. SUPPLEMENTARY INFORMATION: SUMMARY: I. Discussion 1. The Commission is revising and updating Part 389 of its regulations related to the display of Office of PO 00000 Frm 00006 Fmt 4700 Sfmt 4700 Management and Budget (OMB) control numbers,1 by updating the existing table and revising the regulations to explain that an updated table displaying OMB control numbers is available on www.ferc.gov. 2. Part 389 aids in fulfilling the requirements of the Paperwork Reduction Act 2 to display current OMB control numbers for information collections. The Commission also displays OMB control numbers on its Web site at www.ferc.gov under ‘‘Documents and Filings’’ and then ‘‘Information Collections’’ or directly at http://www.ferc.gov/docs-filing/infocollections.asp. The Web site is updated regularly. For the most up-to-date information, interested persons are urged to consult the Commission’s Web site. II. Information Collection Statement 3. OMB’s regulations require that it approve certain information collection requirements imposed by agency rule.3 This Final Rule does not contain new or revised information collection requirements and thus does not require OMB approval. III. Environmental Analysis 4. The Commission is required to prepare an Environmental Assessment or Environmental Impact Statement for any action that may have a significant adverse effect on the quality of the human environment.4 Part 380 of the Commission’s regulations provides exemptions to the requirement to prepare an Environmental Assessment or Environmental Impact Statement. Included is an exemption for procedural, ministerial or internal administrative actions and management.5 This Final Rule falls within that exemption; consequently, no environmental analysis is required. IV. Regulatory Flexibility Act 5. The Regulatory Flexibility Act of 1980 (RFA) 6 generally requires a description and analysis of final rules that will have significant economic impact on a substantial number of small entities. This Final Rule, which revises and updates regulations on the display of OMB control numbers, will not have a significant economic impact on a substantial number of small entities. 1 18 CFR 389.101 (2014). U.S.C. 3501–3521 (1980). 3 5 CFR part 1320. 4 Regulations Implementing the National Environmental Policy Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. ¶ 30,783 (1987). 5 18 CFR 380.4(1). 6 5 U.S.C. 601–12. 2 44 E:\FR\FM\11MRR1.SGM 11MRR1

Agencies

[Federal Register Volume 80, Number 47 (Wednesday, March 11, 2015)]
[Rules and Regulations]
[Pages 12753-12758]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-05268]



========================================================================
Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
week.

========================================================================


Federal Register / Vol. 80, No. 47 / Wednesday, March 11, 2015 / 
Rules and Regulations

[[Page 12753]]



FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 931 and 933

FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1277

RIN 2590-AA71


Federal Home Loan Bank Capital Stock and Capital Plans

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

ACTION: Final rule.

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

SUMMARY: On October 8, 2014, the Federal Housing Finance Agency (FHFA) 
published a notice of proposed rulemaking in the Federal Register to 
transfer existing parts of the Federal Housing Finance Board (Finance 
Board) regulations to the FHFA regulations. These rules address Federal 
Home Loan Bank (Bank) capital stock and capital plans. FHFA did not 
propose to make any substantive changes to these requirements, but 
proposed to delete certain provisions that applied only to the one-time 
conversion of Bank stock to the new capital structure required by the 
Gramm-Leach-Bliley Act (GLB Act) and to make certain other clarifying 
changes. FHFA is now adopting the proposed rule as a final rule without 
change.

DATES: This final rule will become effective on April 10, 2015.

FOR FURTHER INFORMATION CONTACT: Julie Paller, Senior Financial 
Analyst, Julie.Paller@FHFA.gov, 202-649-3201, Division of Federal Home 
Loan Bank Regulation; or Thomas E. Joseph, Associate General Counsel, 
Thomas.Joseph@FHFA.gov, 202-649-3076 (these are not toll-free numbers), 
Office of General Counsel (OGC), Federal Housing Finance Agency, 
Constitution Center, 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. Creation of the Federal Housing Finance Agency

    Effective July 30, 2008, the Housing and Economic Recovery Act of 
2008 (HERA) \1\ created FHFA as a new independent agency of the Federal 
Government, and transferred to FHFA the supervisory and oversight 
responsibilities of the Office of Federal Housing Enterprise Oversight 
(OFHEO) over the Federal National Mortgage Association and the Federal 
Home Loan Mortgage Corporation (collectively, the Enterprises), the 
oversight responsibilities of the Finance Board over the Banks and the 
Office of Finance (OF) (which acts as the Banks' fiscal agent) and 
certain functions of the Department of Housing and Urban 
Development.\2\ Under the legislation, the Enterprises, the Banks, and 
the OF continue to operate under regulations promulgated by OFHEO and 
the Finance Board until such regulations are superseded by regulations 
issued by FHFA.\3\ While FHFA has amended or re-adopted and transferred 
most of the former Finance Board regulations, certain Finance Board 
regulations, including those which address Bank capital, have not yet 
been transferred by FHFA, although they continue to apply to the Banks.
---------------------------------------------------------------------------

    \1\ Public Law 110-289, 122 Stat. 2654.
    \2\ See 12 U.S.C. 4511.
    \3\ See 12 U.S.C. 4511, note.
---------------------------------------------------------------------------

B. Bank Capital Stock and Capital Plans

    The twelve Banks are instrumentalities of the United States 
organized under the Federal Home Loan Bank Act (Bank Act).\4\ The Banks 
are cooperatives; only members of a Bank may purchase the capital stock 
of a Bank, and only members or certain eligible housing associates 
(such as state housing finance agencies) may obtain access to secured 
loans, known as advances, or other products provided by a Bank.\5\ 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.\6\
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    \4\ See 12 U.S.C. 1423 and 1432(a). The twelve Banks are located 
in: Boston, New York, Pittsburgh, Atlanta, Cincinnati, Indianapolis, 
Chicago, Des Moines, Dallas, Topeka, San Francisco, and Seattle.
    \5\ See 12 U.S.C. 1426(a)(4), 1430(a), and 1430b.
    \6\ See 12 U.S.C. 1427.
---------------------------------------------------------------------------

    In 1999, the GLB Act \7\ amended the Bank Act to replace the 
capital structure of the Bank System. Under the GLB Act, the Banks 
became subject to risk-based and leverage capital requirements similar 
to those applicable to depository institutions and other housing GSEs. 
The GLB Act also directed the Finance Board to adopt regulations 
prescribing uniform capital standards applicable to each Bank. It also 
required the Banks to replace their existing capital stock with new 
classes of capital stock that would have different terms from the stock 
then held by Bank System members. Specifically, the GLB Act authorized 
the Banks to issue new Class A stock, which the GLB Act defined as 
redeemable six months after filing of a notice by a member, and Class B 
stock, defined as redeemable five years after filing of a notice by a 
member. The GLB Act allowed Banks to issue Class A and Class B stock in 
any combination and to establish terms and preferences for each class 
or subclass of stock issued, consistent with Finance Board regulations 
and the Bank Act.\8\
---------------------------------------------------------------------------

    \7\ Public Law 106-102, 113 Stat. 1338 (Nov. 12, 1999).
    \8\ See 12 U.S.C. 1426, and 12 CFR parts 931 and 933.
---------------------------------------------------------------------------

    As part of the process for converting the ``old'' capital stock to 
the new GLB Act Class A and Class B stock, the GLB Act required each 
Bank to adopt and maintain a capital plan that established the rights, 
terms and preferences of each class or subclass of capital stock that 
it would issue.\9\ The GLB Act also required that each Bank's capital 
plan establish the minimum investment in capital stock required for its 
members to maintain membership and to conduct business with the Bank. 
Such minimum investment requirements needed to be sufficient for the 
Bank to meet its new minimum regulatory capital requirements. The GLB 
Act provided each Bank's board of directors the discretion to develop 
and implement a capital plan that it determined was best suited for the 
conditions and operations

[[Page 12754]]

of the Bank and the interests of the Bank's members.\10\ It also 
required Finance Board approval of each Bank's capital plan prior to it 
taking effect.
---------------------------------------------------------------------------

    \9\ Id.
    \10\ See 12 U.S.C. 1426(b)(1).
---------------------------------------------------------------------------

    Under the Finance Board regulations, each Bank had discretion as to 
when it would convert to the new capital structure. The Finance Board 
regulations also addressed in detail the process for the one-time 
conversion to the new capital structure, including requirements for 
disclosure to be given to members prior to the conversion. Since the 
Finance Board originally adopted these regulations in 2001, all Banks 
have converted to the GLB Act capital structure. The original Finance 
Board regulations were never amended, however, to remove provisions 
that applied only to the initial conversion process.\11\
---------------------------------------------------------------------------

    \11\ See Final Rule: Capital Requirements for Federal Home Loan 
Banks, 66 FR 8262 (Jan. 30, 2001); and Final Rule: Capital 
Requirements for Federal Home Loan Banks, 66 FR 54097 (Oct. 26, 
2001) (amending capital requirements).
---------------------------------------------------------------------------

C. Considerations of Differences Between the Banks and the Enterprises

    When promulgating regulations relating to the Banks, section 
1313(f) of the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992 (Safety and Soundness Act) requires the Director 
of FHFA (Director) to consider the differences between the Banks and 
the Enterprises with respect to the Banks' cooperative ownership 
structure; mission of providing liquidity to members; affordable 
housing and community development mission; capital structure; and joint 
and several liability.\12\ This requirement does not apply to 
regulations of the Finance Board that the Director reissues.
---------------------------------------------------------------------------

    \12\ See 12 U.S.C. 4513 (as amended by section 1201 Public Law 
110-289, 122 Stat. 2782-83).
---------------------------------------------------------------------------

    The changes to the Bank capital stock and capital plan regulations 
proposed by FHFA in October 2014 were clarifying and conforming in 
nature and applied exclusively to the Banks. The proposed amendments 
did not alter the substance of the existing Finance Board regulations. 
Accordingly, the proposed rule did not trigger this statutory 
requirement. Nonetheless, FHFA, in preparing the proposed rule, 
considered the differences between the Banks and the Enterprises as 
they related to the above factors and specifically requested comments 
from the public about whether these differences should have resulted in 
any revisions to the proposed rule. FHFA received no comments in 
response to this request.

II. Analysis of the Final Rule

The Proposed Rule

    FHFA published a proposed rule on Bank capital stock and capital 
plans in the Federal Register on October 8, 2014, with a 60-day comment 
period.\13\ The proposed rule would have transferred the Finance Board 
Bank capital stock regulations from 12 CFR part 931 and the Bank 
capital plan regulations from 12 CFR part 933 to subparts C and D of 
new part 1277 of FHFA regulations, respectively. Relevant definitions 
for parts 931 and 933 also would have been transferred to subpart A of 
new part 1277.\14\ FHFA also proposed to make certain non-substantive, 
clarifying and conforming changes to these provisions and to remove 
requirements which applied only to the Banks' initial conversion to the 
GLB Act capital structure.
---------------------------------------------------------------------------

    \13\ Proposed Rule: Federal Home Loan Bank capital Stock and 
Capital Plans, 79 FR 60783 (Oct. 8, 2014).
    \14\ As part of a separate and future rulemaking, FHFA intends 
to amend and transfer the existing Bank capital regulations from 
part 932 of the Finance Board regulations to subpart B of new part 
1277.
---------------------------------------------------------------------------

    Among other changes, FHFA proposed to replace definitions for 
``regulatory risk-based capital requirement'' and ``regulatory total 
capital requirement'' with a new single definition for ``regulatory 
capital requirements.'' It also proposed to define the term ``former 
member'' and to add relevant references to ``former member'' in the 
regulatory text to clarify that under the Bank Act and existing 
regulations, such institutions could be required to hold Bank stock in 
certain situations after termination of their Bank membership.
    With regard to existing capital stock provisions, FHFA proposed to 
transfer current 12 CFR part 931 to new subpart C of part 1277. Most of 
these provisions were to be transferred without change, beyond 
necessary conforming changes. FHFA, however, proposed to delete current 
Sec.  931.9 which addresses various transition requirements related to 
the Banks' conversion to the GLB Act capital structure. Given that all 
Banks have successfully completed this process, Sec.  931.9 has no 
future applicability.
    FHFA also proposed to add clarifying language to Sec.  1277.24 that 
any provision in a Bank's capital plan related to stockholder rights in 
a liquidation, merger, or consolidation of the Bank cannot limit FHFA's 
authority under the Bank Act or the Safety and Soundness Act to issue a 
regulation or order or to take any other action that may affect or 
otherwise alter the rights or privileges of stock holders in these 
situations. FHFA noted that it believed that the proposed change was 
consistent with existing provisions in each Bank's approved capital 
plan.
    FHFA proposed to relocate relevant provisions in current part 933 
to subpart D of new part 1277. As part of this process, it proposed to 
remove those provisions that related only to the Banks' initial 
conversion to the GLB Act capital structure, given that the provisions 
had no continuing applicability.\15\
---------------------------------------------------------------------------

    \15\ Specifically, FHFA proposed not to reissue 12 CFR 933.2(d), 
(e), and (h), 933.3, 933.4, and 933.5.
---------------------------------------------------------------------------

    FHFA also proposed not to reissue duplicative provisions related to 
the calculation and application of a member's, or former member's, 
minimum investment requirements, and instead, incorporated into 
proposed Sec.  1277.28(a) the requirements governing the calculation 
and maintenance of the minimum investment set forth in proposed Sec.  
1277.22 by reference. FHFA noted that this change was not intended to 
alter the current capital plan requirements in any substantive manner.
    FHFA also proposed to add to subpart D of new Sec.  1277.29 to 
address the process for amending a Bank's approved capital plan. The 
Finance Board rules did not specifically address the process for 
submitting capital plan amendments for approval, although the Bank Act 
allows Banks to amend their capital plans with FHFA approval.\16\ The 
amendments proposed in this new section reflected long-standing 
guidance first provided to the Banks in 2003 governing the submission 
of capital plan amendments for approval. FHFA also proposed to carry 
over in Sec.  1277.29(c), current language from Sec.  933.1(c) stating 
that the Director can approve an amendment to a capital plan subject to 
specific conditions.
---------------------------------------------------------------------------

    \16\ See 12 U.S.C. 1426(b)(2).
---------------------------------------------------------------------------

    Finally, as discussed more fully in the SUPPLEMENTARY INFORMATION 
section of the proposed rule, FHFA also proposed other conforming or 
clarifying changes to the existing Finance Board regulations on Bank 
capital stock and capital plans.
Final Rule
    FHFA received one comment on the proposed rule, but the comment did 
not address issues relevant to this rulemaking.\17\ As a result and for 
the reasons discussed above and in the notice of proposed rulemaking, 
FHFA is

[[Page 12755]]

adopting the proposed rule as a final rule without change.
---------------------------------------------------------------------------

    \17\ Instead, the comment urged FHFA to recapitalize the 
Enterprises.
---------------------------------------------------------------------------

III. Paperwork Reduction Act

    The information collection, entitled ``Capital Requirements for the 
Federal Home Loan Banks,'' contained in the 12 CFR parts 931 and 933 of 
the regulations that are being relocated to 12 CFR part 1277 by this 
final rule, has been assigned control number 2590-0002 by the Office of 
Management and Budget (OMB). The final rule does not substantively or 
materially modify the current, approved information collection. OMB has 
approved the relocation of this information collection to part 1277 as 
a non-substantive change under the Paperwork Reduction Act of 1995, 44 
U.S.C. 3501, et seq.

IV. Regulatory Flexibility Act

    The 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 does not have a 
significant economic impact on a substantial number of small entities.

List of Subjects

12 CFR Parts 931 and 933

    Capital, Credit, Federal home loan banks, Investments, Reporting 
and recordkeeping requirements.

12 CFR Part 1277

    Capital, Credit, Federal home loan banks, Investments, Reporting 
and recordkeeping requirements.

    Accordingly, for reasons stated in the SUPPLEMENTARY INFORMATION 
and under the authority of 12 U.S.C. 1426, 1436, 1440, 1443, 1446, 
4511, 4513, 4526, FHFA hereby amends subchapter E of chapter IX and 
subchapter D of chapter XII of title 12 of the Code of Federal 
Regulations as follows:

CHAPTER IX--FEDERAL HOUSING FINANCE BOARD

Subchapter E--Federal Home Loan Bank Risk Management and Capital 
Standards

PART 931--[REMOVED]

0
1. Remove part 931.

PART 933--[REMOVED]

0
2. Remove part 933.

CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY

Subchapter D--Federal Home Loan Banks

0
3. Part 1277 is added to read as follows:

PART 1277--FEDERAL HOME LOAN BANK CAPITAL REQUIREMENTS, CAPITAL 
STOCK AND CAPITAL PLANS

Subpart A--Definitions

Sec.
1277.1 Definitions.
Subpart B--[Reserved]
Subpart C--Bank Capital Stock
1277.20 Classes of capital stock.
1277.21 Issuance of capital stock.
1277.22 Minimum investment in capital stock.
1277.23 Dividends.
1277.24 Liquidation, merger, or consolidation.
1277.25 Transfer of capital stock.
1277.26 Redemption and repurchase of capital stock.
1277.27 Other restrictions on the repurchase or redemption of Bank 
stock.
Subpart D--Bank Capital Plans
1277.28 Bank capital plans.
1277.29 Amendments to a Bank's capital plan.

    Authority: 12 U.S.C. 1426, 1436(a), 1440, 1443, 1446, 4511, 
4513, 4514, 4526, 4612.

Subpart A--Definitions


Sec.  1277.1  Definitions.

    As used in this part:
    Class A stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified by Sec.  1277.20(a).
    Class B stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified by Sec.  1277.20(b).
    Former member means an institution for which the membership in a 
Bank has been terminated but which continues to hold stock in the Bank 
as required by the Bank's capital plan, and includes any successor to 
such institution that continues to hold the stock in the Bank that had 
been issued to the acquired institution.
    General allowance for losses means an allowance established by the 
Bank in accordance with GAAP for losses, but which does not include any 
amounts held against specific assets of the Bank.
    Minimum investment means the minimum amount of stock that an 
institution is required to own in order to be a member of a Bank and in 
order to obtain advances and to engage in other business activities 
with the Bank in accordance with Sec.  1277.22.
    Permanent capital means the retained earnings of a Bank, determined 
in accordance with GAAP, plus the amount paid-in for the Bank's Class B 
stock.
    Redeem or Redemption means the acquisition by a Bank of its 
outstanding Class A or Class B stock at par value following the 
expiration of the six-month or five-year statutory redemption period, 
respectively, for the stock.
    Regulatory capital requirements means the minimum amounts of 
permanent and total capital that a Bank is required to maintain under 
section 6(a) of the Bank Act (12 U.S.C. 1426(a)) and any related 
regulations, as such requirements may be modified by the Director, or 
any similar requirement established for a Bank by regulation, order, 
written agreement or other action.
    Repurchase means the acquisition by a Bank of excess stock prior to 
the expiration of the six-month or five-year statutory redemption 
period for the stock.
    Total capital of a Bank means the sum of permanent capital, the 
amounts paid-in for Class A stock, the amount of any general allowance 
for losses, and the amount of other instruments identified in a Bank's 
capital plan that the Director has determined to be available to absorb 
losses incurred by such Bank.

Subpart B--[Reserved]

Subpart C--Bank Capital Stock


Sec.  1277.20  Classes of capital stock.

    The authorized capital stock of a Bank shall consist of the 
following instruments:
    (a) Class A stock, which shall:
    (1) Have a par value as determined by the board of directors of the 
Bank and stated in the Bank's capital plan;
    (2) Be issued, redeemed, and repurchased only at its stated par 
value; and
    (3) Be redeemable in cash only on six-months written notice to the 
Bank.
    (b) Class B stock, which shall:
    (1) Have a par value as determined by the board of directors of the 
Bank and stated in the Bank's capital plan;
    (2) Be issued, redeemed, and repurchased only at its stated par 
value;
    (3) Be redeemable in cash only on five-years written notice to the 
Bank; and
    (4) Confer an ownership interest in the retained earnings, surplus, 
undivided profits, and equity reserves of the Bank.
    (c) Any one or more subclasses of Class A or Class B stock, each of 
which may have different rights, terms, conditions, or preferences as 
may be authorized in the Bank's capital plan, provided, however, that 
each subclass of stock shall have all of the characteristics of its 
respective class, as specified in paragraph (a) or (b) of this section.

[[Page 12756]]

Sec.  1277.21  Issuance of capital stock.

    A Bank may issue either one or both classes of its capital stock 
(including subclasses), as authorized by Sec.  1277.20, and shall not 
issue any other class of capital stock. A Bank shall issue its stock 
only to its members, or to former members to the extent those 
institutions are required to maintain a minimum stock investment for 
existing activities under the capital plan, and only in book-entry 
form. The Bank shall act as its own transfer agent. All capital stock 
shall be issued in accordance with the Bank's capital plan.


Sec.  1277.22  Minimum investment in capital stock.

    (a) A Bank shall require each member to maintain a minimum 
investment in the capital stock of the Bank, both as a condition to 
becoming and remaining a member of the Bank and as a condition to 
transacting business with the Bank or obtaining advances and other 
services from the Bank. The amount of the required minimum investment 
shall be determined in accordance with the Bank's capital plan and 
shall be sufficient to ensure that the Bank remains in compliance with 
its regulatory capital requirements. A Bank shall require each member 
to maintain its minimum investment for as long as the institution 
remains a member of the Bank and shall require each member and former 
member to maintain its minimum investment for as long as the 
institution engages in any activity with the Bank for which the capital 
plan requires the institution to maintain capital stock.
    (b) A Bank may establish the minimum investment as a percentage of 
the total assets of an institution, as a percentage of the advances 
outstanding to that institution, as a percentage of any other business 
activity conducted with the institution, on any other basis that is 
approved by the Director, or any combination thereof.
    (c) A Bank may require that the minimum investment requirement be 
satisfied through the purchase of either Class A or Class B stock, or 
through the purchase of one or more combinations of Class A and Class B 
stock that have been authorized by the board of directors of the Bank 
in its capital plan. A Bank, in its discretion, may establish a lower 
minimum investment to the extent the requirement is met through 
investment in Class B stock than if the requirement is met through 
investment in Class A stock, provided that such reduced investment 
provides sufficient capital for the Bank to remain in compliance with 
its regulatory capital requirements.
    (d) Each member, or if applicable, former member, of a Bank shall 
at all times maintain an investment in the capital stock of the Bank in 
an amount that is sufficient to satisfy the minimum investment required 
under the Bank's capital plan.


Sec.  1277.23  Dividends.

    (a) In general. A Bank may pay dividends on Class A or Class B 
stock, including any subclasses of such stock, only out of previously 
retained earnings or current net earnings, and shall declare and pay 
dividends only as provided by its capital plan. The capital plan may 
establish different dividend rates or preferences for each class or 
subclass of stock, which may include a dividend that tracks the 
economic performance of certain Bank assets, such as Acquired Member 
Assets. A member, including a member that has provided the Bank with a 
notice of intent to withdraw from membership, or a former member shall 
be entitled to receive any dividends that a Bank declares on its 
capital stock while such institution owns the stock.
    (b) Limitation on payment of dividends. In no event shall a Bank 
declare or pay any dividend on its capital stock if after doing so the 
Bank would fail to meet any of its regulatory capital requirements, nor 
shall a Bank that is not in compliance with any of its regulatory 
capital requirements declare or pay any dividend on its capital stock.


Sec.  1277.24  Liquidation, merger, or consolidation.

    The respective rights of the Class A and Class B stockholders, in 
the event that the Bank is liquidated, merged, or otherwise 
consolidated with another Bank, shall be determined in accordance with 
the capital plan of the Bank, provided, however, that nothing in the 
capital plan shall be construed to limit any rights or authority 
granted FHFA under the Bank Act or the Safety and Soundness Act to 
issue any regulation or order or to take any other action that may 
affect or otherwise alter the rights or privileges of stock holders in 
a liquidation, merger, or consolidation of a Bank.


Sec.  1277.25  Transfer of capital stock.

    A Bank in its capital plan may allow a member or former member to 
transfer any excess stock to a member of that Bank or to an institution 
that has been approved for membership in that Bank and that has 
satisfied all conditions for becoming a member, other than the purchase 
of the minimum amount of Bank stock that it is required to hold as a 
condition of membership. Any such stock transfers shall be at par value 
and shall be effective upon being recorded on the appropriate books and 
records of the Bank. The Bank may, in its capital plan, require that 
the transfer be approved by the Bank before such transfer can occur.


Sec.  1277.26  Redemption and repurchase of capital stock.

    (a) Redemption. (1) A member or former member may have its stock in 
a Bank redeemed by providing written notice to the Bank in accordance 
with this section. A member or former member shall provide six-months 
written notice for Class A stock and five-years written notice for 
Class B stock. The notice shall indicate the number of shares of Bank 
stock that are to be redeemed. No more than one notice of redemption 
may be outstanding at one time for the same shares of Bank stock. At 
the expiration of the applicable notice period, the Bank shall pay to 
the member or other institution holding the stock the stated par value 
of that stock in cash.
    (2) A member may cancel a notice of redemption by so informing the 
Bank in writing, and the Bank may impose a fee (to be specified in its 
capital plan) with respect to any cancellation of a pending notice of 
redemption. A request by a member (whose membership has not been 
terminated) to redeem specific shares of stock shall automatically be 
cancelled if the Bank is prevented from redeeming the member's stock by 
paragraph (c) of this section within five business days from the end of 
the expiration of the applicable redemption notice period because the 
member would fail to maintain its minimum investment in the stock of 
the Bank after such redemption. The automatic cancellation of a 
member's redemption request shall have the same effect as if the member 
had cancelled its notice to redeem stock prior to the end of the 
redemption notice period, and a Bank may impose a fee (to be specified 
in its capital plan) for automatic cancellation of a redemption 
request.
    (3) A Bank shall not be obligated to redeem its capital stock other 
than in accordance with this paragraph.
    (b) Repurchase. A Bank, in its discretion and without regard to the 
applicable redemption periods, may repurchase excess stock in 
accordance with the capital plan of that Bank. A Bank undertaking such 
a stock repurchase at its own initiative shall provide reasonable 
notice prior to repurchasing any excess stock, with the period of such 
notice to be specified in the Bank's capital plan, and shall pay the 
stated par value of that stock in

[[Page 12757]]

cash. A member's submission of a notice of intent to withdraw from 
membership, or its termination of membership in any other manner, shall 
not, in and of itself, cause any Bank stock to be deemed excess stock 
for purposes of this section.
    (c) Limitation. In no event may a Bank redeem or repurchase any 
stock if, following the redemption or repurchase, the Bank would fail 
to meet its regulatory capital requirements, or if the member or former 
member would fail to maintain its minimum investment in the stock of 
the Bank, as required by Sec.  1277.22.


Sec.  1277.27  Other restrictions on the repurchase or redemption of 
Bank stock.

    (a) Capital impairment. A Bank may not redeem or repurchase any 
capital stock without the prior written approval of the Director if the 
Director or the board of directors of the Bank has determined that the 
Bank has incurred or is likely to incur losses that result in or are 
likely to result in charges against the capital of the Bank. This 
prohibition shall apply even if a Bank is currently in compliance with 
its regulatory capital requirements, and shall remain in effect for 
however long the Bank continues to incur such charges or until the 
Director determines that such charges are not expected to continue.
    (b) Bank discretion to suspend redemption. A Bank, upon the 
approval of its board of directors, or of a subcommittee thereof, may 
suspend redemption of stock if the Bank reasonably believes that 
continued redemption of stock would cause the Bank to fail to meet its 
regulatory capital requirements, would prevent the Bank from 
maintaining adequate capital against a potential risk that may not be 
adequately reflected in its regulatory capital requirements, or would 
otherwise prevent the Bank from operating in a safe and sound manner. A 
Bank shall notify the Director in writing within two business days of 
the date of the decision to suspend the redemption of stock, providing 
the reasons for the suspension and the Bank's strategies and time 
frames for addressing the conditions that led to the suspension. The 
Director may require the Bank to re-institute the redemption of stock. 
A Bank shall not repurchase any stock without the written permission of 
the Director during any period in which the Bank has suspended 
redemption of stock under this paragraph.

Subpart D--Bank Capital Plans


Sec.  1277.28  Bank capital plans.

    Each Bank shall have in place a capital plan approved by the Bank's 
board of directors and the Director. The capital plan shall include, at 
a minimum, provisions addressing the following matters:
    (a) Minimum investment. (1) The capital plan shall require each 
member, and if applicable each former member, to purchase and maintain 
a minimum investment in the capital stock of the Bank and prescribe the 
manner for calculating the minimum investment, in accordance with Sec.  
1277.22.
    (2) The capital plan shall specify the amount and class (or 
classes) of Bank stock that an institution is required to own in order 
to become and remain a member of the Bank, and to obtain advances from, 
or to engage in other business transactions with, the Bank. If a Bank 
requires that the minimum investment be satisfied through the purchase 
of one or more combinations of Class A and Class B stock, the 
authorized combinations of stock shall be specified in the capital 
plan, which shall afford the option of satisfying the minimum 
investment through the purchase of any such combination of stock.
    (3) The capital plan shall require the board of directors of the 
Bank to monitor and, as necessary, to adjust, the minimum investment to 
ensure that outstanding stock remains sufficient for the Bank to comply 
with its regulatory capital requirements. The plan shall require each 
member or, where required by the plan, former member, to comply 
promptly with any adjusted minimum investment established by the board 
of directors of the Bank, but may allow a reasonable time to do so and 
may allow a reduction in outstanding business with the Bank as an 
alternative to purchasing additional stock.
    (b) Classes of capital stock. The capital plan shall specify the 
class or classes of stock (including subclasses, if any) that the Bank 
will issue, and shall establish the par value, rights, terms, and 
preferences associated with each class (or subclass) of stock. A Bank 
may establish preferences relating to, but not limited to, the 
dividend, voting, or liquidation rights for each class or subclass of 
Bank stock. Any voting preferences established by the Bank pursuant to 
Sec.  1261.6 of this chapter shall expressly state the voting rights of 
each class of stock with regard to the election of Bank directors. The 
capital plan shall provide that the owners of the Class B stock own the 
retained earnings, surplus, undivided profits, and equity reserves of 
the Bank, but shall have no right to receive any portion of those 
items, except through declaration of a dividend or capital distribution 
approved by the board of directors or through the liquidation of the 
Bank.
    (c) Dividends. The capital plan shall establish the manner in which 
the Bank will pay dividends, if any, on each class or subclass of 
stock, and shall provide that the Bank may not declare or pay any 
dividends if it is not in compliance with any regulatory capital 
requirement or if after paying the dividend it would not be in 
compliance with any regulatory capital requirement.
    (d) Stock transactions. The capital plan shall establish the 
criteria for the issuance, redemption, repurchase, transfer, and 
retirement of stock issued by the Bank. The capital plan also:
    (1) Shall provide that the Bank may not issue stock other than in 
accordance with Sec.  1277.21;
    (2) Shall provide that the stock of the Bank may be issued only to 
and held only by the members of that Bank, and by former members to the 
extent necessary to meet requirements set forth in a capital plan;
    (3) Shall specify whether the stock of the Bank may be transferred, 
as allowed under Sec.  1277.25, and, if such transfer is allowed, shall 
specify the procedures to effect such transfer, and provide that the 
transfer shall be undertaken only in accordance with Sec.  1277.25;
    (4) Shall specify that the stock of the Bank may be traded only 
among the Bank and its members, and former members;
    (5) May provide for a minimum investment based on investment in 
Class B stock that is lower than a minimum investment based on 
investment in Class A stock, provided that the level of investment is 
sufficient for the Bank to comply with its regulatory capital 
requirements;
    (6) Shall specify the fee, if any, to be imposed upon cancellation 
of a request to redeem Bank stock or upon cancellation of a request to 
withdraw from membership; and
    (7) Shall specify the period of notice that the Bank will provide 
before the Bank, on its own initiative, determines to repurchase any 
excess Bank stock.
    (e) Termination of membership. The capital plan shall address the 
manner in which the Bank will provide for the disposition of its 
capital stock that is held by institutions that terminate their 
membership, and the manner in which the Bank will liquidate claims 
against such institutions, including claims resulting from prepayment 
of advances prior to their stated maturity.

[[Page 12758]]

Sec.  1277.29  Amendments to a Bank's capital plan.

    (a) In general. A Bank's board of directors shall approve any 
amendments to the Bank's capital plan and submit such amendment to the 
Director for approval. No such amendment may take effect until it has 
been approved by the Director.
    (b) Submission of amendments for approval. Any request for approval 
of capital plan amendments should be submitted to the Deputy Director 
for the Division of Federal Home Loan Bank Regulation and should 
include the following:
    (1) The name of the Bank making the request and the name, title, 
and contact information of the official filing the request;
    (2) The name, title and contact information of the staff member(s) 
whom FHFA may contact for additional information;
    (3) A certification by an executive officer of the Bank with 
knowledge of the facts that the representations made in the request are 
accurate and complete. The following form of certification may be used: 
``I hereby certify that the statements contained in the submission are 
true and complete to the best of my knowledge. [Name and Title]'';
    (4) A written, narrative description of the proposed amendments to 
the Bank's capital plan and a discussion of the Bank's reasons for the 
proposed changes;
    (5) The amended capital plan as approved by the Bank's board of 
directors;
    (6) A version of the Bank's capital plan showing all proposed 
changes to its previously approved capital plan;
    (7) Resolutions of the Bank's board of directors:
    (i) Approving the proposed capital plan amendments; and
    (ii) Authorizing the filing of the application for approval of the 
amendments and concurring in substance with the supporting 
documentation provided;
    (8) An opinion of counsel demonstrating that the proposed 
amendments comply with the Bank Act, FHFA regulations and any other 
applicable law or regulation. If the amendments would be identical in 
substance to provisions approved for other Banks' capital plans, a 
Bank's legal analysis may reference the other capital plans that 
contain the provisions in question;
    (9) An analysis of the effect of the proposed amendments, if any, 
on the Bank's capital levels and the Bank's ability to meet its 
regulatory capital requirements;
    (10) Pro forma financial statements from the end of the quarter 
immediately prior to the date of submission of the request for approval 
through at least the end of the next two years, showing the impact of 
the proposed changes, if any, on capital levels; and
    (11) A discussion of and an explanation for changes to the Bank's 
strategic plan, if any, which may be related to the capital plan 
amendments.
    (c) FHFA consideration of the amendment. The Director may approve 
any amendment to a Bank's capital plan as submitted or may condition 
approval on the Bank's compliance with certain stated conditions.

    Dated: March 2, 2015.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2015-05268 Filed 3-10-15; 8:45 am]
 BILLING CODE 8070-01-P