FHFA aims to improve FHLBank governance with new proposed rule

The Federal Housing Finance Agency’s (FHFA) proposed updates and clarification on governance requirements for the Federal Home Loan Banks (FHLBanks) and the FHLBank system’s Office of Finance in a notice of proposed rulemaking (NPRM).

“The FHLBank System’s ability to provide liquidity to support its mission in a safe and reliable manner is dependent on the quality of its governance,” FHFA Director Sandra Thompson said in a release. “These proposed revisions will not only help ensure boards of directors demonstrate the knowledge, expertise, and experience to act in the public interest, but will also strengthen the system’s capacity to respond to developments and emerging risks in housing finance.”

Highlights of the proposed revisions include:

• Expanding and modernizing the areas of knowledge and experience for independent directors to include artificial intelligence, community development financial institution business models, climate risk, information technology and security, and modeling.
• Clarifying qualifying requirements for public interest independent directors, to emphasize a requirement for direct and substantial experience on behalf, or for direct benefit, of consumers or communities.
• Requiring the FHLBanks to adopt conflicts of interest policies that: (1) address outside positions and financial interests of FHLBank employees, close family members, and associates; and (2) prohibit FHLBank executive officers and senior management from holding paid positions at potential and existing members, housing associates, or their affiliates.

The NPRM affords interested parties 90 days from the NPRM’s publication date in the Federal Register to provide comments.