[Federal Register Volume 61, Number 201 (Wednesday, October 16, 1996)]
[Rules and Regulations]
[Pages 53827-53830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26407]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
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Federal Register / Vol. 61, No. 201 / Wednesday, October 16, 1996 /
Rules and Regulations
[[Page 53827]]
FEDERAL RESERVE SYSTEM
5 CFR Chapter LVIII
12 CFR Part 264
[Docket No. R-0900]
RIN 3209-AA15
Supplemental Standards of Ethical Conduct for Employees of the
Board of Governors of the Federal Reserve System
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Final rule.
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SUMMARY: The Board of Governors of the Federal Reserve System, with the
concurrence of the Office of Government Ethics (OGE), is issuing a
final rule establishing uniform standards of ethical conduct for
employees of the Board to supplement the Standards of Ethical Conduct
for Employees of the Executive Branch issued by OGE. The regulation is
a necessary supplement to the Executive Branch-wide Standards because
it addresses ethical issues unique to the Board, establishing rules
relating to: financial interests and transactions; borrowing and
extensions of credit; employment relationships of immediate family
members; and outside employment. The Board is also replacing its old
employee conduct regulation with a residual cross-reference to the new
provisions.
EFFECTIVE DATE: November 1, 1996.
FOR FURTHER INFORMATION CONTACT: Cary Williams, Managing Senior
Counsel, Legal Division, Board of Governors of the Federal Reserve
System, telephone (202) 452-3295, FAX (202) 452-3101. For the hearing
impaired only, Telecommunications Device for the Deaf (TDD), Dorothea
Thompson (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background
On August 7, 1992, OGE published the Standards of Ethical Conduct
for Employees in the Executive Branch. See 57 FR 35006-35067, as
corrected at 57 FR 48557, 57 FR 52583 and 60 FR 51667, and amended at
61 FR 41162-41164 (as corrected at 61 FR 48733) and 61 FR 50689-50691,
with additional grace period extensions at 59 FR 4779-4780, 60 FR 6390-
6391, 60 FR 66857-66858, and 61 FR 40950-40952. The Executive Branch-
wide Standards are now codified at 5 CFR part 2635. Effective February
3, 1993, they established uniform ethical conduct standards applicable
to all executive branch personnel.
With the concurrence of OGE, 5 CFR 2635.105 authorizes executive
agencies to publish agency-specific supplemental regulations necessary
to implement their respective ethics programs. On December 19, 1995,
the Board, with OGE's concurrence, published for comment a proposed
rule to establish supplemental standards of ethical conduct for Board
employees (60 FR 65249-65254). The Board, with OGE's concurrence
determined that the proposed supplemental regulations were necessary to
implement the Board's ethics program successfully, in light of the
Board's unique programs and operations.
The proposed rule prescribed a 60-day comment period and invited
comments from all interested parties. The Board received no comments
but has made two modifications to the rule as proposed in adopting this
final rule, with OGE concurrence. The first modification affects
Sec. 6801.103(d). Section 6801.103(a) prohibits a Board employee and
his or her spouse or minor child from owning or controlling any debt or
equity interest in a depository institution or its affiliates or of a
primary government securities dealer or its affiliates. Sections
6801.103(b) and (c) provide limited exceptions to this prohibition for
interests in certain nonbanking holding companies and their affiliates
and for interests for which a waiver is issued. Paragraph (d) requires
employees to consult with the Designated Agency Ethics Official (DAEO)
concerning the need for recusal as a result of retaining an interest
held due to an exception or a waiver. The proposed rule provided that
such consultation would be necessary if the interest was in a ``holding
company.'' In fact, limiting the scope of the provision in this way was
unintentional, as the employee should consult with the DAEO regarding
recusal if an otherwise prohibited interest is held in a bank or other
entity, not just in a holding company. For this reason, the term
``holding company'' in Sec. 6801.103(d) of the proposed rule has been
replaced with the term ``entity'' in the final rule.
The second modification affects Sec. 6801.108. Proposed
Sec. 6801.108(a) would have required a supervisory employee who had
knowledge that a member of his or her immediate family was employed by
a depository institution to ``report such employment to his or her
supervisor and the Ethics Office within thirty days of the commencement
of the supervisory employee's employment at the Board or promptly upon
learning of the employment relationship.'' The Board has since
concluded that imposing such a reporting requirement on supervisory
employees is unnecessary. Supervisory employees will be asked to
provide certain information about their credit relationships on an
annual disclosure form, and a space will be provided on this form for
employees to disclose information about their immediate family members'
employment by depository institutions. It is felt that this level of
reporting is sufficient to serve the purpose of notifying supervisors
of a possible need for disqualification. Section 6801.108(b) in the
proposed regulation requiring a supervisory employee's disqualification
from a matter involving a depository institution that employs a member
of his or her immediate family has been renumbered and is now
Sec. 6801.108. Otherwise, it remains unchanged.
II. Repeal of the Board's Regulations on Employee Responsibilities
and Conduct
The Board is also repealing its regulations on the Responsibilities
and Conduct of Board Employees, 12 CFR part 264, and adding a residual
cross-reference to the new provisions.
III. Matters of Regulatory Procedure
Administrative Procedure Act
The Board has found good cause pursuant to 5 U.S.C. 553(d)(3) for
waiving, as unnecessary and contrary to
[[Page 53828]]
the public interest, the 30-day delayed effective date requirement as
to this final rule. The reason for this determination is that the
Board's old ethics rules regarding outside employment and prohibited
financial interests will no longer be effective after November 1, 1996
under OGE's latest grace period extension. It is important to the
Board's ethics program that the new part 6801 supplemental standards
regulation take effect before that expiration date. In addition, this
rulemaking is related to Board management and personnel.
Regulatory Flexibility Act
The Board has determined under the Regulatory Flexibility Act (5
U.S.C. chapter 6) that this regulation will not have a significant
economic impact on a substantial number of small entities because it
primarily affects Board employees and their families.
Paperwork Reduction Act
The Board has determined that the Paperwork Reduction Act (44
U.S.C. chapter 35) does not apply because this regulation does not
contain any information collection requirements that require the
approval of the Office of Management and Budget.
List of Subjects
5 CFR Part 6801
Conflict of interests, Government employees.
12 CFR Part 264
Conflict of interests, Federal Reserve System.
Dated: October 4, 1996.
William W. Wiles,
Secretary, Board of Governors of the Federal Reserve System.
Approved: October 4, 1996.
Stephen D. Potts,
Director, Office of Government Ethics.
For the reasons set forth in the preamble, the Board, with the
concurrence with the Office of Government Ethics, is amending title 5
and chapter II of title 12 of the Code of Federal Regulations as
follows:
TITLE 5--[AMENDED]
1. A new chapter LVIII, consisting of part 6801, is added to title
5 of the Code of Federal Regulations to read as follows:
CHAPTER LVIII--BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
PART 6801--SUPPLEMENTAL STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES
OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Sec.
6801.101 Purpose.
6801.102 Definitions.
6801.103 Prohibited financial interests.
6801.104 Speculative dealings. [Reserved]
6801.105 Prohibition on preferential terms from regulated
institutions.
6801.106 Prohibition on supervisory employees' seeking credit from
institutions involved in work assignments.
6801.107 Disqualification of supervisory employees from matters
involving lenders.
6801.108 Restrictions resulting from employment of family members.
6801.109 Prior approval for compensated outside employment.
Authority: 5 U.S.C. 7301; 5 U.S.C. App. (Ethics in Government
Act of 1978); 12 U.S.C. 244, 248; E.O. 12674, 54 FR 15159, 3 CFR,
1989 Comp., p.215, as modified by E.O. 12731, 55 FR 42547, 3 CFR,
1990 Comp., p.306; 5 CFR 2635.105, 2635.403(a), 2635.502, 2635.803.
Sec. 6801.101 Purpose.
In accordance with 5 CFR 2635.105, the regulations in this part
supplement the Standards of Ethical Conduct for Employees of the
Executive Branch found at 5 CFR part 2635. They apply to members and
other employees of the Board of Governors of the Federal Reserve System
(``Board'').
Sec. 6801.102 Definitions.
For purposes of this part:
(a) Affiliate means any company that controls, is controlled by, or
is under common corporate control with another company.
(b) (1) Debt or equity interest includes secured and unsecured
bonds, debentures, notes, securitized assets, commercial paper, and
preferred and common stock. The term encompasses both current and
contingent ownership interests therein; any such beneficial or legal
interest derived from a trust; any right to acquire or dispose of any
long or short position in debt or equity interests; any interests
convertible into debt or equity interests; and any options, rights,
warrants, puts, calls, straddles, and derivatives with respect thereto.
(2) Debt or equity interest does not include deposits; credit union
shares; any future interest created by someone other than the employee,
his or her spouse, or dependent; or any right as a beneficiary of an
estate that has not been settled.
(c) Dependent child means an employee's son, daughter, stepson, or
stepdaughter if:
(1) Unmarried, under the age of 21, and living in the employee's
household; or
(2) Claimed as a ``dependent'' on the employee's income tax return.
(d) Depository institution means a bank, trust company, thrift
institution, or any institution that accepts deposits, including a bank
chartered under the laws of a foreign country.
(e) Employee means an officer or employee of the Board, including a
Board member. It does not include a special Government employee.
(f) Primary government securities dealer means a firm with which
the Federal Reserve conducts its open market operations.
(g) Supervisory employee means an employee who is a member of the
professional staff at the Board with responsibilities in the area of
banking supervision and regulation.
Sec. 6801.103 Prohibited financial interests.
(a) Prohibited interests. Except as permitted by this section, an
employee, or an employee's spouse or minor child, shall not own or
control, directly or indirectly, any debt or equity interest in:
(1) A depository institution or any of its affiliates; or
(2) A primary government securities dealer or any of its
affiliates.
(b) Exceptions. The prohibition in paragraph (a) of this section
does not apply to the ownership or control of a debt or equity interest
in the following:
(1) Nonbanking holding companies. A publicly traded holding company
that:
(i) Owns a bank and either the holding company or the bank is
exempt under the Bank Holding Company Act of 1956, 12 U.S.C. 1841 et
seq., (for example, a credit card bank, a nonbank bank or a
grandfathered bank holding company), and the holding company's
predominant activity is not the ownership or operation of banks and
thrifts;
(ii) Owns a thrift and its predominant activity is not the
ownership or operation of banks and thrifts; or
(iii) Owns a primary government securities dealer and its
predominant activity is not the ownership or operation of banks,
thrifts or securities firms.
(2) Mutual funds. A publicly traded or publicly available mutual
fund or other collective investment fund if:
(i) The fund does not have a stated policy of concentration in the
financial services industry; and
[[Page 53829]]
(ii) Neither the employee nor the employee's spouse exercises or
has the ability to exercise control over the financial interests held
by the fund or their selection.
(3) Pension plans. A widely held, diversified pension or other
retirement fund that is administered by an independent trustee.
(c) Waivers. The Board's Designated Agency Ethics Official, in
consultation with Division management, may grant a written waiver
permitting the employee to own or control a debt or equity interest
prohibited by paragraph (a) of this section if:
(1) Extenuating circumstances exist, such as that ownership or
control was acquired:
(i) Through inheritance, gift, merger, acquisition, or other change
in corporate structure, or otherwise without specific intent on the
part of the employee, spouse, or minor child to acquire the debt or
equity interest; or
(ii) By an employee's spouse as part of a compensation package in
connection with the spouse's employment or prior to marriage to the
employee;
(2) The employee makes a prompt and complete written disclosure of
the interest;
(3) The employee's disqualification from participating in any
particular matter having a direct and predictable effect on the
institution or any of its affiliates does not unduly interfere with the
full performance of the employee's duties; and
(4) Granting the waiver would be consistent with Division policy.
(d) Disqualification. If an employee or an employee's spouse or
minor child holds an interest in an entity under paragraph (b)(1) or
(c) of this section, the employee must consult the Designated Agency
Ethics Official in order to determine whether the employee must be
disqualified from participating in any particular matter involving that
entity or affiliate under the conflicts of interest rules of the Office
of Government Ethics.
Sec. 6801.104 Speculative dealings. [Reserved]
Sec. 6801.105 Prohibition on preferential terms from regulated
institutions.
An employee may not accept a loan from, or enter into any other
financial relationship with, an institution regulated by the Board, if
the loan or financial relationship is governed by terms more favorable
than would be available in like circumstances to members of the public.
Sec. 6801.106 Prohibition on supervisory employees' seeking credit
from institutions involved in work assignments.
(a) Prohibition on supervisory employee's seeking credit. (1) A
supervisory employee may not, on his or her own behalf, or on behalf of
his or her spouse or child or anyone else (including any business or
nonprofit organization), seek or accept credit from, or renew or
renegotiate credit with, a depository institution or any of its
affiliates if the institution or affiliate is a party to an
application, enforcement action, investigation, or other particular
matter involving specific parties pending before the Board and:
(i) The supervisory employee is assigned to the matter; or
(ii) The supervisory employee is aware of the pendency of the
matter and knows that he or she will participate in the matter by
action, advice or recommendation.
(2) The prohibition in paragraph (a)(1) of this section also
applies for three months after the supervisory employee's participation
in the matter has ended.
(b) Credit sought by spouse and other related persons. A
supervisory employee must disqualify himself or herself from
participating (by action, advice or recommendation) in any application,
enforcement action, investigation or other particular matter involving
specific parties to which a depository institution or any of its
affiliates is a party as soon as the supervisory employee learns that
any of the following related persons are seeking or have sought or
accepted credit from, or have renewed or renegotiated credit with, the
depository institution or any of its affiliates while the matter is
pending before the Board:
(1) The employee's spouse or dependent child;
(2) A company or business if the employee or the employee's spouse
or dependent child owns or controls more than 10 percent of its equity;
or
(3) A partnership if the employee, or the employee's spouse or
dependent child is a general partner.
(c) Exception. The prohibition in paragraph (a) of this section and
the disqualification requirement in paragraph (b) of this section do
not apply with respect to credit obtained through the use of a credit
card or overdraft protection on terms and conditions available to the
public.
(d) Waivers. The Board's Designated Agency Ethics Official, after
consulting with the relevant division director, may grant a written
waiver from the prohibition in paragraph (a) of this section, or the
disqualification requirement in paragraph (b) of this section, based on
a determination that participation in matters otherwise prohibited by
this section would not create an appearance of loss of impartiality or
use of public office for private gain, and would not otherwise be
inconsistent with the Office of Government Ethics' Standards of Ethical
Conduct for Employees of the Executive Branch (5 CFR part 2635) or
prohibited by law.
Sec. 6801.107 Disqualification of supervisory employees from matters
involving lenders.
(a) Disqualification required. A supervisory employee may not
participate by action, advice or recommendation in any application,
enforcement action, investigation, or other particular matter involving
specific parties to which a depository institution or its affiliate is
a party if any of the following are indebted to the depository
institution or any of its affiliates:
(1) The employee;
(2) The spouse or dependent child of the employee;
(3) A company or business if the employee or the employee's spouse
or dependent child owns or controls more than 10 percent of its equity;
or
(4) A partnership if the employee or the employee's spouse or
dependent child is a general partner.
(b) Exceptions--(1) Consumer credit on nonpreferential terms.
Disqualification of a supervisory employee is not required by paragraph
(a) of this section for the following types of indebtedness if payment
on the indebtedness is current and the indebtedness is on terms and
conditions offered to the public:
(i) Credit extended through the use of a credit card;
(ii) Credit extended through use of an overdraft protection line;
(iii) Amortizing consumer credit (e.g., home mortgage loans,
automobile loans); and
(iv) Credit extended under home equity lines of credit.
(2) Indebtedness of a spouse or dependent child. Disqualification
is not required with respect to any indebtedness of the employee's
spouse or dependent child, or a company, business or partnership in
which the spouse or dependent child has an interest described in
paragraphs (a)(3) and (a)(4) of this section, if:
(i) The indebtedness represents the sole financial interest or
responsibility of the spouse, child, company, business or partnership
and is not derived from the employee's income, assets or activities;
and
(ii) The employee has no knowledge of the identity of the lender.
[[Page 53830]]
(c) Waivers. The Board's Designated Agency Ethics Official, after
consulting with the relevant Division director, may grant a written
waiver from the disqualification requirement in paragraph (a) of this
section using the authorization process set forth in the Office of
Government Ethics' Standards of Ethical Conduct at 5 CFR 2635.502(d).
Sec. 6801.108 Restrictions resulting from employment of family
members.
A supervisory employee may not participate in any particular matter
to which a depository institution or its affiliate is a party if the
depository institution or affiliate employs his or her spouse, child,
parent or sibling unless the supervising officer, with the concurrence
of the Board's Designated Agency Ethics Official, has authorized the
employee to participate in the matter using the authorization process
set forth in the Office of Government Ethics' Standards of Ethical
Conduct at 5 CFR 2635.502(d).
Sec. 6801.109 Prior approval for compensated outside employment.
(a) Approval requirement. An employee shall obtain prior written
approval from his or her Division director (or the Division director's
designee) and the concurrence of the Board's Designated Agency Ethics
Official before engaging in compensated outside employment.
(b) Standard for approval. Approval will be granted unless a
determination is made that the prospective outside employment is
expected to involve conduct prohibited by statute or Federal
regulation, including 5 CFR part 2635 and this part.
(c) Definition of employment. For purposes of this section, the
term compensated outside employment means any form of compensated non-
Federal employment or business relationship involving the provision of
personal services by the employee. It includes, but is not limited to,
personal services as an officer, director, employee, agent, attorney,
consultant, contractor, general partner, trustee, teacher or speaker.
TITLE 12--BANKS AND BANKING
CHAPTER II--FEDERAL RESERVE SYSTEM
2. 12 CFR part 264 is revised to read as follows:
PART 264--EMPLOYEE RESPONSIBILITIES AND CONDUCT
Authority: 5 U.S.C. 7301; 12 U.S.C. 244.
Sec. 264.101 Cross-reference to employees' ethical conduct standards
and financial disclosure regulations.
Employees of the Board of Governors of the Federal Reserve System
(Board) are subject to the executive branch-wide standards of ethical
conduct at 5 CFR part 2635 and the Board's regulation at 5 CFR part
6801, which supplements the executive branch-wide standards, and the
executive branch-wide financial disclosure regulation at 5 CFR part
2634.
[FR Doc. 96-26407 Filed 10-15-96; 8:45 am]
BILLING CODE 6210-01-P
