Election of Federal Home Loan Bank Directors

FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 922, 931, 932, 933, 934, and 941

[No. 98-11]

RIN 3069-AA55

Election of Federal Home Loan Bank Directors

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 regulations on the election of Federal Home Loan Bank

(Bank) directors. The rule would devolve responsibility for determining

the eligibility of elective directors and administering the Bank

director election process from the Finance Board to the Banks. The

proposed rule is part of the Finance Board's continuing effort to

transfer management and governance responsibilities to the Banks and is

consistent with the goals of the Regulatory Reinvention Initiative of

the National Performance Review.

DATES: The Finance Board will accept comments on the proposed rule in

writing on or before June 29, 1998.

ADDRESSES: Mail comments to Elaine L. Baker, Secretary to the Board,

Federal Housing Finance Board, 1777 F Street, N.W., Washington, D.C.

20006. Comments will be available for public inspection at this

address.

FOR FURTHER INFORMATION CONTACT: Patricia L. Sweeney, Program Analyst,

Compliance Assistance Division, Office of Policy, 202/408-2872, or Roy

S. Turner, Jr., Attorney-Advisor, Office of General Counsel, 202/408-

2512, Federal Housing Finance Board, 1777 F Street, N.W., Washington,

D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

Pursuant to section 7 of the Federal Home Loan Bank Act (Act),

which sets forth the eligibility requirements and the procedures for

electing and appointing Bank directors, and regulations promulgated

thereunder, the Finance Board's predecessor, the former Federal Home

Loan Bank Board (FHLBB), determined the eligibility of all Bank

directors, administered the Bank director elections, and appointed

public interest directors. See 12 U.S.C. 1427 (1989); 12 CFR part 522

(1989). After Congress abolished the FHLBB in 1989, see Financial

Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA),

Pub.L. 101-73, sec. 401, 103 Stat. 183 (Aug. 9, 1989), the Finance

Board adopted the FHLBB regulations on Bank directors, without change.

See 54 FR 36757 (Sept. 5, 1989), codified at 12 CFR part 932. The

Finance Board subsequently amended its regulations to implement the

changes FIRREA made to the eligibility requirements for, and to apply

the conflicts of interest limitations FIRREA imposed on, Bank

directors. 55 FR 1393 (Jan. 16, 1990); 56 FR 55205 (Oct. 25, 1991); see

FIRREA, secs. 707, 710(b)(4), 103 Stat. 417, 418, codified at 12 U.S.C.

1427.

Since the enactment of FIRREA the Finance Board has determined the

eligibility of all Bank directors, has administered the election of

Bank directors, and has appointed public interest directors. As part of

the Finance Board's continuing effort to devolve management and

governance responsibilities to the Banks, the Finance Board believes it

appropriate to transfer the administration of the elections, including

the responsibility to determine the eligibility of elective directors,

to the Banks. The proposal would not affect the appointment of public

interest directors, which remains within the sole discretion of the

Finance Board.

The proposed rule would amend, redesignate, or eliminate various

provisions of part 932, and would include conforming amendments to

parts 931, 933, 934, and 941. The Finance Board also is proposing to

revise the current conflicts of interest and financial disclosure

requirements established by part 922 of its regulations for appointed

members of the Board of Directors of the Finance Board. All of the

proposed changes are consistent with the goals of the Regulatory

Reinvention Initiative of the National Performance Review. See E.O.

12861, 58 FR 48255 (Sept. 11, 1993).

II. Analysis of the Proposed Rule

The proposal would include a separate definition section for the

election regulations, the principal provisions of which are described

below.

A. Definitions--Sec. 932.1

1. ``Bona Fide Resident''-- Sec. 932.1

Both the Act and current regulation use the term ``bona fide

resident'' to identify individuals eligible to serve as a director of a

Bank. See 12 U.S.C. 1427(a); 12 CFR 932.18(a)(2) (1997). Neither the

Act nor the regulation, however, defines the term. The proposed rule

would define ``bona fide resident'' of a Bank district. The definition

would include alternative means of being considered a ``bona fide

resident'' of a Bank district.

First, an individual would be a ``bona fide resident'' if he or she

maintains a principal place of residence within the Bank's district.

The concept of a principal place of residence generally requires both

physical presence and intent to remain, or an intent to return after an

absence. An individual's principal place of residence usually is the

same as the permanent residence reported to the Internal Revenue

Service.

There have been some instances in which an officer or director of a

member located in one state maintains a principal residence in an

adjacent state, which happens to be in another Bank district. In such

cases, the individual would not be eligible to serve as Bank director

under a ``principal residence'' test. By interpretation, and on a case-

by-case basis, the Finance Board has allowed such individuals to serve

as Bank directors, provided they own or lease a residence, other than

their principal residence, in the district.

As a second means of being deemed a ``bona fide resident,'' the

proposal would codify this interpretation. The rule would deem an

individual to be a ``bona fide resident'' if he or she owns or leases

in his or her name a residence within the Bank's district, and

maintains a requisite employment nexus, i.e., if an elective director,

he or she also is a director or officer of a member located within the

district or, if an appointive director, he or she is employed within

the Bank district. Qualifying residences might include vacation homes,

or other homes used seasonally or on a part-time basis, that the

individual owns or leases in his or her name. For elective directors, a

person is eligible to serve only as a representative of the state in

which the principal place of business of his or her employer (the

member) is located, although the residence, whether principal or

otherwise, may be in any state within the district.

2. ``Docket Number''--Sec. 932.1

Various provisions of the current regulations require a Bank to

identify its members by name, city or county and state. As a matter of

practice, the Finance Board assigns a docket number to each new member,

which is used by the Finance Board and the Banks to identify that

member. The proposed rule would define ``docket number'' as the number

assigned by the Finance Board and used by the Finance Board and the

Banks to identify a particular member. The term is used in several

provisions of the proposed regulation and is

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intended to assist staff of the Banks in administering the elections by

distinguishing between members that have the same or similar names.

3. ``Member''--Sec. 932.1

Section 2(4) of the Act defines ``member'' as an institution that

has subscribed for stock in a Bank. 12 U.S.C. 1422(4). For purposes of

the election of directors, section 7(b) of the Act defines the term

``member'' as ``a member of a Federal Home Loan Bank which was a member

of such bank at the end of'' the calendar year preceding the election.

12 U.S.C. 1427(b). The proposed rule would define ``member'' as an

institution admitted to membership and owning capital stock in a Bank,

which tracks the general definition of ``member.'' To conform to the

section 7 definition of ``member,'' the proposal would include textual

references to the ``record date'' where appropriate.

4. ``Record Date''--Sec. 932.1

The proposed rule defines December 31 of the year preceding the

election as the ``record date'' for the Bank director elections.

5. ``Voting State''--Sec. 932.1

The proposed rule would define a ``voting state'' to mean the

District of Columbia, Puerto Rico, or state in the United States in

which a member's principal place of business is located as of the

record date. Puerto Rico would be designated as the voting state for

members whose principal place of business is located in the Virgin

Islands, which conforms to current practice. Hawaii would be designated

as the voting state for members whose principal place of business is

located in Guam, which conforms to current practice, as well as for

members whose principal place of business is located in American Samoa

and the Commonwealth of Northern Marina Islands, which is new.

B. Dates--Sec. 932.2

Section 932.14(f) of the current regulation provides that if a date

prescribed in the regulations falls on Saturday, Sunday or holiday, the

next business day shall be included in the time allowed. See 12 CFR

932.14(f)(1997). The proposed rule would amend this provision by

substituting ``federal holiday'' for ``holiday'' and expanding it to

include dates set by the Banks pursuant to the proposal, as well as

those specified in the regulations.

C. Director Elections--Sec. 932.3

1. Responsibilities of the Banks

Under the existing regulation, the Finance Board is solely

responsible for the conduct and administration of the director

elections. Proposed Sec. 932.3 would transfer this responsibility to

the Banks and would require them to administer and conduct an annual

election to fill those directorships, the terms of which have been

designated by the Finance Board as commencing on January 1 of the

following year. That would include existing directorships that have

been designated as continuing, plus any newly designated seats. The

disinterested members of the board of directors, or a committee of

disinterested directors, would have the responsibility for

administering the election, which would allow their oversight and

approval of the process, and would not preclude the use of staff as

well. The proposal would provide that the term of each elective

directorship shall commence on January 1 of the year immediately

following the election. Each Bank would have the discretion to

determine the dates for the various stages of the election process, so

long as the Bank completes the process in sufficient time to allow

newly elected directors to assume their seats on January 1 of the year

following the election.

2. Designation of Elective Directorships

Section 7(a) of the Act provides that the board of directors of

each Bank shall have a minimum of fourteen members: eight elective

directors and six appointive directors. See 12 U.S.C. 1427(a). Section

7(b) of the Act requires the Finance Board to designate the number of

elective directorships representing the members of each state in a Bank

district. See id. 1427(b). The Act also requires the Finance Board to

allocate the elective directorship seats among the states within the

Bank district based upon the ratio of the required Bank stock held by

members in the state to the total required Bank stock in the district,

ensuring that ``in the case of each state such number shall not be less

than one and shall be not more than six.'' See id. 1427(c).

Section 932.3(b) of the proposed rule carries forward the

requirements of sections 7(a), 7(b) and 7(c) of the Act, requiring the

Finance Board annually to designate the number of elective

directorships for each Bank district. The proposed rule would specify

the methodology by which the Finance Board would make the required

allocation of directors. The process would begin by allocating one

elective directorship to each state within a Bank district. If the

number of elective directorships so allocated is less than eight, the

proposed rule Sec. 932.3(b)(2) would require the Finance Board to

allocate the remaining directorships by using the method of equal

proportions, until the total number allocated for the district equals

eight. The method of equal proportions is the formula used by Congress

to apportion congressional seats among the fifty states. The Act does

not prescribe details of the Finance Board's allocation, and the

Finance Board is proposing to adopt this method because it believes

that the method is a reasonable means of implementing congressional

intent on how Bank director seats should be allocated.

The Act also includes a grandfather provision, which guarantees

that each state is entitled to at least the number of elective

directorships that it had on December 31, 1960. See 12 U.S.C. 1427(c).

Section 932.3(b)(3) carries this requirement forward in the proposed

rule, requiring the Finance Board to allocate any additional elective

directorships necessary to comply with the grandfather provision.

Section 7(e) of the Act authorizes the Finance Board to add an

elective seat to the board of the Bank of the district in which Puerto

Rico is located if at the time the district has fewer than five states.

See 12 U.S.C 1427(e). Section 932.9 of the current regulation allocates

one additional elective directorship to the Bank of New York,

representing the Commonwealth of Puerto Rico. Section 923.3(b)(4) of

the proposal would implement this requirement.

The Act also provides the Finance Board with the discretionary

authority to increase the number of elective directorships up to

thirteen, and the number of appointive directorships up to three-

fourths of the number of elective directorships, in any district with

five or more states. See 12 U.S.C. 1427(a). The proposal would include

this provision, and would provide that in creating any additional

appointive directorships the Finance Board may round up to the nearest

whole number.

Section 932.3(c) of the proposed rules would require the Finance

Board to notify each Bank, by May 10 of each year, of the total number

of elective directorships established for the Bank and the number of

elective directorships representing the members in each state in the

district. The proposal also would codify current practice of allowing

incumbent directors to retain their seats for the remainder of their

term in the event that the Finance Board were to reduce the number of

seats allocated to a particular state as part of the annual

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designation of seats. The proposal also would include a transition

provision, making clear that these amendments do not affect the current

terms of office of the elective directors, and precluding the Banks

from altering the commencement or termination dates of those terms.

Thus, the proposal would retain the current staggering of elective

directorship terms at each Bank.

D. Capital Stock Report--Sec. 932.4

Section 932.12 of the existing regulation requires each Bank to

submit to the Finance Board by April 15 a report detailing the number

of shares of Bank stock each of its members was required to hold at the

end of the preceding calendar year. See 12 CFR 932.12 (1997). Proposed

Sec. 932.4 would continue this requirement, but would require

submission of the report by April 10. Each Bank's report must include

the following information for its district: the number of members

within each voting state and the number of shares of capital stock

required to be held by each member as of the record date and the

aggregate total number of shares of capital stock required to be held

by all members in each voting state as of the record date. The number

of shares of stock is to be the greater of either the advances-to

capital stock requirement or the minimum capital stock requirement. If

a member has elected to purchase its minimum capital stock holding in

installments, the number of shares of capital stock the member would be

deemed to own for these purposes would be the cumulative total of

shares actually purchased as of the record date.

As is currently the practice, the Finance Board would rely upon

information from the capital stock report to designate elective

directorships among the states in each Bank district. Each Bank also

must notify each of its members of its minimum capital holdings

pursuant to Sec. 933.22(b)(1) and must certify to the Finance Board

that it has done so and that to the best of its knowledge, the

information within the capital stock report is accurate and complete.

Proposed Sec. 932.4 would permit a member to object to its required

capital holdings pursuant to Sec. 933.22(b)(1), provided it does so in

writing to the Finance Board within 15 days after the date on which it

receives that information. The Finance Board then must promptly resolve

any differences about the data, after which the Finance Board's

determination would be final.

E. Determination of Member Votes--Sec. 932.5

Section 7(b) of the Act provides that in electing directors, each

member may cast a number of votes equal to the number of shares of

capital stock in the Bank the member was required to hold as of the

record date, which may not exceed the average number of shares required

to be held by all of the members as of the record date. See 12 U.S.C.

1427. At present, the Finance Board determines the number of votes each

member may cast. Under the proposal, the Banks would assume this

responsibility.

There are a number of provisions in the current regulations

terminating voting rights on the basis of events occurring after the

record date, such as a merger, withdrawal from membership or

receivership. See 12 CFR Secs. 933.24-933.28 (1997). By keying the

existence of voting rights exclusively to the number of shares held as

of the record date, the proposal would allow the legal successor to any

such member to exercise whatever voting rights the member could have

exercised in the election. In years subsequent to such a transaction,

the successor's right to vote, if any, would be determined by its own

membership status.

F. Elective Director Nominations--Sec. 932.6

1. Election Announcement

Section 932.13 of the existing regulation requires the Finance

Board to provide a written election announcement to the members by June

15 and to allow members until July 15 to submit nominating

certificates. See 12 CFR 932.13(a), (b) (1997). Under proposed

Sec. 932.6, the Banks would provide to each member a written

announcement of the upcoming annual director election, and would be

required to do so within a reasonable time in advance of the election.

The election announcement must include: (1) the number of elective

directorships designated as representing the members in each voting

state in the Bank district; (2) the name of each Bank director, the

name and city or county and state of the member each elective director

serves as an officer or director or the organization with which each

appointive director is affiliated, if any, and the expiration date of

each director's term of office, (3) an attachment indicating the name

and city, county and state of every member in the member's voting

state, and the number of votes each such member may cast in the

election; and (4) a nominating certificate for the appropriate voting

state. If there is no election in a state, the Bank need not provide

the attachment and the nominating certificate.

2. Nominations

Consistent with section 7(b) of the Act, proposed Sec. 932.6(b)

authorizes any member eligible to vote in an election to nominate a

qualified individual to run for election for any open elective

directorship in its voting state. See U.S.C. 1427(b). In order to do

so, a member must submit to its Bank, before a deadline to be

designated by the Bank, a nominating certificate that has been duly

adopted or certified by its governing body or by an individual with

authority to act on behalf of its governing body. The certificate must

include the name of the nominee and the name, location and docket

number of the member at which the nominee serves as an officer or

director. A member may submit only one nominating certificate for each

open directorship. Unlike the current rule, members would submit

nominating certificates exclusively to their Bank; the Finance Board

would no longer receive or review the certificates.

To provide members with sufficient time to complete and submit

nominating certificates, proposed Sec. 932.6(b)(3) requires the Banks

to set a deadline for submissions to the Bank, which must be at least

30 days after the date on which the Bank mails the notice of the

election. The Bank may not consider nominating certificates received

after the deadline. To facilitate compliance reviews by Finance Board

examiners, proposed Sec. 932.6(b)(3) requires a Bank to retain all

nominating certificates it receives for at least two (2) years after

the date of election.

3. Accepting Nominations

Proposed Sec. 932.6(c) requires each Bank, upon receiving a

nomination, to notify the nominee in writing. The Bank will notify the

nominee once regardless of the number of nominations received by the

nominee. To accept a nomination, the nominee must submit an executed

Form E-1 (See Appendix A to the Preamble) to the Bank prior to a

deadline established by the Bank, which must be at least 30 days after

the date of the notice of the nomination. A nominee may decline the

nomination by advising the Bank in writing or by failing to submit the

Form E-1 before the deadline.

G. Eligibility Requirements for Elective Directors--Sec. 932.7

Proposed Sec. 932.7 would require the Banks to verify that nominees

meet statutory and regulatory eligibility

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requirements for elective directors before placing their names on the

ballots. See 12 U.S.C. 1427. Under the current rule, the Finance Board

makes the determination regarding eligibility. See 12 CFR 932.14

(1997).

The Banks must determine that each elective director-nominee is a

citizen of the United States and a bona fide resident of the Bank's

district. In addition, the nominee must be an officer or director of a

member that is located in the voting state to be represented by the

elective directorship and was a member as of the record date. The

member also must meet the minimum capital requirements of its

appropriate federal or state regulator.

The proposed rule would require information concerning state

regulatory requirements only if the member is not subject to

supervision by a federal regulator. If a member is subject to

regulation by both a state and federal regulator, i.e., state-chartered

financial institution insured by the Federal Deposit Insurance

Corporation, the individual need only submit information concerning the

federal regulator's capital requirements. The term ``appropriate

federal regulator'' has the same meaning as the term ``appropriate

Federal banking agency'' in section 2[3] of the Federal Deposit

Insurance Act, and, for federally insured credit unions, means the

National Credit Union Administration. See 12 U.S.C. 1813(q); 12 CFR

931.26 (1997). The proposed regulation would continue to define the

term ``appropriate state regulator'' to mean any state officer, agency,

supervisor or other entity that has regulatory authority over, or is

empowered to institute enforcement action against, a member. See 12 CFR

933.1(f) (1997).

Under the proposed rule, the Banks would (as the Finance Board has

done) verify a nominee's eligibility by relying on the information each

nominee provides on Form E-1. The proposed rule does not provide for

any review of an adverse decision on a particular nominee's

eligibility. The Finance Board considered establishing some such

mechanism, but has opted not to do so, principally due to the time

constraints involved and the relatively straightforward nature of the

eligibility requirements. Moreover, the procedures adopted for making

such determinations will be subject to the scrutiny of the Finance

Board's examiners. The Finance Board specifically requests comments on

the need for such a provision.

To assist the Banks in their eligibility determinations, the

proposed rule includes three provisions describing situations in which

a nominee would not be eligible to be a director. Each of these

provisions is based on a statutory prohibition. Specifically, a nominee

is not eligible to become an elective director if he or she is

currently an elective director, unless the current term of office would

expire before the commencement of the new term of office. In addition,

a nominee's prospective service must not be barred by the term limit

provisions of the Act, and a nominee may not be an incumbent appointive

director. The term limit provision makes ineligible any person who has

been elected to, and served all or part of, each of three consecutive

full terms of office as an elective director, if less than two years

have passed since the expiration of the last term. See 12 U.S.C.

1427(d)(term limit provision). Any such individual would be eligible to

run for an elective directorship that begins two years after the end of

that director's third term.

H. Election Process--Sec. 932.8

1. Ballots

Similar to the current process conducted by the Finance Board, the

proposed rule would require the Bank to prepare a ballot for each

voting state with a directorship to be filled in the election, and to

mail the ballot to all members located in that state that were members

as of the record date. An institution that becomes a member after the

record date is not eligible to vote in that year's election, and a Bank

may not provide any such institution with a ballot or allow it to vote

during that year. The ballot must include certain minimum information,

including an alphabetical listing of the names of each nominee, the

name, location and docket number of the member at which each nominee

serves, the nominee's title or position with the member, and the number

of elective directorships to be filled. The Bank must prepare and mail

the ballot promptly after verifying the eligibility of the nominees,

and must include on the ballot a statement that write-in candidates are

not permitted and a confidentiality statement that the Bank will not

disclose how the member voted, which is intended to maintain ballot

secrecy.

The rule would allow a Bank to include other relevant information

on the ballot, at its discretion, such as the number of votes that the

respective member may cast. The proposed rule permits Banks to conduct

a 30-day balloting period, at a minimum.

2. Lack of Nominees

In those instances where the number of nominations received for an

open elective directorship in any state is less than or equal to the

number of directorships to be filled in the elections, the proposed

Sec. 932.8(b) requires a Bank to declare elected any eligible nominee.

The Bank also must notify the members in the affected voting state that

the directorships have been filled without an election due to a lack of

nominees. If there is no nominee for a particular seat, the Bank shall

declare the seat vacant and the Bank's board of directors shall fill

the vacancy by majority vote, in accordance with the provision

regarding vacant Bank directorships. Any person chosen to fill a

vacancy must meet all of the eligibility requirements for that seat,

which means that it could not be filled by a director or officer of a

member located in another state, or by a person barred by the term

limits provisions from serving as an elective director.

3. Voting

The proposed rule provides that a member may cast a number of votes

equal to the amount of stock required to be held as of the record date.

The rule also would provide that a member may not pool its votes for a

single nominee, when there are two or more open elective directorships

to be filled; any nominee selected will receive only the number of

votes that the member is entitled to cast. Proposed Sec. 932.8(c) also

would prohibit a member from splitting its votes among the nominees for

a single open elective directorship.

Proposed Sec. 932.8(c) further requires a member to vote for only

one nominee for each available elective directorship. Each nominee

shall receive all of the votes the member is entitled to cast. The

member must execute the ballot by resolution of its governing body or

by an individual with authority to act on behalf of its governing body,

and deliver it to the Bank before the closing date established by the

Bank. The closing date must be at least 30 days after the ballots are

mailed to the members. A member may not change a ballot after it has

been delivered to the Bank, and any ballots not cast in accordance with

these requirements will be void.

4. Counting Ballots

Proposed Sec. 936.8(d) provides that a Bank may not open any ballot

until after the closing date and may not include any ballot delivered

after the closing date. Promptly after the polls close, each Bank must

tabulate the votes cast in accordance with the regulatory requirements

and declare elected the nominee who received the highest number of

votes. If more than one elective directorship is to be filled, the

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Bank must declare elected the nominee who received the next highest

number of votes and so on until all open elective directorships are

filled. In the event of a tie for the last available seat, the proposed

rule requires the board of directors of the Bank, by majority vote, to

declare elected one of the nominees for whom the number of votes cast

was tied. Proposed Sec. 932.8(d)(3) requires the Bank to retain all

ballots for at least two (2) years after the date of the election, and

bars it from disclosing the way in which a particular member voted.

5. Report of Election

Promptly following the election, proposed Sec. 932.8(e) requires

each Bank to provide written notice of the election results to the

Finance Board, all members in its district, and each nominee. The

report of the election must include: (1) the name of the newly elected

director, the name and location of the member at which he or she serves

and his or her title or position at the member; (2) the voting state

the newly elected director represents; (3) the expiration date of the

new director's term of office; (4) the number of members voting in the

election and the number of votes actually cast, each reported by voting

state; and (5) the number of votes cast for each nominee.

I. Prohibition on Actions to Influence Director Elections--Sec. 932.9

1. Prohibition

Section 932.9 of the proposed rule revises and restates the

coverage of the prohibition on actions to influence the election of

Bank directors contained in Sec. 931.15 of the current rule. See 12 CFR

931.15 (1997). Proposed Sec. 932.5(a)(1) would prohibit any director,

officer, attorney, employee, or agent of the Finance Board or of a Bank

from directly or indirectly communicating, in any form, support for the

nomination or election of a particular individual for an elective

directorship, or from taking any other action to influence the votes

for the directorship. Proposed Sec. 932.9 would extend to members the

prohibition on communications indicating that any official of the

Finance Board or of a Bank supports a particular candidate, but members

would not be subject to the ``take any other action'' element of the

prohibition. In effect, the provision would allow members to express

opinions about director nominees so long as they do not suggest that

the Finance Board or the Bank endorses a particular candidate.

2. Exception for Incumbent Bank Directors

Proposed Sec. 932.9(b) would provide an exception from the

prohibition on actions to influence the election. The exception would

permit an incumbent Bank director acting in his or her personal

capacity to support the nomination or election of any individual,

provided that the director does not purport to represent the views of

the Bank, the Finance Board, or any director, officer, attorney,

employee or agent of the Bank or of the Finance Board. The use of the

word ``any'' is intended to allow a director to promote his or her own

candidacy, as well as that of other persons. The reference to

``personal capacity'' is intended to preclude the use of a director's

official title, position, or authority associated with the position of

Bank director, such as through use of Bank stationery, to endorse a

candidate.

J. Selection of Appointive Directors--Sec. 932.10

1. Selection

Consistent with section 7(a) of the Act, proposed Sec. 932.10 would

provide that the Finance Board has sole discretion to select all

appointive directors. See 12 U.S.C. 1427(a). For ease of administration

and to ensure uniform treatment and rigorous review, the Finance Board

will continue to rely upon Form A-1 (See Appendix A to the Preamble),

the Appointive Director Eligibility Certification Form, to elicit the

information it requires to determine whether prospective and incumbent

appointive directors meet all of the statutory eligibility

requirements. In order to reduce the reporting burden, the Finance

Board has revised Form A-1 and is proposing to eliminate Form A-2.

2. Term of Office

Proposed Sec. 932.10 designates January 1 as the commencement date

for appointive directors' terms of office.

K. Conflicts of Interest Policy for Bank Directors--Sec. 932.11

1. Adoption of Conflicts of Interest Policy

To prevent conflicts of interest that may affect a Bank director in

the performance of his or her official duties, the proposed rule

includes a conflicts of interest provision that would replace the

financial disclosure requirements and the prohibitions on service,

financial interests, financial relationships, and gifts in the current

regulation. See 12 CFR 932.18(b)-(d), 932.21(b)-(c) (1997). The

proposal would require the board of directors of each Bank to adopt a

written conflicts of interest policy, and would specify its minimum

contents. The Finance Board intends the proposed provisions, which are

somewhat more general in nature and afford more latitude to the Banks,

to more closely parallel the requirements of general corporate

practices.

Under proposed Sec. 932.11(a), the conflicts of interest policy

each Bank adopts, at a minimum, must:

(1) Require the directors to administer the affairs of the Bank

fairly and impartially and without discrimination in favor of or

against any member or nonmember borrower, See 12 U.S.C. 1427(j);

(2) Prohibit the use of a director's official position for personal

gain;

(3) Require directors to disclose actual or apparent conflicts of

interest, and establish procedures for addressing such conflicts;

(4) Provide internal controls to ensure that reports are filed and

the conflicts are disclosed and resolved in accordance with the

conflicts of interest requirements; and

(5) Establish procedures to monitor compliance with the conflicts

of interest policy.

2. Disclosure and Recusal

Proposed Sec. 932.11(b) requires a director to inform promptly the

board of directors of any and all situations where the director or any

immediate family member has a financial interest in a matter before the

board of directors. This disclosure also applies to any financial

interest the director may have in any organization or any individual

doing business with the Bank, excluding any interest relating to the

member at which the director serves. The proposed rule also requires

each director to refrain from participating in deliberations,

determinations or voting concerning any matter, that directly or

indirectly affects the financial or other personal interests of the

director or a member of his or her immediate family, or that would

result in a detriment to the Bank or unfair advantage to the Bank or

its members. For example, this prohibition would preclude a director

from serving as a consultant to his or her Bank. All directors also are

required to provide any additional information required by the board or

its designee to consider and resolve any conflicts of interest.

The proposed rule also would prohibit directors from disclosing or

using any confidential information the director acquires in the course

of official duties, to obtain a financial benefit for

[[Page 26537]]

themselves, their immediate family, or their member.

3. Gifts

Section 932.11(c) of the proposed regulation would prohibit a

director or immediate family member from accepting any substantial gift

that the recipient has reason to believe is given in order to influence

a director's actions, or where acceptance of the gift could have the

appearance of influencing the director's performance of his or her

official duties. For purposes of this provision, Sec. 932.11(e) defines

the term ``substantial gift'' to mean gifts of more than token value;

(ii) entertainment or hospitality the cost of which is in excess of

what considered reasonable, customary, and accepted business practice;

(iii) any other items or services for which a director pays less than

market value.

4. Compensation

Section 931.11(d) of the proposed regulation would prohibit a

director from accepting compensation for services performed for the

Bank from any source other than the Bank for which the services are

performed.

5. Definitions

Proposed Sec. 932 defines terms that are used in the conflicts of

interest section of the regulation.

Section 932.11(e)(1) of the proposed rule defines ``immediate

family member'' to mean a Bank director's parent, sibling, spouse,

child, or dependent or any other relative sharing the same residence as

the director.

Section 932.11(e)(2) defines the term ``financial interest'' to

mean a direct or indirect interest in any activity, transaction,

property, or relationship that involves receiving or providing

something of monetary value, and includes, but is not limited to: (i)

Any contractual right to the payment of money, whether contingent or

fixed; (ii) ownership or control of 10 percent or more of any class of

equity security, or any security, including subordinated debt; (iii)

employment in a policy making position; or (iv) service as an officer,

director, partner, or as a trustee or in a similar fiduciary capacity.

L. Reporting Requirements for Bank Directors--Sec. 932.12

1. Annual Report

Under Secs. 932.18(f) and 932.21(g) of the current rules, every

appointive and elective director must annually submit to his or her

Bank either an executed form A-1 (appointive directors) or E-1

(elective directors). The Finance Board believes that the current

annual reporting requirements may be unnecessarily burdensome and

duplicative when there have been no changes since the director last

submitted such information. Therefore, under Sec. 932.12(a) of the

proposed rule, if there have been no changes since a director last

submitted the requested information, a director need only annually

submit a certification stating that no changes have occurred. The

director must make this certification by signing section A of the

appropriate parts of Form E-1, for elective directors, or A-1, for

appointive directors. If changes have occurred, proposed Sec. 932.12(a)

would require the director to complete the appropriate parts of either

Form E-1 or A-1. Under the proposed rule, both elective and appointive

directors would submit their annual reports to their Bank, but the

Banks would be required to forward a copy of the Form A-1 to the

Finance Board.

2. Report of Noncompliance

Proposed Sec. 932.12(b) carries forward the requirements of the

existing regulation that appointive and elective directors who know or

have reason to believe at any time they no longer meet the statutory or

regulatory eligibility requirements, must report the facts causing the

loss of eligibility in writing within 30 days of first discovering

those facts. See 12 CFR 932.18(f); 12 CFR 932.21(g)(2)(1997). Under the

current regulation, such reports are filed only with the Finance Board;

the proposal would require all directors to notify the Bank, but

appointive directors also would be required to forward a copy to the

Finance Board.

M. Ineligible Bank Directors--Sec. 932.13

Consistent with section 7(f) of the Act, Sec. 932.13 of the

proposed rule provides that a directorship (whether elective or

appointive) will immediately become vacant upon the determination by

the Finance Board or the Bank (for elective directors) or by the

Finance Board (for appointive directors) that the director no longer

meets any of the statutory or regulatory eligibility requirements, or

has failed to comply with the reporting requirements under proposed

Sec. 932.12. See 12 U.S.C. 1427(f). As is the case under the existing

regulation, an elective director who has been determined to be

ineligible or to have failed to comply with the reporting requirements

may not continue to act as a director. See 12 U.S.C. 1427(f)(3); 12 CFR

932.21(f) (1997). Also, consistent with the existing regulation an

appointive director who has been determined to be ineligible or who has

failed to comply with the reporting requirements may continue to serve

as a director until a successor assumes the appointive directorship or

the term of office expires, whichever occurs first. See 12 U.S.C.

1427(f)(2); 12 CFR 932.18(e)(1). The Finance Board, in its sole

discretion, would retain the authority to grant an appointive director

a period of time, not longer than ninety (90) days, to come into

compliance with the eligibility or reporting requirements.

N. Vacant Bank Directorships--Sec. 932.14

1. Vacant Elective Directorships

Proposed Sec. 932.14 implements the provisions of section 7(f) of

the Act that concern vacant elective directorships. See 12 U.S.C.

1427(f)(1), (3). Under the proposed rule, as soon as practicable after

a vacancy occurs, a Bank must fill the unexpired term of office of a

vacant elective directorship by a majority vote of the remaining

directors, and may do so regardless of whether the remaining directors

constitute a quorum of the board. A person filling a vacancy must

satisfy all of the statutory and regulatory eligibility requirements

for elective directors, which the Bank must verify before allowing the

person to assume the office. Promptly after verifying the individual's

eligibility, the Bank must provide a written notice to the Finance

Board and each of its members that includes the name of the new

elective director, the name and location of the member for which the

new director serves, the new director's title or position with the

member, the voting state the new director represents, and the

expiration date of the new director's term of office.

2. Vacant Appointive Directorships

Proposed Sec. 932.14(b) implements the provisions of section 7(f)

of the Act that concern vacant appointive directorships. See 12 U.S.C.

1427(f)(1), (2). Under the proposed rule, as soon as practicable after

a vacancy occurs, the Finance Board must fill the unexpired term of

office of a vacant appointive directorship in the same manner it fills

open appointive directorships. Promptly after filling a vacant

appointive directorship, the Finance Board must provide a written

notice to the appropriate Bank that includes the name of the new

appointive director, the name and location of the organization with

which the new director is affiliated, if any, the new director's title

or position with such organization, and the expiration date of the new

director's term of office. The Bank, in turn, must promptly provide

this information to each of the members within its district.

[[Page 26538]]

O. Minimum Number of Elective Directorships--Sec. 932.15

Proposed Sec. 932.15 redesignates the list of grandfathered

directorships and revises it to identify only those states that were

entitled to more than one elective directorship on December 31, 1960.

The substance of the grandfather provision for the remaining states is

preserved through the proposed designation provision, which would

allocate a minimum of one seat to each state.

P. Technical Changes to Part 932

Additional changes to provisions of part 932 that concern Bank

directors are intended to eliminate obsolete references and reorganize

provisions that appear in the current regulation. Accordingly, the

Finance Board is proposing to redesignate the following provisions of

Part 932 without change: Sec. 932.26, concerning the location of Bank

board of directors and committee meetings, redesignated to Sec. 932.16

of subpart B; Sec. 932.27, concerning the compensation and expenses of

Bank directors, to Sec. 932.17 of subpart B; Sec. 932.40, concerning

selection by the Bank of officers and employees, to Sec. 932.18 of

subpart C; and Sec. 932.41, concerning compensation of Bank officers

and employees, to Sec. 932.19 of subpart C. The Finance Board is

proposing to eliminate provisions of part 932 that would be rendered

obsolete by the proposed changes. See 12 CFR 932.23, 932.28-29, 932.50-

51, 932.60-62.

Q. Part 922

The Finance Board has identified the financial and service

prohibitions and reporting requirements applicable to the four Finance

Board directors appointed by the President, by and with the advice of

the Senate (appointed Finance Board directors) as unnecessarily

burdensome or duplicative. See 12 U.S.C. 1422a(b)(1)(B); 12 CFR part

922. Accordingly, the Finance Board proposes to eliminate part 922 of

its regulations. Repeal of part 922 is consistent with the goal of the

Regulatory Reinvention Initiative of the National Performance Review to

reduce the total number of regulations of executive agencies.

Section 2A(b)(1)(B) of the Act requires appointed Finance Board

directors to be citizens of the United States. See 12 U.S.C.

1422a(b)(1)(B). Because an individual appointed Finance Board director

must satisfy all statutory conditions, Sec. 922.2, which essentially

reiterates the statutory requirements is unnecessary.

Section 2A(b)(2)(C) imposes conflicts of interest limitations on

appointed Finance Board directors, including a prohibition on serving

as a director or officer of any Bank or any member of any Bank, or

holding shares of, or any other financial interest in, any member of

any Bank. See 12 U.S.C. 1422a(b)(2)(C). Under the Ethics in Government

Act of 1978, as amended, 5 U.S.C. App. 101 et seq., and the

implementing regulations promulgated by the Office of Government Ethics

(OGE), 5 CFR parts 2635 and 2636, appointed Finance Board directors are

subject to conflicts of interest limitations that are more exacting

than, and encompass the prohibitions imposed by, section 2A of the Act.

OGE regulations also require appointed Finance Board directors to

disclose as a part of the Senate confirmation process and annually

thereafter in writing to the Finance Board's designated agency ethics

official and OGE, detailed information regarding financial interests

that may pose conflicts of interest. See 5 U.S.C. App. 101(c); 5 CFR

2634.201, 2634.202 (1997). Therefore, the conflicts of interest

provisions contained in Secs. 922.3 through 922.5, essentially

duplicate existing reporting requirements, and thus are unnecessary.

R. Parts 931, 933, 934, and 941

The Finance Board is proposing to make conforming changes to parts

931, 933, 934, and 941 of its regulations. See 12 CFR parts 931, 933,

934, and 941. The Finance Board is proposing to eliminate definitions

of terms that appear currently in part 932 but would no longer be used

under the proposal. See id. Secs. 931.13-40.

Section 932.3 of the current rule concerns Bank dividends which the

Finance Board is proposing to redesignate without change to part 934 of

the Finance Board's regulations, which concerns the operations of the

Banks. See id. part 934.

Part 933 of the Finance Board's regulations concern membership in

the Banks. See id. part 933. The proposed changes to part 932 would

conflict with certain provisions of the membership rule that concern

voting rights. Accordingly, the Finance Board is proposing to eliminate

all references to voting rights that appear in Sec. 933.18 and

Secs. 933.24 through 933.28.

III. Regulatory Flexibility Act

The proposed rule implements statutory requirements binding on all

Banks, all Bank members, and all prospective and incumbent Bank

directors. The Finance Board is not at liberty to make adjustments in

those requirements to accommodate small entities. The Finance Board has

not imposed any additional regulatory requirements that will have a

disproportionate impact on small entities. In addition, in an effort to

reduce the reporting burden on prospective and incumbent Bank

directors, the Finance Board has streamlined Form E-1, the Elective

Director Eligibility Certification Form, and Form A-1, the Appointive

Director Eligibility Certification Form, eliminated Forms E-2 and A-2,

and will allow individuals to certify that no changes have occurred

since they last submitted required information rather than completing

anew the entire form. Thus, in accordance with the provisions of the

Regulatory Flexibility Act, the Finance Board hereby certifies that

this proposed rule, if promulgated as a final rule, will not have a

significant economic impact on a substantial number of small entities.

5 U.S.C. 605(b).

IV. Paperwork Reduction Act

The Finance Board has submitted to the Office of Management and

Budget (OMB) an analysis of the collection of information contained in

Forms E-1 and A-1 and the proposed rule, described more fully in part

II of the Supplementary Information. The Finance Board will use the

information collection to determine whether prospective and incumbent

appointive directors satisfy the statutory and regulatory eligibility

and reporting requirements. Only individuals meeting these requirements

may serve as appointive Bank directors. See 12 U.S.C. 1427(a), (f)(2).

The Banks and, where appropriate, the Finance Board, will use the

information collection to determine whether prospective and incumbent

elective directors satisfy the statutory and regulatory eligibility and

reporting requirements. Only individuals meeting these requirements may

serve as elective Bank directors. See id. 1427(a), (b), (f)(3).

Responses are required to obtain or retain a benefit. See id. 1427. The

Finance Board and Banks will maintain the confidentiality of

information obtained from respondents pursuant to the collection of

information as required by applicable statute, regulation, and agency

policy. Books or records relating to this collection of information

must be retained as provided in the regulation.

Likely respondents and/or recordkeepers will be the Banks, Bank

members, and prospective and incumbent Bank directors. Potential

respondents are not required to respond to the collection of

information unless the regulation collecting the information

[[Page 26539]]

displays a currently valid control number assigned by the OMB. See 44

U.S.C. 3512(a).

The estimated annual reporting and recordkeeping hour burden is:

a. Number of respondents.................................. 3,442

b. Total annual responses................................. 3,442

Percentage of these responses collected electronically 0

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

c. Total annual hours requested........................... 1,172

d. Current OMB inventory.................................. 376

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

e. Difference............................................. 796

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

The estimated annual reporting and recordkeeping cost burden is:

a. Total annualized capital/startup costs................. $180,000.00

b. Total annual costs (O&M)............................... 24,000.00

c. Total annualized cost requested........................ 0

d. Current OMB inventory.................................. 0

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

e. Difference............................................. $204,000.00

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

Comments concerning the accuracy of the burden estimates and

suggestions for reducing the burden may be submitted to the Finance

Board in writing at the address listed above.

The Finance Board has submitted the collection of information to

OMB for review in accordance with section 3507(d) of the Paperwork

Reduction Act of 1995, codified at 44 U.S.C. 3507(d). Comments

regarding the proposed collection of information may be submitted in

writing to the Office of Information and Regulatory Affairs of the

Office of Management and Budget, Attention: Desk Officer for Federal

Housing Finance Board, Washington, D.C. 20503 by June 29, 1998.

List of Subjects

12 CFR Part 922

Conflict of interests.

12 CFR Part 931

Banks, banking, Federal home loan banks.

12 CFR Part 932

Banks, banking, Conflict of interests, Elections, Ethical conduct,

Federal home loan banks, Financial disclosure, Reporting and

recordkeeping requirements.

12 CFR Part 933

Credit, Federal home loan banks, Reporting and recordkeeping

requirements.

12 CFR Part 934

Federal home loan banks, Securities, Surety bonds.

12 CFR Part 941

Federal home loan banks, Organization and functions (Government

agencies).

Accordingly, the Federal Housing Finance Board hereby proposes to

amend chapter IX, title 12, parts 922, 931, 932, 933, 934, and 941 of

the Code of Federal Regulations as follows:

PART 922--[REMOVED]

1. Under the authority in 12 U.S.C. 1422a and 1422b, remove part

922.

PART 931--DEFINITIONS

1. The authority citation for part 931 continues to read as

follows:

Authority: 12 U.S.C. 1422a and 1422b.

Secs. 931.13 through 931.40 [Removed]

2. Remove Secs. 931.13 through 931.40.

Secs. 931.11 and 931.12 [Redesignated as Secs. 931.5 and 931.6]

3. Redesignate Secs. 931.11 and 931.12 as Secs. 931.5 and 931.6,

respectively.

PART 934--OPERATIONS OF THE BANKS

1. The authority citation for part 934 continues to read as

follows:

Authority: 12 U.S.C. 1422a, 1422b, 1431(g), 1432(a), and 1442.

Sec. 932.3 [Redesignated as Sec. 934.17]

2. Redesignate Sec. 932.3 as Sec. 934.17.

PART 932--DIRECTORS, OFFICERS, AND EMPLOYEES OF THE BANKS

1. Revise the heading of part 932 to read as set forth above.

2. Revise the authority citation for part 932 to read as follows:

Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, and 1427; 42

U.S.C. 8101 et seq.

3. Revise the table of contents of part 932 to read as follows:

Subpart A--Definitions

Sec.

932.1 Definitions.

932.2 Dates.

Subpart B--Bank Directors

932.3 Director Elections.

932.4 Capital Stock Report.

932.5 Determinations of member votes.

932.6 Elective director nominations.

932.7 Eligibility requirements for elective directors.

932.8 Elections process.

932.9 Prohibition on actions to influence director elections.

932.10 Selection of appointive directors.

932.11 Conflicts of interest policy for Bank directors.

932.12 Reporting requirements for Bank directors.

932.13 Ineligible Bank directors.

932.14 Vacant Bank directorships.

932.15 Minimum number of elective directorships.

932.16 Site of board of directors and committee meetings.

932.17 Compensation and expenses of Bank directors.

Subpart C--Selection of Bank Officers and Employees.

932.18 Selection of Bank officer and employees.

932.19 Compensation of Bank officers and employees.

4. Designate Secs. 932.1 and 932.2 as subpart A and add a subpart

heading to read as follows:

Subpart A--Definitions

5. Revise Sec. 932.1 to read as follows:

Sec. 932.1 Definitions.

For purposes of this part:

Act means the Federal Home Loan Act, as amended (12 U.S.C. 1421 et

seq.).

Bank or Banks means a Federal Home Loan Bank or the Federal Home

Loan Banks.

Bona fide resident of a Bank district means an individual who:

(1) Maintains a principal residence within the Bank district; or

(2) Owns or leases in his or her own name a residence within the

Bank district and, if serving as an elective director, is an officer or

director of a member located in a voting state within the Bank

district; or

(3) If serving as an appointive director, is employed within a

voting state within the Bank district.

Docket Number means the number assigned to each member by the

Finance Board and used by the Finance Board and the Banks to identify a

particular member.

Finance Board means the agency established as the Federal Housing

Finance Board.

Member means an institution admitted to membership and owning

capital stock in a Bank.

Record date means December 31 of the calendar year immediately

preceding the election year.

Voting state means the District of Columbia, Puerto Rico, or the

state of the United States in which a member's principal place of

business, as determined in accordance with part 933 of this chapter, is

located as of the record date. The voting state of a member with a

principal place of business located in the U.S. Virgin Islands as of

the record date shall be Puerto Rico, and the voting state of a member

with a principal place of business located in American Samoa,

[[Page 26540]]

Guam, or the Commonwealth of the Northern Mariana Islands as of the

record date shall be Hawaii.

6. Add Sec. 932.2 to subpart A to read as follows:

Sec. 932.2 Dates.

If any date specified in this part, or specified by a Bank pursuant

to this part, falls on a Saturday, Sunday, or federal holiday, the

relevant time period shall be deemed to include the next business day.

7. Designate Secs. 932.3 through 932.17 as subpart B and add a

subpart heading to read as follows:

Subpart B--Bank Directors

8. Add Sec. 932.3 to subpart B to read as follows:

Sec. 932.3 Director elections.

(a) Responsibilities of the Banks. Each Bank annually shall conduct

an election the purpose of which is to fill all elective directorships

designated by the Finance Board as commencing on January 1 of the

calendar year immediately following the year of the election. Subject

to the provisions of the Act and in accordance with the requirements of

this part, the disinterested members of the board of directors of each

Bank, or a committee of disinterested directors, shall administer and

conduct the annual election of directors. The term of office of each

elective directorship shall be two years and shall commence on January

1 of the calendar year immediately following the year in which the

election is held. Each Bank shall complete the election in sufficient

time to allow newly elected directors to assume their seats on January

1 of the year immediately following the election.

(b) Designation of elective directorships. The Finance Board

annually shall establish the number of elective directorships for each

Bank, which are to be allocated as follows:

(1) One elective directorship shall be allocated to each state

within the Bank district;

(2) If the total number of elective directorships allocated

pursuant to paragraph (b)(1) of this section is less than eight, the

Finance Board shall allocate additional elective directorships among

the states, using the method of equal proportions, until the total

allocated for the Bank equals eight;

(3) If the number of elective directorships allocated to any state

pursuant to paragraphs (b)(1) and (2) of this section is less than the

number allocated to that state on December 31, 1960, as specified in

Sec. 932.15, the Finance Board shall allocate such additional elective

directorships to that state until the total allocated equals the number

allocated to the Bank on December 31, 1960;

(4) Pursuant to section 7(e) of the Act, the Federal Home Loan Bank

of New York is hereby allocated one additional elective directorship,

which is designated as representing the members in the Commonwealth of

Puerto Rico;

(5) Pursuant to section 7(a) of the Act, in any Bank district that

includes five or more states, the Finance Board may increase the number

of elective directorships up to thirteen, and the number of appointive

directorships up to three-fourths of the number of elective

directorships. In determining the number of appointive directorships,

the Finance Board may round up to the nearest whole number.

(c) Notification. On or before May 10 of each year, the Finance

Board shall notify each Bank in writing of the total number of elective

directorships established for the Bank and the number of elective

directorships designated as representing the members in each voting

state in the Bank district. If the Finance Board's annual designation

of elective directorships for a particular state would result in a

decrease in the number of seats allocated to that state for the

following year, the decrease shall not require any incumbent director

to surrender his or her directorship prior to the expiration of the

full term of office.

(d) Transition. The term of office of each elective directorship

existing on the effective date of this section shall continue to its

scheduled expiration date, and the Banks may not thereafter alter the

commencement or expiration date for any elective directorship in

conducting the annual election of directors.

9. Add Sec. 932.4 to subpart B to read as follows:

Sec. 932.4 Capital Stock Report.

(a) On or before April 10 of each year, each Bank shall submit to

the Finance Board, for its use in designating the elective

directorships, and to each member a capital stock report that

indicates, as of the record date, the number of members in each voting

state in the Bank's district, and the number of shares of capital stock

required to be held by each member (identified by docket number), and

the aggregate total number of shares of capital stock required to be

held by all members in each voting state in the Bank's district. The

Bank shall certify to the Finance Board 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 holdings pursuant to Sec. 933.22(b)(1) of this chapter.

A member may object to its required capital holdings determined under

Sec. 933.22(b)(1) of this chapter by notifying the Finance Board and

its Bank in writing within 15 days after the date on which the member

receives that information. The Finance Board shall promptly resolve any

differences, which determination by the Finance Board shall be final.

(b) A Bank shall determine the number of shares of capital stock

each member is required to hold as of the record date in the following

manner:

(1) The number of shares of capital stock shall be equal to the

greater of the advances-to-capital stock requirement under

Sec. 935.15(a) of this chapter, or the minimum capital stock

requirement under Sec. 933.20(a) of this chapter.

(2) If a member has elected to purchase its minimum required

capital stock in installments under Sec. 933.20(b)(2) of this chapter,

the number of shares of capital stock required to be held as of the

record date shall be the cumulative total of shares of capital stock

actually purchased as of the record date.

10. Add Sec. 932.5 to subpart B to read as follows:

Sec. 932.5 Determination of member votes.

(a) Authority. The Bank shall determine, in accordance with this

section, the number of votes each member of the Bank may cast in the

election of directors.

(b) Determination. The number of votes a member may cast for any

elective director nominee shall be the lesser of the number of shares

of capital stock the member was required to hold as of the record date,

as determined in accordance with Sec. 932.4(b), or the average number

of shares of capital stock required to be held by all of the members in

its voting state as of the record date.

11. Add Sec. 932.6 to subpart B read as follows:

Sec. 932.6 Elective director nominations.

(a) Election announcement. Within a reasonable time in advance of

an election, a Bank shall provide to each member in its district a

written notice of the election that includes:

(1) The number of elective directorships designated as representing

the members in each voting state in the Bank district;

(2) The name of each incumbent Bank director, the name and location

of the member at which each elective director

[[Page 26541]]

serves, and the name and location of the organization with which each

appointive director is affiliated, if any, and the expiration date of

each Bank director's term of office;

(3) An attachment indicating the name, location, and docket number

of every member in the member's voting state, and the number of votes

each such member may cast in the election, as determined in accordance

with Sec. 932.5(b); and

(4) A nominating certificate.

(b) Nominations. (1) Any member that is entitled to vote in the

election may nominate an eligible individual to fill each available

elective directorship for its voting state by submitting to its Bank,

prior to a deadline to be established by the Bank, a nominating

certificate duly adopted by the member's governing body or by an

individual authorized to act on behalf of the member's governing body.

(2) The nominating certificate shall include the name of the

nominee and the name, location, and docket number of the member at

which the nominee serves as an officer or director.

(3) The Bank shall establish a deadline for submitting nominating

certificates, which shall be no earlier than 30 calendar days after the

date on which the Bank mails the notice required by paragraph (a) of

this section, and the Bank shall not accept certificates received after

that deadline. The Bank shall retain all nominating certificates for at

least two years after the date of the election.

(c) Accepting nominations. A Bank shall notify in writing any

person nominated for an elective directorship promptly upon receipt of

the nominating certificate. A person may accept the nomination only by

submitting an executed Form E-1 to the Bank prior to the deadline

established by the Bank. (Form E-1 is available pursuant to Sec. 900.51

of this chapter). A Bank shall allow each nominee at least 30 calendar

days after the date of the notice of nomination within which to submit

the executed form. A nominee may decline the nomination by so advising

the Bank in writing, or by failing to submit the Form E-1 prior to the

deadline. Each Bank shall retain all information received under this

paragraph for at least two years after the date of the election.

12. Add Sec. 932.7 to subpart B read as follows:

Sec. 932.7 Eligibility requirements for elective directors.

(a) Eligibility verification. A Bank shall verify that each nominee

meets all of the eligibility requirements for elective directors set

forth in the Act and this part before placing that nominee on the

ballot prepared by the Bank under Sec. 932.8(a).

(b) Eligibility requirements. Each elective director, and each

nominee, shall be:

(1) A citizen of the United States;

(2) A bona fide resident of the Bank district; and

(3) An officer or director of a member that is located in the

voting state to be represented by the elective directorship, was a

member of the Bank as of the record date, and meets all minimum capital

requirements established by its appropriate federal regulator or

appropriate state regulator. For purposes of this paragraph (b)(3), the

term appropriate federal regulator has the same meaning as the term

``appropriate Federal banking agency'' in section 2[3] of the Federal

Deposit Insurance Act (12 U.S.C. 1813(q)), and, for federally insured

credit unions, shall mean the National Credit Union Administration, and

the term appropriate state regulator means any state officer, agency,

supervisor, or other entity that has regulatory authority over, or is

empowered to institute enforcement action against, a member.

(c) Restrictions. A nominee is not eligible if he or she:

(1) Is an incumbent elective director, unless:

(i) The incumbent director's term of office would expire before the

new term of office would begin; and

(ii) The new term of office would not be barred by the term limit

provision of section 7(d) of the Act.

(2) Is a former elective director whose service would be barred by

the term limit provision of section 7(d) of the Act.

(3) Is an incumbent appointive director.

13. Revise Sec. 932.8 to read as follows:

Sec. 932.8 Election process.

(a) Ballots. Promptly after verifying the eligibility of all

nominees in accordance with Sec. 932.7(a), a Bank shall prepare a

ballot for each voting state for which an elective directorship is to

be filled and shall mail the ballot to all members within that state

that were members as of the record date. A ballot shall include at

least the following provisions:

(1) An alphabetical listing of the names of each nominee for the

member's voting state, the name, location, and docket number of the

member at which each nominee serves, the nominee's title or position

with the member, and the number of elective directorships to be filled

by members in that voting state in the election;

(2) A statement that write-in candidates are not permitted; and

(3) A confidentiality statement prohibiting the Bank from

disclosing how a member voted.

(b) Lack of nominees. If, for any voting state, the number of

nominees is equal to or less than the number of elective directorships

to be filled in the election, the Bank shall not prepare or distribute

a ballot, and shall declare elected any eligible nominee, declare

vacant any elective directorship that lacks an eligible nominee, and

notify the members in the affected voting state in writing that the

directorships have been filled without an election due to a lack of

nominees. If necessary, as soon thereafter as practicable, the board of

directors shall fill, by a majority vote, any elective directorship

that has been declared vacant for a lack of a nominee, in accordance

with Sec. 932.14(a).

(c) Voting. For each directorship to be filled, a member may cast

the number of votes determined by the Bank pursuant to Sec. 932.5. A

member may not split its votes among multiple nominees for a single

directorship, nor, where there are multiple directorships to be filled

for a voting state, may it cumulatively vote for a single nominee. To

vote, a member shall:

(1) Mark on the ballot the name of not more than one of the

nominees for each elective directorship to be filled in the member's

voting state. Each nominee so selected shall receive all of the votes

that the member is eligible to cast.

(2) Execute the ballot by resolution of the member's governing

body, or by an appropriate writing signed by an individual authorized

to act on behalf of the governing body.

(3) Deliver the executed ballot to the Bank on or before the

closing date that has been established by the Bank, which shall be no

earlier than 30 calendar days after the date the ballots are mailed in

accordance with paragraph (b) of this section. A member may not change

a ballot after it has been delivered to the Bank.

(4) Any ballots cast in violation of this subsection shall be void.

(d) Counting ballots. A Bank shall not open any ballot until after

the closing date, and may not include in the election results any

ballot received after the closing date. Promptly after the closing

date, each Bank shall tabulate, by each voting state, the votes cast in

accordance with paragraph (c) of this section, and shall declare

elected the nominee receiving the highest number of votes.

(1) If more than one elective directorship is to be filled in a

voting state, the Bank shall declare elected

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each successive nominee receiving the next highest number of votes

until all open elective directorships for that voting state are filled.

(2) In the event of a tie for the last available seat, the

incumbent board of directors of the Bank shall, by a majority vote,

declare elected one of the nominees for whom the number of votes cast

was tied.

(3) The Bank shall retain all ballots it receives for at least two

years after the date of the election, and shall not disclose how any

member voted.

(e) Report of election. Promptly following the election, each Bank

shall provide written notice to its members, to each nominee, and to

the Finance Board of the following:

(1) The name of each director-elect, the name and location of the

member at which he or she serves, and his or her title or position at

the member;

(2) The voting state represented by each director-elect;

(3) The expiration date of the term of office of each director-

elect;

(4) The number of members voting in the election and the total

number of votes cast, both reported by states; and

(5) The number of votes cast for each nominee.

14. Revise Sec. 932.9 to read as follows:

Sec. 932.9 Prohibition on actions to influence director elections.

(a) Prohibition. Except as provided in paragraph (b) of this

section:

(1) No director, officer, attorney, employee, or agent of the

Finance Board or of a Bank may:

(i) Communicate in any manner that a director, officer, attorney,

employee, or agent of the Finance Board or of a Bank, directly or

indirectly, supports the nomination or election of a particular

individual for an elective directorship; or

(ii) Take any other action to influence votes for a directorship.

(2) No member may take any action prohibited by paragraph (a)(1)(i)

of this section.

(b) Exception for incumbent Bank directors. A Bank director acting

in his or her personal capacity may support the nomination or election

of any individual for an elective directorship, provided that no Bank

director shall purport to represent the views of the Bank, the Finance

Board, any other director, or any officer, attorney, employee, or agent

of the Bank or of the Finance Board concerning the nomination or

election of a particular individual for an elective directorship.

15. Revise Sec. 932.10 to read as follows:

Sec. 932.10 Selection of appointive directors.

(a) Selection. In accordance with the Act, the Finance Board, in

its sole discretion, shall select all appointive directors.

(b) Term of office. The term of office of each appointive

directorship shall commence on January 1.

16. Revise Sec. 932.11 to read as follows:

Sec. 932.11 Conflict of interests policy for Bank directors.

(a) Adoption of conflict of interests policy. Each Bank shall adopt

a written conflict of interests policy that shall apply to all Bank

directors. At a minimum, the conflicts of interest policy of each Bank

shall:

(1) Require the directors to administer the affairs of the Bank

fairly and impartially and without discrimination in favor of or

against any member or nonmember borrower;

(2) Prohibit the use of a director's official position for personal

gain;

(3) Require directors to disclose actual or apparent conflict of

interests and establish procedures for addressing such conflicts;

(4) Provide internal controls to ensure that reports are filed and

that conflicts are disclosed and resolved in accordance with this

section; and

(5) Establish procedures to monitor compliance with the conflict of

interests policy.

(b) Disclosure and recusal. (1) A director shall promptly inform

the board of directors whenever he or she, or any immediate family

member, has any financial interest in any matter before the board.

Directors also shall disclose any financial interest in any

organizations or with any individuals doing business with the Bank,

other than an interest relating to the member at which the director

serves. All directors shall refrain from considering, or voting on, any

issue before the board that could result in a conflict, self-dealing,

or any other circumstances that would result in a detriment to the Bank

or in a noncompetitive, favored, unfair advantage either to the Bank or

its members.

(2) All directors promptly shall provide to the full board of

directors, audit committee of the board of directors, or to such other

committee as the board of directors may establish for this purpose, any

information relating to conflicts or potential conflicts of interests.

(3) Directors shall not disclose or use confidential information

received by them solely by reason of their position with the Bank to

obtain a financial interest for themselves or their immediate family

members or member institutions of which they are an officer or

director.

(c) Gifts. Directors and their immediate family members shall not

accept any substantial gift where the recipient has reason to believe

that the gift is given in order to influence the director's actions as

a member of the Bank's board of directors, or where acceptance of such

gift gives the appearance of influencing the director's actions as a

member of the board.

(d) Compensation. Directors shall not accept compensation for

services performed for the Bank from any source other than the Bank for

whom the services are performed.

(e) Definitions. For purposes of this section:

(1) Immediate family member means parent, sibling, spouse, child,

or dependent, or any other relative sharing the same residence as the

director.

(2) Financial interest means a direct or indirect financial

interest in any activity, transaction, property, or relationship that

involves receiving or providing something of monetary value, and

includes, but is not limited to:

(i) Any contractual right to the payment of money, whether

contingent or fixed;

(ii) Ownership or control of ten percent or more of any class of

equity security, or any security, including subordinated debt;

(iii) Employment in a policy making position; or

(iv) Service as an officer, director, partner, or as a trustee or

in a similar fiduciary capacity.

(3) Substantial Gifts includes:

(i) Gifts of more than token value;

(ii) Entertainment or hospitality, the cost of which is in excess

of what is considered reasonable, customary, and accepted business

practices; or

(iii) Any other items or services for which a director pays less

than market value.

17. Revise Sec. 932.12 to read as follows:

Sec. 932.12 Reporting requirements for Bank directors.

(a) Annual reporting. On or before March 1 of each year, each

director shall submit to his or her Bank an executed Form E-1 (for

elective directors) or an executed Form A-1 (for appointive directors),

as appropriate. (Form A-1 is available pursuant to Sec. 900.51 of this

chapter). The Bank shall promptly forward a copy of each Form A-1 to

the Finance Board.

(b) Report of noncompliance. If an elective or appointive director

knows or has reason to believe that he or she no longer meets the

eligibility requirements set forth in the Act or this part, the

[[Page 26543]]

director shall so inform the Bank in writing within 30 calendar days of

first learning of the facts causing the loss of eligibility. An

appointive director also shall inform the Finance Board at the same

time, and in the same manner, that he or she informs the Bank.

18. Revise Sec. 932.13 to read as follows:

Sec. 932.13 Ineligible Bank directors.

(a) Elective directors. Upon a determination by the Finance Board

or a Bank that an elective director no longer satisfies the eligibility

requirements set forth in the Act or this part, or has failed to comply

with the reporting requirements of Sec. 932.12, the elective

directorship shall immediately become vacant. Any elective director

that is determined to have failed to comply with the eligibility or

reporting requirements shall not continue to act as a Bank director.

(b) Appointive directors. Except as provided herein, upon a

determination by the Finance Board that an appointive director no

longer satisfies the eligibility requirements set forth in the Act, or

has failed to comply with the reporting requirements of Sec. 932.12,

the appointive directorship shall immediately become vacant.

Notwithstanding the vacancy, an appointive director may continue to

serve until a successor assumes the directorship or the term of office

expires, whichever occurs first, and the Finance Board, in its sole

discretion, may allow an appointive director up to 90 calendar days to

comply with the eligibility or reporting requirements.

19. Revise Sec. 932.14 to read as follows:

Sec. 932.14 Vacant Bank directorships.

(a) Vacant elective directorships. (1) As soon as practicable after

a vacancy occurs, a Bank shall fill the unexpired term of office of a

vacant elective directorship by a majority vote of the remaining Bank

directors regardless of whether the remaining Bank directors constitute

a quorum of the Bank's board of directors.

(2) An individual so selected to fill a vacant elective

directorship shall satisfy all of the eligibility requirements for

elective directors set forth in the Act and this part, and shall

provide to the Bank an executed Form E-1. The Bank shall verify the

individual's eligibility in accordance with Sec. 932.7(a) before

allowing the individual to assume the directorship, and shall retain

the information it receives in accordance with Sec. 932.6(c).

(3) Promptly after verifying the individual's eligibility under

paragraph (a)(2) of this section, a Bank shall notify the Finance Board

and each member located in the Bank's district in writing of the

following:

(i) The name of the new elective director, the name and location of

the member (identified by docket number) at which the new director

serves, and the new director's title or position with the member;

(ii) The voting state that the new elective director represents;

and

(iii) The expiration date of the new elective director's term of

office.

(b) Vacant appointive directorships. (1) As soon as practicable

after a vacancy occurs, the Finance Board shall fill the unexpired term

of office of a vacant appointive directorship.

(2) Promptly after filling a vacant appointive directorship, the

Finance Board shall notify the new appointive director's Bank in

writing of the following:

(i) The name of the new appointive director, the name and location

of the organization with which the new director is affiliated, if any,

and the new director's title or position with such organization; and

(ii) The expiration date of the new appointive director's term of

office.

(2) Promptly after receiving the notice required by paragraph

(b)(2) of this section, a Bank shall provide each of its members with

the information described in paragraphs (b)(2)(i) and (ii) of this

section.

Secs. 932.15 through 932.19 [Removed]

20. Remove Secs. 932.15 through 932.19.

Sec. 932.20 [Redesignated as Sec. 932.15]

21. Redesignate Sec. 932.20 as Sec. 932.15 and revise the second

sentence and table to read as follows:

Sec. 932.15 Minimum number of elective directorships.

* * * The following list sets forth the states whose members held

more than one (1) seat on December 31, 1960:

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

No. of

elective

State directorships

on Dec. 31,

1960

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

California............................................... 3

Colorado................................................. 2

Illinois................................................. 4

Indiana.................................................. 5

Iowa..................................................... 2

Kansas................................................... 3

Kentucky................................................. 2

Louisiana................................................ 2

Massachusetts............................................ 3

Michigan................................................. 3

Minnesota................................................ 2

Missouri................................................. 2

New Jersey............................................... 4

New York................................................. 4

Ohio..................................................... 4

Oklahoma................................................. 2

Pennsylvania............................................. 6

Tennessee................................................ 2

Texas.................................................... 3

Wisconsin................................................ 4

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

Secs. 932.21 through 932.25 [Removed]

22. Remove Secs. 932.21 through 932.25.

Sec. 932.26 [Redesignated as Sec. 932.16]

23. Redesignate Sec. 932.26 as Sec. 932.16 of subpart B.

Sec. 932.27 [Redesignated as Sec. 932.17]

24. Redesignate Sec. 932.27 as Sec. 932.17 of subpart B.

Secs. 932.28 through 932.39 [Removed]

25. Remove Secs. 932.28 through 932.39.

26. Designate Secs. 932.18 and 932.19 as subpart C and add a

subpart heading to read as follows:

Subpart C--Selection of Bank Officers and Employees

Sec. 932.40 [Redesignated as Sec. 932.18]

27. Redesignate Sec. 932.40 as Sec. 932.18 of subpart C, remove

paragraph (d), and revise the section heading and paragraph (a)

introductory text to read as follows:

Sec. 932.18 Selection of Bank officers and employees.

(a) Bank presidents. The board of directors of each Bank may

appoint a president, who shall be the chief executive officer of the

Bank, subject to the following limitations:

* * * * *

Sec. 932.41 [Redesignated as Sec. 932.19]

28. Redesignate Sec. 932.41 as Sec. 932.19 of subpart C and revise

the section heading to read as follows:

Sec. 932.19 Compensation of Bank officers and employees.

* * * * *

Secs. 932.42 through 932.62 [Removed]

29. Remove Secs. 932.42 through 932.62.

PART 933--MEMBERS OF THE BANKS

1. The authority citation for part 933 continues to read as

follows:

Authority: 12 U.S.C. 1422, 1422a, 1422b, 1423, 1424, 1426, 1430,

1442.

2. Amend Sec. 933.18 by revising paragraph (e) to read as follows:

Sec. 933.18 Determination of appropriate Bank district for membership.

* * * * *

[[Page 26544]]

(e) Effect of transfer. A transfer of membership pursuant to this

section shall be effective for all purposes, but shall not affect

voting rights in the year of the transfer and shall not be subject to

the provisions on termination of membership set forth in section 6 of

the Act or Secs. 933.27, 933.28, and 933.30, including the restriction

on reacquiring Bank membership set forth in Sec. 933.31.

* * * * *

Sec. 933.24 [Amended]

3. Amend Sec. 933.24 by removing paragraph (b)(4).

Sec. 933.25 [Amended]

4. Amend Sec. 933.25 by removing paragraph (f).

Sec. 933.26 [Amended]

5. Amend Sec. 933.26 by removing paragraph (e).

Sec. 933.27 [Amended]

6. Amend Sec. 933.27 by removing paragraph (g).

Sec. 933.28 [Amended]

7. Amend Sec. 933.28 by removing paragraph (d).

PART 941--OPERATIONS OF THE OFFICE OF FINANCE

1. The authority citation for part 941 continues to read as

follows:

Authority: 12 U.S.C. 1422b, 1431.

2. Amend Sec. 941.7 by revising paragraph (f)(2) to read as

follows:

Sec. 941.7 Office of Finance Board of Directors.

* * * * *

(f) * * *

(2) Private Citizen member. The Office of Finance shall pay

compensation and expenses to the Private Citizen member of the OF board

of directors in accordance with the requirements for payment of

compensation and expenses to Bank directors set forth in Sec. 932.17 of

this chapter, except that, for these purposes:

(i) The Office of Finance policy on director compensation must be

approved by the board of directors of the Finance Board;

(ii) Section 932.15(a)(3) and (c)(1)(ii) of this chapter shall not

apply; and

(iii) The terms ``average compensation per director'' and ``ACPD,''

as used in Sec. 932.15 of this chapter, shall be deemed to mean

``maximum compensation of the Private Citizen member''.

Note: The following Appendix will not appear in the Code of

Federal Regulations Appendix A to Preamble--Director Eligibility

Certification Forms A-1 and E-1

BILLING CODE 6725-01-U

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By the Board of Directors of the Federal Housing Finance Board.

Dated: March 25, 1998.

Bruce A. Morrison,

Chairperson.

[FR Doc. 98-12651 Filed 5-12-98; 8:45 am]

BILLING CODE 6725-01-C