Proposed rule to modernize board qualifications and address conflict of interest policies
The Federal Housing Finance Agency (FHFA) has proposed a new rule aimed at strengthening the governance of the Federal Home Loan Banks (FHLBanks) and enhancing their ability to address emerging risks in the housing finance market.
This move is part of a broader effort to modernize the FHLBank’s board structures and executive management as it faces new challenges in housing finance and emerging risks, including technological advances and climate-related concerns.
"The Federal Home Loan Bank 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 head Sandra Thompson said in a media 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."
Among the major components of the proposed rule are changes to board qualifications, with a focus on expanding the expertise of independent directors. The FHFA wants to ensure that board members have knowledge in key areas such as artificial intelligence, climate risk, Community Development Financial Institution (CDFI) business models, and information technology.
In addition, the rule clarifies the requirements for independent directors representing public interest. It emphasizes the need for board members to have direct, substantial experience working on behalf of consumers or communities, particularly in underserved areas. The adjustment is intended to reinforce the FHLBanks’ mission to support affordable housing and community development.
The proposed rule also aims to improve conflict-of-interest policies within the FHLBank System. It would require the FHLBanks to implement stricter guidelines addressing the outside positions and financial interests of employees, close family members, and associates.
The rule prohibits FHLBank executives from holding paid positions at member institutions, housing associates, or their affiliates, to ensure that leadership decisions are made without conflicting interests.
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FHFA will hold a webinar on October 30, 2024, to discuss the details of the proposed rule and encourage public engagement. The agency is welcoming public comments for 90 days after the rule is published in the Federal Register.
The proposed rule follows extensive consultation with stakeholders, building on the findings of the FHFA’s 2023 report, FHLBank System at 100: Focusing on the Future.
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