[Federal Register: April 2, 2007 (Volume 72, Number 62)]
[Rules and Regulations]
[Page 15600-15603]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02ap07-3]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 915
[No. 2007-04]
RIN 3069-AB-33
Federal Home Loan Bank Appointive Directors
AGENCY: Federal Housing Finance Board.
ACTION: Final rule.
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SUMMARY: The Federal Housing Finance Board (Finance Board) is issuing a
final regulation that is substantially the same as the interim final
rule that established a process for the appointment of directors to the
Federal Home Loan Banks (Bank or Banks), which was adopted on January
24, 2007. The final rule makes two changes to the interim rule,
regarding the number of nominees to be submitted and the date by which
nominations must be submitted. Both changes are being made in response
to comments received on the interim final rule.
DATES: Effective Date: The final rule is effective April 2, 2007.
FOR FURTHER INFORMATION CONTACT: Neil R. Crowley, Acting General
Counsel, 202-408-2990, crowleyn@fhfb.gov; or Thomas P. Jennings, Senior
Attorney Advisor, Office of General Counsel, 202-408-2553,
jenningst@fhfb.gov. You can send mail to the Federal Housing Finance
Board, 1625 Eye Street, NW., Washington, DC 20006.
SUPPLEMENTARY INFORMATION:
I. Background and Legal Authority
Section 7(a) of the Federal Home Loan Bank Act (Bank Act) (12
U.S.C. 1427(a)) authorizes the Finance Board to appoint directors to
the board of each Bank. Section 7(f)(2) of the Bank Act (12 U.S.C.
1427(f)(2)) authorizes the Finance Board to fill any vacancy in an
appointive directorship for the remainder of its unexpired term. The
Finance Board has determined that adopting procedures for the selection
of appointive directors will enhance its ability to identify and
appoint well-qualified individuals to serve as Bank directors.
Accordingly, on January 24, 2007 (72 FR 3028) the Finance Board
issued an interim final rule that amended 12 CFR 915.10 to adopt
procedures under which the board of directors of each Bank has to
submit to the Finance Board a list of individuals to be considered for
appointment to the board of the Bank. The list is to include
information regarding each individual's eligibility and qualifications
to serve as an appointive director, and the Finance Board will use that
information in making its appointments to the boards. The interim rule
set an initial deadline of March 31, 2007, by which the Banks are to
provide a list of nominees to the Finance Board for the directorships
that are currently vacant.
At the time that it published the interim final rule, the Finance
Board requested comments from the public and established a 30-day
comment period, which expired on February 23, 2007.
II. Analysis of the Public Comments
The Finance Board received 8 comment letters in response to the
interim rule. Three letters were submitted by Banks, 1 by a member of a
Bank, 3 from trade associations, and 1 from a community organization.
All of the comments were supportive of the rule, but also suggested
certain revisions to the rule.
One issue commenters raised relates to section 915.10(b), which
gives the Finance Board the discretion to request additional names from
any Bank if the Finance Board does not fill all vacant appointive
directorships from the names the Bank initially submits. Certain of the
comment letters objected to the permissive nature of the provision,
contending that the provision should be mandatory, i.e., that the final
rule should require the Finance Board to seek additional names only
from the Banks and should preclude it from considering prospective
directors from other sources. For the reasons noted below, the Finance
Board has determined to retain the language of the interim rule.
In adopting section 7 of the Bank Act (12 U.S.C. 1427), Congress
vested the power to appoint Bank directors solely in the Finance Board.
To revise the rule in the manner suggested would preclude the Finance
Board from ever considering other sources for prospective appointive
directors. Such a limitation likely would impair the Finance Board's
ability to carry out its statutory responsibility. As a practical
matter, the Finance Board fully expects that the Banks will make every
effort to submit well-qualified nominees for the appointive
directorships, both in their initial submissions and in response to any
subsequent request from the Finance Board. In the event that a Bank
does not do so, however, the Finance Board believes that it must
reserve the right to consider nominees from other sources in order to
carry out its own responsibilities.
A second issue raised by the comment letters relates to the number
of nominees a Bank must submit for the number of directorships to be
filled. Section 915.10(a)(3) of the interim rule requires each Bank to
submit twice as many nominees as there are appointive directorships to
be filled at the Bank. Three commenters suggested that the rule be
changed to require the submission of only 1 nominee per directorship to
be filled. These commenters believed that the Banks are more likely to
find well qualified persons who are willing to serve if those persons
have some reasonable expectation of being chosen if they agree to be
nominated. These commenters noted that the interim rule created a
process in which half of all nominees would be rejected, and contended
that such a process would have a chilling effect on prospective
nominees' willingness to go through the nominations process.
Another commenter urged the Finance Board to require at least twice
as many nominees as there are directorships to be filled, particularly
with respect to the community interest directorships. That commenter
reasoned that doing so would help to maintain the independence of the
community interest appointive directors by lessening the degree of
control that the Banks would have over their selection. Another
commenter proposed that the
[[Page 15601]]
Banks be allowed to designate the specific directorship for which each
nominee is being submitted, and that the designation be binding on the
Finance Board. This commenter reasoned that doing so would allow a Bank
to nominate 2 persons with specific skills for each directorship, which
would allow the Bank to obtain the optimum skills it believes it needs
on its board of directors as a whole.
The Finance Board has considered each of the suggestions made with
respect to the number of nominees to be submitted by the Banks. As
noted below, the Finance Board believes that there is merit to the
contention that the interim rule might have a chilling effect on the
willingness of some qualified persons to agree to serve on the board of
a Bank. To address that concern, the Finance Board has decided to
modify the rule to require the Banks to submit up to 2 nominees for
each directorship to be filled. As a result, a Bank with 4
directorships to be filled would have to submit at least 4 nominees,
but could submit up to 8 nominees if it so chose.
Another area for which certain commenters sought changes to the
interim rule relates to the March 31, 2007 deadline for the submission
of nominees for the currently vacant directorships. One commenter
suggested that the deadline be extended to allow the Banks a range of
time beyond March 31, 2007 in which to submit nominees to the Finance
Board. The commenter reasoned that some Banks may need more time to
identify the appropriate number of nominees, particularly if they have
to submit twice as many names as there are directorships to be filled.
As discussed below, the Finance Board believes that the process of
vetting prospective directors may be improved by allowing a Bank the
opportunity to request additional time to complete the process and the
final rule would allow a Bank to do so.
An additional concern raised by the comment letters related to the
confidentiality of the information prospective directors must provide
on the Federal Home Loan Bank Appointive Director Application Form
(Form), which was published in the Federal Register along with the
interim final rule. These commenters expressed concern that the Finance
Board would have to produce the Form, or the personal information it
contains, in response to a request under the Freedom of Information Act
(FOIA) (5 U.S.C. 552). For the reasons described below, the Finance
Board will not release such information in response to a FOIA request.
The Privacy Act of 1974 (Privacy Act) (5 U.S.C. 552a) governs the
collection, maintenance, use, and dissemination of personal information
by federal agencies. The Finance Board has issued a rule implementing
the Privacy Act that governs how individuals can gain access to
information about themselves that the Finance Board may possess. 12 CFR
part 913. The Finance Board also has published ``systems of records''
explaining the types of information the agency may possess and the uses
of that information that are permitted under the Privacy Act.
One of the Finance Board's Privacy Act systems of records covers
the Form prospective appointive directors must submit to the Finance
Board. Under that system of records, the Form is used only by
appropriate Finance Board staff to determine whether the nominees and
current appointive directors meet the applicable eligibility
requirements and possess the requisite skills and background to perform
the job effectively. Within this system of records, the Finance Board
retains only the Forms of individuals who are appointed as a Bank
director and only for the duration of their respective term of service
as an appointive director.
The Forms themselves not subject to production to the public under
FOIA because they are covered by the Privacy Act. However, the Finance
Board has made limited biographical information about the newly
appointed directors publicly available, typically through a press
release issued after the appointments have been made. See, e.g., Press
Release FHFB 04-05 (Jan. 23, 2004) (available on the Finance Board's
Web site: http://www.fhfb.gov/GetFile.aspx?FileID=3127).
III. Summary of the Final Rule
As noted above, the final rule differs in 2 respects from the
interim rule. First, section 915.10(e) is being modified to allow any
Bank to request an extension of time beyond March 31, 2007 in which to
submit its initial list of nominees for the directorships that
currently are vacant. Second, section 915.10(a)(3) is being modified to
allow any Bank to submit up to twice as many nominees as there are
appointive directorships to be filled.
Extension of time. In considering the date by which the Banks must
submit the lists of nominees for the existing vacancies, the Finance
Board is mindful that the interim rule created an entirely new process
for the Banks and provided only 2 months and 1 week for the Banks to
submit the initial list of nominees. The Finance Board also is mindful
that a larger number of vacancies currently exist at each Bank than
will exist for any future annual submissions, which have an October 1st
deadline. The Finance Board has concluded that if any Bank believes
that it will be better able to identify and submit well-qualified
nominees if it is given additional time beyond the March 31st deadline,
then it should be able to do so. Accordingly, the final rule allows a
Bank to ask the Finance Board to extend the deadline, and authorizes
the Director of the Office of Supervision to approve such requests. The
Finance Board expects that any Bank making such a request will indicate
how much additional time it needs to identify prospective directors,
will act expeditiously, and will complete the process by the extended
deadline.
Number of nominees. In considering the comments about the number of
nominees a Bank must submit, the Finance Board is mindful that the
final rule should not have the effect of discouraging well-qualified
persons from seeking to be appointive directors of a Bank. As discussed
in section II, some commenters have asserted that the interim rule
could have a chilling effect on the willingness of potential well
qualified nominees to go through the process, and could place the Banks
at a disadvantage when competing with other financial institutions for
directors. Generally speaking, candidates for public company
directorships have a significant likelihood of being elected after they
have been nominated by the company, whereas persons nominated by the
Banks would have no more than a 50 percent chance of being appointed by
the Finance Board under the interim rule. This disparity could
discourage some well-qualified candidates from seeking appointment to
the board of a Bank, especially if they have opportunities for other
corporate directorships. In light of these comments, the Finance Board
has decided that it could reduce any potential chilling effect by
revising the final rule to allow a Bank to submit up to 2 nominees for
each directorship to be filled.
In reaching this conclusion, the Finance Board also considered
whether the revision could create any unintended consequences, such as
lessening the independence of the appointive directors. One commenter
suggested that persons who are nominated by the Bank are less likely to
act independently of the persons who nominated them. Although there may
be some such risk in a process where the board of the Bank plays a role
in selecting new directors, the Finance Board believes that any such
risk is
[[Page 15602]]
mitigated by the fact that the Finance Board retains the ultimate power
to appoint the directors to the boards of the Banks. The Finance Board
intends to evaluate carefully all nominees and will appoint an
individual only if it believes that the person will serve the best
interests of the Bank. Moreover, the practice at other corporations,
which typically use the board or a nominating committee to vet
prospective directors, suggests that the risks are not as great as
suggested by the comments. As is the case for corporate directors
generally, the directors of a Bank owe fiduciary duties to the Bank and
the Finance Board expects directors will act consistently with those
duties when submitting nominees.
The Finance Board also recognizes that allowing a Bank to submit
only 1 nomination for each directorship has the potential to delay the
appointment process if the Finance Board declines to appoint 1 or more
of the persons nominated by the Bank. The Finance Board believes that
any such delay is unlikely to cause a directorship to become vacant,
principally because the Finance Board intends to act expeditiously in
considering the nominations. Moreover, the October 1st deadline for the
annual submission of nominations is far enough in advance of the start
of a new term of office that a Bank should have sufficient time to
submit additional nominees if they are needed. With respect to the
submissions required for the currently vacant directorships, the
Finance Board believes that allowing additional time to submit the
nominations should allow a Bank to conduct a search that results in
well-qualified persons being nominated and notes that the final rule
allows a Bank to submit more than 1 nominee per directorship if it
wishes to do so.
Apart from the revisions noted above, the final rule is identical
to the interim final rule. Thus, the final rule: establishes a process
for the Banks to submit a list of well-qualified nominees for the
Finance Board to consider in filling appointive directorships; allows
the Banks discretion in deciding whether to submit 1 or 2 names for
each directorship; requires each Bank to submit a signed Finance Board
Form for each nominee; and authorizes the Finance Board to require a
Bank to submit additional nominees if the initial nominees are not
appointed.
IV. Effective Date
The Finance Board for good cause finds that the final rule should
become effective on April 2, 2007. See 5 U.S.C. 553(d)(3). It is in the
public interest to fill appointive directorships at the Banks with well
qualified individuals as soon as it is practicable to do so. The final
rule achieves this goal while providing additional flexibility to the
Banks in fulfilling their obligation to nominate well-qualified
individuals for Finance Board consideration.
V. Paperwork Reduction Act
The final rule will have no substantive effect on any collection of
information covered by the Paperwork Reduction Act of 1995. See 44
U.S.C. 3501 et seq. Therefore, the Finance Board did not submit the
proposed regulation to the Office of Management and Budget for review.
VI. Regulatory Flexibility Act
The Finance Board adopted this procedural amendment in the form of
an interim final rule and not as a proposed rule. Therefore, the
provisions of the Regulatory Flexibility Act do not apply to this final
rule. See 5 U.S.C. 601(2) and 603(a).
List of Subjects in 12 CFR Part 915
Banks, Banking, Conflict of interests, Elections, Ethical conduct,
Federal home loan banks, Financial disclosure, Reporting and
recordkeeping requirements.
0
For the reasons stated in the preamble, the Finance Board amends 12 CFR
part 915 as follows:
PART 915--BANK DIRECTOR ELIGIBILITY, APPOINTMENT, AND ELECTIONS
0
1. The authority citation for part 915 continues to read as follows:
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1427, and
1432.
0
2. Revise Sec. 915.10 to read as follows:
Sec. 915.10 Selection of appointive directors.
(a) Bank responsibilities. (1) On or before October 1st of each
year, the board of directors of each Bank shall submit to the Finance
Board a list of eligible nominees who are well-qualified to fill the
appointive directorships that will expire on December 31st of that
year, along with the original Finance Board-prescribed appointive
director application form executed by each individual on the list.
(2) If an appointive directorship becomes vacant prior to the
expiration of its term, the board of directors of the Bank shall submit
to the Finance Board a list of eligible nominees who are well-qualified
to fill that directorship, along with each individual's executed
appointive director application form, promptly after the vacancy
arises.
(3) The number of nominees on any list submitted by a Bank's board
of directors pursuant to paragraphs (a)(1) or (2) of this section shall
be at least equal to the number of appointive directorships to be
filled but shall not exceed 2 times the number of such directorships.
(b) Finance Board selection. As provided by the Act, the Finance
Board has the sole responsibility for appointing individuals to the
boards of directors of the Banks. In exercising that responsibility,
the Finance Board shall select from among the nominees on the list
submitted by the Bank pursuant to paragraph (a) of this section,
provided, however, that if the Finance Board does not fill all of the
appointive directorships from the list initially submitted by the Bank,
it may require the Bank to submit a supplemental list of nominees for
its consideration.
(c) Prospective applicants. Any individual who seeks to be
appointed to the board of directors of a Bank may submit to the Bank an
executed appointive director application form that demonstrates that
the individual both is eligible and has business, financial, housing,
community and economic development, and/or leadership experience. Any
other interested party may recommend to the Bank that it consider a
particular individual as a nominee for an appointive directorship, but
the Bank may not do so until the individual has provided the Bank with
an executed appointive director application form. The board of
directors of the Bank may consider any individual for inclusion on the
list it submits to the Finance Board provided it has determined that
the individual is eligible and well-qualified for an appointive
directorship at the Bank.
(d) Term of office. The term of office of each appointive
directorship is 3 years, except as adjusted pursuant to section 7(d) of
the Act (12 U.S.C. 1427(d)) to achieve a staggered board, and shall
commence on January 1st. In the case of a discretionary appointive
directorship that is terminated pursuant to Sec. 915.3(b)(5), the term
of office of the directorship shall end after the close of business on
December 31st of that year.
(e) Appointive directorship vacancies existing on January 1, 2007.
For appointive directorships that are vacant on January 1, 2007, the
board of directors of each Bank shall submit the information required
by paragraph (a) of this section on or before March 31, 2007, or such
other date approved by the Director of the Office of Supervision upon
the request of that Bank.
[[Page 15603]]
Dated: March 27, 2007.
By the Board of Directors of the Federal Housing Finance Board.
Ronald A. Rosenfeld,
Chairman.
[FR Doc. E7-5970 Filed 3-30-07; 8:45 am]
BILLING CODE 6725-01-P