[Federal Register: April 18, 2006 (Volume 71, Number 74)]
[Proposed Rules]
[Page 19832-19835]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18ap06-16]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 915
[No. 2006-04]
RIN 3069-AB31
Federal Home Loan Bank Director Elections
AGENCY: Federal Housing Finance Board.
ACTION: Proposed rule.
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SUMMARY: The Federal Housing Finance Board (Finance Board) is proposing
to amend its rules to assist each Federal Home Loan Bank (Bank) in
having a board of directors whose members possess the range of skills
and experience best suited to administer the affairs of the Bank. The
proposed rule is intended to enhance the corporate governance of each
Bank by more closely aligning the experience and skills of individual
directors with the expertise the Bank has identified as appropriate to
enhance the board of directors in providing overall board management of
the Bank.
DATES: The Finance Board will accept written comments on the proposed
rule on or before June 2, 2006.
Comments: Submit comments by any of the following methods: E-mail:
comments@fhfb.gov.
Fax: 202-408-2580.
Mail/Hand Delivery: Federal Housing Finance Board, 1625 Eye Street
NW, Washington DC 20006, ATTENTION: Public Comments.
Federal eRulemaking Portal: http://www.regulations.gov. Follow the
instructions for submitting comments. If you submit your comment to the
Federal eRulemaking Portal, please also send it by e-mail to the
Finance Board at comments@fhfb.gov to ensure timely receipt by the
agency. Include the following information in the subject line of your
submission: Federal Housing Finance Board. Proposed Rule: Federal Home
Loan Bank Director Elections. RIN Number 3069-AB31. Docket Number 2006-
04.
We will post all public comments we receive without change,
including any personal information you provide, such as your name and
address, on the Finance Board Web site at http://www.fhfb.gov/Default.
aspx?Page=93&Top=93.
FOR FURTHER INFORMATION CONTACT: John P. Kennedy, General Counsel,
kennedyj@fhfb.gov or 202-408-2983; or Thomas P. Jennings, Senior
Attorney Advisor, Office of General Counsel, jenningst@fhfb.gov or 202-
408-2553. You can send regular mail to the Federal Housing Finance
Board, 1625 Eye Street NW., Washington, DC 20006.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
Congress has delegated to the Finance Board broad authority to
fulfill its statutory mandates. Section 2B of the Federal Home Loan
Bank Act (Bank Act) states that the Finance Board has the power ``[t]o
supervise the Federal Home Loan Banks and to promulgate and enforce
such regulations and orders as
[[Page 19833]]
are necessary from time to time to carry out the provisions of this
chapter [i.e., Chapter 11 of Title 12, codified at 12 U.S.C. 1421-
1449].'' 12 U.S.C. 1422b(a)(1).
Historically, until the enactment of the Federal Home Loan Bank
System Modernization Act of 1999 (Modernization Act),\1\ the Bank Act
necessitated that the Finance Board be involved in the corporate
governance practices of the Banks, typically by requiring Finance Board
approval of a host of Bank practices. As a result of the enactment of
the Modernization Act, the Finance Board devolved the last vestiges of
corporate governance responsibilities, leaving those responsibilities
with the Banks and their boards of directors.\2\ Shortly thereafter,
the Finance Board adopted a new part 917 (12 CFR part 917), which sets
forth the powers and responsibilities of both the directors and senior
management of the Banks.\3\
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\1\ The Modernization Act is Title VI of the Gramm-Leach-Bliley
Act, Pub. L. 106-102, 133 Stat. 1338 (Nov. 12, 1999).
\2\ See Resolution No, 2000-09, published at 65 FR 13663 (March
14, 2000) (available electronically in the Finance Board's FOIA
Reading Room under ``Resolutions'': http://www.fhfb.gov/Default.
aspx?Page=59&ListYear= 2000&ListCategory=9#9[verbar]2000).
\3\ See Resolution No, 2000-14, published at 65 FR 25274 (May 1,
2000) available electronically in the Finance Board's FOIA Reading
Room under ``Resolutions'': http://www.fhfb.gov/Default.
aspx?Page=59&ListYear= 2000&ListCategory=9#9[verbar]2000).
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The primary mandate to the Finance Board is to ``ensure that the
Federal Home Loan Banks operate in a financially safe and sound
manner.'' 12 U.S.C. 1422a(a)(3)(A). Within this broad authority,
Congress also specifically authorized the Finance Board to ``prescribe
such rules and regulations as it may deem necessary or appropriate for
the nomination and election of directors of Federal home loan banks * *
*'' 12 U.S.C. 1427(d).
II. Issues Addressed
The Finance Board believes that the board of directors of a Bank is
one of the most important elements in maintaining the safety and
soundness of the Bank. Carrying out the duties and responsibilities of
directors, as more fully set forth in part 917, is a critical part of
the running of a safe and sound Bank. Having well qualified and active
directors is essential to enable the Bank to adopt appropriate policies
and to oversee the proper execution of the day-to-day operational
duties of management and other Bank personnel. In order to do so
effectively, members of the board of directors of a Bank need to have
the skills and experience necessary to understand the business of the
Bank. Directors who have the appropriate skills generally are less
hesitant to take an active role in adopting and overseeing the
implementation of corporate practices and procedures designed to ensure
the long-term success of a Bank. One way the Finance Board can help
ensure the safety and soundness of the Banks is to use its regulatory
authority to enable the Banks to establish a process whereby capable
and skilled persons may be nominated and elected to their boards of
directors, so that each Bank's board of directors will possess the
aggregate skills needed to provide strong oversight.
In general, the election process begins with a notice from the
Finance Board to each Bank informing the Bank of the number of elective
directorships. See 12 CFR 915.3(c). Thereafter, each Bank determines
the number of votes that each member may cast. See 12 CFR 915.5. Then
each Bank provides its members with a written notice of election and
receives nominations for elective directorships from members that are
entitled to vote. See 12 CFR 915.6. Nominees who meet the eligibility
requirements set forth in Sec. 915.7 are included on ballots prepared
for each state for which an elective directorship is to be filled, and
each Bank mails the ballots to eligible voting members within that
state. See 12 CFR 915.8. The proposed rule would allow, but not
require, more Bank involvement in the election process.
Section 915.9 sets forth certain prohibitions on actions to
influence director elections. These prohibitions, for the most part,
are carryovers from when the Federal Home Loan Bank Board regulated the
Banks, before the Modernization Act and the devolvement of corporate
governance responsibilities to the Banks. The proposed rule would
revise the prohibitions to correspond more closely with the changed
responsibilities of the Finance Board and the Banks.
The Finance Board is proposing this rule to allow the Banks to play
a more active role in the process of nominating and electing persons to
its board of directors, with the goal of having the best qualified
board of directors possible. The end result should be improved
corporate governance of all the Banks.
III. Proposed Rule Amendments
Member involvement in the election process starts when the members
receive a written notice from their Bank pursuant to Sec. 915.6. The
Finance Board proposes to add a new paragraph, Sec. 915.6(a)(3), to
allow each Bank to include with that notice a brief statement
describing the skills and experience that the Bank has identified,
pursuant to new Sec. 915.9(a), as most likely to add strength to its
board of directors. Under present Sec. 915.6, the Banks have no
specific authorization to inform the members about what it perceives to
be its needs at the board of directors level. In the absence of
specific information about the needs of its Bank, a member has little
basis on which to make a nomination which will match the needs of the
Bank.
Sending a brief statement to the members of what the Bank perceives
to be its needs at the board level should enable the members to
nominate candidates that they perceive as having qualities that match
the Bank's needs. A Bank would be allowed to send such a statement only
if, on or before the written election notice has been sent to the
members, the Bank's board of directors has made a determination,
pursuant to proposed new Sec. 915.9(a), of the needs of the Bank at
the board of directors level. Members would continue to be free to
nominate persons as they see fit. No nominee otherwise eligible for
election would be excluded from a ballot based on whether or not the
Bank perceives the nominee to have any of the skills or experience that
the Bank has included in the brief statement sent with the written
notice. The Finance Board seeks comments on whether providing such
information at the nomination stage of the election process, as opposed
to some other time, will best serve the interests of the Banks and
their members.
The Finance Board proposes to modify Sec. 915.8(a)(1) to allow
each Bank, as part of the information on each ballot about each
nominee, to describe briefly that nominee's skills and experience. The
Finance Board believes that voting members, by having a description of
the skills and experience of the nominees, will be better informed when
those members face voting decisions. At present, the Banks have no
specific authorization to include on the ballots any information about
a nominee's qualifications. Some Banks and members have expressed a
desire to have such information at the time of voting, and the Finance
Board believes that this is an appropriate means of providing such
information to the members. The Finance Board seeks comments on whether
it is appropriate to require each Bank to provide information about the
skills and experience needed by the Bank and, if so, whether some other
means or place for providing the information would be more appropriate.
[[Page 19834]]
The Finance Board also proposes to add a new Sec. 915.8(b) to
allow each Bank to include with each ballot a brief statement
describing the skills and experience that the Bank has identified
pursuant to new Sec. 915.9(a). This statement may or may not be the
same statement provided pursuant to Sec. 915.6(a)(3). The Finance
Board believes that sending a statement with the ballots will provide
valuable information to a Bank's voting members at a time when the
members are most in need of information in order to make voting
decisions. The Banks would be authorized, but not required, to send
such a statement at this time. Members would be free to consider the
information in their decision-making process, as they see fit.
The Finance Board is proposing to revise Sec. 915.9 substantially.
The Finance Board is proposing to add a new Sec. 915.9(a) to allow
each Bank, if it so chooses, to conduct an annual assessment of the
skills and experience which, if present in new directors, would enhance
the capabilities of the board of directors. If, in the assessment
process, particular skills or experiences are identified, each Bank
may, as part of its announcement of elections, notify its members of
the identified skills and experience. The Finance Board is proposing to
include skills or experience in the areas of financial management and/
or financial accounting, hedging, risk management, capital markets,
disclosures required of issuers of securities, and housing finance as
examples of what a Bank might determine to be appropriate skills or
experience to add to its board of directors. A Bank would be allowed to
identify these or other skills or experience, or it could decide not to
identify any skills or experience, as it sees fit.
The existing prohibition in Sec. 915.9(a) against taking action to
influence votes would become Sec. 915.9(c) and would be revised to
make the prohibition no longer applicable to directors, officers,
attorneys, employees, and agents of the Finance Board. Initially, the
Finance Board took an active part in the election process. Effective
December 30, 1998, with the adoption of final revisions to part 932
(now part 915), the Finance Board transferred the administration of
elections to the Banks. As a result, restrictions on actions of Finance
Board directors, officers, attorneys, employees, and agents no longer
serve the purpose that they once did.
Section 915.9(b) would be revised to make this paragraph consistent
with the other changes to Sec. 915.9. The prohibitions with respect to
incumbent Bank directors would not change substantially. Incumbent Bank
directors may act in their individual capacities to support any person
for a position as an elective director. Whether or not the Bank,
through its board of directors, has taken any of the actions authorized
by these proposed rules, an incumbent Bank director may not indicate
that he or she is representing the views of the Bank or its board of
directors. The specific prohibition on an incumbent Bank director
representing the views of the Finance Board and directors, officers,
attorneys, employees, or agents of the Finance Board or of the Bank
would be deleted, but an incumbent Bank director would be subject to
the prohibitions on director actions to influence votes, as set forth
in proposed Sec. 915.9(c), other than those actions allowed under
Sec. 915.9(a) and (b).
The Finance Board also is proposing to remove any reference to
prohibitions on a member's actions by deleting the provisions of Sec.
915.9(a)(2) from new Sec. 915.9(c). If this prohibition were to remain
in Sec. 915.9(c) as revised, its only effect would be to prevent a
member from suggesting that any Bank director, officer, attorney,
employee, or agent supports a particular individual for an elective
office. Because, under proposed Sec. 915.9(b), a Bank director could
support a particular candidate in his or her individual capacity,
prohibiting a member from suggesting that a Bank director supports a
particular candidate serves no useful purpose. Because Bank officers,
attorneys, employees, and agents are prohibited from supporting
particular individuals for elective office, the Finance Board believes
that prohibiting a member from suggesting that Bank officials support
particular individuals is unnecessary. Moreover, the Finance Board does
not want these rules to be perceived as discouraging members from
participating actively in the election process.
The collective effect of these changes should be to enable each
Bank to focus on its needs at the board of directors level and to
communicate those needs to the members that are entitled to nominate
and vote on directors. The penultimate result should be identifying
nominees whose skills and experience are more closely aligned to the
needs of the Bank. The ultimate result should be the election of
directors with the best skills and experience to manage the affairs of
the Bank.
The Finance Board seeks comments on any aspect of the proposed
rule. Specific considerations include whether the Banks should be
required to take any of the actions that are authorized but not
required by the proposed rule, and whether the Banks should be allowed
to do more in the election process than authorized by the proposed
rule.
IV. Paperwork Reduction Act
The proposed rule would have no substantive effect on any
collection of information covered by the Paperwork Reduction Act of
1995 (PRA). See 44 U.S.C. 3501 et seq. Therefore, the Finance Board has
not submitted this proposal to the Office of Management and Budget for
review.
V. Regulatory Flexibility Act
The proposed rule would apply only to the Banks, which do not come
within the meaning of ``small entities'' as defined in the Regulatory
Flexibility Act (RFA). See 5 U.S.C. 601(6). Thus, in accordance with
section 605(b) of the RFA, 5 U.S.C. 605(b), the Finance Board hereby
certifies that the proposed rule, if promulgated as a final rule, will
not have a significant economic impact on a substantial number of small
entities.
List of Subjects in 12 CFR Part 915
Banks, Banking, Conflict of interests, Elections, Federal home loan
banks, Reporting and recordkeeping requirements.
For the reasons stated in the preamble, the Finance Board proposes
to amend 12 CFR part 915 as follows:
PART 915--BANK DIRECTOR ELIGIBILITY, APPOINTMENT, AND ELECTIONS
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.
2. Amend Sec. 915.6, by redesignating paragraphs (a)(3) and (a)(4)
as paragraphs (a)(4) and (a)(5), respectively, adding a new paragraph
(a)(3), and revising redesignated paragraph (a)(4) to read as follows:
Sec. 915.6 Elective director nominations.
(a) * * *
(3) At the election of the Bank, if, on or before the date the Bank
provides the written notice, the Bank has determined, pursuant to Sec.
915.9, which skills and experience are most likely to add strength to
the board of directors, a brief statement describing such skills and
experience;
(4) An attachment indicating the name, location, and FHFB ID number
of every member in the member's voting state, and the number of votes
each such member may cast for each directorship to be filled in the
election, as
[[Page 19835]]
determined in accordance with Sec. 915.5; and
* * * * *
3. Amend Sec. 915.8, by revising paragraph (a)(1), redesignating
paragraphs (b), (c), (d), and (e) as paragraphs (c), (d), (e), and (f),
respectively, and adding a new paragraph (b) to read as follows:
Sec. 915.8 Election process.
(a) * * *
(1) An alphabetical listing of the names of each nominee for the
member's voting state, the name, location, and FHFB ID number of the
member each nominee serves, the nominee's title or position with the
member, the number of elective directorships to be filled by members in
that voting state in the election, and, at the election of the Bank, a
brief description of the nominee's skills and experience;
* * * * *
(b) Statement on skills and experience. A Bank may prepare and mail
with each ballot a brief statement describing the elective director
skills and experience the Bank has determined are most likely to add
strength to the board of directors, if the Bank has made such a
determination pursuant to Sec. 915.9.
* * * * *
4. Revise Sec. 915.9 to read as follows:
Sec. 915.9 Actions impacting 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 persons 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 persons with particular qualifications, such
as in financial management/accounting, hedging, risk management,
capital markets, securities disclosure requirements, or housing
finance, it may identify those qualifications and so inform the members
as part of the announcement of elections.
(b) Incumbent Bank directors. A Bank director acting in his or her
personal capacity may support the nomination or election of any person
for an elective directorship, provided that no Bank director purports
to represent the views of the Bank or its board of directors in doing
so.
(c) Prohibition. Except as provided in paragraphs (a) and (b) of
this section, no director, officer, attorney, employee, or agent of a
Bank may:
(1) Communicate in any manner that a director, officer, attorney,
employee, or agent of a Bank, directly or indirectly, supports the
nomination or election of a particular person for an elective
directorship; or
(2) Take any other action to influence votes for a directorship.
Dated: April 12, 2006.
By the Board of Directors of the Federal Housing Finance Board.
Ronald A. Rosenfeld,
Chairman.
[FR Doc. 06-3690 Filed 4-17-06; 8:45 am]
BILLING CODE 6725-01-P