Technical and Conforming Changes and Corrections to FHFA Regulations, 33424-33437 [2016-12066]

Agencies

• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 81, Number 102 (Thursday, May 26, 2016)]
[Proposed Rules]
[Pages 33424-33437]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12066]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Parts 1200, 1201, 1229, 1238, 1239, 1261, 1264, 1266, 1267, 
1269, 1270, 1273, 1274, 1278, 1281, 1290, and 1291

RIN 2590-AA80


Technical and Conforming Changes and Corrections to FHFA 
Regulations

AGENCY: Federal Housing Finance Agency.

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: The Federal Housing Finance Agency (FHFA) proposes to amend 
its rules to make a number of conforming changes and corrections 
intended to fix citations, provide for consistent use of terminology, 
and remove outdated or duplicative rule provisions and definitions. 
FHFA also proposes to remove provisions that FHFA believes are no 
longer applicable, clarify other provisions by incorporating language 
that would implement existing FHFA regulatory interpretations, and make 
other changes and corrections.

DATES: Written comments must be received on or before July 25, 2016.

ADDRESSES: You may submit your comments, identified by Regulatory 
Information Number (RIN) 2590-AA80, by any of the following methods:
     Agency Web site: www.fhfa.gov/open-for-comment-or-input.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comment to the Federal eRulemaking Portal, please also send it by email 
to FHFA at RegComments@fhfa.gov to ensure

[[Page 33425]]

timely receipt by the FHFA. Please include ``Comments/RIN 2590-AA80'' 
in the subject line of the submission.
     Courier/Hand Delivery: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA80, 
Federal Housing Finance Agency, 400 Seventh Street, SW., Eighth Floor, 
Washington, DC 20219. Deliver the package to the Seventh Street 
entrance Guard Desk, First Floor, on business days between 9 a.m. and 5 
p.m.
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel, Attention: Comments/RIN 2590-AA80, Federal 
Housing Finance Agency, 400 Seventh Street SW., Eighth Floor, 
Washington, DC 20219.

FOR FURTHER INFORMATION CONTACT: Thomas E. Joseph, Associate General 
Counsel, Thomas.Joseph@fhfa.gov, 202-649-3076 (this is not a toll-free 
number), Office of General Counsel, Federal Housing Finance Agency, 400 
Seventh Street SW., Washington, DC 20219. The telephone number for the 
Telecommunications Device for the Hearing Impaired is 800-877-8339.

SUPPLEMENTARY INFORMATION: 

I. Comments

    FHFA invites comments on all aspects of this proposed rule. After 
considering all comments, FHFA will issue a final rule. FHFA will post 
without change copies of all comments received on the FHFA Web site at 
https://www.fhfa.gov, and will include any personal information you 
provide, such as your name, address, email address, and telephone 
number. FHFA will make copies of all comments timely received available 
for examination by the public on business days between the hours of 10 
a.m. and 3 p.m., at the Federal Housing Finance Agency, 400 Seventh 
Street, SW., Eighth Floor, Washington, DC 20219. To make an appointment 
to inspect comments, please call the Office of General Counsel at 202-
649-3804.

II. Background

    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. HERA transferred to FHFA the supervisory and oversight 
responsibilities of the Office of Federal Housing Enterprise Oversight 
(OFHEO) over the Federal National Mortgage Association (Fannie Mae) and 
the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, 
Enterprises), and of the Federal Housing Finance Board (Finance Board) 
over the Federal Home Loan Banks (Banks) and the Bank System's Office 
of Finance. Under the legislation, the Enterprises, the Banks, and the 
Office of Finance continue to operate under regulations promulgated by 
OFHEO and the Finance Board until such regulations are superseded by 
regulations issued by FHFA.\2\
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    \1\ Public Law 110-289, 122 Stat. 2654.
    \2\ See 12 U.S.C. 4511, note.
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III. The Proposed Rule

A. The Proposed Amendments

    Since 2008, FHFA has amended, readopted, and transferred a number 
of the Finance Board or OFHEO regulations. Given that this process has 
occurred over several years, not all cross-references in the current 
FHFA regulations continue to be correct. In addition, in January 2013, 
FHFA adopted 12 CFR part 1201 (part 1201), which provides general 
definitions of terms used in all FHFA's regulations. Not all 
terminology in FHFA's regulations is consistent with the terms in part 
1201. FHFA has also identified certain provisions in its regulations 
that require corrections to bring them more in line with statutory 
mandates. Finally, a number of provisions in the current regulations 
apply to now-completed transition periods or events or otherwise would 
not have future applicability to the Enterprises or the Banks. As a 
result, FHFA can remove these provisions from its regulations.
    Accordingly, FHFA proposes to amend its regulations to make a 
number of technical and conforming changes and corrections that would 
fix citations, provide for consistent use of terminology, and remove 
outdated or duplicative provisions and definitions. While most of these 
changes represent technical corrections, some of the proposed changes 
would remove provisions that FHFA believes are no longer applicable, 
clarify provisions to incorporate existing FHFA regulatory 
interpretations of the particular rule, or change provisions to better 
reflect statutory requirements. As a result, FHFA has determined to 
request public comments on all of the proposed changes. A brief 
description of the amendments FHFA is proposing for specific parts of 
its regulations follows.
    Part 1200--Organization and Functions. FHFA proposes to add to part 
1200 new Sec.  1200.4, which would set forth information the agency is 
required to be displayed under the Paperwork Reduction Act of 1995 
(PRA).\3\ Among other things, the PRA and the implementing regulations 
of the Office of Management and Budget (OMB) generally require that 
each collection of information display a currently valid OMB control 
number and expiration date, as well as a statement informing persons to 
whom the collection is addressed that an agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid OMB control number.\4\ 
In the case of collections of information contained in regulatory 
provisions, an agency may display the OMB control numbers and 
expiration dates associated with all such collections, as well as the 
required PRA statement, in a single CFR section.\5\
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    \3\ 44 U.S.C. 3501-3531.
    \4\ 44 U.S.C. 3506(c)(1)(B); 5 CFR 1320.8(b).
    \5\ See 12 CFR 1320.3(f); 1 CFR 21.35.
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    Proposed Sec.  1200.4 displays the required PRA statement and 
includes a table listing all sections of FHFA's regulations that 
contain a collection of information and displaying, for each section, 
the OMB control number assigned to the collection of information 
contained therein, as well as the expiration date for each control 
number. A similar table addressing most of the same collections of 
information appeared in the regulations of the Finance Board, but was 
inadvertently omitted when FHFA transferred a number of administrative 
provisions from the former agency's regulations to its own in 2012.
    Part 1201--General Definitions. FHFA proposes to amend the 
definition of ``Bank System'' to reflect that following the merger of 
the Des Moines and Seattle Banks, there are no longer twelve Banks. 
FHFA also proposes to add to Sec.  1201.1 a new definition for the term 
``president,'' when the term is used in a regulation to refer to an 
officer of a Bank, to mean a Bank's principal executive officer. The 
new definition would account for the possibility that a Bank might 
identify its principal executive officer by a title other than 
president and helps define by function, and not only by title, to which 
Bank executive officer FHFA intends to refer in a particular regulatory 
provision.
    Part 1229--Capital Classifications and Prompt Corrective Action. 
FHFA proposes to change the definition of ``new business activity'' in 
Sec.  1229.1 to correct the citation to the new business activity 
regulation, which is now found at 12 CFR part 1272, and provide that 
``new business activity'' has the same meaning set forth in Sec.  
1272.1. The proposed rule would also amend the

[[Page 33426]]

definition of ``total capital'' to remove language that applied only to 
Banks that had not yet issued Class A or Class B stock, as required by 
the Gramm-Leach-Bliley Act (GLB Act). Given that all Banks have now 
converted to the GLB Act capital structure, the language that FHFA 
proposes to remove no longer has any effect.
    FHFA also proposes to amend Sec.  1229.6, which addresses mandatory 
restrictions that apply to ``undercapitalized'' Banks, to incorporate 
the substance of a regulatory interpretation that had addressed the 
circumstances under which an undercapitalized Bank may make capital 
distributions, such as through the payment of dividends or the 
repurchase or redemption of its capital stock. By statute, a Bank may 
not make any capital distribution if, after doing so, the Bank would be 
undercapitalized. The statute also includes an exception, under which a 
Bank may repurchase or redeem its capital stock if the Director of FHFA 
(Director) has determined that the transaction would be made in 
connection with the issuance of other capital instruments of at least 
an equivalent amount and would improve the entity's financial 
health.\6\ FHFA's regulations restate that statutory exception.\7\ The 
proposed rule would incorporate the substance of Regulatory 
Interpretation 2009-RI-03 (December 14, 2009), which had made clear 
that a Bank that already is undercapitalized (as opposed to one that 
would become undercapitalized as a result of the capital distribution) 
cannot redeem or repurchase its stock unless it can satisfy the 
statutory exception described above. The proposed rule would amend the 
current Sec.  1229.6(a)(3) to state explicitly that a Bank that has 
been designated as undercapitalized may not make any capital 
distribution unless it has satisfied the requirements of the Sec.  
1229.5(b) exemption. The proposed rule also would retain the other 
provisions of the existing regulation, which require that any capital 
distribution not result in the Bank becoming significantly 
undercapitalized or critically undercapitalized, and not otherwise 
violate any restrictions on repurchase or redemption of Bank stock or 
payments of dividends set forth in the Federal Home Loan Bank Act 
``Bank Act'' or FHFA's regulations.
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    \6\ See 12 U.S.C. 4614(e).
    \7\ See 12 CFR 1229.5(b).
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    FHFA also proposes to correct a cross-reference in Sec.  1229.7(a) 
which now reads ``Sec.  1229.7 and Sec.  1229.8'' and should read 
``Sec. Sec.  1229.8 and 1229.9''.
    Part 1238--Stress Testing of Regulated Entities. FHFA proposes to 
replace the existing references in Sec.  1238.1 to ``the Federal 
Housing Finance Agency,'' ``the Federal Housing Enterprises Financial 
Safety and Soundness Act of 1992,'' and ``the Federal Home Loan Bank 
Act'' with a shorter form for each of the terms, as now defined by part 
1201. FHFA also proposes to remove from the definition section of Sec.  
1238.2, three terms that part 1201 already defines, given that the 
definitions of these terms in part 1238 are now duplicative.
    Part 1239--Responsibilities of Boards of Directors, Corporate 
Practices, and Corporate Governance. FHFA proposes to amend provisions 
in 12 CFR part 1239 related to Bank audit committees to correct the 
current FHFA regulation to conform with statutory requirements set 
forth in section 38(b) of the Securities Exchange Act of 1934 (1934 
Act).\8\ Section 38(b) of the 1934 Act specifically directs each Bank 
to comply with the rules issued by the Securities and Exchange 
Commission (SEC) under section 10A(m) of the 1934 Act.\9\ In turn, 
section 10A(m) of the 1934 Act requires the SEC by rule to direct 
national securities exchanges and national securities associations to 
prohibit the listing of any company that does not comply with the 
standards established by the SEC in the regulation. Section 10A(m) also 
establishes certain minimum standards for audit committees related to 
the independence of committee members and the responsibility of the 
committee for the oversight of the external auditor and the work 
performed by the auditor as well as other matters. In 2003, the SEC 
adopted Rule 10A-3, 17 CFR 240.10A-3, to implement section 10A(m) of 
the 1934 Act.\10\
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    \8\ 12 U.S.C. 78oo(b). Section 38 was added to the 1934 Act by 
HERA. When FHFA recently amended and readopted Bank audit committee 
requirements in part 1239 of its regulations, it carried over pre-
HERA Finance Board requirements related to a Bank's audit committee 
charters and responsibilities without substantive change. See Final 
Rule: Responsibilities of Boards of Directors, Corporate Practices 
and Corporate Governance Matters, 80 FR 72327, 72335 (Nov. 19, 
2015).
    \9\ 12 U.S.C. 78j-1(m). The Sarbanes-Oxley Act added subsection 
(m) to section 10A of the 1934 Act. Public Law 107-204, section 301, 
116 Stat. 775-777 (2002).
    \10\ See, Final Rule: Standards Related to Listed Company Audit 
Committees, 68 FR 18788 (Apr. 16, 2003).
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    While the SEC rules apply to national securities exchanges and 
national securities associations and set minimum requirements for 
listed companies on exchanges, FHFA's judgment is that, because section 
38(b) of the 1934 Act separately directs the Banks to comply with these 
rules, the Banks' audit committees also should be subject to these 
requirements, even though Bank stock is not listed on any exchange. As 
a result, FHFA is proposing to amend its regulation regarding Bank 
audit committees so that it conforms to the minimum standards adopted 
by the SEC.
    Thus, the proposed amendments would add a requirement that the 
audit committee charter vest in the audit committee direct 
responsibility for the appointment, compensation, retention, and 
oversight of the work of the external auditor and provide that the 
external auditor report directly to the audit committee.\11\ The 
amendments would also require that the charter provide for a Bank to 
make available appropriate funding, as determined by the audit 
committee, for the payment of compensation to the external auditor, to 
any independent advisors or counsel engaged by the audit committee, and 
for ordinary administrative expenses that are necessary or appropriate 
for the audit committee to carry out its duties.\12\
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    \11\ See 15 U.S.C. 78j-1(m)(2) and 17 CFR 240.10A-3(b)(2). In 
adopting this specific provision, the SEC noted that the rule was 
not intended to conflict with any requirement under a company's 
governing laws or documents and discussed how the provision should 
be interpreted when a conflict existed. See id. at 18796-97. FHFA 
does not believe that any such conflict exists with regard to the 
Bank audit committees, given that Banks are chartered under federal 
law and federal law specifies that the minimum standards adopted in 
the SEC rule apply to the Banks.
    \12\ See 15 U.S.C. 78j-1(m)(6) and 17 CFR 240.10A-3(b)(5).
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    The proposed rule would also add to the list of Bank audit 
committee duties in the existing FHFA regulation new Sec.  
1239.4(e)(10), which would give the audit committee responsibility for 
establishing procedures for the receipt and treatment of complaints 
regarding accounting, internal accounting controls, or auditing 
matters, and for the confidential, anonymous submission by Bank 
employees of concerns regarding questionable accounting or auditing 
matters.\13\ Further, the proposed amendments would remove from this 
list of specific duties, the provision directing a Bank's audit 
committee to make recommendations to the full board of directors on the 
appointment, compensation, and retention of the external auditor, given 
that the proposal already would vest in the audit committee direct 
responsibility for these matters.
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    \13\ See 15 U.S.C. 78j-1(m)(4) and 17 CFR 240.10A-3(b)(3).
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    Because other provisions of existing regulations already require 
all regulated entity committees to have the authority to engage staff, 
outside counsel,

[[Page 33427]]

independent accountants, or other consultants, as needed to carry out 
their responsibilities, FHFA is not proposing to amend the audit 
committee provisions of Sec.  1239.32 to address that same topic, even 
though the 1934 Act and SEC rules pertaining to audit committees 
specifically address that topic.\14\ Although, section 10A(m) of the 
1934 Act also establishes independence requirements for audit committee 
members, FHFA is not proposing to apply those requirements to the 
Banks, but instead will retain the existing provisions, which establish 
independence requirements that reflect the unique cooperative structure 
of the Banks. Other provisions of the Bank Act address the size and 
composition of boards of directors for the Banks and contemplate that a 
majority of the board will be ``member directors,'' i.e., persons who 
typically are executive officers of depository institutions that are 
members, and hence customers, of the Banks. Because Congress has 
effectively required that a majority of a Bank's board of directors be 
drawn from the ranks of the Bank's customers, it is possible, and 
indeed likely, that multiple members of a Bank's board of directors 
will have substantial business relationships with the Bank, which is 
the essence of a cooperative institution. Recognizing that fact, FHFA's 
existing regulations establish independence requirements for Bank audit 
committees that are consistent with the Bank Act, in that they are 
intended to promote the exercise of independent and objective judgment 
by audit committee members, but are also tailored to be consistent with 
the provisions of the Bank Act that have established the Banks as 
cooperative institutions.\15\
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    \14\ This SEC requirement is found at 15 U.S.C. 78j-1(m)(5) and 
17 CFR 240.10A-3(b)(4). Section 1239.4(d) of the FHFA regulation 
authorizes any committee of a Bank's board of directors, which would 
include the audit committee, to engage at the expense of the Bank, 
staff, outside counsel, independent accountants, or consultants as 
needed to carry out its duties. See 12 CFR 1239.4(d).
    \15\ See 12 CFR 1239.32(c). See, also, Proposed Rule: 
Responsibilities of Boards of Directors, Corporate Practices and 
Corporate Governance Matters, 79 FR 4414, 4417-18, 4420-21 (Jan. 28, 
2014).
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    Part 1261--Federal Home Loan Bank Directors. FHFA is proposing a 
number of revisions to subpart B of part 1261, which governs the 
eligibility and election of the Banks' boards of directors, to correct 
unintended errors and omissions arising from earlier rulemakings, as 
well as to remove obsolete provisions.
    In Sec.  1261.2, FHFA proposes to add a definition for the term 
``Advisory Council'' and to define the term to mean the Advisory 
Council each Bank is required to establish pursuant to section 
10(j)(11) of the Bank Act (12 U.S.C. 1430(j)(11)) and part 1291. The 
proposed definition is identical to the definition of ``Advisory 
Council'' that would appear in Sec.  1290.1, as revised by this 
proposed rule.
    FHFA proposes to remove from the definition of ``member 
directorship'' in Sec.  1261.2 the concluding phrase, which specifies 
that the term ``includes guaranteed directorships and stock 
directorships,'' and to remove in its entirety the definition of 
``stock directorship.'' The definition of ``guaranteed directorship'' 
was removed from the regulation in 2009. The references to ``guaranteed 
directorships'' and ``stock directorships'' in Sec.  1261.2, as well as 
those in Sec. Sec.  1261.4(b) and 1261.8(c) (discussed below), are the 
last vestiges of a former regulatory regime that made distinctions 
between different types of member directorships (previously called 
``elective directorships'') as a means of determining the specific 
directors who would relinquish their seats if the Bank System regulator 
ordered a Bank's board to eliminate directorships representing a 
particular state. Those terms and the distinctions they represent are 
no longer connected to any substantive requirement of the regulation or 
to any policy or practice of FHFA and, therefore, the remaining 
references to them should be removed.
    To explain more fully, the Bank Act authorizes the Director to 
establish the size and composition of each Bank's board of 
directors.\16\ The regulations provide that the Director will determine 
annually the total number of directorships, as well as the relative 
number of member directorships and independent directorships, that each 
Bank's board of directors will comprise in the following calendar 
year.\17\ The Bank Act also requires the Director annually to allocate 
the member directorships among the states of each Bank district in 
proportion to the relative amounts of Bank stock that all of the 
members in each state were required to hold as of the end of the 
preceding calendar year.\18\ As a general matter, each state is 
entitled to have at least one member directorship, or the number of 
member directorships allocated to it in 1960 if greater.\19\ In any 
given year, it is possible that the designation of directorships 
process can result in a state that currently has more than the minimum 
number of member directorships guaranteed to it under the statute 
losing a directorship for the following year.\20\ When this occurs, a 
decision must be made about which individual member director must 
relinquish his or her directorship. Prior regulatory regimes addressed 
this issue by designating each member directorship as a ``guaranteed 
directorship,'' a ``stock directorship,'' or a ``discretionary 
directorship,'' and requiring each Bank's board to specify which 
individuals occupied each of those types of directorships.\21\ An 
individual occupying a ``stock'' or ``discretionary'' directorship 
could be required to leave the board if the annual designation of 
directorships eliminated a member directorship for that state. 
Individuals occupying a ``guaranteed directorship'' could not be 
required to relinquish their seats under those circumstances. During 
that time, the regulations also set forth criteria for determining 
which individuals should be assigned to each type of member 
directorship, generally requiring that nominees receiving the greatest 
number of votes were to be assigned to guaranteed directorships, with 
directors who received fewer votes being assigned to the non-guaranteed 
directorship, assuming both types of directorships were to be filled in 
the same election.
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    \16\ See 12 U.S.C. 1427(a)-(c). The statute provides that each 
Bank is to have a board of 13 directors, ``or such other number as 
the Director determines appropriate.'' 12 U.S.C. 1427(a)(1). Because 
of the interrelationship of the other statutory provisions governing 
the composition of Bank's boards, in most cases it is not possible 
for the size of a Bank's board of directors to be as small as 13. It 
further specifies that a majority of each Bank's board of directors 
must be ``member directors,'' while not less than 40 percent must be 
``independent directors.'' 12 U.S.C. 1427(a)(2).
    \17\ 12 CFR 1261.3(a).
    \18\ See 12 U.S.C. 1427(c).
    \19\ 12 U.S.C. 1427(c). The grandfather provision does not apply 
to the allocation of member directorships to the board of a Bank 
created as a result of the merger of two or more predecessor Banks.
    \20\ The regulation provides that, when the annual designation 
of directorships results in the elimination of an existing member 
directorship for a state, the directorship shall be deemed to 
terminate as of December 31 of that year. See 12 CFR 1261.4(e).
    \21\ Prior to the enactment of the HERA amendments, the Bank Act 
generally set the number of directors on each Bank's board at 14--8 
elective directors and 6 appointive directors--but authorized the 
Bank System regulator, in its discretion, to add additional seats to 
the boards of Banks in districts comprising more than five states. 
See 12 U.S.C. 1427(a) (2001). In its regulation on Bank directors, 
the Finance Board referred to these additional directorships as 
``discretionary directorships.''
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    Prior to the enactment of HERA in 2008, the Finance Board had 
removed most of those substantive regulatory provisions.\22\ After HERA 
repealed the

[[Page 33428]]

provisions authorizing ``discretionary directorships,'' FHFA removed 
the references to those directorships from its regulations.\23\ In 
2009, FHFA also removed the definition of ``guaranteed directorship'' 
from the regulations, although that appears to have been done in 
error.\24\ Since HERA, FHFA has not distinguished between ``guaranteed 
directorships'' and ``stock directorships'' when the designation of 
directorships process requires the elimination of a member 
directorship. In such cases, if the affected state has a member 
directorship scheduled to expire at the end of the year, FHFA has 
required that the Bank eliminate that directorship. If a state has no 
expiring member directorships, then FHFA has required the Bank's board 
of directors to decide which specific seat is to be eliminated. For 
these reasons, the references to ``guaranteed directorships'' and 
``stock directorships'' are no longer necessary and, accordingly, 
should be removed to avoid any implication that FHFA still applies 
those concepts in practice.
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    \22\ See 72 FR 15627 (Apr. 2, 2007).
    \23\ See 73 FR 55710 (Sept. 26, 2008).
    \24\ See 74 FR 51452 (Oct. 7, 2009).
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    FHFA is also proposing to make a clarifying revision to the 
definition of ``Public interest directorship'' by replacing the words 
``four years experience'' with the words ``four years of experience.''
    Section 1261.3(b) currently provides that, in most cases, the 
``term of office of each directorship commencing on or after January 1, 
2009 shall be four years.'' FHFA proposes to remove from that provision 
the obsolete qualifying phrase ``commencing on or after January 1, 
2009.'' That qualifier was originally included to make clear that only 
those full terms beginning after the HERA amendments to the Bank Act 
increased the length of directorship terms from three to four years 
would run for four years. Because all directorship terms that commenced 
prior to January 1, 2009 have now expired, it is no longer necessary to 
distinguish between terms that began before and after the enactment of 
the HERA amendments terms going forward. In Sec.  1261.3(e), FHFA 
proposes to revise two incorrect references to dates specified in or 
pursuant to ``this part'' to refer correctly to those specified in or 
pursuant to ``this subpart.''
    FHFA proposes to make several revisions to Sec.  1261.4, which 
deals with the designation of member directorships. First, FHFA 
proposes to replace the existing heading for paragraph (a), which reads 
``Determination of voting stock,'' with a new heading, which would read 
``Capital stock reports.'' While Sec.  1261.4(a) requires each Bank to 
provide to FHFA a capital stock report indicating, among other things, 
the number of shares of Bank stock that each of its members was 
required to hold as of the defined record date, the provision does not 
actually address the determination of voting stock (that topic is 
addressed in Sec.  1261.6). The new heading more accurately reflects 
the subject matter of Sec.  1261.4(a). In conjunction with its proposal 
to remove references to the obsolete terms ``guaranteed directorship'' 
and ``stock directorship'' from Sec.  1261.2, FHFA also proposes to 
remove from the heading for Sec.  1261.4(b), which currently reads 
``Designation of member directorships as stock directorships,'' the 
reference to ``stock directorships.''
    FHFA also proposes to remove from Sec.  1261.4(a)(2) and (b) 
language that specifies how Banks that had not converted to the capital 
structure established by the GLB Act were to determine the minimum 
amount of Bank stock that each member must own. Given that all Banks 
have now converted to the GLB Act capital structure, there is no longer 
any need for these provisions. For consistency with other provisions in 
subpart B, FHFA also proposes to replace the phrase ``December 31 of 
the preceding calendar year'' that appears in Sec.  1261.4(b) with the 
term ``record date''--a contextually synonymous term that is defined in 
existing Sec.  1261.2 to mean ``December 31 of the calendar year 
immediately preceding the election year.''
    In Sec.  1261.5, FHFA proposes to remove the paragraph designated 
as ``(2)'' that appears at the end of the section, immediately 
following Sec.  1261.5(e), as no longer relevant. FHFA intended to 
remove that paragraph as part of a 2010 rulemaking, but inadvertently 
failed to include its removal in the amendatory instructions.\25\
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    \25\ See Proposed Rule: Federal Home Loan Banks Boards of 
Directors: Eligibility and Elections, 74 FR 62708, 62709 (Dec. 1, 
2009); and Final Rule: Federal Home Loan Bank Directors' 
Eligibility, Elections, Compensation and Expenses, 75 FR 17037 (Apr. 
5, 2010).
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    In Sec.  1261.6(b), which specifies how Banks are to determine the 
number of votes each member may cast in an election for directors, FHFA 
proposes to remove obsolete language regarding the treatment of Banks 
that have not yet converted to the capital structure established by the 
GLB Act that is similar to the language it is proposing to remove from 
Sec.  1261.4(a)(2) and (b).
    In Sec.  1261.7(a), which includes introductory text followed by 
five paragraphs numbered (1) through (5), FHFA proposes to remove the 
designation ``(1)'' that was mistakenly inserted preceding the 
introductory text. FHFA proposes to remove from both Sec.  
1261.7(d)(1)(i) and (e)(2) the words ``four years experience'' and, in 
both cases, to replace those words with the words ``four years of 
experience.'' In Sec.  1261.8(a), which addresses the requirements for 
ballots in elections for Bank directors, FHFA proposes to re-insert the 
introductory paragraph to Sec.  1261.8(a)(1), which was mistakenly 
removed in a 2009 rulemaking.\26\ That paragraph would precede the 
paragraphs designated as (a)(1)(i) through (v) and would state that a 
ballot shall include at least the following provisions. While FHFA is 
only proposing to add the introductory text to paragraph (a)(1), the 
proposed rule would readopt all of paragraph (a) to avoid any confusion 
on this matter.
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    \26\ See Final Rule: Federal Home Loan Banks Boards of 
Directors: Eligibility and Elections, 74 FR 51452, 51462 (Oct. 7, 
2009).
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    In conjunction with its proposal, discussed in detail above, to 
remove references to the obsolete terms ``guaranteed directorship'' and 
``stock directorship'' from Sec.  1261.2, FHFA is proposing to remove 
from Sec.  1261.8(c) the only other reference to those terms that still 
appears in the regulatory text of existing part 1261. Section 1261.8(c) 
requires, with respect to the nomination and election of individuals to 
serve as member directors representing a particular state in any given 
year, that if the number of nominees is equal to or fewer than the 
number of member directorships to be filled in that year's election, 
the Bank shall declare elected all eligible nominees without conducting 
any balloting. The existing provision further requires that in doing so 
the Bank shall designate particular nominees to guaranteed 
directorships or stock directorships, respectively, if necessary. FHFA 
proposes to remove the latter requirement.
    FHFA is also proposing to amend a provision of Sec.  1261.9 in 
order to clarify that certain limitations on a Bank's involvement in 
the election of directors do not preclude it from seeking to identify a 
more diverse pool of prospective member director candidates.\27\ In 
2008, Congress amended the Federal Housing Enterprises Financial Safety 
and Soundness Act of 1992 (Safety and Soundness Act) to require each 
regulated entity to establish an Office of

[[Page 33429]]

Minority and Women Inclusion that would be responsible for carrying out 
the provision of the statute relating to diversity in the management, 
employment, and business activities of the regulated entity, subject to 
the Director's authority to establish appropriate standards and 
requirements. That provision further requires each regulated entity to 
develop and implement standards and procedures ``to ensure, to the 
maximum amount possible, the inclusion and utilization of minorities 
and women'' in all business and activities of the regulated entity at 
all levels. 12 U.S.C. 4520(a), (b). In 2010, FHFA adopted regulations 
requiring each regulated entity and the Office of Finance to develop 
and implement policies and procedures to ensure, to the maximum amount 
possible, in balance with financially safe and sound business 
practices, the inclusion and utilization of minorities and women in all 
business and activities of those entities. Among other things, those 
policies and procedures must ``encourage the consideration of diversity 
in nominating or soliciting nominees for positions on boards of 
directors.'' The policies and procedures also must address recruiting 
and outreach directed at encouraging minorities, women, and persons 
with disabilities to seek employment with those entities. 12 CFR 
1207.21(b)(5).
---------------------------------------------------------------------------

    \27\ FHFA also proposes to amend paragraph (a) of Sec.  1261.9 
to correct typographical errors currently in that paragraph. The 
changes would not alter the current wording or substance of the 
paragraph.
---------------------------------------------------------------------------

    FHFA has separate regulations governing the election of Bank 
directors which, among other things, limit the ability of a director, 
officer, attorney, or employee of a Bank to support the nomination or 
election of any individual for a member directorship. Those provisions 
allow Bank personnel to support the nomination or election of a 
particular person for a member directorship so long as they do so in 
their personal capacity and do not purport to represent the views of 
the Bank or its board of directors. Aside from that personal capacity 
exception, the regulations prohibit any such person from directly or 
indirectly supporting or opposing the nomination or election of a 
particular person for a member directorship, or from taking any other 
actions to influence the voting for any particular individual. 12 CFR 
1261.9(b), (c). These provisions reflect statutory provisions that vest 
the authority to nominate and elect member directors solely in the 
members of a Bank.
    FHFA has received inquiries from the Banks about the 
interrelationship of these two regulatory provisions. Specifically, 
Banks have inquired whether the provisions of Sec.  1261.9(b) and (c) 
that restrict Bank directors or personnel from becoming involved in the 
nominations or election process also prohibit them from conducting 
outreach or engaging in recruiting activities to fulfill the regulatory 
requirement to consider diversity in the nomination or solicitation of 
nominations for board directorships. To address that concern, FHFA is 
proposing to revise Sec.  1261.9(c) to expand the existing exemption 
within that provision so that it would extend to efforts by Bank 
directors or personnel to promote diversity on the boards of directors. 
As amended, Sec.  1261.9(c) would continue to prohibit Bank directors 
and personnel from communicating that they support or oppose the 
nomination or election of any individual for a Bank directorship, or 
otherwise act to influence the voting with respect to a particular 
individual, but it would except from that prohibition--in addition to 
communications made in furtherance of the skills assessment and those 
made in a Bank officer or director's personal capacity--actions taken 
by Bank directors and personnel that are intended to promote diversity 
among the Banks' boards of directors. By making this amendment, FHFA 
intends that the Banks will be able to communicate with members or 
third parties to identify and recruit eligible individuals to seek 
nominations to serve as member directors of their Banks. Because the 
statute vests the authority to nominate and elect member directors 
solely in the members of each Bank, FHFA does not intend that the Banks 
could use this provision to actively campaign or promote the candidacy 
of a particular individual over other eligible nominees. Rather, the 
provision is intended to allow the Banks to actively seek out and 
encourage diverse candidates to run for election to the Banks' boards 
of directors.
    In Sec.  1261.13, FHFA proposes to replace an incorrect reference 
to ``the eligibility requirements set forth . . . in this part'' 
appearing in the first sentence with a correct reference to the 
eligibility requirements set forth in ``this subpart.''
    Existing Sec.  1261.15 implements section 7(c) of the Bank Act by 
providing that the number of member directorships allocated to each 
state shall not be less than the number of directorships allocated to 
that state on December 31, 1960, except with respect to member 
directorships of a Bank resulting from the merger of any two or more 
Banks. This provision is followed by a table setting forth, for those 
states whose members held more than one directorship on December 31, 
1960, the number of directorships held by those states' members on that 
date. FHFA proposes to remove from that table references to Minnesota, 
Missouri, and Iowa. Under the statute, these states are no longer 
entitled to be allocated at least the number of seats their members 
held in 1960 because they are each located within the district of the 
Federal Home Loan Bank of Des Moines, a Bank that, in its current 
incarnation, was created from the merger of the former Des Moines and 
Seattle Banks.
    Part 1264--Federal Home Loan Bank Housing Associates. FHFA proposes 
to amend Sec.  1264.2 to correct the citation to the Advances 
regulation, which is now found at 12 CFR part 1266.
    Part 1266--Advances. The proposed rule would make several revisions 
to FHFA's advances regulations, as described below. FHFA proposes to 
amend the definition of ``tangible capital'' in Sec.  1266.1 to remove 
references to the Office of Thrift Supervision (OTS) now in the 
definition given that the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) abolished the OTS and transferred its 
duties to other federal banking agencies.\28\
---------------------------------------------------------------------------

    \28\ See 12 U.S.C. 5412, 5413 (codifying Sec. Sec.  312, 313, 
Pub. L. 111-203, 124 Stat. 1521-23 (July 21, 2010)).
---------------------------------------------------------------------------

    FHFA also proposes to incorporate new language into the definition 
of ``tangible capital'' that would codify the substance of Regulatory 
Interpretation, 2012-RI-01 (Feb. 8, 2012), which deals with insurance 
company financial statements. The existing definition requires that a 
member's capital first be calculated in accordance with Generally 
Accepted Accounting Principles (GAAP). That requirement created some 
uncertainty about how a Bank could apply the definition of ``tangible 
capital'' to insurance companies that do not prepare GAAP financial 
statements, as some insurance companies prepare financial statements 
based on Statutory Accounting Principles (SAP), which differ from GAAP 
in certain respects. The Regulatory Interpretation addressed this issue 
by allowing Banks to use financial statements prepared by insurance 
company members using SAP when calculating their tangible capital if 
the insurance company members otherwise do not prepare financial 
statements based on GAAP. As FHFA noted in adopting the Regulatory 
Interpretation, the Finance Board originally adopted the definition of 
``tangible capital'' so that the Banks could base the calculation of 
tangible capital on a member's regulatory filings and thereby avoid 
undue burdens on members or the Banks. Insurance company members, 
however, file financial reports with their state

[[Page 33430]]

regulators based on SAP, rather than GAAP standards. Given that many 
insurance company members may not otherwise file or prepare GAAP 
statements, FHFA reasoned in its Regulatory Interpretation that it 
would create undue burdens to require these members to prepare separate 
GAAP based financial statements solely for the purpose of allowing the 
Bank to make the tangible capital calculation, as the language of the 
current definition of ``tangible capital'' appeared to require. The 
proposed amendment would clarify this definition by adding new language 
that explicitly authorizes the use of SAP financial statements to the 
same degree currently permitted by the Regulatory Interpretation.
    FHFA is also proposing to delete Sec.  1266.11, which applies only 
to Banks that have not yet converted to the capital structure 
implemented by the GLB Act. Given that all Banks have now converted to 
the GLB Act capital system, Sec.  1266.11 has no future applicability. 
FHFA also proposes to remove references to OTS now in Sec.  1266.13, a 
provision which implements section 10(h) of the Bank Act and allows a 
Bank to provide special liquidity advances to savings association 
members at the request of the member's federal regulator.\29\ As 
already noted, the Dodd-Frank Act abolished the OTS, the former 
regulator for savings associations, and transferred its duties to other 
federal banking agencies. The proposed amendment would replace the 
current reference to OTS in the rule with references to the appropriate 
federal regulator for member savings associations, specifically, the 
Office of the Comptroller of the Currency (OCC) with respect to federal 
savings associations and the Federal Deposit Insurance Corporation 
(FDIC) with respect to state savings associations.\30\
---------------------------------------------------------------------------

    \29\ 12 U.S.C. 1430(h).
    \30\ See 12 U.S.C. 5412, 5415.
---------------------------------------------------------------------------

    Finally, FHFA proposes to remove subpart C to part 1266, which 
includes only one provision, Sec.  1266.25, that addresses advances to 
out-of-district members.\31\ Section 1266.25(a) authorizes a Bank to 
become a creditor of a member or housing associate of another Bank 
through the purchase from that other Bank of an advance, or a 
participation interest in an advance, that the other Bank had made to 
its member. This part of the regulation essentially repeats the 
language of the statute.\32\ Section 1266.25(a) further provides that a 
Bank may become a creditor to a member or housing associate of another 
Bank through an arrangement with the other Bank that provides for the 
establishment of such a creditor/debtor relationship at the time an 
advance is made. Section 1266.25(b) provides that the establishment of 
any out-of-district creditor/debtor relationship under this regulation 
is subject to all requirements that would apply to any advance that a 
Bank could make to one of its own members. The regulatory history of 
the predecessor provision to Sec.  1266.25, which the Finance Board 
adopted in 2000, provides little guidance as to the intended meaning of 
the ``other arrangement'' portion of the regulation.\33\
---------------------------------------------------------------------------

    \31\ See 12 CFR part 1266, subpart C.
    \32\ See 12 U.S.C. 1430(d).
    \33\ See Final Rule: Federal Home Loan Bank Acquired Member 
Assets, Core Mission Activities, Investments and Advances, 65 FR 
43969 (July 17, 2000). See also Proposed Rule: Federal Home Loan 
Bank Acquired Member Assets, Core Mission Activities, Investments 
and Advances, 65 FR 25676 (May 3, 2000).
---------------------------------------------------------------------------

    FHFA believes that Sec.  1266.25 does not add meaningfully to the 
statutory authority to which it relates--for example, it does not solve 
the problem of how purchased advances or participations are to be 
capitalized--and therefore FHFA proposes to rescind it.
    Removal of this provision would not prevent one Bank from selling 
an advance or participation to another Bank, based solely on the 
statutory authority, but FHFA would expect that before doing so a Bank 
would first obtain the concurrence of FHFA about how a non-member could 
capitalize those advances through some means other than by buying Bank 
stock.
    Part 1267--Federal Home Loan Bank Investments. FHFA proposes to 
remove from Sec.  1267.1 the definitions of ``consolidated obligation'' 
and ``GAAP'' because both of those terms are defined in part 1201, and 
thus are now duplicative.
    Part 1269--Standby Letters of Credit, and Part 1270--Liabilities. 
FHFA proposes to correct citations to former Finance Board rules that 
FHFA readopted and transferred.
    Part 1273--Office of Finance. Part 1273 of the FHFA regulations 
addresses the structure and duties of the Office of Finance. FHFA 
proposes to remove from Sec.  1273.1 the definitions of ``Bank 
System,'' ``consolidated obligations,'' ``Financing Corporation or 
FICO,'' ``generally accepted accounting principles or GAAP,'' 
``NRSRO,'' ``Office of Finance or OF,'' and ``Resolution Funding 
Corporation or RefCorp'' because all of those terms have been defined 
in part 1201, and thus are now duplicative. The proposal also would 
correct citations to previous Finance Board regulations that appear 
within Sec. Sec.  1273.3, 1273.6, and 1273.8, all of which FHFA has 
replaced after it had initially adopted part 1273.
    FHFA also proposes to remove from Sec.  1273.7, which pertains to 
the structure of the Office of Finance board of directors (OF board), a 
number of provisions that applied only to the initial selection of the 
independent directors for the reconstituted OF board and the selection 
of the initial Chairman and Vice-Chairman. This process occurred in 
2010, and these provisions no longer serve any purpose. Because the 
removal of these provisions also requires that FHFA re-designate the 
remaining paragraphs in Sec.  1273.7, FHFA has opted to restate the 
revised Sec.  1273.7 in its entirety, rather than make a series of 
piecemeal amendments to the existing regulatory text. The revised 
provision also conforms any internal citations accordingly. The 
proposed amendments would also correct the references in Sec.  
1273.7(a) to ``seventeen'' Office of Finance directors and to 
``twelve'' Bank presidents to reflect that there are now only eleven 
Banks and sixteen Office of Finance directors.
    FHFA also proposes to delete Sec.  1273.8(d)(3), which requires the 
OF board to adopt an annual capital and operating budget consistent 
with 12 CFR 917.8, a provision that was, until recently, applicable to 
the Banks' boards of directors. However, when FHFA recently readopted 
the corporate governance provisions applicable to the Banks, it 
determined not to carry over Sec.  917.8 because it believed adoption 
of a budget was a basic duty already encompassed in a director's duty 
to act in good faith and with care in overseeing the affairs of a 
Bank.\34\ For these same reasons, FHFA believes that the budget 
responsibilities addressed in Sec.  1273.8(d)(3) are already 
incorporated into, and are part of, an OF director's basic oversight 
duties and is therefore proposing to delete this provision.
---------------------------------------------------------------------------

    \34\ See Proposed Rule: Responsibilities of Boards of Directors, 
Corporate Practices and Corporate Governance Matters, 79 FR 4414, 
4421 (Jan. 28, 2014).
---------------------------------------------------------------------------

    FHFA is proposing to amend Sec.  1273.9(b)(5), pertaining to the 
persons to whom the Office of Finance internal auditor shall report, to 
conform the provision to the comparable provision of the corporate 
governance regulations for the Banks. The current OF regulation 
includes a sentence that requires the internal auditor to report 
directly to the audit committee, but to report administratively to the 
executive management of the OF. The recently adopted corporate 
governance

[[Page 33431]]

regulations provide that the internal auditors of the Banks must report 
directly to the audit committee on substantive matters and are 
ultimately accountable to the audit committee and the board of 
directors; they do not require the internal auditor to report to Bank 
management on administrative matters. FHFA believes that the corporate 
governance provisions reflect the better practice and is proposing to 
revise the OF regulations to conform to the language of the corporate 
governance provisions on internal auditor reporting. This revised 
language would not prevent the audit committee for a Bank or the OF 
from authorizing the internal auditor to report to executive management 
on purely administrative matters, if the audit committee believed it 
appropriate to establish that reporting relationship.
    FHFA also proposes to delete Sec.  1273.10 in its entirety. That 
provision provided for a transition process from the three person OF 
board structure that was in place prior to the adoption of part 1273 in 
2010, to the current OF board structure established by part 1273. This 
transition process was completed in 2010, and Sec.  1273.10 has no 
future applicability.
    Part 1274--Financial Statements of the Banks, Part 1278--Voluntary 
Mergers of Federal Home Loan Banks, and Part 1281--Federal Home Loan 
Bank Housing Goals. FHFA proposes to remove from the definitions 
sections of these parts the definition of ``Bank System'', a term that 
is already defined by part 1201. For the same reason, FHFA proposes to 
remove from the definitions sections of parts 1274 and 1278, the 
definitions for ``Financing Corporation or FICO,'' and ``GAAP.''
    Part 1290--Community Support Requirements, and Part 1291--Federal 
Home Loan Banks' Affordable Housing Program. The proposed amendments 
would conform references to the ``Federal Home Loan Bank Act'' to read 
``Bank Act'', which is the term defined in part 1201.

B. Considerations of Differences Between the Banks and the Enterprises

    When promulgating regulations relating to the Banks, section 
1313(f) of the Safety and Soundness Act requires the 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.\35\ The changes proposed in this rulemaking make corrections 
to existing FHFA regulations or are clarifying and conforming in 
nature. Nonetheless, FHFA, in preparing this proposed rule, considered 
the differences between the Banks and the Enterprises as they relate to 
the above factors. FHFA requests comments from the public about whether 
these differences should result in any revisions to the proposed rule.
---------------------------------------------------------------------------

    \35\ See 12 U.S.C. 4513.
---------------------------------------------------------------------------

IV. Paperwork Reduction Act

    The proposed rulemaking 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

    The proposed rule applies only to the Banks and the Enterprises, 
which do not come within the meaning of small entities as defined in 
the Regulatory Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, 
in accordance with section 605(b) of the RFA, FHFA certifies that this 
proposed rule, if adopted as a final rule, would not have significant 
economic impact on a substantial number of small entities.

List of Subjects

12 CFR Part 1200

    Organization and functions (Government agencies), Reporting and 
recordkeeping requirements, Seals and insignia.

12 CFR Part 1201

    Administrative practice and procedure, Federal home loan banks, 
Government-sponsored enterprises, Office of finance, Regulated 
entities.

12 CFR Part 1229

    Capital, Federal home loan banks, Government-sponsored enterprises, 
Reporting and recordkeeping requirements.

12 CFR Part 1238

    Administrative practice and procedure, Capital, Federal home loan 
banks, Government-sponsored enterprises, Reporting and recordkeeping 
requirements, Stress test.

12 CFR Part 1239

    Administrative practice and procedure, Federal home loan banks, 
Government-sponsored enterprises, Reporting and recordkeeping 
requirements.

12 CFR Part 1261

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

12 CFR Parts 1264, 1266, and 1267

    Community development, Credit, Federal home loan banks, Housing, 
Reporting and recordkeeping requirements.

12 CFR Part 1269

    Community development, Credit, Federal home loan banks, Housing, 
Letters of credit.

12 CFR Part 1270

    Accounting, Federal home loan banks, Government securities.

12 CFR Part 1273

    Federal home loan banks, Securities.

12 CFR Part 1274

    Accounting, Federal home loan banks, Financial disclosure.

12 CFR Part 1278

    Banks, Banking, Federal home loan banks, Mergers.

12 CFR Parts 1281 and 1290

    Credit, Federal home loan banks, Housing, Reporting and 
recordkeeping requirements.

12 CFR Part 1291

    Community development, Credit, Federal home loan banks, Housing, 
Reporting and recordkeeping requirements.

    Accordingly, for reasons stated in the Supplementary Information 
and under authority in 12 U.S.C. 4511, 4513, and 4526, FHFA proposes to 
amend chapter XII of title 12 of the Code of Federal Regulations as 
follows:

CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY

Subchapter A--Organization and Operations

PART 1200--ORGANIZATION AND FUNCTIONS

0
1. Amend the authority citation for part 1200 by revising it to read as 
follows:

    Authority:  5 U.S.C. 552, 12 U.S.C. 4512, 12 U.S.C. 4526, 44 
U.S.C. 3506.

0
2. Amend part 1200 by adding Sec.  1200.4 to read as follows:


Sec.  1200.4  OMB control numbers assigned under the Paperwork 
Reduction Act.

    (a) Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3531) 
and

[[Page 33432]]

the implementing regulations of the Office of Management and Budget 
(OMB) (5 CFR part 1320), an agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
unless it displays a currently valid OMB control number.
    (b) OMB has approved the collections of information contained in 
FHFA's regulations and has assigned each collection a control number. 
The following table displays the sections of FHFA's regulations (both 
those located in this chapter and those promulgated by the former 
Federal Housing Finance Board that appear in chapter IX of this title) 
containing collections of information, along with the applicable OMB 
control numbers and the expirations dates for those control numbers:

------------------------------------------------------------------------
  12 CFR part or section where identified and   OMB Control   Expiration
                   described                        No.          date
------------------------------------------------------------------------
906.5.........................................    2590-0004   07/31/2017
955.4.........................................    2590-0008   02/29/2016
1207.23.......................................    2590-0014   07/31/2018
1222.22.......................................    2590-0013   07/31/2018
1222.23.......................................    2590-0013   07/31/2018
1222.24.......................................    2590-0013   07/31/2018
1222.25.......................................    2590-0013   07/31/2018
1222.26.......................................    2590-0013   07/31/2018
1261.7........................................    2590-0006   12/31/2017
1261.12.......................................    2590-0006   12/31/2017
1261.14.......................................    2590-0006   12/31/2017
1263.2........................................    2590-0003   12/31/2016
1263.4........................................    2590-0003   12/31/2016
1263.5........................................    2590-0003   12/31/2016
1263.6........................................    2590-0003   12/31/2016
1263.7........................................    2590-0003   12/31/2016
1263.8........................................    2590-0003   12/31/2016
1263.9........................................    2590-0003   12/31/2016
1263.11.......................................    2590-0003   12/31/2016
1263.12.......................................    2590-0003   12/31/2016
1263.13.......................................    2590-0003   12/31/2016
1263.14.......................................    2590-0003   12/31/2016
1263.15.......................................    2590-0003   12/31/2016
1263.16.......................................    2590-0003   12/31/2016
1263.17.......................................    2590-0003   12/31/2016
1263.18.......................................    2590-0003   12/31/2016
1263.24.......................................    2590-0003   12/31/2016
1263.26.......................................    2590-0003   12/31/2016
1263.31.......................................    2590-0003   12/31/2016
1264.4........................................    2590-0001   12/31/2018
1264.5........................................    2590-0001   12/31/2018
1264.6........................................    2590-0001   12/31/2018
1266.17.......................................    2590-0001   12/31/2018
1277.28.......................................    2590-0002   12/31/2016
1290.2........................................    2590-0005   02/29/2016
1290.3........................................    2590-0005   02/29/2016
1290.4........................................    2590-0005   02/29/2016
1290.5........................................    2590-0005   02/29/2016
1291.5........................................    2590-0007   05/31/2016
1291.6........................................    2590-0007   05/31/2016
1291.7........................................    2590-0007   05/31/2016
1291.8........................................    2590-0007   05/31/2016
1291.9........................................    2590-0007   05/31/2016
------------------------------------------------------------------------

PART 1201--GENERAL DEFINITIONS APPLYING TO ALL FEDERAL HOUSING 
FINANCE AGENCY REGULATIONS

0
3. The authority citation for part 1201 continues to read:

    Authority:  12 U.S.C. 4511(b), 4513(a), 4513(b).

0
4. Amend Sec.  1201.1 by revising the definition of ``Bank System'' and 
adding, in alphabetical order, a definition for ``President'' to read 
as follows:


Sec.  1201.1  Definitions.

* * * * *
    Bank System means the Federal Home Loan Bank System, consisting of 
all of the Banks and the Office of Finance.
* * * * *
    President, when referring to an officer of a Bank only, means a 
Bank's principal executive officer.
* * * * *

SUBCHAPTER B--ENTITY REGULATIONS

PART 1229--CAPITAL CLASSIFICATIONS AND PROMPT CORRECTIVE ACTION

0
5. The authority citation for part 1229 continues to read:

    Authority: 12 U.S.C. 1426, 4513, 4526, 4613, 4614, 4615, 4616, 
4617, 4618, 4622, 4623.

0
6. Amend Sec.  1229.1 by revising the definitions of ``new business 
activity'' and ``total capital'' to read as follows:


Sec.  1229.1  Definitions.

* * * * *
    New business activity when used in this subpart has the same 
meaning set forth in Sec.  1272.1 of this chapter.
* * * * *
    Total capital means the sum of the Bank's permanent capital, the 
amount paid-in for its Class A stock, the amount of any general 
allowances for losses, and the amount of any other instruments 
identified in a Bank's capital plan that the Director has determined to 
be available to absorb losses incurred by such Bank.
0
7. Amend Sec.  1229.6 by revising paragraph (a)(3) to read as follows:


Sec.  1229.6  Mandatory actions applicable to undercapitalized Banks.

    (a) * * *
    (3) Not make any capital distribution unless:
    (i) The distribution meets the requirements of Sec.  1229.5(b) and 
paragraphs (a)(3)(ii) and (iii) of this section and the Director has 
provided permission for such distribution as set forth in Sec.  
1229.5(b);
    (ii) The capital distribution will not result in the Bank being 
reclassified as significantly undercapitalized or critically 
undercapitalized; and
    (iii) The capital distribution does not violate any restriction on 
the redemption or repurchase of capital stock or the declaration or 
payment of a dividend set forth in section 6 of the Bank Act (12 U.S.C. 
1426) or in any other applicable regulation;
* * * * *


Sec.  1229.7  [Amended]

0
8. Amend Sec.  1229.7(a) by removing the reference to ``Sec.  1229.7 or 
Sec.  1229.8 of this subpart'' and adding in its place a reference to 
``Sec.  1229.8 or Sec.  1229.9''.

PART 1238--STRESS TESTING OF REGULATED ENTITIES

0
9. The authority citation for part 1238 continues to read:

    Authority: 12 U.S.C. 1426; 4513; 4526; 4612; 5365(i).


Sec.  1238.1  [Amended]

0
10. Amend Sec.  1238.1(a) by:
0
a. Removing the reference to ``Federal Housing Finance Agency (FHFA)'' 
and adding in its place ``FHFA'';
0
b. Removing the reference to ``Federal Housing Enterprises Financial 
Safety and Soundness Act of 1992, as amended'' and adding in its place 
``Safety and Soundness Act''; and
0
c. Removing the reference to ``Federal Home Loan Bank Act, as amended'' 
and adding in its place ``Bank Act''.


Sec.  1238.2  [Amended]

0
11. Amend Sec.  1238.2 by removing the definitions for ``Federal Home 
Loan Banks,'' ``Federal Housing Finance Agency or FHFA,'' and 
``regulated entities''.

PART 1239--RESPONSIBILITIES OF BOARDS OF DIRECTORS, CORPORATE 
PRACTICES, AND CORPORATE GOVERNANCE

0
12. The authority citation for part 1239 is revised to read:

    Authority:  12 U.S.C. 1426, 1427, 1432(a), 1436(a), 1440, 
4511(b), 4513(a), 4513(b), 4526, and 15 U.S.C. 78oo(b).

0
13. Amend Sec.  1239.32 by:
0
a. Revising paragraphs (d)(3) and (e)(4);
0
b. Removing the word ``and'' at the end of paragraph (e)(8);
0
c. Removing the period at the end of paragraph (e)(9) and adding ``; 
and'' in its place; and
0
d. Adding paragraph (e)(10).
    The revisions and addition read as follows:

[[Page 33433]]

Sec.  1239.32  Audit committees.

* * * * *
    (d) * * *
    (3) Each Bank's audit committee charter shall:
    (i) Provide that the audit committee has the responsibility to 
select, evaluate and, where appropriate, replace the internal auditor 
and that the internal auditor may be removed only with the approval of 
the audit committee;
    (ii) Provide that the internal auditor shall report directly to the 
audit committee on substantive matters and that the internal auditor is 
ultimately accountable to the audit committee and board of directors;
    (iii) Provide that the audit committee shall be directly 
responsible for the appointment, compensation, retention, and oversight 
of the work of the external auditor;
    (iv) Provide that the external auditor shall report directly to the 
audit committee;
    (v) Provide that both the internal auditor and the external auditor 
shall have unrestricted access to the audit committee without the need 
for any prior management knowledge or approval; and
    (vi) Provide that the Bank shall make available appropriate 
funding, as determined by the audit committee, for payment of 
compensation to the external auditor, to any independent advisors or 
counsel engaged by the audit committee, and ordinary administrative 
expenses that are necessary or appropriate for the audit committee to 
carry out its duties.
    (e) * * *
    (4) Oversee the external audit function by:
    (i) Approving the external auditor's annual engagement letter; and
    (ii) Reviewing the performance of the external auditor.
* * * * *
    (10) Establish procedures for the receipt, retention, and treatment 
of complaints received by the Bank regarding accounting, internal 
accounting controls, or auditing matters, and for the confidential, 
anonymous submission by employees of the Bank of concerns regarding 
questionable accounting or auditing matters.
* * * * *

SUBCHAPTER D--FEDERAL HOME LOAN BANKS

PART 1261--FEDERAL HOME LOAN BANK DIRECTORS

0
14. The authority citation for part 1261 continues to read:

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


Sec.  1261.2  [Amended]

0
15. Amend Sec.  1261.2:
0
a. By adding, in alphabetical order, a definition for ``Advisory 
Council''.
0
b. In the definition of ``Member directorship'', by removing the words 
``, and includes guaranteed directorships and stock directorships'';
0
c. In the definition of ``Public interest directorship'', by removing 
the words ``four years experience'' and, in their place, adding the 
words ``four years of experience''; and
0
d. By removing the definition of ``Stock directorship''.
    The revision reads as follows:


Sec.  1261.2  Definitions.

* * * * *
    Advisory Council means the Advisory Council each Bank is required 
to establish pursuant to section 10(j)(11) of the Bank Act (12 U.S.C. 
1430(j)(11)), and part 1291 of this chapter.
* * * * *


Sec.  1261.3  [Amended]

0
16. Amend Sec.  1261.3:
0
a. In paragraph (b), by removing the words ``commencing on or after 
January 1, 2009''; and
0
b. In paragraph (e), by removing the word ``part'', wherever it 
appears, and, in its place, adding the word ``subpart''.
0
17. Amend Sec.  1261.4 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  1261.4  Designation of member directorships.

    (a) Capital stock reports. (1) On or before April 10 of each year, 
each Bank shall deliver to FHFA a capital stock report that indicates, 
as of the record date, the number of members located in each voting 
State in the Bank's district, the number of shares of Bank stock that 
each member (identified by its FHFA ID number) was required to hold, 
and the number of shares of Bank stock that all members located in each 
voting State were required to hold. If a Bank has issued more than one 
class of stock, it shall report the total shares of stock of all 
classes required to be held by the members. The Bank shall certify to 
FHFA that, to the best of its knowledge, the information provided in 
the capital stock report is accurate and complete, and that it has 
notified each member of its minimum capital stock holding requirement 
as of the record date.
    (2) The number of shares of Bank stock that any member was required 
to hold as of the record date shall be determined in accordance with 
the minimum investment established by the capital plan for that Bank.
    (b) Designation of member directorships. Using the method of equal 
proportions, the Director annually will conduct a designation of member 
directorships for each Bank based on the number of shares of Bank stock 
required to be held by the members in each State as of the record date. 
If a Bank has issued more than one class of stock, the Director will 
designate the directorships for each State in that Bank district based 
on the combined number of shares required to be held by the members in 
that State. For purposes of conducting the designation, the number of 
shares of Bank stock required to be held by members as of that date 
shall be determined in accordance with the minimum investment 
established by the capital plan for that Bank. In all cases, the 
Director will designate the directorships by using the information 
provided by each Bank in its capital stock report required by paragraph 
(a)(1) of this section.
* * * * *


Sec.  1261.5  [Amended]

0
18. Amend Sec.  1261.5:
0
a. In paragraph (b), by removing the extra period following the words 
``under Sec.  1261.4(c).''; and
0
b. By removing paragraph (e)(2).
0
19. Amend Sec.  1261.6 by revising paragraph (b) to read as follows:


Sec.  1261.6  Determination of member votes.

* * * * *
    (b) Number of votes. For each member directorship and each 
independent directorship that is to be filled in an election, each 
member shall be entitled to cast one vote for each share of Bank stock 
that the member was required to hold as of the record date. 
Notwithstanding the preceding sentence, the number of votes that any 
member may cast for any one directorship shall not exceed the average 
number of shares of Bank stock required to be held as of the record 
date by all members located in the same State as of the record date. If 
a Bank has issued more than one class of stock, it shall calculate the 
average number of shares separately for each class of stock, using the 
total number of members in a State as the denominator, and shall apply 
those limits separately in determining the maximum number of votes that 
any member owning that class of stock may cast in the election. The 
number of shares of Bank stock that a member was required to hold as of 
the record date shall be determined in accordance with the minimum 
investment requirement established by the Bank's capital plan.
* * * * *

[[Page 33434]]

Sec.  1261.7  [Amended]

0
20. Amend Sec.  1261.7:
0
a. In paragraph (a), by redesignating the first paragraph (a)(1) as the 
introductory text to paragraph (a);
0
b. In paragraph (d)(1)(i), by removing the words ``four years 
experience'' and, in their place, adding the words ``four years of 
experience''; and
0
c. In paragraph (e)(2), by removing the words ``four years experience'' 
and, in their place, adding the words ``four years of experience''.
0
21. Amend Sec.  1261.8 by revising paragraphs (a) and (c) to read as 
follows:


Sec.  1261.8  Election process.

    (a) Ballots. Promptly after fulfilling the requirements of Sec.  
1261.7(f), each Bank shall prepare and deliver a ballot to each member 
that was a member as of the record date. The Bank shall include with 
each ballot a closing date for the Bank's receipt of voted ballots, 
which date shall be no earlier than 30 calendar days after the date 
such ballot is delivered to the member.
    (1) A ballot shall include at least the following provisions:
    (i) For states in which one or more member directorships are to be 
filled in the election, an alphabetical listing of the names of each 
nominee for such directorship, the name, location, and FHFA ID number 
of the member each nominee serves, the nominee's title or position with 
the member, and the number of member directorships to be filled by the 
members in that voting state in the election;
    (ii) An alphabetical listing of the names of each nominee for a 
public interest independent directorship and a brief description of 
each nominee's experience representing consumer and community 
interests;
    (iii) An alphabetical listing of the names of each nominee for the 
other independent directorships and a brief description of each 
nominee's qualifications, including his or her knowledge or experience 
in the areas of financial management, auditing and accounting, risk 
management practices, derivatives, project development, organizational 
management, and any other area of knowledge or experience set forth in 
Sec.  1261.7(e);
    (iv) A statement that write-in candidates are not permitted; and
    (v) A confidentiality statement prohibiting the Bank from 
disclosing how any member voted.
    (2) At the election of the Bank, a ballot also may include, in the 
body or as an attachment, a brief description of the skills and 
experience of each nominee for a member directorship.
* * * * *
    (c) Lack of member directorship nominees. If, for any voting State, 
the number of nominees for the member directorships for that State is 
equal to or fewer than the number of such directorships to be filled in 
that year's election, the Bank shall deliver a notice to the members in 
the affected voting State (in lieu of including any member directorship 
nominees on the ballot for that State) that such nominees shall be 
deemed elected without further action, due to an insufficient number of 
nominees to warrant balloting. Thereafter, the Bank shall declare 
elected all such eligible nominees. The nominees declared elected shall 
be included as directors-elect in the report of election required under 
paragraph (g) of this section. Any member directorship that is not 
filled due to a lack of nominees shall be deemed vacant as of January 1 
of the following year and shall be filled by the Bank's board of 
directors in accordance with Sec.  1261.14(a).
* * * * *
0
22. Amend Sec.  1261.9 by revising paragraphs (a) and (c) to read as 
follows:


Sec.  1261.9  Actions affecting director elections.

    (a) Banks. Each Bank, acting through its board of directors, may 
conduct an annual assessment of the skills and experience possessed by 
the members of its board of directors as a whole and may determine 
whether the capabilities of the board would be enhanced through the 
addition of individuals with particular skills and experience. If the 
board of directors determines that the Bank could benefit by the 
addition to the board of directors of individuals with particular 
qualifications, such as auditing and accounting, derivatives, financial 
management, organizational management, project development, risk 
management practices, or the law, it may identify those qualifications 
and so inform the members as part of its announcement of elections 
pursuant to Sec.  1261.7(a).
* * * * *
    (c) Prohibition. Except as provided in paragraphs (a) and (b) of 
this section, or Sec.  1207.21(b)(5) of this chapter, no director, 
officer, attorney, employee, or agent of a Bank shall:
    (1) Communicate in any manner that a director, officer, attorney, 
employee, or agent of a Bank, directly or indirectly, supports or 
opposes the nomination or election of a particular individual for a 
directorship; or
    (2) Take any other action to influence the voting with respect to 
any particular individual.


Sec.  1261.13  [Amended]

0
23. Amend Sec.  1261.13 by removing the words ``this part'' in the 
first sentence, and, in their place, adding the words ``this subpart''.
0
24. Amend Sec.  1261.15 by revising it to read as follows:


Sec.  1261.15  Minimum number of member directorships.

    Except with respect to member directorships of a Bank resulting 
from the merger of any two or more Banks, the number of member 
directorships allocated to each state shall not be less than the number 
of directorships allocated to that state on December 31, 1960. The 
following table sets forth the states within Bank districts not created 
from the merger of two or more Banks whose members held more than one 
directorship on December 31, 1960:

------------------------------------------------------------------------
                                                      Number of elective
                        State                          directorships on
                                                       December 31, 1960
------------------------------------------------------------------------
California..........................................                   3
Colorado............................................                   2
Illinois............................................                   4
Indiana.............................................                   5
Kansas..............................................                   3
Kentucky............................................                   2
Louisiana...........................................                   2
Massachusetts.......................................                   3
Michigan............................................                   3
New Jersey..........................................                   4
New York............................................                   4
Ohio................................................                   4
Oklahoma............................................                   2
Pennsylvania........................................                   6
Tennessee...........................................                   2
Texas...............................................                   3
Wisconsin...........................................                   4
------------------------------------------------------------------------

PART 1264--FEDERAL HOME LOAN BANK HOUSING ASSOCIATES

0
25. The authority citation for part 1264 continues to read:

    Authority:  12 U.S.C. 1430b, 4511, 4513 and 4526.


Sec.  1264.2  [Amended]

0
26. Amend Sec.  1264.2 by removing the reference ``part 950 of this 
title'' and adding in its place the reference ``part 1266 of this 
chapter''.

PART 1266--ADVANCES

0
27. The authority citation for part 1266 continues to read:

    Authority:  12 U.S.C. 1426, 1429, 1430, 1430b, 1431, 4511(b), 
4513, 4526(a).

Subpart A--Advances to Members

0
28. Amend Sec.  1266.1 by revising the definition of ``Tangible 
capital'' to read as follows:

[[Page 33435]]

Sec.  1266.1  Definitions.

* * * * *
    Tangible capital means:
    (1) Capital, calculated according to GAAP, less ``intangible 
assets'' except for purchased mortgage servicing rights to the extent 
such assets are included in a member's core or Tier 1 capital, as 
reported in a member's Report of Condition and Income for members whose 
primary federal regulator is the FDIC, the OCC, or the FRB.
    (2) Capital calculated according to GAAP, less intangible assets, 
as defined by a Bank for members that are not regulated by the FDIC, 
the OCC, or the FRB; provided that a Bank shall include a member's 
purchased mortgage servicing rights to the extent such assets are 
included for the purpose of meeting regulatory capital requirements. In 
addition, for those members that are insurance companies and that do 
not file or otherwise prepare financial statements based on GAAP, Banks 
may base this calculation on the member's financial statements prepared 
using Statutory Accounting Principles as implemented by the insurance 
company member's appropriate state regulator.
* * * * *


Sec.  1266.11  [Removed and reserved]

0
29. Remove and reserve Sec.  1266.11.
0
30. Amend Sec.  1266.13 by revising paragraph (a) to read as follows:


Sec.  1266.13  Special advances to savings associations.

    (a) Eligible institutions. (1) A Bank, upon receipt of a written 
request from the OCC, with respect to a federal savings association, or 
from the FDIC, with respect to a state chartered savings association, 
may make short-term advances to a savings association member pursuant 
to section 10(h) of the Bank Act (12 U.S.C. 1430(h)).
    (2) Such request must certify that the savings association member:
    (i) Is solvent but presents a supervisory concern to the OCC or 
FDIC, as appropriate, because of the member's financial condition; and
    (ii) Has reasonable and demonstrable prospects of returning to a 
satisfactory financial condition.
* * * * *

Subpart C [Removed]

0
31. Remove subpart C to part 1266, consisting of Sec.  1266.25.

PART 1267--FEDERAL HOME LOAN BANK INVESTMENTS

0
32. The authority citation for part 1267 continues to read:

    Authority: 12 U.S.C. 1429, 1430, 1430b, 1431, 1436, 4511, 4513, 
4526.


Sec.  1267.1  [Amended]

0
33. Amend Sec.  1267.1 by removing the definitions for ``consolidated 
obligation'' and ``GAAP''.

PART 1269--STANDBY LETTERS OF CREDIT

0
34. The authority citation for part 1269 continues to read:

    Authority: 12 U.S.C. 1429, 1430, 1430b, 1431, 4511, 4513 and 
4526.


Sec.  1269.4  [Amended]

0
35. Amend Sec.  1269.4(a)(1) by removing the reference to ``969.2 of 
this title'' and adding in its place a reference to ``1270.3 of this 
chapter''.

PART 1270--LIABILITIES

0
36. The authority citation for part 1270 continues to read:

    Authority: 12 U.S.C. 1431, 1432, 1435, 4511, 4512, 4513, and 
4526.


Sec.  1270.9  [Amended]

0
37. Amend Sec.  1270.9(d)(1) by removing the reference to ``Sec.  956.6 
of this title'' and adding in its place a reference to ``Sec.  1267.4 
of this chapter''.

PART 1273--OFFICE OF FINANCE

0
38. The authority citation for part 1273 continues to read:

    Authority: 12 U.S.C. 1431, 1440, 4511(b), 4513, 4514(a), 
4526(a).


Sec.  1273.1  [Amended]

0
39. Amend Sec.  1273.1 by removing the definitions for ``Bank System,'' 
``Consolidated obligations,'' ``Financing Corporation or FICO,'' 
``Generally accepted accounting principles or GAAP,'' ``NRSRO,'' 
``Office of Finance or OF,'' and ``Resolution Funding Corporation or 
REFCORP''.
0
40. Amend Sec.  1273.3 by revising paragraphs (a) and (d) to read as 
follows:


Sec.  1273.3  Functions of the OF.

    (a) Joint debt issuance. Subject to part 1270, subparts B and C, of 
this chapter, and this part, the OF, as agent for the Banks, shall 
offer, issue, and service (including making timely payments on 
principal and interest due) consolidated obligations.
* * * * *
    (d) Financing Corporation and Resolution Funding Corporation. The 
OF shall perform such duties and responsibilities for FICO as may be 
required under part 1271, subpart D, of this chapter, or for REFCORP as 
may be required under part 1271, subpart E, of this chapter or 
authorized by FHFA pursuant to section 21B (c)(6)(B) of the Bank Act 
(12 U.S.C 1441b(c)(6)(B)).


Sec.  1273.6  [Amended]

0
41. Amend Sec.  1273.6(a) by removing the reference to ``Sec. Sec.  
966.8 and 966.9 of this title'' and adding in its place a reference to 
``Sec. Sec.  1270.9 and 1270.10 of this chapter''.
0
42. Amend Sec.  1273.7 by revising it to read as follows


Sec.  1273.7  Structure of the OF board of directors.

    (a) Membership. The OF board of directors shall consist of part-
time members as follows:
    (1) Each of the Bank presidents, ex officio, provided that if the 
presidency of any Bank becomes vacant, the person designated by the 
Bank's board of directors to temporarily fulfill the duties of 
president of that Bank shall serve on the OF board of directors until 
the presidency is filled permanently; and
    (2) Five Independent Directors who--
    (i) Each shall be a citizen of the United States;
    (ii) As a group, shall have substantial experience in financial and 
accounting matters; and
    (iii) Shall not have any material relationship with a Bank, or the 
OF (directly or as a partner, shareholder, or officer of an 
organization), as determined under criteria set forth in a policy 
adopted by the OF board of directors. At a minimum, such policy shall 
provide that an Independent Director may not:
    (A) Be an officer, director, or employee of any Bank or member of a 
Bank, or have been an officer, director, or employee of a Bank or 
member of a Bank during the previous three years;
    (B) Be an officer or employee of the OF, or have been an officer or 
employee of the OF during the previous three years; or
    (C) Be affiliated with any consolidated obligations selling or 
dealer group under contract with OF, or hold shares or any other 
financial interest in any entity that is part of a consolidated 
obligations seller or dealer group in an amount greater than the lesser 
of $250,000 or 0.01% of the market capitalization of the seller or 
dealer group, or in an amount that exceeds $1,000,000 for all entities 
that are part of any consolidated obligations seller dealer group, 
combined. For purposes of this paragraph (a)(2)(iii)(C), a holding 
company of an entity that is part of a consolidated obligations seller 
or dealer group shall be deemed to be part of the consolidated 
obligations selling or dealer group if the assets of the holding 
company's subsidiaries that are part of

[[Page 33436]]

a consolidated obligation seller or dealer group constitute 35% or more 
of the consolidated assets of the holding company.
    (b) Terms. (1) Except as provided in paragraph (b)(2) of this 
section, each Independent Director shall serve for five-year terms 
(which shall be staggered so that no more than one Independent Director 
seat would be scheduled to become vacant in any one year), and shall be 
subject to removal or suspension in accordance with Sec.  1273.4(a) of 
this part. An Independent Director may not serve more than two full, 
consecutive terms, provided that any partial term served by an 
Independent Director pursuant to paragraph (b)(2) of this section shall 
not count as a term for purposes of this restriction.
    (2) The OF board of directors shall fill any vacancy among the 
Independent Directors occurring prior to the scheduled end of a term by 
majority vote, subject to FHFA's review of, and non-objection to, the 
new Independent Director. The OF board of directors shall provide FHFA 
with the same biographic and background information about the new 
Independent Director required under paragraph (c) of this section, and 
FHFA shall have the same rights of non-objection to the Independent 
Director (and to appoint a different Independent Director) as set forth 
in paragraph (c) of this section. A person shall be elected (or 
otherwise appointed by FHFA) under this paragraph to serve only for the 
remainder of the term associated with the vacant directorship.
    (c) Election of Independent Directors. The Independent Directors 
shall be elected by majority vote of the OF board of directors, subject 
to FHFA's review of, and non-objection to, each Independent Director. 
The OF board of directors shall provide FHFA with relevant biographic 
and background information, including information demonstrating that 
the new Independent Director meets the requirements of paragraph (a)(2) 
of this section, at least 20 business days before the person assumes 
any duties as a member of the OF board of directors. If the OF board of 
directors, in FHFA's judgment, fails to elect a suitably qualified 
person, FHFA may appoint some other person who meets the requirements 
of paragraph (a)(2) of this section. FHFA will provide notice of its 
objection to a particular Independent Director prior to the date that 
such Director is to assume duties as a member of the OF board of 
directors. Such notice shall indicate whether, given FHFA's objection, 
FHFA intends to fill the seat through appointment or a new election 
should be held by the OF board of directors.
    (d) Election of Chair and Vice-Chair. (1) The Chair shall be 
elected by majority vote of the OF board of directors from among the 
Independent Directors then serving on the OF board of directors, and 
the Vice Chair shall be elected by majority vote of the OF board of 
directors from among all directors.
    (2) The OF board of directors shall promptly inform FHFA of the 
election of a Chair or Vice Chair. If FHFA objects to any Chair or Vice 
Chair elected by the OF board of directors, FHFA shall provide written 
notice of its objection within 20 business days of the date that FHFA 
first receives the notice of the election of the Chair and or Vice 
Chair, and the OF board of directors must then promptly elect a new 
Chair or Vice Chair, as appropriate.
    (e) By-laws and Committees. (1) The OF board of directors shall 
adopt by-laws governing the manner in which the board conducts its 
affairs, which shall be consistent with the requirements of this part 
and other applicable laws and regulations as administered by FHFA. The 
by-laws of the board of directors shall be subject to review and 
approval by FHFA.
    (2) In addition to the Audit Committee required under Sec.  1273.9, 
the OF board of directors may establish other committees, including an 
Executive Committee. The duties and powers of such committee, including 
any powers delegated by the OF board of directors, shall be specified 
in the by-laws of the board of directors or the charter of the 
committee.
    (f) Compensation. (1) The Bank presidents shall not receive any 
additional compensation or reimbursement as a result of their service 
as a director of the OF board.
    (2) The OF shall pay reasonable compensation and expenses to the 
Independent Directors in accordance with the requirements for payment 
of compensation and expenses to Bank directors as set forth in part 
1261 of this chapter.
    (g) Corporate Governance and Indemnification--(1) General. The 
corporate governance practices and procedures of the OF, and practices 
and procedures related to indemnification (including advancement of 
expenses) shall comply with applicable Federal law rules and 
regulations.
    (2) Election and designation of body of law. To the extent not 
inconsistent with paragraph (g)(1) of this section, the OF shall elect 
to follow the corporate governance and indemnification practices and 
procedures set forth in one of the following:
    (i) The law of the jurisdiction in which the principal office of 
the OF is located;
    (ii) the Delaware General Corporation Law (Del. Code Ann. Title 8); 
or
    (iii) the Revised Model Business Corporation Act. The OF board of 
directors shall designate in its by-laws the body of law elected 
pursuant to this paragraph (g)(2).
    (3) Indemnification. Subject to paragraphs (g)(1) and (2) of this 
section, to the extent applicable, the OF shall indemnify (and advance 
the expenses of) its directors, officers, and employees under such 
terms and conditions as are determined by the OF board of directors. 
The OF shall be authorized to maintain insurance for its directors, the 
CEO, and any other officer of employee of the OF. Nothing in this 
paragraph (g)(3) shall affect any rights to indemnification (including 
the advancement of expenses) that a director, the CEO, or any other 
officer or employee of the OF had with respect to any actions, 
omissions, transactions, or facts occurring prior to [EFFECTIVE DATE OF 
FINAL RULE].
    (h) Delegation. In addition to any delegation to a committee 
allowed under paragraph (e) of this section, the OF board of directors 
may delegate any of its authority or duties to any employee of the OF 
in order to enable OF to carry out its functions.
    (i) Outside staff and consultants. In carrying out its duties and 
responsibilities, the OF board of directors, or any committee thereof, 
shall have authority to retain staff and outside counsel, independent 
accountants, or other outside consultants at the expense of the OF.


Sec.  1273.8  [Amended]

0
43. Amend Sec.  1273.8 by:
0
a. Removing from paragraph (d)(2) the reference to ``Sec.  917.5 of 
this title'' and adding in its place a reference to ``Sec.  1239.31 of 
this chapter''.
0
b. Removing paragraph (d)(3); and
0
c. Redesignating paragraphs (d)(4), (5), and (6) as paragraphs (d)(3), 
(4), and (5), respectively.
0
44. Amend Sec.  1273.9 by revising paragraph (b)(5) to read as follows:


Sec.  1273.9  Audit Committee.

* * * * *
    (b) * * *
    (5) The Audit Committee shall oversee internal audit activities, 
including the selection, evaluation, compensation, and, where 
appropriate, replacement of the internal auditor. The internal auditor 
shall report directly to the Audit Committee on substantive matters, 
and is ultimately accountable to

[[Page 33437]]

the Audit Committee and the board of directors.
* * * * *


Sec.  1273.10  [Removed]

0
45. Remove Sec.  1273.10.

PART 1274--FINANCIAL STATEMENT OF THE BANKS

0
46. The authority citation for part 1274 continues to read:

    Authority: 12 U.S.C. 1426, 1431, 4511(b), 4513, 4526(a).


Sec.  1274.1  [Amended]

0
47. Amend Sec.  1274.1 by removing the definitions for ``Bank System'' 
and ``Financing Corporation or FICO''.

PART 1278--VOLUNTARY MERGERS OF FEDERAL HOME LOAN BANKS

0
48. The authority citation for part 1278 continues to read:

    Authority: 12 U.S.C. 1432(a), 1446, 4511.


Sec.  1278.1  [Amended]

0
49. Amend Sec.  1278.1 by removing the definition for ``GAAP''.

SUBCHAPTER E--HOUSING GOALS AND MISSION

PART 1281--FEDERAL HOME LOAN BANK HOUSING GOALS

0
50. The authority citation for part 1281 continues to read:

    Authority: 12 U.S.C. 1430c.

Subpart A--General


Sec.  1281.1  [Amended]

0
51. Amend Sec.  1281.1 by removing the definition for ``Bank System''.

PART 1290--COMMUNITY SUPPORT REQUIREMENTS

0
52. The authority citation for part 1290 continues to read:

    Authority: 12 U.S.C. 1430(g), 4511, 4513.

0
53. Amend Sec.  1290.1 by revising the definition of ``Advisory 
Council'' to read as follows:


Sec.  1290.1  Definitions.

* * * * *
    Advisory Council means the Advisory Council each Bank is required 
to establish pursuant to section 10(j)(11) of the Bank Act (12 U.S.C. 
1430(j)(11)) and part 1291 of this chapter.
* * * * *

PART 1291--FEDERAL HOME LOAN BANKS' AFFORDABLE HOUSING PROGRAM

0
54. The authority citation for part 1291 continues to read:

    Authority: 12 U.S.C. 1430(j).


Sec.  1291.4  [Amended]

0
55. Amend Sec.  1291.4(f) by removing the reference to ``the Act'' and 
adding a reference to ``the Bank Act'' in its place.

    Dated: May 17, 2016.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2016-12066 Filed 5-25-16; 8:45 am]
BILLING CODE 8070-01-P