[Federal Register Volume 63, Number 142 (Friday, July 24, 1998)]
[Rules and Regulations]
[Pages 39702-39705]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19810]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 937
[No. 98-28]
Financial Disclosure by the Federal Home Loan Banks
AGENCY: Federal Housing Finance Board.
ACTION: Final rule.
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[[Page 39703]]
SUMMARY: The Federal Housing Finance Board (Finance Board) hereby
amends its regulations to require that the Federal Home Loan Banks
(Banks) provide information in such form and within such timeframes as
the Finance Board may prescribe so that the Finance Board may prepare
combined Bank System financial disclosure in a complete and timely
manner; and to require that any financial statements issued by the
individual Banks be consistent in both form and content with those
presented in the combined quarterly and annual financial reports issued
for the Bank System by the Finance Board. This amendment is intended to
ensure that the Finance Board can issue accurate and timely financial
disclosure to the capital markets and that all information issued to
the public concerning the Bank System is consistent and prepared in
accordance with uniform standards.
EFFECTIVE DATE: August 24, 1998.
FOR FURTHER INFORMATION CONTACT: Joseph A. McKenzie, Director,
Financial Analysis and Reporting Division, Office of Policy, 202/408-
2845, or Deborah F. Silberman, General Counsel, Office of General
Counsel, 202/408-2570, Federal Housing Finance Board, 1777 F Street,
NW., Washington, DC 20006.
SUPPLEMENTARY INFORMATION:
I. Background
The Federal Home Loan Bank Act (Bank Act), 12 U.S.C. 1421 et seq.,
authorizes the Finance Board to issue consolidated obligations that are
the joint and several obligations of the Banks in order to provide
funds for the Banks. 12 U.S.C. 1431(b), (c). The Bank Act further
authorizes the individual Banks to issue debt securities subject to
rules and regulations adopted by the Finance Board, 12 U.S.C. 1431(a).
The Finance Board has never adopted regulations concerning the issuance
of debt securities by the individual Banks, and the Banks have never
issued debt securities under this authority.
Pursuant to section 3(a)(2) of the Securities Act of 1933, 15
U.S.C. 77c(a)(2), (Securities Act), the debt securities issued by the
Finance Board to raise funds for the Banks are exempt from the
registration requirements of the Securities Act. Section 3(a)(2)
exempts from registration and other requirements of the Securities Act,
inter alia, securities issued or guaranteed by ``any person controlled
or supervised by and acting as an instrumentality of the Government of
the United States pursuant to authority granted by the Congress of the
United States.'' 15 U.S.C. 77c(a)(2).
Classes of securities issued by the Finance Board similarly are
exempt from the registration and reporting requirements of the
Securities Exchange Act of 1934, (15 U.S.C. 78a et seq.) (Exchange
Act), pursuant to section 3(a)(42) of the Exchange Act. (15 U.S.C.
78c(a)(42)). Section 3(a)(42)(B) designates as securities exempt from
registration and reporting under the Exchange Act, ``government
securities,'' including ``securities which are issued or guaranteed by
corporations in which the United States has a direct or indirect
interest and which are designated by the Secretary of the Treasury for
exemption as necessary or appropriate in the public interest or for the
protection of investors.'' Id. Sec. 78c(a)(42)(B).
The exemptions from registration and reporting under the Securities
Act and the Exchange Act discussed above are principally grounded in a
presumption that the securities activities of institutions acting as
government entities, as designated under the federal securities laws,
will be conducted in the public interest and for the protection of
investors. While securities issued by the Finance Board are exempt from
the registration and reporting requirements of the Securities Act and
the Exchange Act, the Finance Board believes it is in the public
interest and in the interests of the Bank System for the disclosure
documents used in connection with the issuance of its debt to be as
state-of-the-art as possible. Indeed, one of the duties of the Finance
Board specified in the Bank Act is that it ensures that the Banks
remain adequately capitalized and able to raise funds in the capital
markets. See 12 U.S.C. 1422a(a)(3)(B)(iii).
However, the Finance Board heretofore had never formally addressed
the scope and content of the financial reports issued by itself on
behalf of the Bank System nor by individual Banks to their members.
Because the Finance Board has supervisory and examination authority
over the Banks, it is the Finance Board's responsibility to regulate
the securities activities of those institutions when it finds such
regulation to be necessary or appropriate for the protection of
investors and the Bank system.
On February 2, 1998, the Finance Board published for notice and
comment a proposed rule to amend its regulations to add a requirement
that the Banks file with the Finance Board for review and provide to
their members annual audited financial statements and quarterly
unaudited financial statements prepared in conformance with the rules
and other requirements promulgated under the Federal securities laws by
the Securities and Exchange Commission (SEC). See 63 FR 5315 (Feb. 2,
1998). The SEC's disclosure requirements prescribe that an issuer of
securities into the capital markets make full and fair disclosure of
all information material to an investment decision in connection with
the offer, sale, and other market transactions in those securities.
Generally, a securities issuer's compliance with SEC disclosure
regulations will reduce risk of and liability for potential fraud. The
proposed rule was designed to ensure that a Bank's members would
receive timely, accurate, and uniform financial information about their
respective Banks, and to codify prevailing practice at the Banks.
Nothing in the proposed rule was intended to subject the Banks to the
jurisdiction of any other agency, nor to confer any private right of
action on any member or on any investor in Bank system securities. The
proposed rule invited comment on the scope of the existing and proposed
new disclosures and to indicate to the Finance Board any other
disclosures that would be appropriate.
Simultaneously with the publication of the proposed rule, the
Finance Board also published for notice and comment a proposed policy
statement regarding the preparation of the Bank System combined annual
and quarterly financial reports by the Finance Board in connection with
the issuance of consolidated debt securities pursuant to section 11(c)
of the Bank Act, 12 U.S.C. 1431(c), in accordance with the disclosure
requirements promulgated by the SEC. See Proposed Policy Statement,
Finance Board Res. No. 98-01, January 21, 1998, 63 FR 5381 (February 2,
1998).
The Finance Board received a total of six comments on the proposed
policy statement and the proposed rule. Commenters included three
Banks, one committee of the Banks, one trade association, and one
accounting firm.
II. Analysis of the Final Rule
A. In General.
A number of the commenters expressed concern about the increased
legal, accounting, and administrative costs and other burdens adoption
of the proposed regulation would impose on the Banks, and about the
unintended adverse consequences that would result from incorporating
the SEC's disclosure requirements into the regulation. In particular,
the commenters urged that future rule changes by the SEC, and SEC
interpretations, bulletins, opinions, no-action letters, and analysis
about its regulations should be explicitly excluded from incorporation
into the
[[Page 39704]]
Finance Board's regulation and policy statement. The commenters
suggested that, instead of adopting the proposed regulation, the
Finance Board should either delay adoption of the regulation until
further analysis of the effects of the regulation could be made, or
adopt its own disclosure requirements specifically tailored to the
business of the Banks.
The Finance Board believes that uniformity, completeness, and
accuracy of financial disclosure in the capital markets is a critically
important issue and is, therefore, unwilling to delay the adoption of a
final rule regarding financial disclosure requirements for the Banks.
However, the Finance Board does not wish to impose unnecessary burdens
on the Banks, or to require duplicative disclosure. Therefore, the
final rule has been revised in a number of ways to address these
concerns and other considerations.
B. Definitions--Section 937.1.
The proposed rule sets forth certain definitions to be used in the
part. The definitions of ``Bank,'' and ``Finance Board'' are adopted as
proposed without change. The definitions of ``Member,'' ``SEC,'' ``Form
10-K,'' ``Form 10-Q,'' and ``Regulation S-X'' have been deleted from
the final rule, for the reasons discussed below.
C. Annual and Quarterly Financial Statement Requirements.
Section 937.2 of the proposed rule would have imposed a requirement
that the Banks file with the Finance Board for review, and distribute
to their shareholders, annual and quarterly financial statements as
provided further in the regulation. Sections 937.3 and 937.4 of the
proposed rule set forth the specific SEC regulatory requirements with
which the Banks would have had to comply in preparing their annual and
quarterly financial statements. These sections also set forth the
timeframes in which the reports had to be prepared.
As discussed in the notice of proposed rulemaking, see 63 FR 5315,
5317, all of the Banks currently provide annual financial statements to
their shareholders, but not all of the Banks currently issue quarterly
financial statements. The Finance Board wished to assure that all
members of the Banks were receiving timely financial information about
the Banks, and proposed to use this regulation as the vehicle for that
disclosure.
Since the proposed policy statement and regulation were published,
and in connection with this project, the Finance Board has been
reevaluating how it provides disclosure about individual Banks in the
combined Bank System annual and quarterly reports. The combined Bank
System annual report already contains combining schedules for the
statement of condition, the statement of income, statements of capital,
and statements of cash flows. These combining schedules include a
column of information supplied by and about each of the Banks, a column
of combining adjustments that eliminate all material interbank
transactions, and a column of information for the combined Bank System.
While the Finance Board has not provided this information in its
combined Bank System quarterly financial reports, it is planning to do
so in future quarterly reports.
Because the Finance Board already includes significant financial
information about each Bank in the Bank System combined annual report,
because it plans to provide similarly significant financial information
about each Bank in the Bank System combined quarterly reports, and
because the Finance Board intends to distribute the combined annual and
quarterly reports to members of the Bank System expeditiously after
their publication, the Finance Board no longer believes it is necessary
to require the Banks to file for review and distribute to members
individually prepared annual and quarterly financial statements.
Therefore, all of the requirements of proposed sections 937.2, 937.3,
and 937.4 have been deleted from the final rule.
Instead, the final rule requires in section 937.2 only that the
Banks provide to the Finance Board, in such form and within such
timeframes as the Finance Board shall specify, all such financial and
other information as the Finance Board shall need to prepare the
combined Bank System annual and quarterly reports.
There is no longer any requirement in the final rule that the Banks
prepare or issue individual Bank annual or quarterly financial reports.
However, section 937.3 of the final rule provides that if the Banks
choose to issue individual annual or quarterly financial reports, any
financial statements contained in those reports must be consistent in
both form and content with the financial statements presented in the
combined Bank System annual or quarterly financial reports. This is to
assure that all financial statements relating to the Banks in the
public domain will be consistent and accurate.
The requirements of section 937.3 will not preclude a Bank from
including abbreviated balance sheets or other abbreviated financial
statement information in marketing materials, so long as those
materials provide clear disclosure of how and where the reader may
obtain a complete set of the financial statements of the Bank or the
Bank System.
III. Regulatory Flexibility Act
The final rule applies only to the Banks, which are not ``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,
see id. 605(b), the Finance Board hereby certifies that the final rule
will not have a significant economic impact on a substantial number of
small entities.
IV. Paperwork Reduction Act
The final rule does not contain any collections of information
pursuant to the Paperwork Reduction Act of 1995. See 44 U.S.C. 3501 et
seq. Consequently, the Finance Board has not submitted any information
to the Office of Management and Budget for review.
List of Subjects in 12 CFR Part 937
Federal home loan banks, Reporting and recordkeeping requirements.
Accordingly, the Federal Housing Finance Board hereby amends title
12, chpate IX, of the Code of Federal Regulations, to add a new part
937, as follows:
PART 937--FINANCIAL STATEMENTS OF THE BANKS
Sec.
937.1 Definitions.
937.2 Requirement to provide financial and other information to the
Finance Board.
937.3 Requirement for voluntary bank disclosure.
Authority: 12 U.S.C. 1422a, 1422b, 1426, 1431, and 1440.
Sec. 937.1 Definitions.
As used in this part:
Bank means a Federal Home Loan Bank established under the authority
of the Federal Home Loan Bank Act, as amended (12 U.S.C. 1421 et seq.).
Finance Board means the agency established as the Federal Housing
Finance Board.
Sec. 937.2 Requirement to provide financial and other information to
the Finance Board.
In order to facilitate the preparation by the Finance Board of
combined Bank System annual and quarterly reports, each Bank shall
provide to the Finance
[[Page 39705]]
Board in such form and within such timeframes as the Finance Board
shall specify, all financial and other information the Finance Board
shall request for that purpose.
Sec. 937.3 Requirement for voluntary bank disclosure.
Any financial statements contained in an annual or quarterly
financial report issued by an individual Bank must be consistent in
both form and content with the financial statements presented in the
combined Bank System annual or quarterly financial reports prepared and
issued by the Finance Board.
Dated: June 24, 1998.
By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairperson.
[FR Doc. 98-19810 Filed 7-23-98; 8:45 am]
BILLING CODE 6725-01-P
