[Federal Register Volume 66, Number 45 (Wednesday, March 7, 2001)]
[Proposed Rules]
[Pages 13688-13689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-5474]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 932
[No. 2001-03]
RIN 3069-AB11
Unsecured Credit Limits for Federal Home Loan Banks
AGENCY: Federal Housing Finance Board.
ACTION: Proposed rule.
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SUMMARY: On December 20, 2000, as part of its new capital rule, the
Federal Housing Finance Board (Finance Board) approved new limits on
the amounts of unsecured credit that a Federal Home Loan Bank (Bank)
may extend to a single counterparty or group of affiliated
counterparties. These new unsecured limits revised and codified the
unsecured credit guidelines set forth in the Finance Board's Financial
Management Policy (FMP). The Finance Board is, hereby, proposing
amendments to the unsecured credit provisions of the capital rule to
increase the limit on a Bank's unsecured credit exposure to government-
sponsored enterprises (GSEs).
DATES: The Finance Board will consider written comments on the proposed
rulemaking that are received on or before April 23, 2001.
ADDRESSES: Send comments to: Elaine L. Baker, Secretary to the Board,
by electronic mail at [email protected], or by regular mail to the Board,
at the Federal Housing Finance Board, 1777 F Street, N.W., Washington,
D.C. 20006. Comments will be available for inspection at this address.
FOR FURTHER INFORMATION CONTACT: James L. Bothwell, Managing Director,
(202) 408-2821; Scott L. Smith, Acting Director, (202) 408-2991; or
Julie Paller, Senior Financial Analyst, (202) 408-2842, Office of
Policy, Research and Analysis; or Thomas E. Joseph, Attorney-Advisor,
(202) 408-2512, Office of General Counsel, Federal Housing Finance
Board, 1777 F Street, N.W., Washington, D.C. 20006.
SUPPLEMENTARY INFORMATION:
I. Background
On December 20, 2000, in accordance with the Gramm-Leach-Bliley
Act, Pub. Law No. 106-102, 133 Stat. 1338 (Nov. 12, 1999) (GLB Act),
the Finance Board adopted a final rule to implement the new capital
structure that the GLB Act established for the Banks. See 66 FR 8262
(Jan. 30, 2001). As part of the final capital rule, the Finance Board
adopted new limits on the permitted amounts of a Bank's unsecured
credit exposures to a single counterparty or a group of affiliated
counterparties. Id. at 8318-19 (to be codified at 12 CFR 932.9). These
new limits represent a revision and codification of the unsecured
credit guidelines of Section VI of the FMP, Finance Board Res. No. 96-
45 (July 3, 1996), as amended by Finance Board Res. No. 96-90 (Dec. 6,
1996), Finance Board Res. No. 97-05 (Jan. 14, 1997), and Finance Board
Res. 97-86 (Dec. 17, 1997), which will remain in effect until these new
limits take effect on July 2, 2001.\1\ During the comment period for
the proposed capital rule, many commenters generally opposed the
implementation of the unsecured credit guidelines in Sec. 932.9, but
did not comment on the specific limits set in the rule, which are
designed to address safety and soundness concerns related to the risk
created by credit concentrations in a single counterparty or group of
affiliated counterparties. See 66 FR 8301-02.
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\1\ The Chairman of the Bank Presidents' Conference requested an
extension of the March 1, 2001 effective date for complying with the
new unsecured credit limits. In response, the Finance Board has
waived the March 1, 2001 date by Resolution, dated February 28,
2001, and has extended the date for compliance with Sec. 932.9 by
120 days until July 2, 2001.
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The new unsecured credit limits in 12 CFR 932.9 are more
restrictive than those that are applied under the FMP. They allow the
Banks, however, to extend unsecured credit to lower-rated
counterparties than is now allowed under the FMP and will remove
maturity constraints on extensions of unsecured credit that are
contained in Section VI of the FMP. Before a Bank may extend unsecured
credit to any counterparty (or affiliated counterparties) to which a
Bank could not previously lend because of the credit rating
restrictions or maturity limits in the FMP, the Bank must obtain the
Finance Board's approval for the lending activity as a new business
activity pursuant to 12 CFR Part 980. The new limits do not apply to
obligations backed by the full faith and credit of the United States
government, which is the case under the unsecured credit guidelines of
the FMP. Section 932.9 also does not require a Bank to unwind positions
that do not conform to the new requirements provided the credit was
extended in accordance with the FMP before the effective date of the
new rule.
II. Proposed Rule
As discussed in the SUPPLEMENTARY INFORMATION section of the
adopting release of the final capital rule, the Finance Board believes
that the diversification of risk, particularly with regard to unsecured
credit, promotes the safety and soundness of the Banks and that the
specific limits adopted in 12 CFR 932.9 are necessary to address the
increase in credit risk associated with concentrations of credit
exposures. The limits are not unduly onerous \2\ and generally are
consistent with those applicable to commercial banks. See 12 CFR Part
32.
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\2\ If extension of credit to GSEs are not included, at year-end
2000, the Banks in aggregate had only just over $4.4 billion in
unsecured extensions of credit that would be in excess of the limits
set forth in 12 CFR Sec. 932.9 compared with a total unsecured
extensions of credit to private counterparties of just over $84
billion.
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It has been suggested, however, that as applied to debt issued by
the GSEs, the new limits may present problems for some Banks. Under the
FMP, the Banks could maintain unsecured credit exposures with a single
GSE in an amount equal to 100 percent of the Bank's capital. The new
unsecured credit limits would treat GSEs like other private
counterparties and base the unsecured credit limit on the long- or
[[Page 13689]]
short-term ratings assigned to the GSE by a Nationally Recognized
Statistical Rating Organization (NRSRO). Generally speaking, GSEs
currently receive the highest investment grade rating assigned by an
NRSRO. For all such counterparties, a Bank's maximum allowable
unsecured credit exposure under Sec. 932.9 cannot exceed 15 percent of
the Bank's total capital or of the counterparty's regulatory capital,
whichever amount is lower.
Some Banks have indicated that, given the magnitude of the
reduction in the allowable credit exposure to a GSE under Sec. 932.9,
they will experience difficulty in developing new investment strategies
to conform to these new limits. Since publication of the final
unsecured credit rule, some Banks have indicated that GSE debt offers
an attractive risk-return profile not available from other investments,
especially in the immediate future. Some Banks also have suggested that
GSEs are a better credit risk than other counterparties, even those
counterparties with the highest investment grade ratings, and point to
the premium over corporate debt at which GSE debt trades in the markets
as an indication of the GSEs' special status. These Banks further claim
that the new restrictions on their credit exposures to GSEs may result
in greater investment in instruments with a lesser credit quality.
In the SUPPLEMENTARY INFORMATION section of the final capital rule,
the Finance Board noted that it ``may solicit additional comments
regarding the appropriateness of the [unsecured credit] limits in
future rulemaking and may consider revising them at that time.'' 66 FR
8302. The Finance Board also recognizes that for some Banks, the
magnitude of the reduction in the allowable unsecured credit limit
applicable to GSEs could be disruptive and that, historically, GSEs
have been viewed more favorably by debt markets than even the highest-
rated corporate debt issuers. Thus, the Finance Board is proposing to
amend 12 CFR 932.9 to raise the limit on a Bank's unsecured extensions
of credit to a GSE and is requesting comment and supporting analysis
concerning the appropriate level for this new limit.
It also has been suggested that the Finance Board amend 12 CFR
932.9 to exclude from the unsecured credit limits the sale of Federal
funds with a maturity of one day or less, or Federal funds sold under a
continuing contract, as do commercial bank regulators. See 12 CFR Part
32. The Finance Board requests comment on whether it should adopt such
an exclusion, although it is not proposing to do so at this time. If
commenters support such an exclusion, they should provide data
indicating how the lack of such an overnight Federal funds exclusion in
12 CFR 932.9 would negatively affect the Banks and should address why
such an exclusion would not raise safety and soundness concerns.
III. Regulatory Flexibility Act
The proposed rule applies only to the Banks, which do 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 proposed rule, if promulgated as a final
rule, will not have a significant economic effect on a substantial
number of small entities.
IV. Paperwork Reduction Act
The proposed 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.
Dated: February 28, 2001.
By the Board of Directors of the Federal Housing Finance Board.
Allan I. Mendelowitz,
Chairman.
[FR Doc. 01-5474 Filed 3-6-01; 8:45 am]
BILLING CODE 6725-01-P