02-9328. Office of Finance Board of Directors Meetings

AGENCY:

Federal Housing Finance Board.

ACTION:

Final rule.

SUMMARY:

The Federal Housing Finance Board (Finance Board) is adopting as final, without change, the proposed rule to amend its regulation governing the minimum number of meetings that the Office of Finance board of directors must hold each year. The final rule requires the Office of Finance board of directors to hold at least six in-person meetings per year.

DATES:

This final rule shall become effective on May 17, 2002.

FOR FURTHER INFORMATION CONTACT:

Patricia L. Sweeney, Office of Policy, Research and Analysis, 202/408-2872, [e-mail], or Charlotte A. Reid, Special Counsel, Office of General Counsel, 202/408-2510, [e-mail]. Staff also can be reached by regular mail at the Federal Housing Finance Board, 1777 F Street, NW., Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

On March 7, 2002, the Finance Board published a proposed rule to amend the Finance Board regulation that currently requires the Office of Finance (OF) board of directors (OF board) to meet no fewer than nine times per year, which was published on June 7, 2000 in connection with a regulatory action that broadened the duties of the OF. See generally 12 CFR Parts 966, 985 and 989. 65 FR 36290 (June 7, 2000).^[1] Under these regulations, the OF board is responsible for the oversight of every aspect of the operations of the OF and has broad powers to carry out its responsibilities. In executing these duties, the OF board is subject to many of the same regulations that apply to the boards of directors of the Banks.^[2] To discharge these duties the Finance Board constituted the OF board with three part-time members, each of whom is appointed by the Finance Board. The OF board includes two Bank presidents and one private citizen member, who also serves as the chair. See 12 CFR 985.8(a).

Section 985.8(b) of the Finance Board regulations requires the OF board to hold no fewer than nine meetings annually.^[3] When adopted, this requirement was consistent with the regulation that required the Banks' boards of directors to hold a minimum of nine meetings each year.^[4] Since that time, the Finance Board has reduced the minimum number of board meetings required of the Banks to no fewer than six in-person board meetings annually, to reflect the actual operations of the Banks. 12 CFR 918.7(a).^[5]

The OF board has asked the Finance Board to reduce the minimum number of meetings for the OF board to six in-person meetings annually. As discussed in the SUPPLEMENTARY INFORMATION section of the proposed rule, this request is based on arguments made by the OF board that it would be able to conduct its business more efficiently and effectively by holding no fewer than six meetings annually. The OF board noted that the debt issuance operations “while substantial in terms of debt issued, are largely routine in nature,” and are subject to periodic review by the examiners of the Finance Board, as well as by external auditors. Debt issuance follows established parameters, and the OF board ratifies debt issuance activity at regularly scheduled meetings. Consistent with applicable regulations, the OF board has in place the requisite guidelines, policies, and procedures to monitor the OF's day-to-day operations. Moreover, the activities of the OF are closely monitored by various Bank officials through a variety of formal and ad hoc committees. Finally, the OF board noted that it has in place sufficient checks and balances in place to ensure continued adequate review of the OF's operations, including an internal audit function that performs regular compliance reviews of the debt issuance and servicing functions and reports quarterly to the OF board. Additionally, by regulation, the OF board acting as the audit committee holds quarterly meetings, usually by telephone, to approve the publication of the quarterly and annual financial reports.

II. Analysis of Final Rule

The final rule adopts the proposed rule without change. The final rule reduces the minimum number of meetings that the OF board must hold each year from nine to six in-person meetings. The Finance Board received no comments on the proposed rule. The Finance Board believes that reducing the minimum number of meetings would not affect the ability of the OF board to monitor the operations of the OF, or the ability of the Finance Board to oversee the OF. The rule, which sets a minimum number of meetings, establishes a floor rather than a ceiling on the number of meetings the OF board may hold. The OF board may hold more meetings than the minimum number required, in order to carry out its duties and properly oversee the OF's operations. The Finance Board's experience with the reduced number of meetings for the Banks suggests that the boards of directors have been able to fully discharge their oversight duties under this revised framework.^[6]

The Finance Board believes that setting the minimum number of in-person board meetings at six per year strikes an appropriate balance between the needs of the Finance Board as the safety and soundness regulator of the Banks and the obligation incumbent on the OF board to determine the number of meetings to hold each year to carry out its oversight responsibilities. The Finance Board further expects that notwithstanding the proposed reduction of the minimum number of meetings to be held each year, the OF board will continue to maintain its level of oversight of the OF and its operations, and observe all appropriate safety and soundness guidelines.

III. Regulatory Flexibility Act

The final rule would apply only to the OF, which does not come within the meaning of small entities as defined in the Regulatory Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance with section 605(b) of the RFA, 5 U.S.C. 605(b), the Finance Board hereby certifies that this rule, when it becomes final, will not have significant economic impact on a substantial number of small entities under the RFA.

Paperwork Reduction Act

This final rule does not contain any collections of information pursuant to the Paperwork Reduction Act of 1995. See 33 U.S.C. 3501 et seq. Therefore, the Finance Board has not submitted any information to the Office of Management and Budget for review.

List of Subjects in 12 CFR Part 985

• Federal Home Loan Banks

Accordingly, the Finance Board hereby amends part 985, title 12, chapter IX, Code of Federal Regulations, as follows:

PART 985—THE OFFICE OF FINANCE

1. The authority citation for part 985 continues to read as follows:

Authority: 12 U.S.C. 1422b(a)(1).

2. Revise § 985.8(b) to read as follows:

§ 985.8

General duties of the OF board of directors.

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(b) Meetings and quorum. The OF board of directors shall conduct its business by majority vote of its members at meetings convened in accordance with its bylaws, and shall hold no fewer than six in-person meetings annually. Due notice shall be given to the Finance Board by the Chair prior to each meeting. A quorum, for purposes of meetings of the OF board of directors, shall be not less than two members.

* * * * *

Dated: April 10, 2002.

By the Board of Directors of the Federal Housing Finance Board.

John T. Korsmo,

Chairman.

Footnotes

1.  The principal function of the OF, which is a joint office of the Federal Home Loan Banks (Banks) under section 2B of the Federal Home Loan Bank Act (Act) (12 U.S.C. 1422b(b)(2)), is to offer, issue, and service consolidated obligations on which the Banks are jointly and severally liable (COs). The regulatory action authorized the OF to act as agent of the Banks in issuing COs under section 11(a) of the Act, in addition to its authority to issue COs on behalf of the Finance Board under section 11(c) of the Act. See 12 U.S.C. 1431 (a) and (c). The rule change expanded the OF's responsibility for preparing the combined Federal Home Loan Bank System (Bank System) annual and quarterly financial reports, as part of its debt issuance functions. See 12 CFR 985.3(b), 985.6(b).

2.  In particular, certain governance standards that apply to the boards of directors of the Banks under part 917 of the Finance Board regulations are made applicable to the OF board. See 12 CFR 985.8. Specifically, the OF board must adopt bylaws in accordance with the requirements of 917.10, and must establish policies for the management and operation of the OF, and approve a strategic business plan, in accordance with § 917.5 of the Finance Board regulations. See 12 CFR 985.8(a)(2), (d)(1), (2). The OF board also must review, adopt, and monitor annual operating and capital budgets, in accordance with § 917.8 of the Finance Board regulations, see 12 CFR 985.8(d)(3), and must establish and perform the duties of an audit committee consistent with the requirements of § 917.7 of the Finance Board regulations and applicable SEC regulations governing audit reports. See 12 CFR 985.8(d)(4).

3.  Prior to the adoption of this requirement in June 2000, the OF board was required to meet quarterly.

4.  See 65 FR 13663, 13664 (March 14, 2000), citing 64 FR 71275 (December 21, 1999).

5.  See 12 CFR 918.7 (66 FR 54916 (October 31, 2001)).

6.  As stated in the SUPPLEMENTARY INFORMATION section of the proposed rule, the Finance Board determined from an informal survey of governance practices of large financial institutions, including bank holding companies, thrift holding companies, and Fannie Mae and Freddie Mac, with asset sizes that ranged from $11 billion to $575.2 billion, the number of board meetings held each year varied from as few as four to no more than twelve, averaging approximately seven meetings. Moreover, asset size did not necessarily correlate to meeting frequency. For example, Freddie Mac (the largest asset size institution in the survey) held just five meetings in 1999.