Federal Home Loan Bank System Boards of Directors and Executive Management

FEDERAL HOUSING FINANCE AGENCY <CFR>12 CFR Parts 1239, 1261, and 1273</CFR> <RIN>RIN 2590-AB24</RIN> <SUBJECT>Federal Home Loan Bank System Boards of Directors and Executive Management</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Federal Housing Finance Agency. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Federal Housing Finance Agency (FHFA or the Agency) is proposing to revise regulations addressing boards of directors and overall corporate governance of the Federal Home Loan Banks (Banks) and the Bank System's Office of Finance (OF) to update and clarify regulatory requirements on a variety of topics including: FHFA's annual designation of Bank directorships; Bank director eligibility and professional qualifications; nomination, election, and removal of Bank directors; the conduct of System board and committee meetings; conflicts of interest; and the respective responsibilities of System boards of directors and executive management. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Written comments must be received on or before February 3, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit your comments on the proposed rule, identified by regulatory information number (RIN) 2590-AB24, by any one of the following methods: • <E T="03">Agency Website: https://www.fhfa.gov/regulation/federal-register?comments=open.</E> • <E T="03">Federal eRulemaking Portal: https://www.regulations.gov.</E> 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 <E T="03">RegComments@fhfa.gov</E> to ensure timely receipt by FHFA. Include the following information in the subject line of your submission: Comments/RIN 2590-AB24. • <E T="03">Hand Delivered/Courier:</E> The hand delivery address is: Clinton Jones, General Counsel, Attention: Comments/RIN 2590-AB24, Federal Housing Finance Agency, 400 Seventh Street SW, Washington, DC 20219. Deliver the package at the Seventh Street entrance Guard Desk, First Floor, on business days between 9 a.m. and 5 p.m. • <E T="03">U.S. Mail, United Parcel Service, Federal Express, or Other Mail Service:</E> The mailing address for comments is: Clinton Jones, General Counsel, Attention: Comments/RIN 2590-AB24, Federal Housing Finance Agency, 400 Seventh Street SW, Washington, DC 20219. Please note that all mail sent to FHFA via U.S. Mail is routed through a national irradiation facility, a process that may delay delivery by approximately two weeks. For any time- sensitive correspondence, please plan accordingly. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Lindsay Spadoni, Assistant General Counsel, Office of General Counsel, (202) 649-3634, <E T="03">Lindsay.Spadoni@FHFA.gov;</E> or Janna Bruce, Senior Financial Analyst, Division of Bank Regulation, (202) 649-3202, <E T="03">Janna.Bruce@FHFA.gov.</E> These are not toll-free numbers. For TTY/TRS users with hearing and speech disabilities, dial 711 and ask to be connected to any of the contact numbers above. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Comments</HD> FHFA invites comments on all aspects of the proposed rule and will take all comments into consideration before issuing a final rule. Comments will be posted to the electronic rulemaking docket on the FHFA public website at <E T="03">https://www.fhfa.gov,</E> except as described below. Commenters should submit only information the commenter wishes to make available publicly. FHFA may post only a single representative example of identical or substantially identical comments, and in such cases will generally identify the number of identical or substantially identical comments represented by the posted example. FHFA may, in its discretion, redact or refrain from posting all or any portion of any comment that contains content that is obscene, vulgar, profane, or threatens harm. All comments, including those that are redacted or not posted, will be retained in their original form in FHFA's internal rulemaking file and considered as required by all applicable laws. Commenters that would like FHFA to consider any portion of their comment exempt from disclosure on the basis that it contains trade secrets, or financial, confidential or proprietary data or information, should follow the procedures in section IV.D. of FHFA's <E T="03">Policy on Communications with Outside Parties in Connection with FHFA Rulemakings, see</E> <E T="03">https://www.fhfa.gov/sites/default/files/documents/Ex-Parte-Communications-Public-Policy_3-5-19.pdf.</E> FHFA cannot guarantee that such data or information, or the identity of the commenter, will remain confidential if disclosure is sought pursuant to an applicable statute or regulation. <E T="03">See</E> 12 CFR 1202.8 and 1214.2 and the FHFA <E T="03">FOIA Reference Guide</E> at <E T="03">https://www.fhfa.gov/about/foia-reference-guide</E> for additional information. <HD SOURCE="HD1">II. Background</HD> <HD SOURCE="HD2">A. Statutory Requirements on Bank System Governance</HD> The Bank System consists of eleven district Banks and the OF. The Banks are wholesale, cooperatively owned financial institutions, the debt of which is the joint and several obligation of all eleven Banks. They are organized under authority of the Federal Home Loan Bank Act (Bank Act) to serve the public interest by enhancing the availability of residential housing finance and community lending credit through their member institutions and, to a very limited extent, through certain eligible nonmembers. In general, only members may obtain advances (low-cost secured loans) and access other products and services provided by a Bank. The Bank Act vests the management of each Bank in its board of directors. <SU>1</SU> <FTREF/> As required by statute, each Bank's board comprises two types of directors: (1) member directors, who are drawn from the officers and directors of member institutions located in the Bank's district and who are elected to represent members in each respective state in that district; and (2) independent directors, who are unaffiliated with any of the Bank's member institutions or borrowing housing associates, <SU>2</SU> <FTREF/> but who reside in the Bank's district and are elected on an at-large basis. <SU>3</SU> <FTREF/> The Bank Act specifies that a majority of seats on each Bank's board of directors must be member directorships, while not less than 40 percent must be independent directorships. <SU>4</SU> <FTREF/> Both types of directors serve four-year terms, which must be staggered so that approximately one-quarter of a Bank's total directorships are up for election every year. <SU>5</SU> <FTREF/> The Bank Act establishes the eligibility requirements for both types of Bank directors, including the professional qualifications required for independent directors, and sets forth requirements for their nomination and election. <SU>6</SU> <FTREF/> The statute requires the FHFA Director to annually designate the size and composition of each Bank's board of directors for the following calendar year, including by establishing the number of member and independent directorships and allocating member directorships among the states of the Bank district. <SU>7</SU> <FTREF/> <FTNT> <SU>1</SU>   <E T="03">See</E> 12 U.S.C. 1427(a)(1). </FTNT> <FTNT> <SU>2</SU>  FHFA's regulations refer to eligible nonmember borrowers as “housing associates.” <E T="03">See</E> 12 CFR part 1264. </FTNT> <FTNT> <SU>3</SU>   <E T="03">See</E> 12 U.S.C. 1427(a)(4), (b), and (d). </FTNT> <FTNT> <SU>4</SU>   <E T="03">See</E> 12 U.S.C. 1427(a)(2). </FTNT> <FTNT> <SU>5</SU>   <E T="03">See</E> 12 U.S.C. 1427(d). </FTNT> <FTNT> <SU>6</SU>   <E T="03">See</E> 12 U.S.C. 1429, 1430(a)(1), 1430b. </FTNT> <FTNT> <SU>7</SU>   <E T="03">See</E> 12 U.S.C. 1427(b)(1), (c). </FTNT> The Bank Act requires that at least two of a Bank's independent directors qualify as “public interest” independent directors, each of which must “have more than 4 years of experience in representing consumer or community interests on banking services, credit needs, housing, or financial consumer protections.”  <SU>8</SU> <FTREF/> Each independent director that is not a public interest independent director (referred to in this proposed rule as a “regular independent director”) must “have demonstrated knowledge of, or experience in, financial management, auditing and accounting, risk management practices, derivatives, project development, or organizational management, or such other knowledge or expertise as the [FHFA] Director may provide by regulation.”  <SU>9</SU> <FTREF/> By regulation, FHFA has added “the law” to that list of qualifying knowledge and experience. <SU>10</SU> <FTREF/> <FTNT> <SU>8</SU>  12 U.S.C. 1427(a)(3)(B)(ii). </FTNT> <FTNT> <SU>9</SU>  12 U.S.C. 1427(a)(3)(B)(i). </FTNT> <FTNT> <SU>10</SU>   <E T="03">See</E> 12 CFR 1261.7(e)(1). </FTNT> <HD SOURCE="HD2">B. Existing Regulations on Corporate Governance of Banks and OF</HD> Part 1261 of FHFA's regulations, entitled “Federal Home Loan Bank Directors,” implements the statutory provisions and otherwise establishes requirements and processes relating to the composition and operations of Bank boards of directors. With respect to the former, sections in subpart B of the regulation (§§ 1261.2 through 1261.15) cover the annual designation of Bank directorships by the FHFA Director, director eligibility, the nomination and election processes, reporting and record retention requirements, handling conflicts of interest, and the filling of vacancies. Sections in subpart C (§§ 1261.20 through 1261.24) address director com ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 222k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━