Daily Rules, Proposed Rules, and Notices of the Federal Government
FHFA invites comments on all aspects of the proposed rule and will take all comments into consideration before issuing the final rule. Copies of all comments will be posted without change, including any personal information you provide, such as your name and address, on the FHFA Internet Web site at
The twelve regional Banks are instrumentalities of the United States
Section 1209 of HERA added new paragraphs (b)(1) and (b)(2) to section 26 of the Bank Act to address voluntary mergers of Banks. Section 26(b)(1) authorizes any Bank to merge voluntarily with another Bank with the approval of the Director of FHFA and the boards of directors of the Banks involved in the merger. Section 26(b)(2) requires FHFA to promulgate regulations establishing the conditions and procedures for the consideration and approval of voluntary mergers, including approval by Bank members.
As required by section 26(b)(2), the proposed rule would establish the conditions and procedures for the consideration and approval of voluntary mergers of Banks. The proposed rule does not relate to liquidations, reorganizations, conservatorships, or receiverships undertaken by the Director of FHFA pursuant to the authority set forth at section 26(a) of the Bank Act and section 1367 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (Safety and Soundness Act).
Section 1313 of the Safety and Soundness Act, as amended by HERA, requires the Director of FHFA, when promulgating regulations relating to the Banks, to consider the following differences between the Banks and the other Housing Enterprises (Fannie Mae and Freddie Mac): Cooperative ownership structure; mission of providing liquidity to members; affordable housing and community development mission; capital structure; and joint and several liability.
The proposed rule would add a new part 1278 to the regulations of FHFA to govern voluntary mergers of Banks. It would establish required procedures for Banks to follow in order to consummate a merger, including authorization by the merging Banks' boards of directors, ratification by the Banks' member institutions, and approval by the Director of FHFA. In developing the proposed rule, FHFA looked to governance practices that are common under general principles of corporate law, disclosure practices that are required under the federal securities laws, and the approval standards required under federal banking laws relating to mergers of insured depository institutions as guidance for the key provisions of this proposal. The substance of each provision of the proposed rule is described in the following paragraphs.
Proposed § 1278.1 sets forth definitions of terms used in proposed part 1278. As is discussed more thoroughly below, the terms “merge” and “merger” would be defined broadly to encompass not only a merger in legal form—that is, a combination of two or more Banks in which one Bank continues its corporate existence and the other Bank ceases to exist as a separate legal entity by operation of law—but also all other types of business combinations that could conceivably occur between or among Banks. The proposed definition expressly includes three common forms of business combination: A merger; a consolidation, where two or more Banks combine to form one or more entirely new Banks; and a purchase and assumption (P&A) transaction, in which one or more Banks acquire substantially all of the assets and assume substantially all of the liabilities of another Bank or Banks. The definition also would include a general provision to include any other type of business combination of two or more Banks into one or more resulting Banks.
The term “Constituent Bank” would be defined to refer to any existing Bank that is a party to a proposed merger—in other words, to any Bank as it exists prior to the consummation of the merger. The term “Continuing Bank” would refer to any Bank that exists as a result of a consummated merger, regardless of whether the Bank existed prior to the merger or is an entirely new Bank created as part of the merger. In order that the provisions of this part encompass the possibility of mergers resulting in more than one Continuing Bank, such as a P&A transaction in which two Banks each acquire a portion of the assets and liabilities of another Bank, the term would be defined to include its plural form even when used in the singular.
The term “Disclosure Statement” would refer to a written document that contains all of the items that must be included in a Form S-4 Registration Statement (Form S-4) under the Securities Act of 1933 (1933Act) (or any successor form promulgated by the United States Securities and Exchange Commission (SEC) governing disclosure required for securities issued in business combination transactions) when prepared as a prospectus as directed in Part I of the Form S-4.
The term “Effective Date” would refer to the date on which a particular merger of Banks takes effect. Where more than two Constituent Banks propose to consummate a merger in multiple stages, the term “Effective Date” would refer to the date on which each of the component transactions takes effect.
Finally, proposed § 1278.1 would also include definitions for the short forms “Bank,” “Bank Act,” “Director,” “FHFA,” and “SEC.”
Proposed § 1278.2 provides that any two or more Banks may merge provided that the requirements of this part, as outlined in paragraphs (a) through (e), are met. As noted above, § 1278.1 would define “merge” broadly to include traditional mergers, consolidations, P&A transactions, and any other form of business combination in which two or
Although the term “merger” technically refers to a transaction in which one business entity absorbs another entity, with the former continuing to exist after the consummation of the transaction, the term is also used in a broader sense to refer to any type of business combination, especially those between entities of comparable size.
Accordingly, FHFA believes that it is justified in interpreting the statutory merger authorization broadly, especially given that, under the terms of the statute and the proposed rule, no business combination may be consummated without the approval of the Director. FHFA therefore requests comment on whether the final rule should set forth a broad or narrow definition for the terms “merge” and “merger,” and in particular on reasons for using types of business transactions other than legal mergers for the purpose of achieving combinations of Banks.
Paragraphs (a) through (e) of proposed § 1278.2 summarize the requirements of regulations in this part to which the broad authorization is subject: The Constituent Banks must agree upon the terms of the proposed merger, and the board of directors of each must authorize a written merger agreement; the Constituent Banks must jointly file a merger application with FHFA; the Director of FHFA must grant preliminary approval of the merger; the members of each Constituent Bank must vote to ratify the merger agreement; and the Director must grant final approval of the merger. The details of each of these requirements are set out in §§ 1278.3 through 1278.7 of the proposed rule, respectively, as noted in each of the paragraphs of proposed § 1278.2. In order to clarify the different stages of the process, the proposed rule refers to “authorization” of a merger agreement by the boards of directors of the Constituent Banks, “approval” of the merger by the Director of FHFA and “ratification” of the merger by the members of the Constituent Banks.
Section 1278.3—Merger Agreement:
Section 1278.3 of the proposed rule addresses the terms of the merger agreement that the Constituent Banks to any transaction must execute. It would provide that a merger of Banks under the authority of § 1278.2 shall require a written merger agreement that meets the requirements of paragraphs (a) and (b) of § 1278.3.
Paragraph (a) of § 1278.3 would require that any merger agreement be authorized by the affirmative vote of a simple majority of the board of directors of each Constituent Bank at a meeting on the record and executed by authorized signing officers of each Constituent Bank. Under this provision, a Bank's board of directors would be deemed to have authorized the execution of a merger agreement if a majority of directors present at the meeting, at which a quorum was present, voted in favor of the authorization. The proposed rule would require that the board meet on the record, meaning that the votes and matters discussed must be fully and accurately reflected in an electronic recording, a written transcript, or written minutes of the meeting.
Section 26(b)(1) of the Bank Act requires that the board of directors of each merging Bank approve the merger transaction, but does not address the details of the boards' approval, such as the percentage of votes required or the method of voting. Given the absence of any statutory requirements regarding the details of the board approval, as well as the mandate to establish the conditions and procedures for a merger, FHFA has broad authority to establish an appropriate model for board approval of mergers, including models that might differ from that reflected in the proposed rule.
FHFA has considered several alternatives in developing the proposed rule, and has opted to use the traditional corporate approach for board approval. This approach corresponds with the manner in which board decisions currently are made under the by-laws of all of the Banks. To the extent that a higher standard of deliberation may be desirable for a decision as significant as a merger, FHFA believes that the required ratification by each Banks' members, the required approval of the Director of FHFA, and the other detailed requirements of the proposed rule (all discussed below) provide for sufficient deliberation by the various constituencies. In addition, nothing in the text or legislative history of section 26(b) of the Bank Act evidences any Congressional intent to establish a standard for board approval that is different from that traditionally used by the Banks, or by corporations generally. To the contrary, the addition of the Banks' voluntary merger authority to the Bank Act appears intended to enable and encourage the Banks to develop merger proposals based on their own assessments of their business needs. To require authorization by something more than a simple majority of each board could discourage Bank management and directors from developing and considering merger proposals that could be of benefit to the Bank's members and to the Bank System as a whole. Nevertheless, FHFA requests comment upon whether the standard for approval by the Constituent Banks' boards of directors should differ from that set forth in the proposed rule and, if so, which standard should be made to apply.
Proposed § 1278.3(b) generally would require that a merger agreement set forth all material terms and conditions of the proposed merger and also that it include provisions addressing certain enumerated issues. The enumeration is not intended as a safe harbor regarding whether a merger agreement sets forth all material terms and conditions of the
Thus, paragraph (b)(1) would require the Banks to include in an agreement the proposed Effective Date of the merger, which should be established with sufficient regard for amount of time that it will take to fulfill the requirements of the regulations in this part. FHFA does not intend that an agreement must specify in advance a particular date on which the merger will occur, but does expect that an agreement will include provisions from which the effective date can be reasonably determined, such as within a specified period after the occurrence of a particular event, such as the receipt of final FHFA approval or the satisfaction of all required conditions. In cases where more than two Constituent Banks are a party to a merger agreement that governs two or more component combinations to be consummated at different times, the Banks would be required to include in the agreement the Effective Dates for each component combination.
Paragraph (b)(2) would require the Banks to include in an agreement a description of the main features of the proposed organization certificate and the proposed by-laws for the Continuing Bank. In the case of the proposed organization certificate, the main feature to be addressed would be the listing of states that will make up the district of the Continuing Bank. FHFA recognizes the possibility that certain mergers could involve, as an incident to the initial transaction, the subsequent transfer of states located within the district of one or more of the initial Constituent Banks to the districts of other Banks that are not parties to the initial merger transaction. In such cases the agreement should describe the proposed organization certificate as it would exist immediately after the initial transaction, as well as after any subsequent transactions. Even if those subsequent transactions are not governed by the same merger agreement, they must be described in the merger application filed with FHFA.
Paragraph (b)(3) would require the Banks to include in an agreement a description of the main features of the proposed capital structure plan for the Continuing Bank. Under section 6 of the Bank Act, as implemented by the regulations of the Finance Board, each Bank is required to develop and operate under a capital structure plan that governs the issuance and redemption of, and the rights attached to, the capital stock held by the Bank's members.
Paragraph (b)(4) would require the Banks to address in a merger agreement the proposed size and structure of the Continuing Bank's board of directors. New part 1278 refers to the “proposed” board size and structure in recognition of the fact that section 7 of the Bank Act generally requires the Director of FHFA to establish the size and structure of the board of directors of each Bank and gives the Director additional discretion to adjust the board size in connection with any Bank merger.
Paragraphs (b)(5) through (b)(8) of proposed § 1278.3 would require, respectively, that a merger agreement: Set forth the formula to be used to exchange the stock of one or more Constituent Banks for that of the Continuing Bank and prohibit the issuance of fractional shares of Bank stock; set forth any conditions that must be satisfied prior to the Effective Date of the proposed merger; set forth any representations or warranties made by any of the Constituent Banks or their officers, directors or employees; and describe any legal opinions or rulings, whether generated internally, by outside counsel, by FHFA, or another government agency, in connection with the proposed merger. The prohibition on the issuance of fractional shares is consistent with the capital plans of the majority of the Banks, some of which already prohibit fractional shares explicitly, and others of which do so implicitly, either by requiring all stock purchase requirements to be rounded up to the nearest whole number of shares or by requiring that all stock be issued only at its stated par value. The prohibition would not conflict with any Bank's capital plan, as no capital plan expressly authorizes the issuance of fractional shares. The conditions that would be required to be enumerated under paragraph (b)(6) would include, in all cases, ratification of the merger by the members of the Constituent Banks and approval of the merger by the Director of FHFA.
Finally, paragraph (b)(9) would require that a merger agreement contain a provision permitting the board of directors of any Constituent Bank, with the concurrence of the Director of FHFA, to terminate the agreement after the members of the Banks have voted to ratify the agreement in cases where: Information disclosed to members contained material errors or omissions; material misrepresentations were made to members regarding the impact of the proposal; fraudulent activities were used to obtain the members' ratification of the merger; or an event occurred between the time of the member vote and the Effective Date of the merger that would have a significant adverse impact
Section 1278.4 of the proposed rule would govern the application that the Constituent Banks must file jointly with FHFA to obtain approval for any proposed merger. Although Part 1278 would require an application to include certain specified items, FHFA expects that, even prior to filing a formal application with FHFA, the Constituent Banks will have discussed the possibility of a merger with agency staff on an informal basis to determine whether a merger would present any significant supervisory concerns or involve novel aspects that might require the submission of other categories of information for the Director to appropriately assess the merits of the proposed merger.
Proposed § 1278.4(a) would enumerate the minimum required contents of a merger application. Paragraph (a)(1) would address the written statement that the Constituent Banks would be required to file as the main part of the application. Part 1278 would require that this statement contain: a summary of the material features of the proposed merger; the reasons for the proposed merger; the effect of the proposed merger on the Constituent Banks and their members; the planned Effective Date of the merger; A summary of the material features of any related transactions and the bearing that the consummation of, or failure to consummate, the related transactions is expected to have upon the merger; the names of the persons proposed to serve as directors and senior executive officers of the Continuing Bank; a description of all proposed material operational changes; information demonstrating that the Continuing Bank will comply with all applicable capital requirements after the Effective Date; a statement explaining all officer and director indemnification provisions; and an undertaking that the Constituent Banks will continue to disclose all material information, and update all items, as appropriate. In demonstrating future compliance with applicable capital requirements, the Banks should correlate the data in the pro forma financial statements of the Continuing Bank to the capital calculations required under part 932 of the regulations of the Finance Board.
Paragraph (a)(2) would require an application to include a copy of an executed merger agreement, accompanied by a certified copy of the resolution of the board of directors of each Constituent Bank authorizing the execution of the merger agreement. In addition, paragraphs (a)(3) through (a)(5) would require the Banks to provide, respectively, copies of the proposed organization certificate, the proposed by-laws, and the proposed capital structure plan of the Continuing Bank. Each of those items should have been approved by the board of directors of each of the Constituent Banks prior to submission to FHFA, which will evaluate them and include any necessary approvals as part of the approval of the merger transaction.
Paragraphs (a)(6) and (a)(7) would require the Banks to include as part of the application the most recent audited financial statements for each Bank and pro forma financial statements for the Continuing Bank in such forms as would be required to be included in the Disclosure Statement that the Banks must provide to their members in connection with the member vote under proposed § 1278.6 (discussed in detail below). Depending upon the option chosen by the Constituent Banks, the pro forma financial statements appearing in the Disclosure Statement could include forecasted results for up to twelve (12) months following the date of the most recent balance sheet included in the Disclosure Statement. FHFA is considering whether it should require the Constituent Banks to provide as part of the merger application pro forma forecasted results for as many as three years following the date of the most recent balance sheet in order to better assess the long-term prospects of the Continuing Bank. FHFA requests comment on whether it is advisable to include a different pro forma timeframe for the merger application than that which must be followed in the Disclosure Statement and whether a three-year forecast is appropriate.
Paragraph (b) of proposed § 1278.4 provides that FHFA may require the Constituent Banks to submit any additional information that it determines is required to assess a particular merger. This information may be requested at any time, even after a merger application has been deemed complete under paragraph (c). If FHFA has determined that an application is complete, any subsequent requests for additional information must relate to matters that are derived from or prompted by the information previously submitted, or matters of a material nature that were not reasonably available previously, such as in the case of developments occurring after the determination of completeness or in the case of materials concealed by one of the Banks. Under the proposed rule, FHFA may use a Constituent Bank's failure to provide the required information in a timely manner as grounds to deny a merger application.
Paragraph (c) would govern the timing for determining whether a merger application is complete. Under this provision, FHFA would have thirty (30) days after the receipt of a merger application to determine whether it is complete or whether FHFA needs any additional information for the Director to evaluate the proposed merger. This part would require FHFA to inform the Constituent Banks in writing if the agency determines that an application is complete and that it has all information necessary to evaluate the proposed merger. This part also requires FHFA to inform the Constituent Banks in writing if it determines that an application is incomplete, or that it requires additional information in order to evaluate the application. In that case, FHFA would specify the number of days within which the Constituent Banks must provide any additional information or materials, giving due regard to the nature and extent of the information or materials requested. Part 1278 would require that, within fifteen (15) days of receipt of the additional information or materials, FHFA again determine whether a merger application is complete and so inform the Banks.
With respect to the approval that the Constituent Banks must obtain from the Director of FHFA before a merger may be consummated, the proposed rule contemplates a two-stage process. The first stage would encompass a review of all substantive aspects of a proposed merger, followed by either a preliminary approval or a denial of the merger application. If the Director grants preliminary approval, the second stage would be an abbreviated review after the members of each Constituent Bank have ratified the merger, followed by a final decision. Section 1278.5 of the proposed rule addresses the first stage of the process and includes the standards that the Director would apply in deciding whether to grant or deny preliminary approval and the process for notifying the Constituent Banks of the decision. The proposed rule anticipates that after the Director has granted preliminary approval of a merger, the Constituent Banks will present the terms of the approved merger to their members for ratification. Thus, at the time that the matter is presented to the members they will know that FHFA has granted preliminary approval of the transaction and the nature of any conditions that
The standards set forth in the proposed rule which the Director would apply in determining whether to approve a merger of Banks are similar to those used by the federal depository institution regulators in considering mergers and acquisitions of federally insured depository institutions.
Proposed § 1278.5(b) addresses procedural aspects of the merger application process and provides that, after FHFA determines that a merger application is complete, the Director shall have thirty (30) days to consider the information and materials provided in the application and either grant or deny preliminary approval of the merger. Certain merger proposals may present novel policy issues, complex financial or accounting analyses, or unprecedented legal issues, any of which may require extended periods of time to resolve. In such cases, the Banks should consult with FHFA about those matters in advance to assure that they may receive an approval within the defined time.
Under paragraph (b)(1), if the Director decides to grant preliminary approval of the merger transaction, FHFA would provide written notice of the approval to each Constituent Bank, as well as to each other Bank and the Office of Finance. The notice provided would include any conditions that FHFA requires to be met prior to the final approval of the merger. In all cases, one of these conditions would be the ratification of the merger by the affirmative vote of the members of each Constituent Bank. The notice provided to the other Banks and to the Office of Finance under this provision would be solely for informational purposes. FHFA believes that the possibility of a merger would be a material development about which the other Banks, which are jointly and severally liable with the Constituent Banks on the System's consolidated obligations,
Under paragraph (b)(2), if the Director decides to deny preliminary approval of the merger, FHFA would provide similar written notice of the denial to each Constituent Bank, as well as to each other Bank and the Office of Finance. FHFA would include in the written notice to the Constituent Banks a statement of the reasons for the denial. These reasons would be tied to the standards that the Director would be required to apply under proposed § 1278.5(a), or to a Bank's failure to provide information required under this rule. The proposed rule contains no specific provision for reconsideration of a denial of preliminary approval, although nothing therein would prohibit the Constituent Banks from agreeing to an amended merger agreement and re-submitting an application for approval.
Section 1278.6 of the proposed rule would set forth the requirements for the ratification of a merger agreement by the Constituent Banks' member institutions. Section 26(b) of the Bank Act explicitly authorizes Banks to merge, provided they obtain the approval of their respective boards of directors and the Director of FHFA, and separately directs FHFA to promulgate regulations to establish the conditions and procedures for consideration and approval of voluntary mergers, which regulations are to include procedures for member approval.
Other than requiring FHFA to promulgate regulations addressing the matter of member approval, the Bank Act is silent on what form the Bank member approval process should take. For this reason, FHFA has modeled the proposed voting process for member ratification of a merger after the statutory requirements for member
Proposed § 1278.6(a) would govern the member ratification voting process. The introductory portion of paragraph (a) would establish the general requirement that no merger may be consummated unless and until the merger agreement has been ratified by the affirmative vote of the members of each Constituent Bank, carried out in accordance with the requirements of paragraphs (a)(1) through (a)(4).
Paragraph (a)(1) would govern the notice requirements pertaining to the member vote on ratification of the merger. To initiate the voting process, paragraph (a)(1) would require each Constituent Bank to deliver to each of its members a ballot permitting the member to vote for or against the merger, or to abstain. It would require each Bank to deliver with the ballot a Disclosure Statement containing all of the items that would be included in a Form S-4 if the Bank were required under the federal securities laws and SEC regulations to deliver a Form S-4 proxy statement/prospectus to its members in connection with the proposed merger. Because the shares of capital stock issued by each Bank are exempted securities under the 1933 Act, a Bank would not be required to file a Form S-4 registration statement with the SEC, or to deliver a Form S-4 proxy statement/prospectus to its shareholders in connection with a merger, even if the Bank issues stock or holds a shareholder vote as part of the process.
By referencing Part I of the Form S-4 (entitled “Information Required in the Prospectus”) the proposed rule would require that the Disclosure Statement include information about: The transaction, including the terms of the transaction, associated risk factors and pro forma financial information; the Constituent Banks, including financial statements and discussion of the Banks' business, which may be supplied in large part through incorporation by reference of the Banks' recent periodic reports filed under the 1934 Act; the voting process; and the proposed management of the Continuing Bank. It is contemplated that, in most cases, the Constituent Banks to a particular transaction would be able to use substantially similar Disclosure Statements and, therefore, that the Banks could prepare the document jointly, with each Bank making any modifications necessary to customize the presentation to its own members. FHFA requests comment on whether a disclosure regime based on the model of the Form S-4 is an appropriate means of ensuring that the members are fully informed about the nature of the proposed merger, or whether some other standard for determining the scope and content of the disclosures would be appropriate.
Paragraph (a)(2) of proposed § 1278.6 would govern the calculation of the number of votes that each member of a Constituent Bank may cast in voting to ratify a merger agreement. The proposed rule provides that each member of each Constituent Bank shall be entitled to cast the same number of votes that the member may cast in that year's election of Bank directors, as set forth in the Bank Act and the implementing regulations.
By statute, in the election of Bank directors, a member is entitled to cast one vote for each share of Bank stock the member was required to hold as of the record date (December 31 of the previous year), subject to a cap which is equal to the average number of shares of Bank stock required to be held by all members located in the same state. The effect of these provisions is that not all Bank stock carries the right to vote for directors. For example, a Bank member is not entitled to vote stock owned in excess of its minimum stock purchase requirement because it is not “required to be held” by the member under the statute. Similarly, stock held by a member in excess of the statutory cap,
FHFA has decided to employ this approach for the proposed rule because it is the only member voting method enshrined in the Bank Act and, therefore, is the only manifestation of general Congressional intent on the subject. In addition, FHFA believes that whatever voting approach is used for
Paragraph (a)(3) of proposed § 1278.6 would provide that no Bank may review any ballot until after the closing date established in the Disclosure Statement and may not include in the tabulation any ballot received after the closing date. It would also require that a Constituent Bank tabulate the votes cast in a merger ratification vote immediately after the closing date. Again, these requirements are similar to those that apply to the election of member directors, as provided in § 1261.8(e) of the FHFA's regulations.
Paragraph (a)(4) would require that, within ten (10) calendar days of the closing date, a Constituent Bank deliver to its members, to each Constituent Bank with which it proposes to merge, and to FHFA a statement of: the total number of eligible votes; the number of members voting in the election; and the total number of votes cast both for and against ratification of the merger agreement, as well as those that were eligible to be cast by members that abstained and by members who failed to return completed ballots.
Paragraph (b) of proposed § 1278.6 would state that, in connection with a proposed merger, no Bank, or any director, officer, or employee thereof, shall make any statement, written or oral, which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statement not false or misleading, or necessary to correct any earlier statement that has become false or misleading.
Section 1278.7 of the proposed rule would govern the process by which the Director of FHFA would either grant or deny final approval of merger transactions.
Paragraph (a) of proposed § 1278.7 would provide that, upon ratification of a merger agreement by the members of the Constituent Banks, each Constituent Bank must provide to FHFA: A certified copy of the members' resolution ratifying the merger agreement; a certification of the member vote from the corporate secretary or from an independent third party; and any required evidence that any conditions imposed as part of the preliminary approval granted under § 1278.5 have been satisfied.
Paragraph (b) of proposed § 1278.7 would set forth the procedures for the Director's final determination to grant or deny approval of the merger transaction. The introductory portion would provide that, after FHFA has received all of the materials required to be provided under paragraph (a), the Director shall, within thirty (30) days, either grant or deny final approval of the merger.
Under paragraph (b)(1), if the Director grants final approval of the merger, FHFA would provide written notice of the approval to each Constituent Bank as well as to each Bank and the Office of Finance. The Constituent Banks then would file with FHFA an organization certificate for the Continuing Bank in the form approved by the Director as part of the preliminary approval process and executed by the individuals who will constitute the board of directors of the Continuing Bank. Upon the acceptance of the organization certificate by FHFA, the Continuing Bank would be a body corporate operating under the approved organization certificate, as of the Effective Date, with all powers granted to a Bank under the Bank Act. Paragraph (b)(1) would also provide that, with respect to mergers that meet the definition set forth in paragraph (1) or (2) of the definition of “merger” set forth in § 1278.1, the corporate existence of any Constituent Bank that is not a Continuing Bank would cease as of the Effective Date and the Continuing Bank would succeed to all rights, titles, powers, privileges, books, records, assets and liabilities of the Constituent Banks, as provided in the merger agreement.
Paragraph (b)(2) of proposed § 1278.7 would prohibit the Director of FHFA from denying final approval of a merger except pursuant to a determination that either: the member vote was not carried out in accordance with the requirements of § 1278.6; one or more Constituent Banks failed to fulfill a condition of the preliminary approval; or an event has occurred since the time of the preliminary approval that would have a significant adverse impact on the future viability of the Continuing Bank.
If the Director makes one of the required determinations and denies final approval of a merger, FHFA would be required to provide written notice of the denial to each Constituent Bank and to each other Bank and the Office of Finance. In addition, paragraph (b)(2) would require that FHFA provide to the Constituent Banks a written statement of the reasons for the denial, which reasons must be related to one of the determinations that the Director must make in order to deny final approval.
The proposed rule does not contain any collections of information pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
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).
Banks, banking, Federal home loan banks, mergers.
For the reasons stated in the preamble, and under the authority of 12 U.S.C. 4526, the Federal Housing Finance Agency proposes to amend subchapter D of chapter XII of title 12 of the Code of Federal Regulations by adding part 1278 to read as follows:
12 U.S.C. 1432(a), 1446, and 4511.
As used in this part:
(1) A merger of one or more Banks into another Bank;
(2) A consolidation of two or more Banks resulting in a new Bank;
(3) A purchase of substantially all of the assets, and assumption of substantially all of the liabilities, of one or more Banks by another Bank or Banks; or
(4) Any other business combination of two or more Banks into one or more resulting Banks.
Any two or more Banks may merge, provided:
(a) The Constituent Banks have agreed upon the terms of the proposed merger and the board of directors of each Constituent Bank has authorized the execution of a written merger agreement as provided under § 1278.3;
(b) The Constituent Banks have jointly filed a merger application with FHFA to obtain the approval of the Director, as provided under § 1278.4;
(c) The Director has granted preliminary approval of the merger as provided under § 1278.5;
(d) The members of each Constituent Bank have ratified the merger agreement as provided under § 1278.6; and
(e) The Director has granted final approval of the merger as provided under § 1278.7.
A merger of Banks under the authority of § 1278.2 shall require a written merger agreement that:
(a) Has been authorized by the affirmative vote of a majority of a quorum of the board of directors of each Constituent Bank at a meeting on the record and has been executed by authorized signing officers of each Constituent Bank; and
(b) Sets forth all material terms and conditions of the merger, including, without limitation, provisions addressing each of the following matters—
(1) The proposed Effective Date of the merger;
(2) The proposed organization certificate and by-laws of the Continuing Bank;
(3) The proposed capital structure plan for the Continuing Bank;
(4) The proposed size and structure of the board of directors for the Continuing Bank;
(5) The formula to be used to exchange the stock of the Constituent Banks for the stock of the Continuing Bank, and a provision prohibiting the issuance of fractional shares of stock;
(6) Any conditions that must be satisfied prior to the Effective Date of the proposed merger, which must include ratification by members of the Constituent Banks and approval by the Director;
(7) A statement of the representations or warranties, if any, made or to be made by any Constituent Bank, or its officers, directors, or employees;
(8) A description of the legal opinions or rulings, if any, that have been obtained or furnished by any party in connection with the proposed merger; and
(9) A statement that the board of directors of a Constituent Bank can terminate the merger agreement before the Effective Date upon a determination by the Constituent Bank, with the concurrence of FHFA, that:
(i) The information disclosed to members contained material errors or omissions;
(ii) Material misrepresentations were made to members regarding the impact of the merger;
(iii) Fraudulent activities were used to obtain members' approval; or
(iv) An event occurred between the time of the members' vote and the mer