The Federal Housing Finance Board (Finance Board) is an independent agency that is statutorily charged with supervising and regulating the Nation's Federal Home Loan Bank (FHLBank) System. The FHLBank System consists of 12 regional FHLBanks that are each owned by their member financial institutions and that provide wholesale credit to members and certain nonmembers to be used for mortgage lending and related activities. The FHLBank System also includes the Office of Finance, which issues FHLBank System consolidated obligations. The Finance Board is required to prepare the following regulatory plan pursuant to section 4 of Executive Order 12866.
As always, the Finance Board's highest regulatory priority during the coming year is to ensure the safety and soundness of the FHLBank System. In addition, the Finance Board's primary regulatory priorities for 1996-97 are to ensure that the FHLBanks fulfill their statutory housing finance mission and to continue to reduce the regulatory burden on the FHLBanks by devolving authority over appropriate matters of corporate governance from the Finance Board to the FHLBanks themselves. To further these priorities, the Agency plans to carry out three significant regulatory actions, involving the FHLBank System's Affordable Housing Program (AHP), Community Investment Programs (CIPs), and Financial Management Policy (FMP), and to undertake several policy modifications and minor rulemakings over the course of the coming year. These prospective regulatory actions are in harmony with the regulatory philosophy and principles set forth by the President in Executive Order 12866 in that they either are necessary for the Agency to carry out effectively its statutory role as safety and soundness regulator of the FHLBank System, or are intended to establish guidelines under which various authorities may be devolved from the Agency to the FHLBanks.
In November 1996, the Finance Board published a second notice of proposed rulemaking (NPRM) to amend its AHP regulation to address issues that have arisen because of the success of the AHP, under which FHLBank member institutions fund the construction and purchase of housing for low- and moderate-income individuals and families. Although the Finance Board published the original NPRM in January of 1994, the approval of a final rule was delayed by an 18-month period during which the Agency lacked a quorum of its Board of Directors. Since regaining a quorum in June of 1995, the Finance Board has decided to publish for comment a second NPRM that contains a less detailed and restrictive AHP regulation than the version published in 1994.
This initiative, which is discussed in more detail below (RIN 3069-AA28), will encourage the FHLBanks to fulfill their statutory mission and will complete the major portion of the Agency's effort to devolve to the FHLBanks authority over those matters of corporate governance that may be devolved under the existing statutory scheme. As part of a longer-term effort, the Finance Board is studying the statutorily-authorized CIPs in an attempt to create a regulation that would expand the use of these community development programs by the FHLBanks. This initiative also is discussed in detail below (RIN 3069-AA05).
The Finance Board also plans to revise its FMP (RIN 3069-AA50), which governs permissible investments of the FHLBanks, and to promulgate the FMP as a regulation. As part of its safety and soundness responsibilities, the Finance Board intends to amend the FMP to more thoroughly address the control of interest rate risk assumed by the FHLBanks. As part of its effort to ensure that the FHLBanks fulfill their statutory housing finance mission, the Finance Board plans to modify the FMP to encourage the FHLBanks to refocus their balance sheets away from investments that are not related to this mission to a combination of advances (i.e., credit extended to members) and other assets that are mission-related. In this vein, the Finance Board also is actively encouraging legislation that would change the FHLBanks' annual obligations to the Resolution Funding Corporation from a fixed dollar amount to a percentage of earnings, thereby reducing the incentive for FHLBanks to invest in higher income, but less mission-related, instruments.
In addition to undertaking these significant regulatory actions, the Finance Board anticipates that it will continue to devolve to the FHLBanks, through nonsignificant regulations, more minor matters of corporate governance during the coming year and beyond. For example, the Agency intends to promulgate a final rule transferring to the FHLBanks specific responsibilities for selection and compensation of FHLBank officers and employees. Especially with respect to items that need Finance Board approval under the statute, the Finance Board intends to determine those functions for which appropriate regulatory standards can be embodied in a regulation and to address these issues in a step-by-step fashion.
Finally, during the coming year, the Finance Board expects to adopt standard policies and procedures to be followed by examiners during the annual regulatory examinations of the FHLBanks and for resolving disputes that arise during these examinations by bringing such issues to the Agency's Board of Directors for resolution.