[Federal Register Volume 78, Number 93 (Tuesday, May 14, 2013)]
[Proposed Rules]
[Pages 28452-28460]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11212]



Federal Register / Vol. 78, No. 93 / Tuesday, May 14, 2013 / Proposed 
Rules

[[Page 28452]]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1231

RIN 2590-AA08


Golden Parachute and Indemnification Payments

AGENCY: Federal Housing Finance Agency.

ACTION: Proposed rule; request for comments.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is re-proposing the 
Golden Parachute and Indemnification Payments proposed rule that was 
published in the Federal Register on June 29, 2009 (the Proposal). 
Specifically, FHFA is addressing content set forth in the Proposal, 
both in the Supplementary Information and the regulatory text, which 
relates to prohibited and permissible golden parachute payments to 
entity-affiliated parties in connection with the Federal National 
Mortgage Association, the Federal Home Loan Mortgage Corporation, the 
Federal Home Loan Banks, and the Office of Finance of the Federal Home 
Loan Bank System. This proposed rule (the ``Re-proposal'') solicits 
comments on the appropriate treatment of golden parachute arrangements 
entered into before the effective date of the rule. Additionally, this 
Re-proposal responds to public comments received by FHFA on the golden 
parachute provisions, and provides clarification regarding coverage of 
retirement plans, which were the subject of significant concern 
expressed in the comments.

DATES: Written comments on this proposed rule must be received on or 
before July 15, 2013. For additional information, see SUPPLEMENTARY 
INFORMATION.

ADDRESSES: You may submit your comments on this proposed rule, 
identified by regulatory information number ``RIN 2590-AA08,'' by any 
one of the following methods:
     Email: Comments to Alfred M. Pollard, General Counsel, may 
be sent by email at RegComments@fhfa.gov. Please include ``RIN 2590-
AA08'' in the subject line of the message.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comment to the Federal eRulemaking Portal, please also send it by email 
to FHFA at RegComments@fhfa.gov to ensure timely receipt by the agency. 
Please include ``RIN 2590-AA08'' in the subject line of the message.
     Hand Delivered/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel; Attention: Comments/RIN 2590-AA08, 
Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., 
Washington, DC 20024. The package should be logged at the Guard Desk, 
First Floor, on business days between 9 a.m. and 5 p.m.
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel; Attention: Comments/RIN 2590-AA08, Federal 
Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., 
Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Alfred M. Pollard, General Counsel, 
(202) 649-3050, Alfred.Pollard@fhfa.gov, or Lindsay Simmons, Assistant 
General Counsel, (202) 649-3066, Lindsay.Simmons@fhfa.gov (not toll-
free numbers). The telephone number for the Telecommunications Device 
for the Hearing Impaired is (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Comments

    FHFA invites comments on all aspects of the Re-proposal and will 
take all comments into consideration before issuing the final 
regulation. Copies of all comments will be posted without change, 
including any personal information you provide, such as your name, 
address, email address, and telephone number, on the FHFA internet Web 
site at http://www.fhfa.gov. In addition, copies of all comments 
received will be available for examination by the public on business 
days between the hours of 10 a.m. and 3 p.m., at the Federal Housing 
Finance Agency, Eighth Floor, 400 Seventh Street SW., Washington, DC 
20024. To make an appointment to inspect comments, please call the 
Office of General Counsel at (202) 649-3804.

II. Background

    Section 1114 of the Housing and Economic Recovery Act of 2008 
(HERA) amended section 1318(e) of the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (Safety and Soundness Act) 
(12 U.S.C. 4518(e)) to provide explicit authorities to FHFA in 
addressing golden parachute payments and indemnification payments. FHFA 
published an interim final regulation on Golden Parachute and 
Indemnification Payments in the Federal Register on September 16, 2008 
(73 FR 53356). Subsequently, it published corrections rescinding that 
portion of the regulation that addressed indemnification payments on 
September 19, 2008 (73 FR 54309) and on September 23, 2008 (73 FR 
54673). On November 14, 2008 (73 FR 67424), FHFA published in the 
Federal Register a proposed amendment to the interim final regulation 
that addressed indemnification payments. The public notice and comment 
period closed on December 29, 2008. On January 29, 2009 (74 FR 5101), 
FHFA published the final regulation on Golden Parachute Payments. On 
June 29, 2009 (74 FR 30975), FHFA published a proposed amendment to the 
final Golden Parachute Payments regulation that addressed in more 
detail, prohibited and permissible golden parachute payments. The 
proposed amendment noted that comments received in response to the 
November 14, 2008, publication addressing indemnification payments will 
be considered along with comments received in response to this 
amendment.
    As noted in the Summary, this Re-proposal only addresses issues as 
well as comments received that relate to golden parachute payments. 
Comments received on indemnification payments will be addressed in the 
final rule on Golden Parachute and Indemnification Payments.

III. Golden Parachute Payments

    FHFA published a final regulation on Golden Parachute Payments in 
the Federal Register on January 29, 2009 (74 FR 5101). The final Golden 
Parachute Payments regulation addressed public comment on factors the 
Director would consider in acting on golden parachute payments. As 
stated in the Supplementary Information published with the final 
regulation, comments received that addressed other elements of a golden 
parachute regulation would be considered by FHFA in subsequent 
rulemaking for public comment. Specifically, in response to comments 
received, FHFA stated that it would consider adding provisions similar 
to those of the Federal Deposit Insurance Corporation (FDIC) golden 
parachute regulation in the subsequent rulemaking. The FDIC regulation 
describes more specifically benefits included in or excluded from the 
term ``golden parachute payment.'' Thus, the provisions of the Proposal 
(published in the Federal Register on June 29, 2009) addressing golden 
parachute payments are substantially similar to the FDIC regulation 
that limits golden parachute payments by insured depository 
institutions to institution-affiliated parties.\1\
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    \1\ The FDIC regulation is found at 12 CFR part 359.

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[[Page 28453]]

IV. Comments Received on Golden Parachute Payments

    The Proposal (74 FR 30975-30981), which among other things, would 
have set forth the standards that the Director will take into 
consideration in determining whether to limit or prohibit golden 
parachute payments that its regulated entities and the Office of 
Finance (OF) may make to entity-affiliated parties.\2\ The comment 
period on the Proposal closed on July 29, 2009.
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    \2\ To view the proposed rule, go to http://www.fhfa.gov or 
http://www.regulations.gov.
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    FHFA received comments on the golden parachute provisions of the 
Proposal from the following: each of the 12 Federal Home Loan Banks 
(Banks); the Chairs of the 12 Banks; OF; and the Chair and Vice-Chair 
of the Bank of Boston.

A. General Comments

1. Grandfathering and Coverage of Retirement Plans
    In the Supplementary Information published with the Proposal, FHFA 
stated its intention to apply the golden parachute provisions to 
agreements entered into by a regulated entity or OF with an entity-
affiliated party on or after the date the regulation would be 
effective.\3\ After considering further the types of golden parachute 
agreements that may currently be in place, FHFA is clarifying its 
stated intention. FHFA has determined to grandfather a defined subset 
of agreements as of the date the Re-proposal is published in the 
Federal Register, and that the rest will be subject to review by FHFA, 
as appropriate. Specifically, FHFA intends to grandfather all 
retirement plans and deferred compensation plans in place as of the Re-
proposal's publication date. FHFA has reviewed all such current plans 
and has concluded that they are appropriately excepted from the scope 
of the golden parachute rule.
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    \3\ 74 FR at 30976 (June 29, 2009).
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    With respect to severance plans, FHFA intends to allow the entities 
three months from the effective date of the final rule within which 
they may submit for FHFA review severance plans that would be excepted 
under the terms of the regulation but for their having been adopted or 
modified at a time when the entity either was in, or was in 
contemplation of, a condition (``triggering event'') specified in 
paragraph (1)(ii) of the definition of the term ``golden parachute 
payment.'' After that three-month period, severance plans outside of 
the severance-plan exception to the term ``golden parachute payment'' 
must be reviewed by FHFA if the entity is subject to a triggering 
event.
    FHFA notes that certain comments expressed concern that retirement 
plans could be affected by the regulation, contrary to the intent of 
the Proposal. In response to the uncertainty about the applicability of 
the Proposal's definition of ``golden parachute payment,'' FHFA 
summarizes below the status of different arrangements.
     Qualified plans are excepted from the requirements of the 
regulation and, therefore, any changes to them do not require FHFA 
approval.
     Non-qualified retirement plans (either defined-
contribution or defined-benefit plans or deferred compensation plans) 
established for the benefit of executives whose participation in a 
regulated entity's qualified plans is curtailed by the Internal Revenue 
Service limits are ``bona fide deferred compensation plans'' if they 
meet the various requirements listed in the Proposal.\4\ Such non-
qualified plans meeting those requirements are therefore excepted from 
the Proposal's definition of ``golden parachute payment.'' \5\
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    \4\ Those requirements are the requirements enumerated in 
paragraphs (3)(i) through (3)(vii) of the definition of ``bona fide 
deferred compensation plan or arrangement'' in Sec.  1231.2 of the 
Proposal, and in addition, with respect to plans under which an 
entity-affiliated party voluntarily defers a portion of his or her 
compensation that would otherwise be currently paid for services 
rendered, the requirements of paragraphs (1)(i) and (1)(ii) of that 
definition.
    \5\ While the entities are not required to submit excepted plans 
for approval for purposes of the Golden Parachute and 
Indemnification Payments regulation, they are required to submit 
such plans for review for purposes of the proposed Executive 
Compensation regulation (74 FR 26989 (June 5, 2009)).
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     All retirement plans established for the benefit of 
executives in place as of the Re-proposal's publication date are 
grandfathered. From the Re-proposal's publication date forward, any 
retirement plans that are not qualified, and that are not bona fide 
deferred compensation plans, and payouts on such plans, will qualify as 
golden parachute payments and will require FHFA review and approval, if 
the regulated entity is subject to a triggering event.
     Severance plans are excepted if they meet the various 
terms of the regulation (such as those that authorize payment, for 
executives whose salary is less than $300,000, of no more than 12 
months compensation, as discussed further below). As stated above, FHFA 
intends to allow the entities three months from the effective date of 
the final rule within which they may submit for FHFA review and 
approval existing severance plans that would be excepted but for their 
having been adopted or modified at a time when the entity was subject 
to a ``triggering event'' specified in paragraph (1)(ii) of the 
definition of the term ``golden parachute payment.''
     Severance plans outside of the exception to the term 
``golden parachute payment'' (such as nondiscriminatory severance plans 
for an executive whose salary exceeds $300,000) are subject to FHFA 
review and approval if the entity is subject to a triggering event.
     Change-of-control agreements and ad hoc payments are not 
grandfathered or excepted and, therefore, require FHFA review and 
approval if the regulated entity is subject to a triggering event.
    The Proposal's definition of ``golden parachute payment,'' 
including the definition of ``bona fide deferred compensation plan or 
arrangement'' and other exceptions, substantially adopts that of the 
FDIC's regulation on this subject, which was developed after careful 
review of industry practice with respect to retirement plans.\6\ Banks 
and thrifts have been able to operate under that regulation for the 
past 15 years.
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    \6\ See 56 FR 50529 (Oct. 7, 1991), 60 FR 16069 (March 29, 
1995), 61 FR 5926 (Feb. 15, 1996).
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    FHFA notes that, while the statute permits FHFA to prohibit or 
limit golden parachute agreements when a regulated entity is subject to 
a triggering event, the statute does not require FHFA to do so. It is 
FHFA's intention to consider all facts and circumstances in exercising 
this discretionary authority, including the degree to which a proposed 
golden parachute payment represents a reasonable payment for services 
rendered over the period of employment.
    The reconsideration of the treatment to be afforded golden 
parachute arrangements does not affect indemnification arrangements. As 
to those arrangements, FHFA reaffirms its intent \7\ that the 
regulation apply to agreements entered into by a regulated entity or OF 
with an entity-affiliated party on or after the date the regulation is 
effective. FHFA believes that reliance on indemnification arrangements 
and their significance as an element of continuing employment and 
service weigh in favor of grandfathering these arrangements when 
reviewed against the goals set forth in the statute. Indemnification 
arrangements are subject to a separate proposed rulemaking, which will 
be combined with this Re-proposal in the final rule.\8\
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    \7\ 73 FR 67424, 67425 (Nov. 14, 2008).
    \8\ 73 FR 67424 (Nov. 14, 2008).

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[[Page 28454]]

2. Application of the Golden Parachute Payments Prohibitions and FHFA's 
Approval
    All of the commenters sought clarification as to when the golden 
parachute prohibitions apply and whether approval by the Director of 
FHFA (the ``Director'') would be required. Their concern related to the 
triggering events listed in the Proposal in paragraphs (1)(ii)(A) 
through (D) in the definition of the term ``golden parachute payment'' 
in proposed Sec.  1231.2. Their inquiries related to the timing of a 
triggering event and its effect on the ability of a regulated entity or 
OF to enter into an agreement with or pay an entity-affiliated party. 
The inquiries focused on one of the triggering events: a determination 
by FHFA that the regulated entity is in a troubled condition (paragraph 
(1)(ii)(C) of the term ``golden parachute payment'' in proposed Sec.  
1231.2). The following responds to the specific inquiries:
    i. A regulated entity or OF need not obtain the approval of the 
Director to enter into an agreement with or to pay an entity-affiliated 
party under the following circumstances:
     A regulated entity or OF is not subject to any of the 
triggering events listed in paragraphs (1)(ii)(A) through (D) of the 
term ``golden parachute payment'' in proposed Sec.  1231.2;
     A regulated entity or OF is no longer subject to a 
triggering event (e.g., it has emerged from a troubled condition); or
     An entity-affiliated party begins to receive payments 
under an agreement prior to the occurrence of a triggering event that 
continue after the triggering event, if the entity-affiliated party's 
employment was not terminated in contemplation of the triggering event.
    ii. A regulated entity or OF, when subject to a triggering event, 
must obtain the permission of the Director in order to pay, or enter 
into an agreement to pay, an entity-affiliated party if it:
     Terminates an entity-affiliated party's employment;
     Enters into an agreement with an entity-affiliated party 
providing a golden parachute payment;
     Amends an employment contract containing golden parachute 
provisions with an entity-affiliated party;
     Renews an employment agreement (including automatic 
renewal) with an entity-affiliated party that contains severance 
provisions; or
     Makes a payment related to a change in control (not 
resulting from conservatorship or receivership).
    In any circumstance in which an agreement that provides for a 
golden parachute payment has been approved by the Director, an 
additional approval by the Director is required in order to make such a 
payment under the agreement if the entity is subject to a triggering 
event. The FHFA regulation, similar to the statute it implements 
(HERA), limits a regulated entity that is subject to a triggering event 
from making golden parachute payments or entering into agreements to 
make golden parachute payments. As a consequence, FHFA may review a 
golden parachute payment at the time it is being made, notwithstanding 
a prior approval of the particular golden parachute agreement. This 
``double approval'' process mirrors the practice of the FDIC for 
institutions subject to its golden parachute payments regulation.
    The double approval process is supported by the following 
considerations. First, an agreement containing provisions that the 
regulator considers unreasonable for an entity subject to a triggering 
event should be disapproved without waiting for payments to be made 
under it, so that the regulated entity can develop an alternative 
acceptable arrangement and so that executives will not be relying on an 
agreement under which they will not, in the event, be able to receive 
payments. Further, subsequent to the approval of a golden parachute 
agreement, there is a serious concern with potential further 
deterioration of a regulated entity or OF and the effect that a golden 
parachute payment could have on its safety and soundness. To address 
that concern, FHFA believes that a review of the golden parachute 
payment, and the circumstances of the Bank during the period in which 
the payment is actually being made, is necessary. For that reason, 
proposed Sec.  1231.6 contains procedures for a regulated entity or OF 
to apply for the consent of the Director to make a golden parachute 
payment by submission of a letter application. Among factors that must 
be addressed in the filing seeking approval of the payment are the cost 
of the payment and the effect that the payment will have on the capital 
and earnings of the regulated entity (proposed Sec.  1231.6(c)(4)). In 
addition, the regulation would require FHFA, among other factors, to 
determine the degree to which the proposed payment represents a 
reasonable payment for services rendered over the period of employment 
(proposed Sec.  1231.3(b)(2)(ii)). FHFA recognizes that this factor 
could be viewed very differently at the time an individual finishes 
employment than at the time the individual began employment.
    Having noted above specific instances that would require the 
Director's approval, FHFA emphasizes that under Sec.  1231.3 of the 
Proposal, a regulated entity or OF may agree to make or may make a 
golden parachute payment that the Director determines is permissible. A 
regulated entity or OF always may apply for a determination under this 
exception if a golden parachute payment is not otherwise permissible.
    In making the determination to permit a golden parachute agreement 
or payment, the Director may consider the factors set forth in proposed 
Sec.  1231.3(b)(2)(i) through (iii), which include consideration of the 
case-specific facts and circumstances surrounding the golden parachute 
payment. For example, the Director may consider mitigating factors in 
determining whether to permit a golden parachute payment. Such 
mitigating factors may include, among others, the individual's history 
of beneficial contribution to the regulated entity, and cooperation 
with FHFA's relevant remediation efforts.
    Importantly, the presence of any of the negative factors enumerated 
in proposed Sec.  1231.3(b)(2) is not an absolute bar to the approval 
of a golden parachute payment. Absent mitigating factors, there would 
be a presumption if any of those factors were present that the golden 
parachute application should be denied, however, that presumption can 
be overcome and the Director has discretion to do so.

B. Specific Comments

    Eleven Banks and OF noted that in paragraph (1) of the term 
``golden parachute payment'' in proposed Sec.  1231.2, that term is 
defined to mean ``[a]ny payment (or any agreement to make any payment) 
in the nature of compensation by any regulated entity or the Office of 
Finance for the benefit of any current or former entity-affiliated 
party pursuant to an obligation of such regulated entity or the Office 
of Finance. . . .'' [Emphasis added.] They requested the express 
inclusion of a specific definition of compensation in the final rule to 
ensure that the term ``golden parachute payment'' will only apply in 
the circumstances in connection with employment. Specifically, they 
sought assurance that the final rule would not apply under any 
circumstances to non-employment payments, such as debt service payments 
from a Bank to OF, payments of advance proceeds, dividends, deposit 
account withdrawals, and Affordable Housing Program (AHP) funds from a 
Bank to a member institution. They also requested exclusion of payments 
to other parties

[[Page 28455]]

(including payments to Bank directors) on the basis that payments to 
such parties are not connected with an employee relationship with a 
Bank.
    The Safety and Soundness Act provision on golden parachute 
payments, the Federal Deposit Insurance Act provision on which it is 
based, and the FDIC rule on which FHFA's Proposal is based, all define 
a golden parachute payment as being ``in the nature of compensation,'' 
but none defines the term ``compensation.'' The FDIC included the 
qualifying phrase ``in the nature of compensation'' in its final 
regulation to make clear that the FDIC did not intend to restrict 
institutions, even those that are troubled, from paying terminating 
employees accrued but unused benefits, such as vacation. FDIC also 
noted that the qualifying phrase is used to show that a certain payment 
should be treated as a golden parachute because the regulators have 
historically treated it as compensation, e.g., payments under ``split 
dollar'' insurance agreements.\9\
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    \9\ 60 FR 16069-16082 (March 29, 1995).
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    Against the statutory background, and the treatment of the concept 
by the FDIC in its regulation, FHFA understands ``compensation'' to be 
payment for employment or services rendered by individuals. So 
understood, the concept does not include the various types of payments 
from a Bank to members that the commenters expressed concern about: 
payments of advance proceeds, dividends, deposit account withdrawals, 
and AHP funds; nor does it include debt service payments from Banks to 
OF.
    Members of the regulated entities' boards of directors fall within 
the definition of ``entity-affiliated party'' as stated in the statute 
and the rule. They are responsible for the governance and oversight of 
management of the regulated entity, and FHFA believes that there is no 
reason to exclude them from the rule.
    Eleven Banks and OF commented on the exception to the term ``golden 
parachute payment'' for nondiscriminatory severance plans. That 
exception requires that the severance plan provide payments for all 
eligible employees upon involuntary termination, that it provide no 
more than 12 months' severance, and that it have been approved by the 
Director if it was adopted by the regulated entity when it was subject 
to a triggering event. The commenters requested that FHFA modify this 
exception in the final rule to provide that a Bank's agreement to pay 
severance to a rank-and-file employee (an employee who is not an 
``executive officer'' under FHFA regulations) in an amount not 
exceeding compensation paid to the employee during the 12 (or, as seven 
Banks requested, six) months preceding a negotiated termination of his 
or her employment be excluded from the definition of ``golden parachute 
payment,'' and thus not require FHFA approval even if a triggering 
event were in effect with regard to the Bank. They stated that such an 
exclusion would ensure that the Bank retain the flexibility to conduct 
its ordinary-course personnel operations without the need for FHFA 
approval of customary limited payments in connection with negotiated 
terminations.
    The exception for nondiscriminatory severance plans, as drafted in 
the Proposal, derives from two aspects of the statute. First, Congress 
chose a definition of ``entity-affiliated party'' that has broader 
coverage than the term ``executive officer'' as defined in section 
4502(12) of the Safety and Soundness Act (12 U.S.C. 4502(12)) with 
respect to the Director's authority to prohibit and withhold executive 
compensation under section 1318(a) of the Safety and Soundness Act (12 
U.S.C. 4518(a)). The definition that Congress enacted includes rank-
and-file employees. Second, the statute excepts ``nondiscriminatory 
benefit plans,'' an exception that FHFA has determined includes 
nondiscriminatory severance plans. Because the plan must be 
nondiscriminatory, individually negotiated severance arrangements do 
not fall within the exception. Like most of the rest of the Proposal, 
this provision is based on the FDIC's rule, which contains the same 
exception for nondiscriminatory severance plans. Banks and thrifts have 
been operating under that rule for the past 15 years.
    After further review of the exception for nondiscriminatory 
severance pay plans, FHFA has determined to make a different 
modification to that exception, revising it to limit its effect to 
executives whose salary does not exceed $300,000. FHFA believes that 
compensation of such top executives may be so high that the payment of 
a full year's severance may be inappropriate, when their institution is 
in a troubled condition. However, FHFA notes that whether the recipient 
of severance pay is a rank-and-file employee or a top executive, the 
Director continues to have discretion to approve payment under the 
regulator's approval exception discussed earlier (proposed Sec.  
1231.3(b)(1)(i)).
    Nine Banks and OF noted that, under paragraph (3)(i) of the 
definition of ``bona fide deferred compensation plan or arrangement'' 
in proposed Sec.  1231.2, a plan or arrangement that would otherwise 
qualify for an exclusion from treatment as a golden parachute payment 
would not qualify for such treatment if the plan or arrangement were 
not in effect at least one year prior to the occurrence of a triggering 
event. Furthermore, they noted that under paragraph (3)(ii) of the 
``bona fide deferred compensation plan or arrangement'' definition, an 
increase in benefits payable under a qualifying plan or arrangement 
pursuant to an amendment made during the one-year period prior to the 
occurrence of a triggering event would appear not to be excluded from 
the definition of a ``golden parachute payment.''
    The commenters requested that paragraphs (3)(i) and (ii) of the 
definition of ``bona fide deferred compensation plan or arrangement'' 
in proposed Sec.  1231.2 either be modified to provide that these one-
year rules are subject to waiver by the Director on a case-by-case 
basis, or that FHFA clarify that a Bank could apply for approval to 
make a payment with respect to the plan or increased benefits under 
proposed Sec. Sec.  1231.3(b)(1)(i) and 1231.6. In response, as noted 
earlier, FHFA is providing a blanket grandfathered status to all 
deferred compensation plans in place as of the Re-proposal's 
publication date. Moreover, FHFA confirms that a regulated entity or OF 
always may apply for a waiver by the Director on a case-specific basis 
for bona fide deferred compensation plans or arrangements that are not 
grandfathered.
    Additionally, the commenters requested that FHFA except amendments 
to nonqualified deferred compensation plans and supplemental retirement 
plans that are made to comply with law. In response, FHFA has added the 
following language to the end of paragraph (3)(ii) of the definition of 
the term ``bona fide deferred compensation plan or arrangement'': 
``provided that changes required by law should be disregarded in 
determining whether a plan provision has been in effect for one year.''
    Ten Banks and OF commented that the definition of ``bona fide 
deferred compensation plan or arrangement'' in proposed Sec.  1231.2 
permits payments from plans that segregate or otherwise set aside 
assets in a trust that may only be used to pay plan and other benefits. 
They requested that FHFA amend paragraphs (1)(ii) and (3)(vi) of the 
definition in the final rule to include ``and related expenses'' after 
``benefits'' in order to account for the fact that rabbi trusts often 
pay certain expenses. FHFA

[[Page 28456]]

agrees with the comment and has revised the paragraphs as requested.
    Nine Banks, OF, and the Chairs of the Banks requested that FHFA 
modify the circumstances that constitute one of the triggering events 
set forth in the definition of the term ``golden parachute payment'' 
(paragraphs (1)(ii)(A) through (D) of the term ``golden parachute 
payment'' in proposed Sec.  1231.2). The event that was the subject of 
concern is contained in paragraph (1)(ii)(D): when a Bank or OF is 
assigned a composite rating of 3 or 4 by FHFA.
    The commenters noted that the Federal Housing Finance Board Office 
of Supervision Examination Manual (Manual) draws a sharp distinction 
between a composite 3- and a composite 4-rating. The Manual provides 
that the general policy in regard to a composite 3-rated Bank is that 
supervisory action will be taken to address identified deficiencies or 
weaknesses. In contrast, the Manual provides that the general policy in 
regard to a composite 4-rated Bank is that a formal enforcement action 
will be taken to address identified deficiencies or weaknesses. They 
stated that the restrictions of the golden parachute rule should not be 
triggered in circumstances that are not viewed as being serious enough 
to require formal enforcement action. For this reason, they requested 
that the portion of proposed paragraph (l)(ii)(D) of the definition of 
``golden parachute payment'' in proposed Sec.  1231.2, which reads ``or 
the Federal Home Loan Bank or the Office of Finance is assigned a 
composite rating of 3 or 4 by FHFA'' should be revised to delete ``3 
or.''
    In the meantime, FHFA has adopted an examination rating system that 
results in a composite rating from 1 to 5, analogous to that used by 
the Federal banking agencies.\10\ FHFA has revised the definition of 
``golden parachute payment'' to refer to regulated entities with a 
composite rating of 4 or 5, as does the FDIC's golden parachute 
regulation.\11\ However, the Director retains the discretion to 
determine, on a case-by-case basis, whether a 3-rated Bank (or an 
Enterprise rated ``Significant Concerns'') is in a ``troubled 
condition.'' Should the Director make such a determination, the golden 
parachute restrictions would apply.
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    \10\ 77 FR 67644 (Nov. 13, 2012).
    \11\ 12 CFR 303.101(c)(1).
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    Eight Banks and OF requested that FHFA modify the definition of the 
term ``nondiscriminatory'' in the final rule. The term relates to the 
exception from the golden parachute restrictions for a 
nondiscriminatory severance plan or arrangement (paragraph (2)(v) of 
the term ``golden parachute payment'' in proposed Sec.  1231.2). As 
proposed, ``nondiscriminatory'' is defined to mean:

* * * that the plan, contract, or arrangement in question applies to 
all employees of a regulated entity or the Office of Finance who 
meet reasonable and customary eligibility requirements applicable to 
all employees, such as minimum length of service requirements. A 
nondiscriminatory plan, contract, or arrangement may provide 
different benefits based only on objective criteria such as salary, 
total compensation, length of service, job grade, or classification, 
which are applied on a proportionate basis (with a variance in 
severance benefits relating to any criterion of plus or minus ten 
percent) to groups of employees consisting of not less than the 
lesser of 33 percent of employees or 1,000 employees. [Emphasis 
added.]

The commenters acknowledged that this provision is similar to the 
corresponding provision in the FDIC regulation on golden parachute 
payments, and that in comment letters responding to prior FHFA 
rulemaking, many of the Banks urged FHFA to add provisions similar to 
those in the FDIC regulation. In this case, however, they believe that 
the objective criteria and application requirements (in italics above) 
should be modified based on the difference in employee size between the 
Banks and the depository institutions and holding companies to which 
the FDIC's regulation applies. They stated that, while many of the 
entities regulated by the FDIC have tens of thousands of employees, the 
Banks each generally employ fewer than 400 individuals, and most employ 
fewer than 300.
    In recognition of the difference in employee size between the Banks 
and the entities regulated by the FDIC, the commenters requested that 
FHFA delete the provision prohibiting a variance in benefits of more 
than plus or minus ten percent in the final regulation. They also 
requested that FHFA reduce the 33 percent threshold to 20 percent, and 
reduce the ``1000 employees'' to 50 employees or to such other smaller 
percentage and number that FHFA determines is appropriate in light of 
the relatively small size of the Banks' and OF's staffs.
    In response to this request for modification, FHFA notes that 
entities regulated by the FDIC under its golden parachute payments 
regulation are not confined to large holding companies and banks with a 
correspondingly large number of employees. FDIC-regulated entities also 
include mid- and small-size banks and thrifts that have correspondingly 
small numbers of employees. The FDIC has implemented the criteria 
contained in the term ``nondiscriminatory'' under its regulation 
effective for all the covered entities since 1996, regardless of the 
differences in size and employee base. FHFA believes that the Banks' 
size and number of employees is not dissimilar to many of the entities 
regulated by the FDIC. For this reason, FHFA has determined not to 
modify the definition of ``nondiscriminatory'' in the final rule.
    The OF requested that the final rule be modified so that it does 
not apply to OF or any parties associated with it. The OF asserted that 
Congress intended that the golden parachute provisions in section 
1318(e) (12 U.S.C. 4518(e)) of the Safety and Soundness Act, as amended 
by section 1114 of HERA, apply only to golden parachute payments made 
by a ``regulated entity.'' The OF asserted that the clear intent of 
Congress was to exclude OF from the reach of the provisions.
    In response to OF's request, FHFA notes, as it did when proposing 
this rule,\12\ the following reasons why it is important and 
appropriate for FHFA to apply the golden parachute provisions to OF. As 
relevant background, OF is a joint office of the Banks that was 
established by the Federal Housing Finance Board (FHFB), a predecessor 
to FHFA. The OF is governed by a seventeen-person board of directors, 
consisting of all 12 Bank presidents and five independent members. 
Under the regulations of FHFB, OF is subject to the same regulatory 
oversight authority and enforcement powers as are the Banks and their 
respective directors, officers, and employees.\13\ The OF also is 
subject to the cease-and-desist authority of FHFA, and its directors, 
officers and management are subject to the removal and prohibition 
authority of FHFA.\14\
---------------------------------------------------------------------------

    \12\ 74 FR 30976 (June 29, 2009).
    \13\ 12 CFR 1273.4 and 1273.7.
    \14\ 12 U.S.C. 4631(a) and 4636a(a).
---------------------------------------------------------------------------

    Moreover, as FHFA stated in the Proposal, although OF is not 
directly covered by section 1318(e), it is subject to the Director's 
``general regulatory authority'' under section 1311(b)(2) of the Safety 
and Soundness Act (12 U.S.C. 4511(b)(2)), as amended by HERA. The 
Director is required to exercise that authority as necessary to ensure 
that the purposes of the Safety and Soundness Act, the authorizing 
statutes, and other applicable laws are carried out. Because of the 
unique nature of OF and the interrelationship between it and the Banks, 
FHFA believes that the purposes underlying the limitations on golden 
parachute payments can best be carried out if the limitations are 
consistent

[[Page 28457]]

between the Banks and OF, their joint office. Therefore, based on its 
general regulatory authority over OF, FHFA believes that the Director's 
oversight over golden parachutes should continue to apply to OF in the 
Re-proposal.
    Subsequent to FHFA's issuance of the Proposal, the Stop Trading on 
Congressional Knowledge Act of 2012, S. 2038 (the ``STOCK Act'') was 
enacted. See Public Law No. 112-105, section 16 (April 4, 2012) 
(codified at 12 U.S.C. 4518a). Section 16 of the STOCK Act prohibits 
senior executives of any Enterprise in conservatorship from receiving 
bonuses during any period of conservatorship on or after the date of 
enactment. Section 16 would require FHFA to deny any golden parachute 
payment that FHFA determines is a bonus to any senior executive of any 
Enterprise during any period that the Enterprise is in conservatorship. 
FHFA will implement any final rule on golden parachute payments in a 
manner consistent with the STOCK Act.

V. Differences Between Banks and Enterprises

    Section 1313(f) of the Safety and Soundness Act (12 U.S.C. 
4513(f)), as amended by section 1201 of HERA, requires the Director, 
when promulgating regulations relating to the Banks, to consider the 
differences between the Banks and the Enterprises with respect to the 
Banks' cooperative ownership structure; mission of providing liquidity 
to members; affordable housing and community development mission; 
capital structure; and joint and several liability. The Director may 
also consider any other differences that are deemed appropriate. In 
preparing the Re-proposal, the Director considered the differences 
between the Banks and the Enterprises as they relate to the above 
factors. The Director requests comments from the public about whether 
differences related to these factors should result in a revision of the 
Re-proposal as it relates to the Banks.

Regulatory Impact

Paperwork Reduction Act

    This proposed rule does not contain any information collection 
requirement that requires the approval of the Office of Management and 
Budget under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities, small businesses, or small organizations must 
include an initial regulatory flexibility analysis describing the 
regulation's impact on small entities. Such an analysis need not be 
undertaken if the agency has certified that the regulation will not 
have a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 605(b). FHFA has considered the impact of this 
proposed rule under the Regulatory Flexibility Act. FHFA certifies that 
this proposed rule is not likely to have a significant economic impact 
on a substantial number of small business entities because this 
proposed rule is applicable only to the regulated entities which are 
not small entities for the purposes of the Regulatory Flexibility Act.

List of Subjects in 12 CFR Part 1231

    Golden parachutes, Government-sponsored enterprises, 
Indemnification.

    Accordingly, for reasons stated in the SUPPLEMENTARY INFORMATION, 
under the authority of 12 U.S.C. 4518(e) and 4526, FHFA proposes to 
amend part 1231 of subchapter B of title 12 CFR Chapter XII as follows:

PART 1231--GOLDEN PARACHUTE AND INDEMNIFICATION PAYMENTS

0
1. The authority citation for part 1231 is revised to read as follows:

    Authority:  12 U.S.C. 4518(e), 4518a, 4526.

0
2. The heading to part 1231 is revised to read as set forth above.
0
3. Section 1231.1 is revised to read as follows:


Sec.  1231.1  Purpose.

    The purpose of this part is to implement section 1318(e) of the 
Safety and Soundness Act (12 U.S.C. 4518(e)) by setting forth the 
standards that the Director will take into consideration in determining 
whether to limit or prohibit golden parachute payments and by setting 
forth prohibited and permissible indemnification payments that 
regulated entities and the Office of Finance may make to entity-
affiliated parties.
0
4. Section 1231.2 is amended by:
0
a. Removing the paragraph designations and arranging definitions in 
alphabetical order;
0
b. Removing the reserved paragraphs (l) through (n);
0
c. Adding in alphabetical order definitions for the terms ``Benefit 
plan'', ``Bona fide deferred compensation plan or arrangement'', 
``Nondiscriminatory'', ``Payment'', and ``Safety and Soundness Act''; 
and
0
d. Revising the definition for the terms ``Entity-affiliated party'', 
``Golden parachute payment'', and ``Troubled condition''.
    The additions and revisions read as follows:


Sec.  1231.2  Definitions.

* * * * *
    Benefit plan means any plan, contract, agreement, or other 
arrangement which is an ``employee welfare benefit plan'' as that term 
is defined in section 3(1) of the Employee Retirement Income Security 
Act of 1974, as amended (29 U.S.C. 1002(1)), or other usual and 
customary plans such as dependent care, tuition reimbursement, group 
legal services or cafeteria plans; provided however, that such term 
shall not include any plan intended to be subject to paragraphs 
(2)(iii) and (v) of the term golden parachute payment as defined in 
this section.
    Bona fide deferred compensation plan or arrangement means any plan, 
contract, agreement or other arrangement whereby:
    (1) An entity-affiliated party voluntarily elects to defer all or a 
portion of the reasonable compensation, wages or fees paid for services 
rendered which otherwise would have been paid to such party at the time 
the services were rendered (including a plan that provides for the 
crediting of a reasonable investment return on such elective deferrals) 
and the regulated entity or the Office of Finance either:
    (i) Recognizes compensation expense and accrues a liability for the 
benefit payments according to generally accepted accounting principles 
(GAAP); or
    (ii) Segregates or otherwise sets aside assets in a trust which may 
only be used to pay plan and other benefits and related expenses, 
except that the assets of such trust may be available to satisfy claims 
of creditors of the regulated entities or the Office of Finance in the 
case of insolvency; or
    (2) A regulated entity or the Office of Finance establishes a 
nonqualified deferred compensation or supplemental retirement plan, 
other than an elective deferral plan described in paragraph (1) of this 
definition:
    (i) Primarily for the purpose of providing benefits for certain 
entity-affiliated parties in excess of the limitations on contributions 
and benefits imposed by sections 401(a)(17), 402(g), 415, or any other 
applicable provision of the Internal Revenue Code of 1986 (26 U.S.C. 
401(a)(17), 402(g), 415); or
    (ii) Primarily for the purpose of providing supplemental retirement 
benefits or other deferred compensation for a select group of 
directors,

[[Page 28458]]

management or highly compensated employees (excluding severance 
payments described in paragraph (2)(v) of the term golden parachute 
payment as defined in this section and permissible golden parachute 
payments described in Sec.  1231.3(b)); and
    (3) In the case of any nonqualified deferred compensation or 
supplemental retirement plans as described in paragraphs (1) and (2) of 
this definition, the following requirements shall apply:
    (i) The plan was in effect at least one year prior to any of the 
events described in paragraph (1)(ii) of the term golden parachute 
payment as defined in this section;
    (ii) Any payment made pursuant to such plan is made in accordance 
with the terms of the plan as in effect no later than one year prior to 
any of the events described in paragraph (1)(ii) of the term golden 
parachute payment as defined in this section and in accordance with any 
amendments to such plan during such one-year period that do not 
increase the benefits payable thereunder, provided that changes 
required by law should be disregarded in determining whether a plan 
provision has been in effect for one year;
    (iii) The entity-affiliated party has a vested right, as defined 
under the applicable plan document, at the time of termination of 
employment to payments under such plan;
    (iv) Benefits under such plan are accrued each period only for 
current or prior service rendered to the employer (except that an 
allowance may be made for service with a predecessor employer);
    (v) Any payment made pursuant to such plan is not based on any 
discretionary acceleration of vesting or accrual of benefits which 
occurs at any time later than one year prior to any of the events 
described in paragraph (1)(ii) of the term golden parachute payment as 
defined in this section;
    (vi) The regulated entity or the Office of Finance has previously 
recognized compensation expense and accrued a liability for the benefit 
payments according to GAAP or segregated or otherwise set aside assets 
in a trust which may only be used to pay plan benefits and related 
expenses, except that the assets of such trust may be available to 
satisfy claims of the regulated entity's creditors in the case of 
insolvency; and
    (vii) Payments pursuant to such plans shall not be in excess of the 
accrued liability computed in accordance with GAAP.
* * * * *
    Entity-affiliated party means:
    (1) With respect to the Office of Finance, any director, officer, 
or management of the Office of Finance; and
    (2) With respect to a regulated entity:
    (i) Any director, officer, employee, or controlling stockholder of, 
or agent for, a regulated entity;
    (ii) Any shareholder, affiliate, consultant, or joint venture 
partner of a regulated entity, and any other person, as determined by 
the Director (by regulation or on a case-by-case basis) that 
participates in the conduct of the affairs of a regulated entity, 
provided that a member of a Federal Home Loan Bank shall not be deemed 
to have participated in the affairs of that Federal Home Loan Bank 
solely by virtue of being a shareholder of, and obtaining advances 
from, that Federal Home Loan Bank;
    (iii) Any independent contractor for a regulated entity (including 
any attorney, appraiser, or accountant) if:
    (A) The independent contractor knowingly or recklessly participates 
in any violation of any law or regulation, any breach of fiduciary 
duty, or any unsafe or unsound practice; and
    (B) Such violation, breach, or practice caused, or is likely to 
cause, more than a minimal financial loss to, or a significant adverse 
effect on, the regulated entity;
    (iv) Any not-for-profit corporation that receives its principal 
funding, on an ongoing basis, from any regulated entity.
* * * * *
    Golden parachute payment means:
    (1) Any payment (or any agreement to make any payment) in the 
nature of compensation by any regulated entity or the Office of Finance 
for the benefit of any current or former entity-affiliated party 
pursuant to an obligation of such regulated entity or the Office of 
Finance that:
    (i) Is contingent on, or by its terms is payable on or after, the 
termination of such party's primary employment or affiliation with the 
regulated entity or the Office of Finance; and
    (ii) Is received on or after, or is made in contemplation of, any 
of the following events:
    (A) The insolvency (or similar event) of the regulated entity which 
is making the payment;
    (B) The appointment of any conservator or receiver for such 
regulated entity;
    (C) The regulated entity is in a troubled condition; or
    (D) The regulated entity is assigned a composite rating of 4 or 5 
by FHFA.
    (2) Exceptions. The term golden parachute payment shall not 
include:
    (i) Any payment made pursuant to a pension or retirement plan that 
is qualified (or is intended within a reasonable period of time to be 
qualified) under section 401 of the Internal Revenue Code of 1986 (26 
U.S.C. 401) or pursuant to a pension or other retirement plan that is 
governed by the laws of any foreign country;
    (ii) Any payment made pursuant to a ``benefit plan'' as that term 
is defined in this section;
    (iii) Any payment made pursuant to a ``bona fide deferred 
compensation plan or arrangement'' as that term is defined in this 
section;
    (iv) Any payment made by reason of death or by reason of 
termination caused by the disability of an entity-affiliated party; or
    (v) Any payment made pursuant to a nondiscriminatory severance pay 
plan or arrangement that provides for payment of severance benefits to 
all eligible employees upon involuntary termination other than for 
cause, voluntary resignation, or early retirement; provided that:
    (A) No employee shall receive any such payment that exceeds the 
base compensation paid to such employee during the 12 months (or such 
longer period or greater benefit as the Director shall consent to) 
immediately preceding termination of employment, resignation, or early 
retirement, and such severance pay plan or arrangement shall not have 
been adopted or modified to increase the amount or scope of severance 
benefits at a time when the regulated entity or the Office of Finance 
is in a condition specified in paragraph (1)(ii) of the term golden 
parachute payment as defined in this section or in contemplation of 
such a condition without the prior written consent of the Director; and
    (B) If an employee's salary exceeds $300,000, the exception 
provided under this paragraph (2)(v) shall not apply to that employee; 
or
    (vi) Any severance or similar payment that is required to be made 
pursuant to a state statute or foreign law that is applicable to all 
employers within the appropriate jurisdiction (with the exception of 
employers that may be exempt due to their small number of employees or 
other similar criteria.
* * * * *
    Nondiscriminatory means that the plan, contract, or arrangement in 
question applies to all employees of a regulated entity or the Office 
of Finance who meet reasonable and customary eligibility requirements 
applicable to all employees, such as minimum length of service 
requirements. A

[[Page 28459]]

nondiscriminatory plan, contract, or arrangement may provide different 
benefits based only on objective criteria such as salary, total 
compensation, length of service, job grade, or classification, which 
are applied on a proportionate basis (with a variance in severance 
benefits relating to any criterion of plus or minus ten percent) to 
groups of employees consisting of not less than the lesser of 33 
percent of employees or 1,000 employees.
* * * * *
    Payment means:
    (1) Any direct or indirect transfer of any funds or any asset;
    (2) Any forgiveness of any debt or other obligation;
    (3) The conferring of any benefit, including but not limited to 
stock options and stock appreciation rights; and
    (4) Any segregation of any funds or assets, the establishment or 
funding of any trust or the purchase of or arrangement for any letter 
of credit or other instrument, for the purpose of making, or pursuant 
to any agreement to make, any payment on or after the date on which 
such funds or assets are segregated, or at the time of or after such 
trust is established or letter of credit or other instrument is made 
available, without regard to whether the obligation to make such 
payment is contingent on:
    (i) The determination, after such date, of the liability for the 
payment of such amount; or
    (ii) The liquidation, after such date, of the amount of such 
payment.
* * * * *
    Safety and Soundness Act means the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.), as 
amended.
    Troubled condition means a regulated entity that:
    (1) Is subject to a cease-and-desist order or written agreement 
issued by FHFA that requires action to improve the financial condition 
of the regulated entity or is subject to a proceeding initiated by the 
Director, which contemplates the issuance of an order that requires 
action to improve the financial condition of the regulated entity, 
unless otherwise informed in writing by FHFA; or
    (2) Is informed in writing by the Director that it is in a troubled 
condition for purposes of the requirements of this part on the basis of 
the most recent report of examination or other information available to 
FHFA, on account of its financial condition, risk profile, or 
management deficiencies.
    5. Section 1231.3 is added to read as follows:


Sec.  1231.3  Golden parachute payments.

    (a) Prohibited golden parachute payments. No regulated entity or 
the Office of Finance shall make or agree to make any golden parachute 
payment, except as provided in this part.
    (b) Permissible golden parachute payments. (1) A regulated entity 
or the Office of Finance may agree to make or may make a golden 
parachute payment if and to the extent that:
    (i) The Director determines that such a payment or agreement is 
permissible; or
    (ii) Such an agreement is made in order to hire a person to become 
an entity-affiliated party either at a time when the regulated entity 
or the Office of Finance satisfies, or in an effort to prevent it from 
imminently satisfying, any of the criteria set forth in paragraph 
(1)(ii) of the term golden parachute payment as defined in Sec.  1231.2 
of this part, and the Director consents in writing to the amount and 
terms of the golden parachute payment. Such consent by the Director 
shall not improve the entity-affiliated party's position in the event 
of the insolvency of the regulated entity since such consent can 
neither bind a receiver nor affect the provability of receivership 
claims; or
    (iii) Such a payment is made pursuant to an agreement which 
provides for a reasonable severance payment, not to exceed 12 months 
salary, to an entity-affiliated party in the event of a change in 
control of the regulated entity; provided, however, that a regulated 
entity shall obtain the consent of the Director prior to making such a 
payment, and this paragraph (b)(1)(iii) shall not apply to any change 
in control of a regulated entity that results from the regulated entity 
being placed into conservatorship or receivership; and
    (iv) A regulated entity or the Office of Finance making a request 
pursuant to paragraphs (b)(1)(i) through (iii) of this section shall 
demonstrate that it does not possess and is not aware of any 
information, evidence, documents, or other materials that would 
indicate that there is a reasonable basis to believe, at the time such 
payment is proposed to be made, that:
    (A) The entity-affiliated party has committed any fraudulent act or 
omission, breach of trust or fiduciary duty, or insider abuse with 
regard to the regulated entity or the Office of Finance that is likely 
to have a material adverse effect on the regulated entity or the Office 
of Finance;
    (B) The entity-affiliated party is substantially responsible for 
the insolvency of, the appointment of a conservator or receiver for, or 
the troubled condition of the regulated entity;
    (C) The entity-affiliated party has materially violated any 
applicable Federal or State law or regulation that has had or is likely 
to have a material effect on the regulated entity or the Office of 
Finance; and
    (D) The entity-affiliated party has violated or conspired to 
violate sections 215, 657, 1006, 1014, or 1344 of title 18 of the 
United States Code, or section 1341 or 1343 of such title affecting a 
``financial institution'' as the term is defined in title 18 of the 
United States Code (18 U.S.C. 20).
    (2) In making a determination under paragraphs (b)(1)(i) through 
(iii) of this section, the Director may consider:
    (i) Whether, and to what degree, the entity-affiliated party was in 
a position of managerial or fiduciary responsibility;
    (ii) The length of time the entity-affiliated party was affiliated 
with the regulated entity or the Office of Finance, and the degree to 
which the proposed payment represents a reasonable payment for services 
rendered over the period of employment; and
    (iii) Any other factor the Director determines relevant to the 
facts and circumstances surrounding the golden parachute payment, 
including any fraudulent act or omission, breach of fiduciary duty, 
violation of law, rule, regulation, order, or written agreement, and 
the level of willful misconduct, breach of fiduciary duty, and 
malfeasance on the part of the entity-affiliated party.
0
6. Section 1231.5 is revised to read as follows:


Sec.  1231.5  Applicability in the event of receivership.

    The provisions of this part, or any consent or approval granted 
under the provisions of this part by FHFA, shall not in any way bind 
any receiver of a regulated entity in receivership. Any consent or 
approval granted under the provisions of this part by FHFA shall not in 
any way obligate FHFA or receiver to pay any claim or obligation 
pursuant to any golden parachute, severance, indemnification, or other 
agreement. Nothing in this part may be construed to permit the payment 
of salary or any liability or legal expense of an entity-affiliated 
party contrary to section 1318(e)(3) of the Safety and Soundness Act 
(12 U.S.C. 4518(e)(3)).
0
7. Section 1231.6 is added to read as follows:


Sec.  1231.6  Filing instructions.

    (a) Scope. This section contains the procedures to apply for the 
consent of

[[Page 28460]]

the Director to make golden parachute payments under Sec.  1231.3(b) of 
this part (including entering into agreements to make such payments) or 
to make excess nondiscriminatory severance plan payments under 
paragraph (2)(v) of the term golden parachute payment as defined in 
Sec.  1231.2 of this part.
    (b) Where to file. A regulated entity or the Office of Finance must 
submit a letter application to the Manager, Executive Compensation, 
Division of Supervision Policy and Support.
    (c) Content of filing. The letter application must contain the 
following:
    (1) The reasons why the regulated entity or the Office of Finance 
seeks to make the payment;
    (2) An identification of the entity-affiliated party who will 
receive the payment;
    (3) A copy of any contract or agreement regarding the subject 
matter of the filing;
    (4) The cost of the proposed payment and its impact on the capital 
and earnings of the regulated entity;
    (5) The reasons why the consent to the payment should be granted; 
and
    (6) Certification and documentation as to each of the factors 
listed in Sec.  1231.3(b)(1)(iv).
    (d) Additional information. FHFA may request additional information 
at any time during the processing of the letter application.
    (e) Written notice. FHFA shall provide the applicant with written 
notice of the decision as soon as it is rendered.

    Dated: May 6, 2013.
Edward J. DeMarco,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2013-11212 Filed 5-13-13; 8:45 am]
BILLING CODE XXXX-XX-P