Tap any paragraph to write a margin note. Your notes collect in the Desk below the text and file under cases with @. The side-by-side margin rail opens on a larger screen.

§
Marginalia
Code · REGISTER · 2006-03-15 · Federal Housing Finance Board · Proposed Rules

Proposed Rules. Proposed rule

19,723 words·~90 min read·/register/2006/03/15/06-2423

A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

BILLING CODE 6715-01-P FEDERAL HOUSING FINANCE BOARD 12 CFR Parts 900, 917, 925, 930, 931 and 934 [No. 2006-03] RIN 3069-AB30 Excess Stock Restrictions and Retained Earnings Requirements for the Federal Home Loan Banks AGENCY: Federal Housing Finance Board. ACTION: Proposed rule. SUMMARY: The Federal Housing Finance Board (Finance Board) is proposing to add to its regulations provisions that would limit the amount of excess stock that a Federal Home Loan Bank
(Bank)can have outstanding and that would prescribe a minimum amount of retained earnings for each Bank. The proposed amendments also would prohibit a Bank from selling excess stock to its members or paying stock dividends, and restrict a Bank's ability to pay dividends when its retained earnings are below the prescribed minimum. DATES: The Finance Board will accept written comments on the proposed rule on or before July 13, 2006. *Comments:* Submit comments by any of the following methods: E-mail: *comments@fhfb.gov.* Fax: 202-408-2580. Mail/Hand Delivery: Federal Housing Finance Board, 1625 Eye Street, NW., Washington, DC 20006, ATTENTION: Public Comments. 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 e-mail to the Finance Board at *comments@fhfb.gov* to ensure timely receipt by the agency. Include the following information in the subject line of your submission: Federal Housing Finance Board. Proposed Rule: Excess Stock Restrictions and Retained Earnings Requirements for the Federal Home Loan Banks. RIN Number 3069-AB30. Docket Number 2006-03. We will post all public comments we receive without change, including any personal information you provide, such as your name and address, on the Finance Board Web site at *http://www.fhfb.gov/Default.aspx?Page=93&Top=93.* FOR FURTHER INFORMATION CONTACT: Scott L. Smith, Associate Director, *smiths@fhfb.gov* or 202-408-2991; Anthony Cornyn, Senior Advisor to the Director, *cornyna@fhfb.gov* or 202-408-2522; Office of Supervision; or Thomas E. Joseph, Senior Attorney-Advisor, *josepht@fhfb.gov* or 202-408-2512, Office of General Counsel. You can send regular mail to the Federal Housing Finance Board, 1625 Eye Street, NW., Washington, DC 20006. SUPPLEMENTARY INFORMATION: I. Statutory and Regulatory Background The Federal Home Loan Bank System consists of 12 Banks and the Office of Finance (OF). The Banks are instrumentalities of the United States organized under the authority of the Federal Home Loan Bank Act (Bank Act). 12 U.S.C. 1421 *et seq.* Although Banks are federally chartered institutions, they are privately owned and were created by Congress to support the financing of housing and community lending by their members (which are principally depository institutions), and as such, are commonly categorized as “government sponsored enterprises” (GSEs). *See* 12 U.S.C. 1422a(a)(3)(B)(ii), 1424, 1430(i) and 1430(j). As GSEs, the Banks are able to borrow in the capital markets at favorable rates. They then pass along this funding advantage to their member institutions—and ultimately to consumers—by providing secured loans known as advances and other financial services to member institutions at rates that the members generally could not obtain elsewhere. The Banks and OF operate under the supervision of the Finance Board. The Finance Board's primary duty is to ensure that the Banks operate in a financially safe and sound manner. *See* 12 U.S.C. 1422a(a)(3)(A). To the extent consistent with this primary duty, the Bank Act also requires the Finance Board to supervise the Banks and ensure that they carry out their housing finance mission, remain adequately capitalized and are able to raise funds in the capital markets. *See* 12 U.S.C. 1422a(a)(3)(B). To carry out its duties, the Finance Board is empowered, among other things, “to promulgate and enforce such regulations and orders as are necessary from time to time to carry out the provisions of [the Bank Act].” 12 U.S.C. 1422b(a)(1). Prior to the passage of the Gramm-Leach-Bliley Act 1 (GLB Act) in November 1999, all Banks issued a single class of stock with a par value set at $100. Generally, all transactions in this stock were required to occur at the par value. *See* 12 U.S.C. 1426(a) and (b)(3) (1994); 12 CFR 925.19 and 925.22(b)(2). By statute, Bank members were required to purchase and retain a minimum amount of stock equal to the greater of:
(i)$500;
(ii)1 percent of the member's aggregate unpaid principal balance of home mortgage or similar loans; or
(iii)5 percent of a member's outstanding advances. *See* 12 U.S.C. 1426(b) (1994). Further, the Bank Act did not impose specific minimum capital requirements on the Banks individually, although the Finance Board did establish such requirements by regulation. *See* 12 CFR 966.3(a). 1 Public Law 106-102, 133 Stat. 1338 (November 12, 1999). The GLB Act amended the Bank Act to create a new capital structure for the Bank System and to impose statutory minimum capital requirements on the individual Banks. As part of this change, each Bank must adopt and implement a capital plan consistent with provisions of the GLB Act and Finance Board regulations. Among other things, each capital plan establishes stock purchase requirements that set the minimum amount of capital stock a Bank's members must purchase as a condition of membership and of doing business with the Bank. *See* 12 U.S.C. 1426(c)(1); 12 CFR 933.2(a). Under the new capital structure, Banks may issue either Class A or Class B stock or both. Class A stock is defined as stock redeemable in cash and at par six months following submission by a Bank member of written notice of its intent to redeem such stock, and Class B stock is defined as stock redeemable in cash and at par five years following submission of a member's written notice of its intent to do so. *See* 12 U.S.C. 1426(a)(4)(A). A Bank must establish in its capital plan the classes of stock that it intends to issue, the par value of such stock, and other rights associated with this new stock. *See* 12 U.S.C. 1426(c)(4); 12 CFR 933.2. Any transactions in Class A or Class B stock, whether involving issuance, redemption, repurchase or transfer of such stock, must be at par value. *See* 12 CFR 931.1 and 931.6. The GLB Act also requires each Bank to meet certain minimum capital requirements once the Bank converts to the new capital structure. Under these requirements, a Bank must maintain “permanent capital” in an amount sufficient to cover the credit risk and market risk to which it is subject, with the market risk being based on a stress test established by the Finance Board. 2 By regulation, the Finance Board also requires a Bank to hold sufficient permanent capital to meet an operations risk charge. *See* 12 CFR 932.3. *See also* Final Rule: Capital Requirements for the Federal Home Loan Banks, 66 FR 8262, 8299-8300 (Jan. 30, 2001) (explaining reasons for operations risk capital charge) ( *hereinafter* Final Capital Rule). The GLB Act also requires the Banks to hold sufficient “total capital” to comply with both a “weighted” and “unweighted” minimum leverage requirement. 3 2 *See* 12 U.S.C. 1426(a)(3)(A); 12 CFR 932.3. Permanent capital is defined by statute to include the amounts paid-in for Class B stock plus the retained earnings of the Bank, where retained earnings are determined in accordance with generally accepted accounting principles (GAAP). *See* 12 U.S.C. 1426(a)(5)(A). 3 *See* 12 U.S.C. 1426(a)(2); 12 CFR 932.2. The statute defines total capital to include a Bank's permanent capital, plus the amounts paid-in by members for Class A stock, any general allowances for losses (if consistent with GAAP), and any amounts determined by the Finance Board by regulation to be available to absorb losses. *See* 12 U.S.C. 1426(a)(5)(B). The “weighted” minimum leverage requirement is calculated by multiplying a Bank's permanent capital by a factor of 1.5 and adding the other elements of total capital to this result, and requires each Bank to maintain a ratio of “weighted” total capital to total assets of at least 5 percent. When the leverage ratio is calculated without weighting permanent capital, each Bank must maintain a ratio of total capital to total assets of at least 4 percent. *See* 12 U.S.C. 1426(a)(2); 12 CFR 932.2. To date, 11 of the 12 Banks have implemented their capital structure plans and converted to the new capital structure established by the GLB Act. The pre-GLB Act stock purchase and retention requirements will continue to apply to the members of the remaining Bank until the Bank implements its capital plan and issues its new capital stock. 4 4 *See* 12 U.S.C. 1426(a)(6). The regulatory leverage requirement in § 966.3(a) also continues to apply to a Bank until it implements its capital plan and complies with the minimum capital requirements in the GLB Act. *See* 12 CFR 931.9(b)(1). The one Bank that has not yet converted to the new capital structure, however, is operating pursuant to a written agreement with the Finance Board, which requires the Bank to hold capital in excess of the amount set forth in § 966.3(a). *See* 2005-SUP-01 (Oct. 18, 2005). (2005-SUP-01 is available electronically in the Finance Board's “FOIA Reading Room” under “Supervisory Actions”: *http://www.fhfb.gov/Default.aspx?Page=59&Top=4).* II. Proposed Rule Amendments A. Introduction The proposed amendments would restrict the amount of excess stock that a Bank can accumulate and keep outstanding and would establish a required minimum level of retained earnings for each Bank. These changes are being proposed for prudential reasons to address the Finance Board's concerns that some Banks increasingly use excess stock to capitalize assets that are long term in nature and not readily saleable, such as acquired member assets (AMA), or that are not mission related, and that the Banks' current levels of retained earnings are not adequate to protect against potential impairment of the par value of the Banks' capital stock. 5 5 Among other considerations, a Bank's capital stock could be deemed impaired if losses have depleted a Bank's current income and retained earnings and resulted in “negative” retained earnings. Capital stock impairment is not necessarily indicative of capital insolvency or capital inadequacy. In fact, a Bank could exceed all its minimum capital requirements and still have capital stock that is impaired. To enforce these proposed limitations, the amendments are proposing to restrict the amount of dividends that a Bank could pay whenever the Bank is not in compliance with the minimum retained earnings requirements, and to prohibit the Banks from issuing dividends in the form of stock. These changes principally would be incorporated into new part 934, which the Finance Board is proposing to add to current subchapter E of its regulations. Conforming changes are also being proposed to other parts of the Finance Board's regulations. The Finance Board emphasizes that the proposed excess stock requirements, the minimum retained earnings requirements and the related dividend limitations would apply to all Banks, whether or not the Bank has implemented its capital plan and converted to the new capital structure mandated by the GLB Act. B. Excess Stock Limitation 1. Reasons for Proposing the Excess Stock Limitations Excess stock is any Bank capital stock owned by an institution greater than the minimum amount that it is required to hold under a Bank's capital plan, the Bank Act or Finance Board regulations as a condition of becoming a member of, or of obtaining and maintaining advances or other transactions with, the Bank. 6 Generally, excess stock may be created in three ways:
(1)When stock originally held to fulfill a membership or activity-based stock purchase requirement is no longer needed because that requirement has decreased;
(2)through a Bank's payment of dividends in the form of shares of stock rather than in cash; and
(3)by direct purchase of excess stock by a member. 7 Banks, in their sole discretion, have the right to buy back or repurchase a member's excess stock, subject to specific limitations. *See* 12 U.S.C. 1426(e)(1); 12 CFR 925.22(b)(2) and 931.7(b). These limitations include a restriction that prevents a Bank from repurchasing any excess stock if, after the repurchase, the Bank would fail to meet any of its minimum regulatory capital requirements or the member would no longer meet any of its stock purchase requirements. 6 While Bank stock generally is held only by members of the Bank, former members may also continue to hold stock for a limited period of time after their membership terminates. A non-member institution also may come into possession of Bank stock if it acquires a Bank member (whose membership would terminate upon its consolidation into the non-member institution), and may continue to hold that stock for a limited period of time and for limited purposes. Stock held by former members or other institutions also may be categorized as either required or excess stock. For example, under Finance Board regulations, any indebtedness or other transactions that were outstanding at the time an institution's membership terminated may be liquidated in an orderly fashion as determined by the Bank. Under Finance Board rules, however, Bank stock must continue to be held to support such indebtedness or transactions during the period of orderly liquidation and until the indebtedness or other transactions are paid off or otherwise terminated. *See* 12 CFR 925.29. While these non-member institutions may hold Bank stock under limited circumstances, they may not enter into any new transactions with the Bank. 7 Finance Board rules currently allow a member to purchase excess stock so long as “such purchase is approved by the member's Bank and the laws under which the member operates permit such purchase.” 12 CFR 925.23. As discussed later in the preamble, the Finance Board is proposing to amend its rules and to prohibit the purchase of excess stock in the future. Historically, the Banks usually have repurchased excess stock from members when requested to do so, although other aspects of the Banks' policies on excess stock may differ. In this respect, some Banks specifically have limited the amount of excess stock that members can hold, or periodically have repurchased excess stock to keep the total outstanding amounts of excess stock low. Other Banks do not implement such limits or may actively encourage member investment in excess Bank stock. Thus, the amount of excess stock outstanding at each Bank has tended to vary both in absolute value and as a percentage of the Bank's total capital base. System-wide, as of December 31, 2005, the Banks had approximately $7.4 billion in excess stock outstanding. This equaled about 16 percent of the Banks' combined total capital of $46 billion. As a comparison, as of December 31, 2005, the Banks collectively had about $36.1 billion in required stock outstanding and $2.5 billion in retained earnings. These amounts equaled, respectively, approximately 78 percent and 5 percent of the Bank System's total capital base. For individual Banks, the amount of excess stock varied widely at the end of 2005, from zero at one Bank to a high of $2.3 billion at another Bank. At the end of 2005, four Banks had excess stock in amounts that equaled more than one percent of their individual total assets. Undue reliance on excess stock by a Bank to meet minimum capital requirements and to capitalize its balance sheet activities can raise both safety and soundness and public policy issues. From a safety and soundness perspective, the fact that most Banks have traditionally honored in a timely fashion a member's request to have its excess stock repurchased could give rise to capital instability, if a Bank were to experience large-scale requests to repurchase stock in a short period of time. These problems could be compounded if a Bank uses excess stock to capitalize investments that cannot readily be liquidated, which could create difficulties for a Bank to shrink its balance sheet safely and easily to meet these repurchase requests. A Bank's refusal or inability to repurchase excess stock in a timely fashion also could have consequences for members' confidence in the Bank System, especially in the long-term, because members have viewed Bank excess stock as a fairly liquid investment. It also could affect how members' regulators view Bank stock for capital or other purposes and thereby affect the value of members' investment in the Bank System. To the extent that the members' confidence in the System is shaken or they view the value of their investment as declining, members could decide to withdraw from a Bank or cease doing business with a Bank, thereby undermining a Bank's financial stability. The Banks also may use excess stock to generate earnings through arbitrage of the capital markets. In this regard, the Banks' GSE status permits them to borrow funds at favorable rates that can then be invested in money market securities and other non-core mission assets to earn arbitrage profits. While this activity benefits the Banks and its membership, it does not necessarily further the Bank System's public purpose. It can also result in the Banks' being larger and holding more debt than otherwise would be necessary if their balance sheets were more focused on mission-related activities. Thus, from a public policy perspective, this arbitrage activity can have both safety and soundness and mission implications. Excess stock can play a role in these arbitrage activities by providing the Banks a means to capitalize the non-mission investments, without necessarily forcing all members to hold more required stock or requiring the Bank to build retained earnings. This is especially true if a Bank's membership as a whole would be unwilling either to hold greater amounts of required stock or to accept lower dividends to build retained earnings in order to capitalize these investments. While the Finance Board currently limits the amount of mortgage backed securities in which a Bank can invest to 300 percent of a Bank's capital, other types of non-mission investments are not subject to any limitation. 2. Description of the Proposed Amendments Regarding Excess Stock *Prohibition on the Sale of Excess Stock.* Under the proposed amendments, a Bank would be prohibited from selling stock to members, or institutions in the process of becoming members, that would be excess stock at the time of the sale. To promulgate this change, the Finance Board is proposing to revise § 925.23 of its regulations, which currently allows members to purchase excess stock if certain conditions are met. The Finance Board intends that the proposed prohibition on the purchase of excess stock would be interpreted narrowly and would only prevent the sale of excess stock by the Banks and would not affect how other transactions are treated under Finance Board rules. Thus, the proposed revisions to § 925.23 would not alter any right of a member to continue to hold stock once the stock was no longer required as part of a membership or activity based stock purchase requirement, albeit such rights would be subject to Bank's complying with the limits in the proposed rule, a Bank's discretion to repurchase excess stock at any time and to any applicable provisions in a Bank's capital plan. Nor would the proposal prevent a member from acquiring excess stock in a transfer from another institution as long as the transaction was consistent with applicable provisions in the Bank Act, Finance Board rules and a Bank's capital plan. The proposal also would not affect how stock may be transferred as part of a member's consolidation into another institution. The Finance Board is also proposing a conforming change to § 931.2(a) to prohibit a Bank from selling stock to members or institutions in the process of becoming a member that would be excess stock at the time of the sale. This proposed revision is intended to be similar in scope to that proposed for § 925.23 and would affect only the sale of excess stock by a Bank and not affect current practices or rules with regard to other transactions. *Overall Excess Stock Limitation and Stock Dividend Prohibition.* The other major limitations on excess stock are being proposed in new § 934.1. Under proposed § 934.1(a), the aggregate amount of excess stock that could be outstanding at a Bank would be limited to one percent of a Bank's total assets. The 1 percent limit would be consistent with requiring the Banks to capitalize their mission assets with required stock while allowing them to capitalize their mortgage backed securities portfolio (limited to no more than 300 percent of a Bank's capital) and a liquidity portfolio, equal to what has been the historic average of around 10 to 12 percent of total assets, with excess stock. In the past, Banks have been able to operate along these lines without running into the types of potential difficulties that are of concern to the Finance Board and that it believes could arise from undue reliance on excess stock. Proposed § 934.1(b) would prohibit a Bank from declaring or paying a dividend in the form of stock. Stock dividends, along with the direct sale of excess stock to members, are the main causes of growth in excess stock on the Banks' balance sheets. Thus, the Finance Board believes it would be prudent to address the question of whether the Banks should be able to issue stock dividends in the future as part of this proposed rulemaking. The Finance Board also believes that it would be difficult for Banks to issue stock dividends on other than a sporadic basis and still comply with the proposed limit on excess stock. The Finance Board therefore is proposing to prohibit the issuance of stock dividends. The Finance Board specifically requests comment on whether the proposed prohibition on the issuance of stock dividends is necessary, especially in light of the overall limit on outstanding excess stock that is being proposed. *Non-Compliance with Excess Stock Limit.* While the Finance Board intends the Banks to maintain compliance with the one percent excess stock limit at all times, proposed § 934.1(c) would require a Bank specifically to report to the Finance Board whenever the Bank is not in compliance with the limit as of the close of the last business day of any quarter. 8 After reporting the violation to the Finance Board, a Bank would have 60 days from the end of the quarter in which the reported violation occurred to either certify that it is again in compliance with the excess stock limitation or develop an a excess stock compliance plan, acceptable to the Finance Board, that would demonstrate how the Bank would bring itself into compliance with the regulatory excess stock limits. The Finance Board believes that a 60 day period would be adequate for a Bank either to develop a suitable compliance plan or to rectify minor or readily-correctable violations of the limits. Banks that report a violation of the excess stock limitation but are already operating under an acceptable excess stock compliance plan would, of course, not need to develop a new plan. 8 Banks that repeatedly violate the one percent excess stock limit during a quarter could be required to develop an excess stock compliance plan, if the Finance Board believed the Bank was attempting to manipulate excess stock levels to comply with the limits as of the last day of the quarter but not as a general matter throughout the quarter. *Definitions.* The Finance Board is also proposing to make a conforming revision to the current definition of “excess stock” and to move that definition from § 930.1 to § 900.2 of its rules. “Excess stock” currently is defined with reference to the minimum investment requirements set forth in a Bank's capital plan. *See* 12 CFR 930.1 and 931.3. The definition, therefore, only is applicable to Banks that have implemented their capital plans and converted to the new capital structure mandated by the GLB Act. The Finance Board intends, however, that the proposed excess stock limitations would apply to a Bank whether or not it has implemented its capital plan. The proposed revision would define excess stock with reference to any minimum investment in capital stock required under a Bank's capital plan, the Bank Act or Finance Board rules, as applicable. This change would allow the definition to apply whether or not a Bank has converted to the new capital structure. The proposed revision also would make clear that any outstanding stock can be excess stock whether it is held by a member, a former member or another institution that may have acquired such stock through a merger or consolidation with a member. The current definition of excess stock only refers to stock “held by a member.” Further, under the proposed definition of “excess stock,” all stock held by an individual institution that exceeds its minimum stock purchase requirement would be counted as excess, regardless of whether the Bank's capital plan would allow such stock to be “loaned” or otherwise used to capitalize the activity of other members. The Finance Board also proposes to move the definition to § 900.2 so that the definition would be applicable to all parts of its regulations, including the proposed revised § 925.23. Section 930.1, where the current definition of “excess stock” is located, by contrast, only applies to terms used in subchapter E. 3. Legal Authority The Bank Act provides the Finance Board with broad authority to take actions or promulgate regulations as are necessary to supervise the Banks and to ensure that they operate in a safe and sound manner and carry out their housing finance mission. *See* 12 U.S.C. 1422a(a)(3) and 1422b(a). Given the prudential and mission-related purposes in proposing this rule, the Finance Board believes that the proposed limitations on the issuance and holding of excess stock are within the bounds of these authorities. Further, at least with regard to the Class A and Class B stock issued under the GLB Act amendments to the Bank Act, the Finance Board is specifically authorized to adopt regulations that, among other things, permit the Banks “to issue, with such rights, terms and preferences not inconsistent with this [Bank] Act and the regulations issued hereunder” and “prescribe the manner in which the stock of a [Bank] may be sold.” 12 U.S.C. 1426(a)(4). The proposed prohibitions on the sale of excess stock and issuance of stock dividends would fall within the scope of this authority. C. Retained Earnings Requirement and Dividend Limitations 1. Reasons for Proposing the Retained Earnings and Dividend Requirements A Bank's retained earnings serve a variety of related functions. Most significantly, they provide a cushion to absorb losses, help prevent capital stock impairment by protecting the par value of Bank stock, act as a source of funds to maintain dividend payments in the event of temporary shortfalls in Bank earnings, and provide a source of capital to fund growth. Given these functions, retained earnings afford a margin of protection to both the shareholders and the creditors of a Bank. The Banks, however, tend to distribute a larger percentage of their net income as dividends when compared to other financial institutions, and as a consequence have lower levels of retained earnings than other financial institutions of comparable size. In part, these lower levels of retained earnings may reflect the difficulties that Bank members have in realizing tangible pecuniary benefits from higher levels of retained earnings given that all transactions in Bank stock occur at par value. 9 Thus, instead of being able to capture the value of higher levels of retained earnings in the price at which their stock will be redeemed, repurchased or transferred, members must forfeit any interest in the retained earnings (above the par value of the stock) associated with such shares upon undertaking any of these stock transactions. 9 *See* 12 U.S.C. 1426(a)(4); 12 CFR 931.1 and 931.6. The history of the Bank System may also play a role in the Banks reluctance to build retained earnings. In the late 1980s, the Competitive Equality Banking Act of 1987 and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) required the Banks to pay approximately $3.1 billion from their retained earnings to capitalize the Financing Corporation
(FICO)and the Resolution Funding Corporation (REFCORP). *See* 12 U.S.C. 1441(d) and 1441b(e). While the Banks and members may have incentives to keep the level of retained earnings low, a level of retained earnings that is insufficient to protect the par value of Bank stock from losses also can have serious consequences, if those losses are realized and the par value of the stock becomes impaired. In fact, impairment could affect the willingness of the members to enter into transactions with the Bank as well as trigger regulatory restrictions that can prevent or restrict the Bank from paying dividends or from repurchasing or redeeming capital stock. Whether or not a Bank has converted to the new capital structure mandated by the GLB Act, members must purchase new shares of Bank stock at par value. *See* 12 CFR 925.19 and 931.1; 12 U.S.C. 1426(a) (1994). Any stock purchased at par value when the par value of the capital stock is impaired will result in an immediate economic loss to the acquirer. Moreover, if the members were required to record Bank stock on their books at its impaired value, any purchase would also result in an immediate financial loss to the members. Under these circumstances, members could well be reluctant to purchase additional stock needed to carry out new transactions with the Bank or to maintain minimum membership requirements, negatively affecting demand for Bank products and the attractiveness of membership in the Bank System. Impairment of the par value of a Bank's capital stock would also trigger certain regulatory restrictions on various Bank transactions, which could further reduce the value of membership in a Bank. First, Finance Board rules allow a Bank's board of directors to declare or pay a dividend “only if such payment will not result in the projected impairment of the par value of the capital stock.” 12 CFR 917.9. This provision would prevent payment of dividends during periods of stock impairment. 10 More generally, because a Bank can only pay dividends from current net earnings or previously retained earnings a Bank would not have a source of funds to pay a dividend whenever it is experiencing losses that eliminated its retained earnings. *See* 12 U.S.C. 1436(a). 10 As part of this proposed rulemaking, the Finance Board is proposing to move the provision prohibiting payment of dividends when capital stock is impaired or when such payment would result in the projected impairment of Bank stock from § 917.9 to new § 934.4 of its rules. Statutory restrictions put in place by the GLB Act would also prevent a Bank from redeeming or repurchasing capital stock without the written permission of the Finance Board if the Bank has incurred or is likely to incur losses that will result in charges against the capital of the Bank. 11 The Finance Board has defined the phrase “charge against capital of the Bank” to track criteria set forth in the Industry Audit Guide published by the American Institute of Certified Public Accountants (AICPA) for evaluating impairment of Bank stock. *See* Proposed Rule: Capital Requirements for Federal Home Loan Banks, 66 FR 41462, 41465-66 (August 8, 2001) (citing AICPA “Industry Audit Guide,” §§ 5.97-5.101 (May 1, 2000)); Final Rule: Capital Requirements for Federal Home Loan Banks, 66 FR 54097, 54106 (October 26, 2001); 12 CFR 930.1. 11 *See* 12 U.S.C. 1426(f). Under the GLB Act provisions, if the Finance Board gives permission for repurchases or redemptions while capital stock is impaired, such transactions nonetheless would occur at the par value of stock. *See* 12 U.S.C. 1426(a)(4)(A); 12 CFR 931.7. Allowing for such transaction, thus, would be problematic if the impairment were severe. The provisions in the Bank Act prior to the GLB Act amendments required the repurchase of stock to occur at the impaired value of stock rather than at the par value whenever the Finance Board found “that the paid-in capital of a * * * Bank [was] or [was] likely to be impaired as a result of losses in or depreciation of the assets held.” 12 U.S.C. 1426(e) (1994); 12 U.S.C. 1426(b)(3) (1994). While harder to predict, an incident of capital stock impairment may also result in market reactions that could affect the Bank's cost of doing business. For example, impairment of the par value of the Bank's capital stock could lead to a downgrade in the credit rating of the Bank that, in turn, could raise the rates at which counterparties would be willing to enter into hedging transactions with the Bank. Further, given that there has not been an incident of capital impairment at a Bank, a future incident of impairment could affect the costs of funds for the Bank System, at least in the short term, as the market attempts to sort out the potential consequences of the event. In August 2003, the Finance Board's Office of Supervision undertook to get the Banks to address concerns with their relatively low level of retained earnings and the Banks' overall approaches to retained earnings by issuing Advisory Bulletin 2003-AB-08, *Capital Management and Retained Earnings* (August 18, 2003). The Advisory Bulletin noted the Banks' low levels of retained earnings when compared to those held by large banks and thrifts. It then called on each Bank, at least annually, to assess the adequacy of its retained earnings under a variety of economic and financial scenarios. The Advisory Bulletin also required each Bank to adopt a retained earnings policy, which was to include a target level of retained earnings. Notwithstanding the requirements in the Advisory Bulletin, the Finance Board has found that there is a general lack of consistency among the Banks' retained earnings policies and target retained earnings levels. The Finance Board also believes that the retained earnings policies adopted by the Banks often lacked clarity and failed to address key risk elements cited in the Advisory Bulletin. 12 Thus, the Finance Board continues to have concerns with how the Banks are addressing issues related to their retained earnings. 12 The Advisory Bulletin stated that: * * * each * * * Bank should specifically assess the adequacy of its retained earnings in light of alternative possible future financial and economic scenarios. The scenarios should include optimistic, pessimistic and most likely forecasts. At the minimum, the analysis should show the expected change in retained earnings that would result from immediate parallel shifts in the yield curve. As a matter of sound practice, the analysis should be supplemented with non-parallel rate shocks such a flattening and a steepening of the yield curve. It would also be useful to analyze scenarios that highlight the effect on retained earnings of other key factors, including changes in prepayment speeds; changes in interest-rate volatility; changes in basis spread between * * * Bank funding costs and Treasury rates, mortgage rates and LIBOR; and changes in the credit quality of the * * * Bank's investment portfolio. Advisory Bulletin 2003-AB-08, at p. 2. This Advisory Bulletin can be obtained electronically from the Finance Board's Web site by accessing “Advisory Bulletins” in the “FOIA Reading Room”: *http://www.fhfb.gov/Default.aspx?Page=59&Top=4* . The Finance Board also has concerns because of recent incidents at some Banks that raise questions about the adequacy of retained earnings. For example, one Bank suffered a credit downgrade of certain of its investment securities that were backed by manufactured housing loans. As a result, the Bank sold the assets at a loss of nearly $189 million. After experiencing the loss, the Bank had to suspend the payment of dividends for a time to rebuild its retained earnings. Other Banks in recent years have experienced steep declines in quarterly earnings or recorded actual quarterly losses. Of these Banks, one currently has suspended payment of dividends in an effort to manage reduced earnings and expected losses over the near term, and two Banks have suspended repurchases of stock. Such incidents further underscore the need for Banks to hold sufficient retained earnings to protect against such events. This is especially true in light of the fact that the increase in the Banks' holdings of mortgage assets over the last few years has resulted in the Banks' having to manage arguably riskier balance sheets than had previously been the case. Changes in accounting rules and in the make up of the Banks' balance sheets have also added to the potential income volatility that may be experienced by the Banks. 13 13 An important accounting change contributing to earnings volatility has been the Statement of Financial Accounting Standards
(FAS)No. 133, *Accounting for Derivative Instruments and Hedging Activities* , which contributes to higher earnings volatility due to its asymmetric accounting for different financial instruments. On January 25, 2006, the Financial Accounting Standards Board
(FASB)released an exposure draft, “The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115.” The changes proposed in the exposure draft would allow a Bank to designate certain hedged assets to be carried at fair value and thereby eliminate much of the asymmetric accounting of derivative instruments and held-to-maturity hedged items. The proposed changes would allow entities to re-designate the carrying status of existing assets. To help to ensure that each Bank's level of retained earnings adequately reflects its risk profile and that there is greater consistency among the Banks' retained earnings policies, the Finance Board is proposing a minimum retained earnings requirement. The minimum target levels, and the associated proposed restrictions on the Banks' ability to pay a dividend when their retained earnings are below their minimum targets are intended to encourage the Banks to build retained earnings to adequate levels. The Finance Board believes that its proposed regulatory changes would reduce the risk that losses could deplete a Bank's retained earnings and cause the impairment of the par value of a Bank's stock. The Finance Board recognizes that capital stock impairment is not necessarily indicative of capital inadequacy, and its purpose in proposing the rule change is not necessarily to require the Banks to increase their overall levels of capital. The Finance Board believes that its capital rules and the Banks' overall capital levels remain adequate and the risk of capital insolvency at any Bank in the foreseeable future is *de minimis* . The proposed rule, however, does aim to change the composition of capital and to ensure that the Banks hold retained earnings in amounts that would significantly reduce the risk that losses at a Bank would result in capital stock impairment. The Finance Board believes that the potential operational and financial consequences of capital stock impairment for both the Bank and the members justifies addressing the Banks' levels of retained earnings as a safety and soundness matter. 2. Description of the Proposed Amendments Regarding Retained Earnings *Minimum Retained Earnings Requirement.* Under proposed § 934.2(a), each Bank would be required to achieve and maintain a minimum level of retained earnings, known as the Retained Earnings Minimum or REM. Each Bank would calculate its REM each calendar quarter. The REM calculated for a quarter would be used to determine whether the dividend restrictions proposed in § 934.3 would apply. For example, the REM calculated in the first quarter of the year would determine whether any restrictions would apply to the dividend that would be paid based on the Bank's first quarter's results. This would be true even though under other restrictions being proposed as part of this rulemaking, a Bank would not be able to declare or pay its first quarter dividend until after the beginning of the second quarter. If, after adjusting the retained earnings for any dividend that the Bank intends to pay for that quarter, the Bank's retained earnings would be below its REM, the Bank must assure that the intended dividend conforms to the limitations set forth in proposed § 934.3. 14 14 Thus, to calculate its retained earnings for a quarter for purposes of determining compliance with the rule, the Bank would subtract from its retained earnings balance as of the close of the quarter ( *i.e* , its previous retained earnings plus its current net earnings) the amount of the dividend it would like to pay for the quarter. The amount of the dividend should include any payments on stock subject to FAS No. 150. *See* n.17. If the resulting amount from this calculation is less than the Bank's REM for that quarter, the Bank would have to verify that it first complied with all limitations proposed in § 934.3 in order to declare and pay its intended dividend. As proposed in § 934.2(b), the REM would equal $50 million plus 1 percent of a Bank's non-advance assets. Non-advance assets would equal the daily average of the Bank's total assets less the daily average of its advances, as recorded in the calendar quarter immediately preceding the date of the calculation. Thus, a Bank's non-advance assets for the REM calculation done for the second quarter of a year would equal that year's first quarter's daily average of the Bank's total assets less the first quarter's daily average of the Bank's advances. The Finance Board believes that the proposed REM formula would provide a straightforward, consistent and predictable means to establish minimum retained earnings requirements across the Banks. Basing the REM on non-advance assets would provide a broad approximation of the potential risks faced by a Bank given that risk of losses from advances is very low and the greatest risk of credit or market losses would arise from a Bank's non-advance assets. A number of provisions of the Bank Act protect the Banks from potential credit losses associated with advances. 15 First, the Bank Act requires that a member fully collateralize any advances by specific types of high quality collateral. *See* 12 U.S.C. 1430(a)(3). In addition, under the Bank Act, a Bank has a lien on any Bank stock owned by its member against any indebtedness of the member, including advances, to a Bank. 16 Thus, should a member default on an advance, the Bank has a variety of statutory means to assure that the defaulting member absorbs any potential credit losses so that the par value of other members' stock would not be affected. Such statutory protections are not necessarily applicable to other assets on the Banks' balance sheets. 15 A Bank has never suffered a credit loss on an advance to a member, and the Banks also have a long history of effectively managing the interest rate and market risks associated with their advances. 16 *See* 12 U.S.C. 1430(c). Further, under the Bank Act as in effect prior to its amendment by the GLB Act or under the capital plans of the 11 Banks that have already implemented the new capital structure, a member must buy stock to capitalize any advances made to it by the Bank. Moreover, based on the recent credit losses and financial difficulties experienced by individual Banks, the Finance Board believes that the level of retained earnings required under the proposed formula would be sufficient to provide reasonable protection against capital impairment while not unduly burdening the Banks. In developing a measure for a retained earnings minimum based on the risk of the Banks, we explored a number of risk measures, but determined that use of the more straightforward approach being proposed simplified the application of the proposed requirement and provided a robust approximation of the amount of retained earnings needed given potential losses faced by a Bank, as calculated under the alternative analysis. The alternative analysis relied on two risk measures that are commonly available for all Banks, one to represent credit risk and the other to represent market risks going forward. First, for credit risk, the analysis used the Internal Ratings-Based Approach from the Basel II Accord that would apply to large and/or complex financial institutions. *See* Basel Committee on Banking Supervision, *International Convergence of Capital Measurement and Capital Standards, A Revised Framework* , pp. 48-139 (November 2005); Basel Committee on Banking Supervision, *Consultative Document, the New Basel Capital Accord* , pp. 38-120 (April 2003). The Basel II methodology assigns a capital charge to credit exposures based on the credit rating, maturity and the loss given default for the exposure, assuming a credit risk horizon of one year and a particular target rating for the institution holding the exposure. In applying the Basel II approach to the Banks, the analysis assumed a given Bank would maintain a target rating of AA/Aa. This approach to measuring credit risk capital is considered state of the art for standardized measures. In measuring the credit risk for the Banks, this Basel II measure was applied to all credit exposures except advances. Advances were excluded because the Banks have never had a credit loss associated with an advance to a member institution and because of the statutory protections against credit losses on advances provided under the Bank Act. *See* 12 U.S.C. 1430(a),
(c)and (e). Second, market risks were estimated based on market value of equity losses given parallel interest rate shocks of +/−50, 100 and 200 basis points. The Banks already provide this information to the Finance Board, and currently, these are the only measures of market risk going forward that are available for all Banks on a consistent basis. The measure of market risk incorporated into the analysis equaled the simple average of the worse cases for the up and down shocks. Finally, the regression analysis indicated that the sum of these credit and market risk measures could be reasonably well approximated by $50 million plus 1 percent of non-advance assets. This more straightforward formula was deemed more appropriate than using a direct measure because it eliminates concerns about model error at the Bank level, and is more transparent and easy to monitor and apply over time. As proposed, the rule also would provide the Finance Board with the flexibility to address specific problems or events at individual Banks by requiring a Bank to hold levels of retained earnings that would be higher than that calculated under the formula, if warranted for safety and soundness reasons. This flexibility would allow the Finance Board to refine a Bank's REM if a Bank is more exposed to credit or prevailing market risks than would be captured by the formula, or if unique operational situations at a particular Bank need to be addressed. Addressing these types of issues on a case-by-case basis would also avoid having to develop a more complicated and complex method for calculating the REM than that being proposed. The Finance Board also does not believe that the proposed requirements would be unduly burdensome for the Banks. In this respect, based on estimates of the Banks' earnings and other relevant data, the Finance Board believes that if the proposed retained earnings requirement had become effective in the fourth quarter of 2005, one Bank would have been able to comply with its REM as of December 31, 2005. Further, the Finance Board estimates that based on a fourth quarter 2005 effective date for the proposed retained earnings requirement, the other Banks would have been able to meet their REMs in line with the following schedule: one Bank in early 2006; another two Banks before the end of 2006; five more Banks by the end of 2007; and two more Banks by mid 2008. The earnings of the remaining Bank currently are unusually low and, given the Bank's current earnings outlook, it is difficult to estimate when the Bank would be able to meet the proposed requirements. *Dividend Restriction Based on Non-Compliance with REM.* Under the proposed rule, if a Bank's retained earnings balance as of the close of the quarter and after adjustment for any dividend that the Bank intends to pay for that quarter, were less than the Bank's applicable REM, the Bank would be subject to the limitations on the payment of dividends for that quarter proposed in § 934.3. The proposed rule would allow for an initial transition period during which the dividend limitation would be less strict than thereafter. The dividend limitation that would be in effect during this period is set forth in proposed § 934.3(a), while the limitation that would become effective thereafter is contained in proposed § 934.3(b). Under proposed § 934.3(a), a Bank that is not in compliance with its REM when the rule first takes effect would be allowed a transition period until such time as the Bank first reaches or exceeds its REM. During this transition period, a Bank generally would be allowed to pay a dividend that did not exceed 50 percent of its current net earnings. 17 The proposed rule would allow a Bank to pay a dividend in excess of this 50 percent limit only with the Finance Board's prior approval. Among the factors that the Finance Board would consider in deciding whether to grant any request under this provision would be the size of the gap between the Bank's level of retained earnings and its REM, the earnings outlook for the Bank, the Bank's risk profile and any recent examination findings related to Bank's risk management, corporate governance and other relevant areas that could affect the Bank's ability to operate in a financially safe and sound manner. 17 In determining compliance with this provision, a Bank would be expected to include any payments made on its capital stock subject to FAS 150 in the total amount of the dividend paid out. Under FAS 150, capital stock that is subject to a mandatory redemption request would be classified as a liability on the Bank's balance sheet and dividend payments made on such stock would be classified as an interest expense for accounting purposes. As discussed below, the Finance Board also is proposing to add a definition for “current net earnings” to § 930.1. After a Bank initially complies with its REM, the dividend limitations in proposed § 934.3(b) would require a Bank to receive Finance Board permission before declaring or paying any dividend for a quarter in which the Bank no longer met its REM. In deciding whether to grant such a dividend request, the Finance Board would consider the same factors discussed above. Overall, the dividend limitations in proposed § 934.3 are intended to encourage the Banks to comply with their retained earnings targets while still allowing the Banks the flexibility to pay dividends if circumstances warrant. The Finance Board specifically invites comment on whether higher percentages for the dividend limitations than those being proposed in § 934.3 may be appropriate, keeping in mind the Finance Board's goals of encouraging the Banks to achieve their REMs in a timely fashion and maintain compliance with their REMs thereafter. *Additional Dividend Limitations* . Proposed § 934.4 would set forth limitations on the payment of dividends that would apply to a Bank whether or not it has met its REM. First, proposed § 934.4(a) would prohibit a Bank from declaring or paying a dividend based on projected or anticipated earnings and would require a Bank to declare a dividend only after its earnings for a particular quarter had been calculated. This provision would make clear procedures that already are strongly implied given the fact that under the retained earnings proposal, a Bank would need to know its retained earnings balance as of the close of a quarter to determine whether the proposed dividend limitations apply. Thus, a Bank would need to calculate its quarterly earnings before its board of directors would be in a position to declare a dividend, even in the absence of proposed § 934.4(a). Second, proposed § 934.4(b) would incorporate the restriction now contained in § 917.9 of the Finance Board's regulations that prohibit a Bank from declaring or paying a dividend if the par value of the Bank's stock is impaired or would be projected to become impaired after paying the dividend. The Finance Board also is proposing to make suitable conforming changes to §§ 917.9 and 931.4 to reflect the limitations on dividends proposed in Part 934. 18 18 The limitations on dividends in proposed § 934.4 would be in addition to other dividend limitations set forth in the Bank Act and Finance Board rules. *See* , *e.g.* , 12 U.S.C. 1426(h)(3) and 1436(a); 12 CFR 917.9 and 931.4. *Definitions* . The Finance Board is proposing to add a definition of “current net earnings” in § 930.1. Specifically, “current net earnings” would be defined as “the net income of a Bank for a calendar quarter calculated in accordance with GAAP after deducting the Bank's required contributions for that quarter to the Resolution Funding Corporation under sections 21A and 21B of the Act (12 U.S.C. 1441a and 1441b) and to the Affordable Housing Program under section 10(j) of the Act (12 U.S.C. 1430(j)) and § 951.2 of this chapter, but before declaring any dividend under section 16 of the Act (12 U.S.C. 1436).” The Finance Board believes that this proposed definition is consistent with the current method for calculating earnings for the purpose of paying dividends and, if adopted, would be consistent with the statutory restrictions set forth in section 16 of the Bank Act with regard to how to determine the Bank's current earnings for purposes of paying dividend. *See* 12 U.S.C. 1436(a). The Finance Board also is proposing to add a definition to § 930.1 that “Retained Earnings Minimum or REM means the minimum amount of retained earnings a Bank is required to hold under § 934.2.” 3. Legal Authority The proposed amendments aim to require the Banks to hold retained earnings sufficient to protect against the impairment of their capital stock. They are in many respects a more comprehensive version of the current prohibition in § 917.9, which prohibits dividend payments if such payments result in the impairment of capital stock and which the Finance Board adopted for safety and soundness reasons in 1999. *See* Interim Final Rule: Devolution of Corporate Governance Responsibilities, 64 FR 71275, 71276 (December 21, 1999); Resolution No. 2000-29 (June 22, 2000). The Finance Board believes that the more thorough approach proposed in this rulemaking is needed to address concerns that have arisen since § 917.9 was adopted in light of the change in the risk on the Banks' balance sheets and the prospects for more volatile earnings in the future. As detailed in other parts of the preamble, impairment of a Bank's capital stock can present safety and soundness and mission problems other than ones related to immediate insolvency of a Bank. The Finance Board believes that these concerns provide adequate justification for adopting the proposed retained earnings requirement to assure that the Banks operate in a safe and sound manner and that they accomplish their statutory mission and are able to access the capital markets. Moreover, the Bank Act provides the Finance Board with authority to adopt rules to address these types of concerns. *See* 12 U.S.C. 1422a(a)(3) and 1422b(a)(1). The Finance Board also believes that section 16 of the Bank Act provides an alternative source of authority to adopt the proposed requirement. Specifically, section 16 provides the Finance Board with authority to require the Banks to “establish such additional reserves and/or make such charge-offs on account of depreciation or impairment of its assets as [it] shall require.” 12 U.S.C. 1436. The provision does not limit the reasons for which the Finance Board can require the Banks to establish these additional reserves. Section 16 states that the required reserves are to be established from net earnings of a Bank and makes a Bank's payment of a dividend subject first to funding these reserves. 12 U.S.C. 1436. Historically, reserves required under section 16 of the Bank Act were included in retained earnings of the Banks, but the use of these reserves to pay dividends was restricted. Further, the term “reserves” as used in section 16 had also been interpreted to exclude loan loss or similar type reserves that were recorded elsewhere on the Banks' balance sheets. 19 19 *See* , *e.g.* , OGC Opinion Memo, from K. Heisler to R. Burklin; Re: “Reserves of FHLBanks,” at p.2 (Dec. 9, 1942) (valuation reserves which are held against estimated losses in the value of specific assets or similar types of reserves “are not reserves within the meaning of section 16 of the * * * Bank Act). This long-standing interpretation of section 16 remains consistent with the current wording of that provision. Specifically, section 16 states in relevant part that Banks may pay dividends out of “previously retained earnings or current net earnings remaining after reductions for all reserves * * * required under [section 16].” This wording indicates that section 16 reserves are funded after a Bank calculates its current net earnings but before the payment of dividends. There would be no need for section 16 to limit payment of dividends to “current net earnings *remaining after reductions for all reserves* * * *” if the reference to “reserves” meant loan loss or similar reserves, since provisions for those types of reserves would already be considered in the calculation of net earnings. 12 U.S.C. 1436(a) (emphasis added). To read the authority provided in section 16 to refer to requiring the Banks to hold loan loss or similar reserves would violate principles of statutory construction which generally require that a statute be read to give affect, if possible to every word, clause or sentence. *See* Norman J. Singer, 2A Statutes and Statutory Construction § 46:06 (6th ed. 2000). The fact that section 16 requires the reserves to be funded from net earnings also supports the conclusion that the reserves should be part of a Bank's retained earnings. Thus, the most reasonable reading of the “additional reserves” authority in section 16 remains that it allows the Finance Board to require the Banks to maintain specific levels of retained earnings. The requirements in section 16 that the Banks “establish such additional reserves * * * as the [Finance Board] shall require” and pay dividends only “out of net earnings remaining after all reserves * * * required under this [Bank] Act” have been funded date back to original Bank Act in 1932. Public Law 72-304, July 22, 1932, c. 522 sec. 16, 47 Stat. 725, 736. Under the original Bank Act, however, these reserves were in addition to the section 16 requirement that each Bank carry to “a reserve account semiannually 20 per centum of its net earnings until said reserve account shall show a credit balance equal to 100 per centum of the paid-in capital of such [B]ank,” and thereafter, that each Bank add to such reserve “5 per centum of its net earnings. * * *” *Id.* This was often referred to as the “legal reserve” requirement. FIRREA amended the Bank Act to delete the provision that the Banks carry a mandated percentage of their net earnings to a reserve, and substituted the current language that a Bank “may carry to a reserve account from time-to-time such portion of its net earnings as may be determined by its board of directors.” The language authorizing the Finance Board to require each Bank to establish additional reserves remained, although after FIRREA such reserves would be in addition to any that the Bank had voluntarily established. 20 20 FIRREA also changed section 16(a) of the Bank Act to allow after January 1, 1992, a Bank to pay dividends from “previously retained earnings or current net earnings remaining after reductions for all reserves, charge-offs, purchases of capital certificates of the Finance Corporations, and payments relating to the Funding Corporation * * * have been provided for” subject to certain additional exceptions. This change was meant to account for the termination of the legal reserve requirement and allow any remaining legal reserves that were held by the Banks to be used as a source of funds for dividends. As explained by the Finance Board when it adopted rules to implement this FIRREA change to the dividend provision: The * * * Banks' retained earnings are comprised of the legal reserve, the dividend stabilization reserve and undivided profits. Since the * * * Banks are prohibited from paying dividends from the legal reserve in section 16 of the Bank Act, [Finance Board rules] could not generally provide for the payment of dividends from retained earnings. Rather [they] specifically listed the two components of retained earnings from which there could be payment of dividends, namely the dividend stabilization reserve and undivided profits. Effective January 1, 1992, however, section 724 of [FIRREA] amends the Bank Act by eliminating the legal reserve in section 16 of the Bank Act. * * * Thus, retained earnings shall only include the dividend stabilization reserve and undivided profits. Proposed Rule: Dividends Paid on Federal Home Loan Bank Stock, 56 FR 59898, 59899 (Nov. 26, 1991). While FIRREA eliminated the mandatory legal reserve requirement, neither the wording of the FIRREA provisions nor available legislative history suggests that Congress intended to alter either the long standing accounting treatment or interpretations with regard to reserves required under section 16—namely that they were accounted for in retained earnings and were not valuation or similar reserves—or the Finance Board's authority under this section to require the Banks to hold additional reserves. The proposed retained earnings requirement comports with this definition of what is meant by reserves under section 16, and the scope of the authority provided the Finance Board under this section would be sufficient to support the Finance Board's adopting a retained earnings rule along the lines currently proposed. III. Regulatory Flexibility Act The proposed rule would apply only to the Banks, which do not come within the meaning of small entities as defined in the Regulatory Flexibility Act (RFA). *See* 5 U.S.C. 601(6). Therefore, in accordance with section 605(b) of the RFA, 5 U.S.C. 605(b), the Finance Board hereby certifies that the proposed rule, if adopted as a final rule, would not have a significant economic effect on a substantial number of small entities. IV. Paperwork Reduction Act The proposed rule does not contain any collections of information pursuant to the Paperwork Reduction Act of 1995. *See* 44 U.S.C. 3501 *et seq.* Therefore, the Finance Board has not submitted any information to the Office of Management and Budget for review. List of Subjects 12 CFR Part 900 Community development, Credit, Federal home loan banks, Housing, Reporting and recordkeeping requirements. 12 CFR Part 917 Community development, Credit, Federal home loan banks, Housing, Organizations and functions (Government agencies), Reporting and recordkeeping requirements. 12 CFR Part 925 Credit, Federal home loan banks, Reporting and recordkeeping requirements. 12 CFR Part 930 Capital, Credit, Federal home loan banks, Investments, Reporting and recordkeeping requirements. 12 CFR Part 931 Capital, Credit, Federal home loan banks, Investments, Reporting and recordkeeping requirements. 12 CFR Part 934 Capital, Credit, Federal home loan banks, Investments, Reporting and recordkeeping requirements. For the reasons stated in the preamble, the Finance Board proposes to amend 12 CFR, chapter IX, as follows: PART 900—GENERAL DEFINITIONS APPLYING TO ALL FINANCE BOARD REGULATIONS 1. The authority citation for part 900 continues to read as follows: Authority: 12 U.S.C. 1422b(a). 2. Amend § 900.2 by adding in alphabetical order, a defined term to read as follows: § 900.2 Terms relating to Bank operations, mission and supervision. *Excess stock* means that amount of a Bank's capital stock held by a member or other institution in excess of its minimum investment in capital stock required under the Bank's capital plan, the Act, or the Finance Board's regulations, as applicable. PART 917—POWERS AND RESPONSIBILITIES OF BANK BOARDS OF DIRECTORS AND SENIOR MANAGEMENT 3. The authority citation for part 917 continues to read as follows: Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1426, 1427, 1432(a), 1436(a), and 1440. 4. Revise § 917.9 to read as follows: § 917.9 Dividends.
(a)A Bank's board of directors may declare and pay a dividend only from previously retained earnings or current net earnings and only in accordance with any other applicable limitations on dividends set forth under the Act or this chapter. Dividends on such capital stock shall be computed without preference.
(b)The requirement in paragraph
(a)of this section that dividends shall be computed without preference shall cease to apply to any Bank that has established any dividend preferences for one or more classes or subclasses of its capital stock as part of its approved capital plan, as of the date on which the capital plan takes effect.
(c)A Bank's board of directors may declare and pay a dividend only after the close of the quarter to which the dividend pertains and the Bank's earnings for that quarter have been calculated, and may not declare or pay a dividend based on projected or anticipated earnings. PART 925—MEMBERS OF THE BANKS 5. The authority citation for part 925 continues to read as follows: Authority: 12 U.S.C. 1422, 1422a, 1422b, 1423, 1424, 1426, 1430, and 1442. 6. Revise § 925.23 to read as follows: § 925.23 Prohibition on purchase of excess stock. A member, or an institution that has been approved for membership in a Bank, may not purchase capital stock from a Bank if that stock would be excess stock at the time of purchase. PART 930—DEFINITIONS APPLYING TO RISK MANAGEMENT AND CAPITAL REGULATIONS 7. The authority citation for part 930 is revised to read as follows: Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1436(a), 1440, 1443, and 1446. 8. Amend § 930.1 by removing the definition of the term “excess stock” and adding, in alphabetical order, the following defined terms to read as follows: § 930.1 Definitions. *Current net earnings* means the net income of a Bank for a calendar quarter calculated in accordance with GAAP after deducting the Bank's required contributions for that quarter to the Resolution Funding Corporation under sections 21A and 21B of the Act (12 U.S.C. 1441a and 1441b) and to the Affordable Housing Program under section 10(j) of the Act (12 U.S.C. 1430(j)) and § 951.2 of this chapter, but before declaring any dividend under section 16 of the Act (12 U.S.C. 1436). *Retained Earnings Minimum* or *REM* means the minimum amount of retained earnings a Bank is required to hold under § 934.2 of this chapter. PART 931—FEDERAL HOME LOAN BANK CAPITAL STOCK 9. The authority citation for part 931 is revised to read as follows: Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1436(a), 1440, 1443, and 1446. 10. Revise § 931.2(a) to read as follows: § 931.2 Issuance of capital stock.
(a)*In general.* A Bank may issue either one or both classes of its capital stock (including subclasses), as authorized by § 931.1, and shall not issue any other class of capital stock. A Bank shall issue its stock only to its members and only in book-entry form, and the Bank shall act as its own transfer agent. All capital stock shall be issued in accordance with the Bank's capital plan. A Bank may not sell capital stock to a member or to an institution that has been approved for membership in the Bank if that stock would be excess stock at time of the sale. 11. Revise § 931.4(b) to read as follows: § 931.4 Dividends.
(b)*Limitation on payment of dividends.* In no event shall a Bank declare or pay any dividend on its capital stock if after doing so the Bank would fail to meet any of its minimum capital requirements, nor shall a Bank that is not in compliance with any of its minimum capital requirements declare or pay any dividend on its capital stock. A Bank also may not declare or pay a dividend that would violate any limitation on dividends set forth in part 934 of this chapter. 12. Add part 934 to title 12, chapter IX, to read as follows: PART 934—EXCESS STOCK LIMITS, MINIMUM RETAINED EARNINGS, AND DIVIDEND LIMITATIONS Sec. 934.1 Limitation on excess stock and stock dividends. 934.2 Minimum level of retained earnings. 934.3 Dividend limitations if retained earnings are below the Retained Earnings Minimum. 934.4 Additional limitations on dividends. Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), and 1436. § 934.1 Limitation on excess stock and stock dividends.
(a)*Excess Stock Limitation.* The aggregate amount of a Bank's outstanding excess stock may not exceed one percent of the total assets of that Bank.
(b)*Prohibition on Stock Dividends.* A Bank may not declare or pay a dividend in the form of additional shares of capital stock.
(c)*Violation of the Excess Stock Limitation.* If the aggregate amount of a Bank's outstanding excess stock exceeds one percent of its total assets as of the close of the last business day of a quarter:
(1)The Bank shall report such violation to the Finance Board; and
(2)Within 60 calendar days of the close of that quarter, the Bank shall:
(i)Develop an excess stock compliance plan acceptable to the Finance Board that addresses how the Bank will bring its outstanding amount of excess stock into compliance with the limitation, unless the Bank is already operating under such a plan; or
(ii)Certify in writing to the Finance Board that it has corrected the violation and is in compliance with the excess stock limitation. § 934.2 Minimum level of retained earnings.
(a)*General.* Each Bank is required to maintain a level of retained earnings at least equal to the Bank's Retained Earnings Minimum (REM). If a Bank's retained earnings, as of the close of the quarter and after deducting the amount of any intended dividend for that quarter, would be below its REM, the Bank must comply with the applicable dividend limitation set forth in § 934.3 of this part.
(b)*Calculation of the REM.* Each Bank's REM will equal $50 million plus 1 percent of the Bank's non-advance assets. Each Bank shall calculate its REM each calendar quarter. For purposes of the REM calculation, a Bank's non-advance assets shall equal the daily average of the Bank's total assets less the daily average of its advances, for the quarter immediately preceding the date of the calculation.
(c)*Adjustment to the REM.* For reasons of safety and soundness, the Finance Board may establish a REM for a Bank that is higher than the amount calculated under paragraph
(b)of this section. § 934.3 Dividend limitations if retained earnings are below the Retained Earnings Minimum.
(a)*Initial limitation.* Until a Bank initially reaches or exceeds its REM, the Bank may not declare or pay a dividend that exceeds 50 percent of its current net earnings without the prior approval of the Finance Board, if, as of the close of the quarter and after deducting the amount of the intended dividend for that quarter, the Bank's retained earnings would be below its REM.
(b)*Limitation thereafter.* After a Bank first complies with its REM, the Bank may not declare or pay a dividend without the prior approval of the Finance Board, if, as of the close of the quarter and after deducting the amount of the intended dividend for that quarter, the Bank's retained earnings would be below its REM. § 934.4 Additional limitations on dividends.
(a)*Timing of declaration.* A Bank may declare and pay a dividend only after the close of the quarter to which the dividend pertains and the Bank's earnings for that quarter have been calculated, and may not declare or pay a dividend based on projected or anticipated earnings.
(b)*Other limitations.* In addition to any applicable limitations set forth in the Act or elsewhere in this chapter, at no time may a Bank declare or pay a dividend if the par value of the Bank's stock is impaired or is projected to become impaired after paying such dividend. Dated: March 8, 2006. By the Board of Directors of the Federal Housing Finance Board. Ronald A. Rosenfeld, Chairman. [FR Doc. E6-3689 Filed 3-14-06; 8:45 am] BILLING CODE 6725-01-P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Parts 158 and 172 [EPA-HQ-OPP-2004-0415; FRL-7767-2] Pesticides; Data Requirements for Biochemical and Microbial Pesticides Proposed Rule; Notice of Public Workshops AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule; notice of public workshop. SUMMARY: The EPA is convening two public workshops to explain the provisions of its recently proposed rule updating and revising the data requirements for registration of biochemical and microbial pesticides in 40 CFR part 158. These workshops are open to the public. DATES: The first public workshop will be held on March 30, 2006 from 1 p.m. to 4 p.m in the Washington, DC area. The second public workshop will be held on April 11, 2006 from 1 p.m. to 4 p.m. in the Sacramento, CA area. ADDRESSES: The March 30, 2006 public workshop will be held at the EPA Office of Pesticide Programs, Crystal Mall #2, Room No. 1126, 1801 S. Bell St, Arlington, VA. The April 11, 2006 public workshop will be held at the UC-Davis Extension, Sutter Square Galleria, Room No. 209, 2901 K St., Sacramento, CA. Visitor information for the April 11, 2006 location may be found at: *http://www.metrochamber.org.* FOR FURTHER INFORMATION CONTACT: Nathanael Martin, Field and External Affairs Division (7506C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460-0001; telephone number: 703-305-6475; fax number: 703-305-5884; e-mail address: *martin.nathanael@epa.gov* . SUPPLEMENTARY INFORMATION: I. General Information A. Does this Action Apply to Me? You may be affected by this notice if you are a producer or registrant of a biochemical or microbial pesticide product. This proposal also may affect any person or company who might petition the Agency for new tolerances for biochemical or microbial pesticides, or hold a pesticide registration with existing tolerances, or any person or company who is interested in obtaining or retaining a tolerance in the absence of a registration, that is, an import tolerance for biochemical or microbial pesticides. The following is intended as a guide to entities likely to be regulated by this action. The North American Industrial Classification System (NAICS) codes are provided to assist you in determining whether or not this action applies to you. Potentially affected entities may include, but are not limited to: • Chemical Producers (NAICS 32532), e.g., pesticide manufacturers or formulators of pesticide products, importers or any person or company who seeks to register a pesticide or to obtain a tolerance for a pesticide. • Crop Production (NAICS 111). • Animal Production (NAICS 112). • Food Manufacturing and Processing (NAICS 311). This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed could also be affected. If you have questions regarding the applicability of this action to a particular entity, please consult the appropriate Branch Chief in the U.S. EPA Biopesticides and Pollution Prevention Division of the Office of Pesticide Programs at 703-308-8712, fax number at 703-308-7026 or visit the following Web site: *http://www.epa.gov/pesticides/biopesticides/.* B. How Can I Get Copies of this Document and Other Related Information? 1. *Docket.* EPA has established a docket for this action under Docket identification number
(ID)EPA-HQ-OPP-2004-0415; FRL-7763-4. Publicly available docket materials are available either electronically at *http://www.regulations.gov* or in hard copy at the Public Information and Records Integrity Branch (PIRIB), Rm. 119, Crystal Mall #2, 1801 S. Bell St., Arlington, VA. This Docket Facility is open from 8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The Docket telephone number is
(703)305-5805. 2. *Electronic access.* You may access this **Federal Register** document electronically through the EPA Internet under the “ **Federal Register** ” listings at *http://* www.epa.gov/fedrgstr/. II. Background EPA is convening two public workshops to review proposed revisions to the data requirements for the registration of biochemical and microbial pesticides. Under the Federal Food, Drug and Cosmetic Act (FFDCA) and the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), anyone seeking to register a pesticide product is required to provide information to EPA that demonstrates their products can be used without posing unreasonable risk to human health and the environment. For food uses, the registrant is required to provide information demonstrating that there is a reasonable certainty that no harm will result from exposures to the residues of their pesticide product. The public workshops will include presentations by staff from the Biopesticides and Pollution Prevention Division
(BPPD)and the Field and External Affairs Division
(FEAD)of the Office of Pesticide Programs (OPP). The proposed revisions are primarily directed at biochemical and microbial pesticides, not conventional pesticides, antimicrobial pesticides or product performance data requirements. Nonetheless, all interested parties are welcome and may benefit from the discussions since EPA has issued or is planning to issue revisions to these areas in the future. Some of the proposed revisions apply to the data submission process, e.g., revised policy on data waivers, consultations, and pre/post-submission meetings. During the workshop, persons in attendance will be able to ask questions regarding the material being presented. The proposed revisions were issued in the **Federal Register** of March 8, 2006, (71 FR 12071) (FRL-7763-4). A 90-day comment period will end on June 6, 2006. A limited number of copies of the proposed rule will be available at the workshop. Attendees are encouraged to access the electronic version of the proposed rule from the regulations.gov Web site under Docket ID No. EPA-HQ-OPP-2004-0415. List of Subjects Environmental protection, Environmental protection, Administrative practice and procedure, Agricultural commodities, Pesticides and pests, Biochemical and microbial pesticides, Reporting and recordkeeping requirements. Dated: March 8, 2006. James Jones, Director, Office of Pesticide Programs. [FR Doc. E6-3728 Filed 3-14-06; 8:45 am] BILLING CODE 6560-50-S FEDERAL COMMUNICATIONS COMMISSION 47 CFR Ch. I [FCC 06-10] Customer Proprietary Network Information AGENCY: Federal Communications Commission. ACTION: Proposed rule. SUMMARY: In this document the Commission considers whether to take additional steps to protect the privacy of customer proprietary network information
(CPNI)that is collected and held by telecommunications carriers. The Commission has long been committed to safeguarding customer privacy, and its rules requiring carriers to take specific steps to ensure that CPNI is adequately protected from unauthorized disclosure. DATES: Comments are due April 14, 2006. Reply comments are due May 15, 2006. Written comments on the Paperwork Reduction Act proposed information collection requirements must be submitted by the public, Office of Management and Budget (OMB), and other interested parties on or before May 15, 2006. ADDRESSES: You may submit comments, identified by CC Docket No. 96-115, by any of the following methods: • Federal eRulemaking Portal: *http://www.regulations.gov* . Follow the instructions for submitting comments. • Federal Communications Commission's Web site: *http://www.fcc.gov/cgb/ecfs/* . Follow the instructions for submitting comments. • People with Disabilities: Contact the FCC to request reasonable accommodations (accessible format documents, sign language interpreters, CART, etc.) by e-mail: *FCC504@fcc.gov* or phone: 202-418-0530 or TTY: 202-418-0432. For detailed instructions for submitting comments and additional information on the rulemaking process, see the SUPPLEMENTARY INFORMATION section of this document. FOR FURTHER INFORMATION CONTACT: Tim Stelzig,
(202)418-0942, Competition Policy Division, Wireline Competition Bureau. For additional information concerning the Paperwork Reduction Act information collection requirements contained in this document, contact Judith B. Herman at 202-418-0214, or via the Internet at *PRA@fcc.gov* . SUPPLEMENTARY INFORMATION: Pursuant to §§ 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415 and 1.419, interested parties may file comments and reply comments regarding the NPRM. All filings related to this Notice of Proposed Rulemaking should refer to CC Docket No. 96-115. Comments may be filed using:
(1)The Commission's Electronic Comment Filing System (ECFS),
(2)the Federal Government's eRulemaking Portal, or
(3)by filing paper copies. See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121, May 1, 1998. The public may view a full copy of this document at *http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-06-10A1.pdf* . • Electronic Filers: Comments may be filed electronically using the Internet by accessing the ECFS: *http://www.fcc.gov/cgb/ecfs/* or the Federal eRulemaking Portal: *http://www.regulations.gov* . Filers should follow the instructions provided on the Web site for submitting comments. • For ECFS filers, in completing the transmittal screen, filers should include their full name, U.S. Postal Service mailing address, and the applicable docket or rulemaking number. Parties may also submit an electronic comment by Internet e-mail. To get filing instructions, filers should send an e-mail to *ecfs@fcc.gov* , and include the following words in the body of the message, “get form.” A sample form and directions will be sent in response. • Paper Filers: Parties who choose to file by paper must file an original and four copies of each filing. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail (although we continue to experience delays in receiving U.S. Postal Service mail). All filings must be addressed to the Commission's Secretary, Marlene H. Dortch, Office of the Secretary, Federal Communications Commission, 445 12th Street, SW., Washington, DC 20554. • The Commission's contractor will receive hand-delivered or messenger-delivered paper filings for the Commission's Secretary at 236 Massachusetts Avenue, NE, Suite 110, Washington, DC 20002. The filing hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes must be disposed of *before* entering the building. • Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743. • U.S. Postal Service first-class, Express, and Priority mail should be addressed to 445 12th Street, SW., Washington, DC 20554. • Parties should send a copy of their filings to Janice Myles, Competition Policy Division, Wireline Competition Bureau, Federal Communications Commission, Room 5-C140, 445 12th Street, SW., Washington, DC 20554, or by e-mail to *Janice.myles@fcc.gov* . Parties should also serve one copy with the Commission's copy contractor, Best Copy and Printing, Inc. (BCPI), Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554,
(202)488-5300, or via e-mail to *fcc@bcpiweb.com.* • Documents in CC Docket No. 96-115 will be available for public inspection and copying during business hours at the FCC Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554. The documents may also be purchased from BCPI, telephone
(202)488-5300, facsimile
(202)488-5563, TTY
(202)488-5562, e-mail *fcc@bcpiweb.com* . • People with Disabilities: Contact the FCC to request materials in accessible formats (Braille, large print, electronic files, audio format, etc.) by e-mail at *fcc504@fcc.gov* or call the Consumer and Governmental Affairs Bureau at
(202)418-0531 (voice),
(202)418-7365 (TTY). I. Paperwork Reduction Act This document contains proposed information collection requirements. The Commission, as part of its continuing effort to reduce paperwork burden, invites the general public and the Office of Management and Budget
(OMB)to comment on the information collection requirements contained in this document, as required by the Paperwork Reduction Act of 1995, Public Law 104-13. Public and agency comments are due May 15, 2006. Comments should address:
(a)Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility;
(b)the accuracy of the Commission's burden estimates;
(c)ways to enhance the quality, utility, and clarity of the information collected; and
(d)ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), the Commission seeks specific comment on how the Commission might “further reduce the information collection burden for small business concerns with fewer than 25 employees.” II. Notice of Proposed Rulemaking In this Notice of Proposed Rulemaking (NPRM), CC Docket No. 96-115 and RM-11277, FCC 06-10, released February 14, 2006, the Commission seeks comment on what additional steps, if any, the Commission should take to further protect the privacy of customer proprietary network information
(CPNI)that is collected and held by telecommunications carriers. This NPRM directly responds to the petition filed by the Electronic Privacy Information Center
(EPIC)expressing concerns about the sufficiency of carrier practices related to CPNI. As the EPIC petition points out, numerous websites advertise the sale of personal telephone records for a price. Specifically, data brokers advertise the availability of cell phone records, which include calls to and/or from a particular cell phone number, the duration of such calls, and may even include the physical location of the cell phone. In addition to selling cell phone call records, many data brokers also claim to provide calling records for landline and voice over Internet protocol, as well as non-published phone numbers. In many cases, the data brokers claim to be able to provide this information within fairly quick time frames, ranging from a few hours to a few days. The Commission finds this conduct to be very disturbing and, accordingly, the Commission grants EPIC's request and initiates a rulemaking to determine whether enhanced security and authentication standards for access to customer telephone records are warranted. In the NPRM, the Commission seeks comment, pursuant to the Commission's authority under section 222 of the Act, on the nature and scope of the problem identified by EPIC. The Commission seeks comment generally on how CPNI is maintained and secured by carriers and how data brokers are able to obtain CPNI from carriers. The Commission also seeks comment on whether the Commission's existing opt-out regime sufficiently protects the privacy of CPNI in the context of CPNI disclosed to telecommunications carriers' joint venture partners and independent contractors. The Commission also seeks comment on carriers' current practices regarding the disclosure of CPNI and whether they are sufficient. In particular, EPIC proposes five forms of security measures that it maintains would more adequately protect access to CPNI: consumer-set passwords, audit trails, encryption, limiting data retention, and notice procedures. The Commission seeks comment about the feasibility and advisability of these and other measures. The Commission also seeks comment on whether it should take steps to enhance its ability to enforce the requirements of section 222 and the Commission's regulations relating to CPNI. III. Procedural Matters Ex Parte Presentations The rulemaking this NPRM initiates shall be treated as a “permit-but-disclose” proceeding in accordance with the Commission's ex parte rules. Persons making oral ex parte presentations are reminded that memoranda summarizing the presentations must contain summaries of the substance of the presentations and not merely a listing of the subjects discussed. More than a one or two sentence description of the views and arguments presented generally is required. Other requirements pertaining to oral and written presentations are set forth in § 1.1206(b) of the Commission's rules. Initial Regulatory Flexibility Analysis 1. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), see 5 U.S.C. 603, the Commission has prepared the present Initial Regulatory Flexibility Analysis
(IRFA)of the possible significant economic impact on small entities that might result from this NPRM. Written public comments are requested on this IRFA. Comments must be identified as responses to the IRFA and must be filed by the deadlines for comments on the NPRM. Comments are due April 14, 2006. Reply comments are due May 15, 2006. The Commission will send a copy of the NPRM, including this IRFA, to the Chief Counsel for Advocacy of the Small Business Administration. In addition, the NPRM and IRFA (or summaries thereof) will be published in the **Federal Register** . A. Need for, and Objectives of, the Proposed Rules 2. In the NPRM, the Commission grants EPIC's petition for rulemaking and seeks comment on what security measures telecommunications carriers currently have in place for verifying the identity of people requesting CPNI; what inadequacies currently exist in those measures that allow third parties such as online data brokers and private investigators to access CPNI without the customer's knowledge or authorization; and what kind of security measures may be warranted to better protect telecommunications customers from unauthorized access to CPNI. In particular, the Commission seeks comment on EPIC's five proposals to address the unauthorized means of obtaining CPNI:
(1)Consumer-set passwords;
(2)audit trails;
(3)encryption;
(4)limiting data retention; and
(5)procedures for notice to the customer on release of CPNI data. The Commission also seeks comment on what steps the Commission should take to enforce its CPNI rules and whether carriers should be required to report further on the release of CPNI. B. Legal Basis 3. The legal basis for any action that may be taken pursuant to the NPRM is contained in sections 1, 4(i), 4(j), and 222 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i)-(j), 222. C. Description and Estimate of the Number of Small Entities to Which the Proposed Rules May Apply 4. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A small business concern is one which:
(1)Is independently owned and operated;
(2)is not dominant in its field of operation; and
(3)satisfies any additional criteria established by the Small Business Administration (SBA). 5. *Small Businesses.* Nationwide, there are a total of approximately 22.4 million small businesses, according to SBA data. 6. *Small Organizations.* Nationwide, there are approximately 1.6 million small organizations. 7. *Small Governmental Jurisdictions.* The term “small governmental jurisdiction” is defined generally as “governments of cities, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” Census Bureau data for 2002 indicate that there were 87,525 local governmental jurisdictions in the United States. The Commission estimates that, of this total, 84,377 entities were “small governmental jurisdictions.” Thus, the Commission estimates that most governmental jurisdictions are small. 1. Telecommunications Service Entities a. Wireline Carriers and Service Providers 8. The Commission has included small incumbent local exchange carriers in this present RFA analysis. As noted above, a “small business” under the RFA is one that, inter alia, meets the pertinent small business size standard (e.g., a telephone communications business having 1,500 or fewer employees), and “is not dominant in its field of operation.” The SBA's Office of Advocacy contends that, for RFA purposes, small incumbent local exchange carriers are not dominant in their field of operation because any such dominance is not “national” in scope. The Commission has therefore included small incumbent local exchange carriers in this RFA analysis, although the Commission emphasizes that this RFA action has no effect on Commission analyses and determinations in other, non-RFA contexts. 9. *Incumbent Local Exchange Carriers (LECs).* Neither the Commission nor the SBA has developed a small business size standard specifically for incumbent local exchange services. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 1,303 carriers have reported that they are engaged in the provision of incumbent local exchange services. Of these 1,303 carriers, an estimated 1,020 have 1,500 or fewer employees and 283 have more than 1,500 employees. Consequently, the Commission estimates that most providers of incumbent local exchange service are small businesses that may be affected by the Commission's action. 10. *Competitive Local Exchange Carriers, Competitive Access Providers (CAPs), “Shared-Tenant Service Providers,”* and *“Other Local Service Providers.”* Neither the Commission nor the SBA has developed a small business size standard specifically for these service providers. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 769 carriers have reported that they are engaged in the provision of either competitive access provider services or competitive local exchange carrier services. Of these 769 carriers, an estimated 676 have 1,500 or fewer employees and 93 have more than 1,500 employees. In addition, 12 carriers have reported that they are “Shared-Tenant Service Providers,” and all 12 are estimated to have 1,500 or fewer employees. In addition, 39 carriers have reported that they are “Other Local Service Providers.” Of the 39, an estimated 38 have 1,500 or fewer employees and one has more than 1,500 employees. Consequently, the Commission estimates that most providers of competitive local exchange service, competitive access providers, “Shared-Tenant Service Providers,” and “Other Local Service Providers” are small entities that may be affected by the Commission's action. 11. *Local Resellers.* The SBA has developed a small business size standard for the category of Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 143 carriers have reported that they are engaged in the provision of local resale services. Of these, an estimated 141 have 1,500 or fewer employees and two have more than 1,500 employees. Consequently, the Commission estimates that the majority of local resellers are small entities that may be affected by the Commission's action. 12. *Toll Resellers.* The SBA has developed a small business size standard for the category of Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 770 carriers have reported that they are engaged in the provision of toll resale services. Of these, an estimated 747 have 1,500 or fewer employees and 23 have more than 1,500 employees. Consequently, the Commission estimates that the majority of toll resellers are small entities that may be affected by the Commission's action. 13. *Payphone Service Providers (PSPs).* Neither the Commission nor the SBA has developed a small business size standard specifically for payphone services providers. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 613 carriers have reported that they are engaged in the provision of payphone services. Of these, an estimated 609 have 1,500 or fewer employees and four have more than 1,500 employees. Consequently, the Commission estimates that the majority of payphone service providers are small entities that may be affected by the Commission's action. 14. *Interexchange Carriers (IXCs).* Neither the Commission nor the SBA has developed a small business size standard specifically for providers of interexchange services. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 316 carriers have reported that they are engaged in the provision of interexchange service. Of these, an estimated 292 have 1,500 or fewer employees and 24 have more than 1,500 employees. Consequently, the Commission estimates that the majority of IXCs are small entities that may be affected by the Commission's action. 15. *Operator Service Providers (OSPs).* Neither the Commission nor the SBA has developed a small business size standard specifically for operator service providers. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 23 carriers have reported that they are engaged in the provision of operator services. Of these, an estimated 20 have 1,500 or fewer employees and three have more than 1,500 employees. Consequently, the Commission estimates that the majority of OSPs are small entities that may be affected by the Commission's action. 16. *Prepaid Calling Card Providers.* Neither the Commission nor the SBA has developed a small business size standard specifically for prepaid calling card providers. The appropriate size standard under SBA rules is for the category Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 89 carriers have reported that they are engaged in the provision of prepaid calling cards. Of these, 88 are estimated to have 1,500 or fewer employees and one has more than 1,500 employees. Consequently, the Commission estimates that all or the majority of prepaid calling card providers are small entities that may be affected by the Commission's action. 17. *800 and 800-Like Service Subscribers.* Neither the Commission nor the SBA has developed a small business size standard specifically for 800 and 800-like service (“toll free”) subscribers. The appropriate size standard under SBA rules is for the category Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or fewer employees. The most reliable source of information regarding the number of these service subscribers appears to be data the Commission collects on the 800, 888, and 877 numbers in use. According to the Commission's data, at the end of January 1999, the number of 800 numbers assigned was 7,692,955; the number of 888 numbers assigned was 7,706,393; and the number of 877 numbers assigned was 1,946,538. The Commission does not have data specifying the number of these subscribers that are not independently owned and operated or have more than 1,500 employees, and thus is unable at this time to estimate with greater precision the number of toll free subscribers that would qualify as small businesses under the SBA size standard. Consequently, the Commission estimates that there are 7,692,955 or fewer small entity 800 subscribers; 7,706,393 or fewer small entity 888 subscribers; and 1,946,538 or fewer small entity 877 subscribers. b. International Service Providers 18. The Commission has not developed a small business size standard specifically for providers of international service. The appropriate size standards under SBA rules are for the two broad census categories of “Satellite Telecommunications” and “Other Telecommunications.” Under both categories, such a business is small if it has $12.5 million or less in average annual receipts. 19. The first category of Satellite Telecommunications “comprises establishments primarily engaged in providing point-to-point telecommunications services to other establishments in the telecommunications and broadcasting industries by forwarding and receiving communications signals via a system of satellites or reselling satellite telecommunications.” For this category, Census Bureau data for 2002 show that there were a total of 371 firms that operated for the entire year. Of this total, 307 firms had annual receipts of under $10 million, and 26 firms had receipts of $10 million to $24,999,999. Consequently, the Commission estimates that the majority of Satellite Telecommunications firms are small entities that might be affected by the Commission's action. 20. The second category of Other Telecommunications “comprises establishments primarily engaged in
(1)Providing specialized telecommunications applications, such as satellite tracking, communications telemetry, and radar station operations; or
(2)providing satellite terminal stations and associated facilities operationally connected with one or more terrestrial communications systems and capable of transmitting telecommunications to or receiving telecommunications from satellite systems.” For this category, Census Bureau data for 2002 show that there were a total of 332 firms that operated for the entire year. Of this total, 259 firms had annual receipts of under $10 million and 15 firms had annual receipts of $10 million to $24,999,999. Consequently, the Commission estimates that the majority of Other Telecommunications firms are small entities that might be affected by the Commission's action. c. Wireless Telecommunications Service Providers 21. Below, for those services subject to auctions, the Commission notes that, as a general matter, the number of winning bidders that qualify as small businesses at the close of an auction does not necessarily represent the number of small businesses currently in service. Also, the Commission does not generally track subsequent business size unless, in the context of assignments or transfers, unjust enrichment issues are implicated. 22. *Wireless Service Providers.* The SBA has developed a small business size standard for wireless firms within the two broad economic census categories of “Paging” and “Cellular and Other Wireless Telecommunications.” Under both SBA categories, a wireless business is small if it has 1,500 or fewer employees. For the census category of Paging, Census Bureau data for 2002 show that there were 807 firms in this category that operated for the entire year. Of this total, 804 firms had employment of 999 or fewer employees, and three firms had employment of 1,000 employees or more. Thus, under this category and associated small business size standard, the majority of firms can be considered small. For the census category of Cellular and Other Wireless Telecommunications, Census Bureau data for 2002 show that there were 1,397 firms in this category that operated for the entire year. Of this total, 1,378 firms had employment of 999 or fewer employees, and 19 firms had employment of 1,000 employees or more. Thus, under this second category and size standard, the majority of firms can, again, be considered small. 23. *Cellular Licensees.* The SBA has developed a small business size standard for wireless firms within the broad economic census category “Cellular and Other Wireless Telecommunications.” Under this SBA category, a wireless business is small if it has 1,500 or fewer employees. For the census category of Cellular and Other Wireless Telecommunications, Census Bureau data for 2002 show that there were 1,397 firms in this category that operated for the entire year. Of this total, 1,378 firms had employment of 999 or fewer employees, and 19 firms had employment of 1,000 employees or more. Thus, under this category and size standard, the great majority of firms can be considered small. Also, according to Commission data, 437 carriers reported that they were engaged in the provision of cellular service, Personal Communications Service (PCS), or Specialized Mobile Radio
(SMR)Telephony services, which are placed together in the data. The Commission has estimated that 260 of these are small, under the SBA small business size standard. 24. *Common Carrier Paging.* The SBA has developed a small business size standard for wireless firms within the broad economic census category, “Cellular and Other Wireless Telecommunications.” Under this SBA category, a wireless business is small if it has 1,500 or fewer employees. For the census category of Paging, Census Bureau data for 2002 show that there were 807 firms in this category that operated for the entire year. Of this total, 804 firms had employment of 999 or fewer employees, and three firms had employment of 1,000 employees or more. Thus, under this category and associated small business size standard, the majority of firms can be considered small. In the Paging *Third Report and Order,* the Commission developed a small business size standard for “small businesses” and “very small businesses” for purposes of determining their eligibility for special provisions such as bidding credits and installment payments. A “small business” is an entity that, together with its affiliates and controlling principals, has average gross revenues not exceeding $15 million for the preceding three years. Additionally, a “very small business” is an entity that, together with its affiliates and controlling principals, has average gross revenues that are not more than $3 million for the preceding three years. The SBA has approved these small business size standards. An auction of Metropolitan Economic Area licenses commenced on February 24, 2000, and closed on March 2, 2000. Of the 985 licenses auctioned, 440 were sold. Fifty-seven companies claiming small business status won. Also, according to Commission data, 375 carriers reported that they were engaged in the provision of paging and messaging services. Of those, the Commission estimates that 370 are small, under the SBA-approved small business size standard. 25. *Wireless Telephony.* Wireless telephony includes cellular, personal communications services (PCS), and specialized mobile radio
(SMR)telephony carriers. As noted earlier, the SBA has developed a small business size standard for “Cellular and Other Wireless Telecommunications” services. Under that SBA small business size standard, a business is small if it has 1,500 or fewer employees. According to Commission data, 445 carriers reported that they were engaged in the provision of wireless telephony. The Commission has estimated that 245 of these are small under the SBA small business size standard. 26. *Broadband Personal Communications Service.* The broadband Personal Communications Service
(PCS)spectrum is divided into six frequency blocks designated A through F, and the Commission has held auctions for each block. The Commission defined “small entity” for Blocks C and F as an entity that has average gross revenues of $40 million or less in the three previous calendar years. For Block F, an additional classification for “very small business” was added and is defined as an entity that, together with its affiliates, has average gross revenues of not more than $15 million for the preceding three calendar years.” These standards defining “small entity” in the context of broadband PCS auctions have been approved by the SBA. No small businesses, within the SBA-approved small business size standards bid successfully for licenses in Blocks A and B. There were 90 winning bidders that qualified as small entities in the Block C auctions. A total of 93 small and very small business bidders won approximately 40 percent of the 1,479 licenses for Blocks D, E, and F. On March 23, 1999, the Commission re-auctioned 347 C, D, E, and F Block licenses. There were 48 small business winning bidders. On January 26, 2001, the Commission completed the auction of 422 C and F Broadband PCS licenses in Auction No. 35. Of the 35 winning bidders in this auction, 29 qualified as “small” or “very small” businesses. Subsequent events, concerning Auction 35, including judicial and agency determinations, resulted in a total of 163 C and F Block licenses being available for grant. 27. *Narrowband Personal Communications Services.* To date, two auctions of narrowband personal communications services
(PCS)licenses have been conducted. For purposes of the two auctions that have already been held, “small businesses” were entities with average gross revenues for the prior three calendar years of $40 million or less. Through these auctions, the Commission has awarded a total of 41 licenses, out of which 11 were obtained by small businesses. To ensure meaningful participation of small business entities in future auctions, the Commission has adopted a two-tiered small business size standard in the *Narrowband PCS Second Report and Order.* A “small business” is an entity that, together with affiliates and controlling interests, has average gross revenues for the three preceding years of not more than $40 million. A “very small business” is an entity that, together with affiliates and controlling interests, has average gross revenues for the three preceding years of not more than $15 million. The SBA has approved these small business size standards. In the future, the Commission will auction 459 licenses to serve Metropolitan Trading Areas
(MTAs)and 408 response channel licenses. There is also one megahertz of narrowband PCS spectrum that has been held in reserve and that the Commission has not yet decided to release for licensing. The Commission cannot predict accurately the number of licenses that will be awarded to small entities in future auctions. However, four of the 16 winning bidders in the two previous narrowband PCS auctions were small businesses, as that term was defined. The Commission assumes, for purposes of this analysis that a large portion of the remaining narrowband PCS licenses will be awarded to small entities. The Commission also assumes that at least some small businesses will acquire narrowband PCS licenses by means of the Commission's partitioning and disaggregation rules. 28. *Rural Radiotelephone Service.* The Commission has not adopted a size standard for small businesses specific to the Rural Radiotelephone Service. A significant subset of the Rural Radiotelephone Service is the Basic Exchange Telephone Radio System (BETRS). The Commission uses the SBA's small business size standard applicable to “Cellular and Other Wireless Telecommunications,” *i.e.* , an entity employing no more than 1,500 persons. There are approximately 1,000 licensees in the Rural Radiotelephone Service, and the Commission estimates that there are 1,000 or fewer small entity licensees in the Rural Radiotelephone Service that may be affected by the rules and policies adopted herein. 29. *Air-Ground Radiotelephone Service.* The Commission has not adopted a small business size standard specific to the Air-Ground Radiotelephone Service. The Commission will use SBA's small business size standard applicable to “Cellular and Other Wireless Telecommunications,” *i.e.* , an entity employing no more than 1,500 persons. There are approximately 100 licensees in the Air-Ground Radiotelephone Service, and the Commission estimates that almost all of them qualify as small under the SBA small business size standard. 30. *Offshore Radiotelephone Service.* This service operates on several UHF television broadcast channels that are not used for television broadcasting in the coastal areas of states bordering the Gulf of Mexico. There are presently approximately 55 licensees in this service. The Commission is unable to estimate at this time the number of licensees that would qualify as small under the SBA's small business size standard for “Cellular and Other Wireless Telecommunications” services. Under that SBA small business size standard, a business is small if it has 1,500 or fewer employees. 2. Cable and OVS Operators 31. *Cable and Other Program Distribution.* This category includes cable systems operators, closed circuit television services, direct broadcast satellite services, multipoint distribution systems, satellite master antenna systems, and subscription television services. The SBA has developed a small business size standard for this census category, which includes all such companies generating $12.5 million or less in revenue annually. According to Census Bureau data for 2002, there were a total of 1,191 firms in this category that operated for the entire year. Of this total, 1,087 firms had annual receipts of under $10 million, and 43 firms had receipts of $10 million or more but less than $25 million. Consequently, the Commission estimates that the majority of providers in this service category are small businesses that may be affected by the rules and policies adopted herein. 32. *Cable System Operators.* The Commission has developed its own small business size standards for cable system operators, for purposes of rate regulation. Under the Commission's rules, a “small cable company” is one serving fewer than 400,000 subscribers nationwide. In addition, a “small system” is a system serving 15,000 or fewer subscribers. 33. *Cable System Operators (Telecom Act Standard).* The Communications Act of 1934, as amended, also contains a size standard for small cable system operators, which is “a cable operator that, directly or through an affiliate, serves in the aggregate fewer than 1 percent of all subscribers in the United States and is not affiliated with any entity or entities whose gross annual revenues in the aggregate exceed $250,000,000.” The Commission has determined that there are approximately 67,700,000 subscribers in the United States. Therefore, an operator serving fewer than 677,000 subscribers shall be deemed a small operator, if its annual revenues, when combined with the total annual revenues of all its affiliates, do not exceed $250 million in the aggregate. Based on available data, the Commission estimates that the number of cable operators serving 677,000 subscribers or fewer, totals 1,450. The Commission neither requests nor collects information on whether cable system operators are affiliated with entities whose gross annual revenues exceed $250 million, and therefore is unable, at this time, to estimate more accurately the number of cable system operators that would qualify as small cable operators under the size standard contained in the Communications Act of 1934. 34. *Open Video Services.* Open Video Service
(OVS)systems provide subscription services. The SBA has created a small business size standard for Cable and Other Program Distribution. This standard provides that a small entity is one with $12.5 million or less in annual receipts. The Commission has certified approximately 25 OVS operators to serve 75 areas, and some of these are currently providing service. Affiliates of Residential Communications Network, Inc.
(RCN)received approval to operate OVS systems in New York City, Boston, Washington, DC, and other areas. RCN has sufficient revenues to assure that they do not qualify as a small business entity. Little financial information is available for the other entities that are authorized to provide OVS and are not yet operational. Given that some entities authorized to provide OVS service have not yet begun to generate revenues, the Commission concludes that up to 24 OVS operators (those remaining) might qualify as small businesses that may be affected by the rules and policies adopted herein. 3. Internet Service Providers 35. *Internet Service Providers.* The SBA has developed a small business size standard for Internet Service Providers (ISPs). ISPs “provide clients access to the Internet and generally provide related services such as Web hosting, Web page designing, and hardware or software consulting related to Internet connectivity.” Under the SBA size standard, such a business is small if it has average annual receipts of $21 million or less. According to Census Bureau data for 2002, there were 2,529 firms in this category that operated for the entire year. Of these, 2,437 firms had annual receipts of under $10 million, and 47 firms had receipts of $10 million or more but less then $25 million. Consequently, the Commission estimates that the majority of these firms are small entities that may be affected by the Commission's action. 36. *All Other Information Services.* “This industry comprises establishments primarily engaged in providing other information services (except new syndicates and libraries and archives).” The Commission's action pertains to VoIP services, which could be provided by entities that provide other services such as e-mail, online gaming, Web browsing, video conferencing, instant messaging, and other, similar IP-enabled services. The SBA has developed a small business size standard for this category; that size standard is $6 million or less in average annual receipts. According to Census Bureau data for 1997, there were 195 firms in this category that operated for the entire year. Of these, 172 had annual receipts of under $5 million, and an additional nine firms had receipts of between $5 million and $9,999,999. Consequently, the Commission estimates that the majority of these firms are small entities that may be affected by the Commission's action. D. Description of Projected Reporting, Recordkeeping and Other Compliance Requirements 37. Should the Commission decide to adopt any regulations to ensure that all providers of telecommunications services meet consumer protection needs in regard to CPNI, the associated rules potentially could modify the reporting and recordkeeping requirements of certain telecommunications providers. The Commission could, for instance, require that telecommunications providers require customer password-related security procedures to access CPNI data and/or encrypt CPNI data. The Commission could also require that telecommunications providers maintain more extensive records regarding CPNI data and report additional CPNI information to their customers and the Commission. The Commission tentatively concludes that the Commission should amend its rules to require carriers to certify as to established operating procedures no later than January 1st (or other date specified by the Commission) of each year, covering the preceding calendar year, and to file the compliance certificate with the Commission within 30 days. The Commission further tentatively concludes that carriers should attach to this annual § 64.2009(e) certification an explanation of any actions taken against data brokers and a summary of all consumer complaints received in the past year concerning the unauthorized release of CPNI. These proposals may impose additional reporting or recordkeeping requirements on entities. The Commission seeks comment on the possible burden these requirements would place on small entities. Also, the Commission seeks comment on whether a special approach toward any possible compliance burdens on small entities might be appropriate. Entities, especially small businesses, are encouraged to quantify the costs and benefits of any reporting requirement that may be established in this proceeding. E. Steps Taken to Minimize Significant Economic Impact on Small Entities, and Significant Alternatives Considered 38. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include (among others) the following four alternatives:
(1)The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities;
(2)the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities;
(3)the use of performance, rather than design, standards; and
(4)an exemption from coverage of the rule, or any part thereof, for small entities. 39. The Commission's primary objective is to develop a framework for protecting a customer's CPNI, regardless of the customer's underlying technology. The Commission seeks comment here on the effect the various proposals described in the NPRM will have on small entities, and on what effect alternative rules would have on those entities. The Commission invites comment on ways in which the Commission can achieve its goal of protecting consumers while at the same time impose minimal burdens on small telecommunications service providers. With respect to any of the Commission's consumer protection regulations already in place, has the Commission adopted any provisions for small entities that the Commission should similarly consider here? Specifically, the Commission invites comment on whether the problems identified by EPIC are better or worse at smaller carriers. The Commission invites comment on whether small carriers should be exempt from password-related security procedures to protect CPNI. The Commission invites comment on the benefits and burdens of recording audit trails for the disclosure of CPNI on small carriers. The Commission invites comment on whether requiring a small carrier to encrypt its stored data would be unduly burdensome. The Commission solicits comment on the cost to a small carrier of notifying a customer upon release of CPNI. The Commission seeks comment on whether the Commission should amend its rules to require carriers to file annual certifications concerning CPNI and whether this requirement should extend to only telecommunications carriers that are not small telephone companies as defined by the Small Business Administration, and whether small carriers should be subject to different CPNI-related obligations. F. Federal Rules that May Duplicate, Overlap, or Conflict with the Proposed Rules 40. None. Ordering Clauses Accordingly, *it is ordered,* pursuant to sections 1, 4(i), 4(j), and 222 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i)-(j), 222, that this NPRM in CC Docket No. 96-115 and RM-11277 *is adopted.* *It is further ordered* that the Petition for Rulemaking of the Electronic Privacy Information Center *is granted* to the extent described herein. *It is further ordered* that the proceeding in RM-11277 *is hereby terminated.* *It is further ordered* that the Commission's Consumer & Governmental Affairs Bureau, Reference Information Center, *shall send* a copy of this NPRM, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration. Federal Communications Commission. Marlene H. Dortch, Secretary. [FR Doc. 06-2423 Filed 3-14-06; 8:45 am]
Connectionstraces to 14
33 references not yet in our index
  • 12 USC 1422a(a)(3)(B)(ii)
  • 12 USC 1422a(a)(3)(A)
  • 12 USC 1422a(a)(3)(B)
  • 12 USC 1422b(a)(1)
  • 12 CFR 925.19
  • 12 CFR 966.3(a)
  • Pub. L. 106-102
  • 133 Stat. 1338
  • 12 CFR 933.2(a)
  • 12 CFR 933.2
  • 12 CFR 931.1
  • 12 CFR 932.3
  • 12 CFR 932.2
  • 12 CFR 931.9(b)(1)
  • 12 CFR 925.22(b)(2)
  • 12 CFR 925.29
  • 12 CFR 925.23
  • 12 CFR 930.1
  • 12 USC 1422a(a)(3)
  • 12 CFR 917.9
  • 12 CFR 931.7
  • Pub. L. 72-304
  • 12 CFR 900
  • 12 CFR 917
  • 12 CFR 925
  • 12 CFR 930
  • 12 CFR 931
  • 12 CFR 934
  • 12 USC 1422b(a)
  • 40 CFR 158
  • 47 CFR 1.415
  • Pub. L. 104-13
  • Pub. L. 107-198
Citation graph
cites case law
Proposed Rules
Proposed rule
U.S.C.§ 1421
U.S.C.§ 1426
U.S.C.§ 1441
U.S.C.§ 1436
U.S.C.§ 1430
U.S.C.§ 1441a
Stat.Public Law 304
U.S.C.§ 601
U.S.C.§ 605
Cite12 USC 1422a(a)(3)(B)(ii)
Cite12 USC 1422a(a)(3)(A)
Cite12 USC 1422a(a)(3)(B)
Cites 47 · showing 12Cited by 0 across 0 sources
★   the supreme law of the land   ★
Don't Tread on Me
E Pluribus Unum — out of many, one

"If you don't know your rights, you don't have any."

Marginalia · a citizen's law index
A research desk, not legal advice. Always read the cited source before relying on a summary.
Questions or an issue? support@self-law.org
disclaimerMarginalia is a research index, not a law firm. Nothing on this site is legal, tax, or financial advice and no attorney–client relationship is formed by using it. Statutes, regulations, and case law change; summaries, search results, AI output, and member posts may be incomplete, out of date, or wrong. Any interpretation drawn from material on this site should be validated by a licensed attorney in your jurisdiction before you act on it.