CUNA Regulatory Comment Call

October 7, 2008

Federal Housing Finance Board Interim Final Rule on the Election of Federal Home Loan Bank Directors

EXECUTIVE SUMMARY

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.coop and to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.coop; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you have questions or would like a copy of the interim final rule. You may also access a copy of the interim final rule here.

BACKGROUND

Effective July 30, 2008, the Housing and Economic Recovery Act (Act) transferred the supervisory and oversight responsibilities of Freddie Mac, Fannie Mac, and the FHLBs to the Agency, which was newly created under the Act. Previously, these responsibilities were divided between the Federal Housing Finance Board (Board) and the Office of Federal Housing Enterprise Oversight.

Until now, the board of directors of each FHLB comprised of elected directors and those that were appointed by the Board, known as independent directors. The Act now gives the members of the FHLBs the right to elect these independent directors, and the interim final rule outlines the process for nominating and conducting the election of these independent directors. As before, an independent director may not be an officer, director, or employee of any financial institution that is a member of the FHLB.

BRIEF DESCRIPTION OF THE INTERIM FINAL RULE

The boards of directors of the FHLBs will be divided into two categories, referred to as the member directors and the independent directors. The election of member directors will be held on a state-by-state basis while the independent directors will be elected at-large by all members of the FHLB. A certain number of the independent directors must be “public interest” directors, who must satisfy additional qualifications. The boards of each FHLB will decide how many of the nominated directors must be “public interest” directors, although there must be at least two such directors within each FHLB.

The Act will now require that the terms for each director elected after July 30, 2008 will be four years. However, adjustments will be made to ensure that the terms are staggered within each FHLB. Currently, directors are limited to three consecutive terms. The interim final rule clarifies this requirement in situations in which directors may serve terms that are less than four years.

The FHLBs will nominate the directors for election and provide notice of the election to the member institutions. As for nominating independent directors, the FHLB must consider anyone who applies using the application form that will be required by the Agency, assuming the potential nominee is otherwise qualified and submits the application form before the deadline. This information will be shared with the Agency, which will review and comment on the nominees, if appropriate. The FHLBs must also consult with the respective FHLB Advisory Council before nominating the independent directors.

To be a “public interest” director, the individual must have four years of personal experience in representing consumer or community interests in banking services, credit needs, housing, or consumer financial protections. This differs from the previous requirement in which the individual only had to be from an organization that had a history of more than two years representing consumer or community interests. For the independent directors who are not public interest directors, the list of qualifications will now include knowledge or experience in the law, in addition to the other related financial skills and experience that is already required. The FHLBs and any of its agents, as well as the Advisory Counsel, may support any individual who seeks election as an independent director.

The FHLB may not deliver the ballots until the Agency has had an opportunity to comment on the independent director nominees. The FHLB members must be given at least thirty days to vote after receiving the ballots. The ballots must list all nominees in alphabetical order and for the independent directors, the ballot must include information about their qualifications. The ballots must also include statements that no write-in candidates will be permitted and that the FHLB will not disclose how many of its members have voted.

To be elected an independent director, the nominee must receive at least twenty percent of the eligible votes. Additional elections will be held if this threshold is not met.

The election results for all nominees must be reported promptly to the FHLB members, the nominees, and the Agency. This report will also include the qualifications and the expiration date of the terms for those who were elected as independent directors.

Currently, the FHLBs must adopt a conflict of interest policy that applies to the boards of directors. The interim final rule provides the minimum contents for such a policy, which addresses the requirement for impartiality, disclosures of financial interests, and the acceptance of gifts or other compensation. The interim final rule also requires each director to execute an annual eligibility certification form and requires each director to notify the FHLB and the Agency promptly if he or she is no longer eligible to serve as a director. The director must then resign immediately. Each FHLB must also provide such notification if it has reason to believe any of its directors are no longer eligible to serve.

The board of directors will then fill the vacancy, based on a vote of the remaining board members. The FHLB must then verify the eligibility of the new board member and must submit the new member’s application form to the Agency for review and comment before the individual is allowed to assume office. Information about the new member must also be provided to all members of the FHLB.

QUESTIONS TO CONSIDER REGARDING THE FEDERAL HOUSING FINANCE BOARD’s INTERIM FINAL RULE ON THE ELECTION OF FEDERAL HOME LOAN BANK DIRECTORS

(The Agency has requested comment on the specific issues raised in these questions)

Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Lilly Thomas • Assistant General Counsel • (202) 508-6733 • lthomas@cuna.com
Luke Martone • Senior Regulatory Counsel • (202) 508-6743 • lmartone@cuna.com