As of year-end 2014, over 7,300 financial institutions were  members of the FHLBank System. In 2014, the size of the FHLBank boards  ranged from 14 to 19 directors, for a total of 189 board directors across all  12 FHLBanks. Second, HERA added skill requirements for independent directors,  removed compensation caps, and changed directors’ terms from 3 to 4  years. Most significantly, HERA required that  independent directors be elected rather than appointed by the regulator. According to  FHFA officials, these two rules fully implemented HERA’s governance  changes. Boards Have Limited Representation of Women and Minorities but Reflect Some Diversity in Skills and Education

In 2014, women represented about 16 percent of board directors and  racial or ethnic minorities around 10 percent of board directors, and the  majority of FHLBank board directors were non-Hispanic white males. Among member directors (who by statute represent  member financial institutions), when compared to the overall  representation, member board directors from commercial banks had the  most representation, thrifts and credit unions had some representation,  and insurance companies and community development financial  institutions had the least or no representation on any FHLBank board. Representation of Women and Racial or Ethnic Minorities on FHLBank Boards Was Limited and Most Were Independent Directors

Women represented roughly 16 percent of all FHLBank board directors in  2014. One of the 12 FHLBank boards’ chair was a woman  (Atlanta). We found that these processes generally followed several  commonly cited practices for improving board diversity, such as making  diversity a priority and disclosing diversity practices. FHLBanks Have Used Some Commonly Cited Practices for Improving Board Diversity

Since HERA’s enactment, FHLBanks and their boards have developed  and refined new processes to help them identify and nominate  independent directors and respond to new requirements for their board  directors. The steps the FHLBanks  take are assessing the boards’ needs as well as the makeup of the current  identifying any skill or experience gaps among the current directors; discussing the number of seats that will be on the board (determined  by FHFA) and determining how many board seats will be open to new  candidates during the election cycle; discussing upcoming elections and potential nominees for  independent directorships with their advisory councils and seeking  advisory councils’ help with candidate outreach; opening the election cycle with a call for nominees for member  directors and applications for independent directors; interviewing candidates for independent directorships and discussing  their attributes to determine which candidate(s) to select for the  ballot;  verifying the eligibility of candidates for independent directorships and  submitting candidates’ materials to FHFA for review; providing a ballot to each member institution listing the candidates  who will run in the upcoming election cycle; and declaring the results of the election to members, nominees, and  FHFA. In rules issued in 2009 and 2010, FHFA urged  FHLBanks to consider the importance of board diversity. The rule states the FHLBanks are required to report on board diversity  data and outreach efforts in their annual reports to OMWI, beginning  September 30, 2015. Use of system-wide programs varied, with some FHLBank member  institutions using the community lending advances under the voluntary  CICA program more than others. Appendix I: Objectives, Scope, and Methodology

This report examines (1) the Housing and Economic Recovery Act  (HERA) of 2008’s governance changes and their implementation; (2)  diversity on Federal Home Loan Bank (FHLBank) boards and challenges  the Federal Housing Finance Agency (FHFA) and the FHLBanks have  faced in trying to increase it; (3) efforts that FHLBanks and FHFA have  taken to improve diversity; and (4) FHLBanks’ community lending  programs and the boards’ oversight of them. To help ensure that we collected  a range of perspectives, we selected these locations based on several  criteria, including asset size, number of member institutions, female and  minority representation on boards, community and economic  development lending activity, and location. The interviews with FHLBank management and staff  were conducted jointly. We also  reviewed publicly available documentation from FHLBanks, including  community lending plans, advisory council reports, and annual reports, as  well as information on each FHLBank’s website, to determine if the  FHLBank offered a unique community lending program in addition to their  system-wide community lending programs. Appendix II: Federal Home Loan Bank Affordable Housing and Community and Economic Development Committees, 2014

Each of the 12 Federal Home Loan Bank (FHLBank) boards have a  committee that addresses affordable housing and community and  economic development programs and policies for their respective  FHLBank (see table 6).
Why GAO Did This Study

In 2014, the FHLBank System had over 7,300 member institutions and approximately $570 billion of loans (advances) outstanding. The system consists of 12 regionally based banks that are cooperatively owned by member institutions. Its mission is to serve as a reliable source of liquidity for members to support housing finance and community lending. In 2014, each FHLBank had a board of 14 to 19 directors that includes elected directors from member institutions and independent directors from outside the system, including at least 2 with consumer or community interests.
GAO was asked to review legislative changes to FHLBank governance and the diversity of the FHLBanks' boards of directors. This report discusses (1) the governance changes and their implementation; (2) FHLBank boards' diversity; (3) FHLBank and FHFA efforts to improve diversity; and (4) community lending programs and boards' oversight of them. GAO analyzed FHLBank data and reviewed bylaws, policies, board meeting minutes, and regulations. GAO also reviewed previous work on diversity in the financial services industry, as well as literature on governance and diversity, and surveyed all 189 FHLBank directors serving in 2014 (with a 94 percent response rate). GAO interviewed FHLBank management and staff, board directors, and advisory councils at six FHLBanks selected by number of member institutions, asset size, volume and type of community lending activities, and location.

What GAO Found

The Housing and Economic Recovery Act (HERA) of 2008 changed several aspects of the Federal Home Loan Bank System's (FHLBank System) governance. Among other things, HERA required that independent directors on the FHLBank boards be elected by member institutions (for example, commercial banks, thrifts, credit unions, and insurance companies) rather than appointed by the regulator. HERA also added certain skill requirements, removed compensation caps, and created a new regulator for the system, the Federal Housing Finance Agency (FHFA). FHFA fully implemented the governance changes through two rules in 2009 and 2010. Board directors, FHLBank representatives, and others generally view HERA's governance changes as positive because the changes give FHLBank boards' greater control over nominees and help ensure that candidates have specific skills and experience.
Women and minority representation on FHLBank boards is limited (see figure). A woman chaired 1 of 12 FHLBank boards in 2014, but no racial or ethnic minorities did. Most women and racial or ethnic minorities were independent directors rather than member directors. Directors' skill sets were more diverse. For example, member directors responding to GAO's survey were more likely than independent directors to report having skills in accounting and banking. Independent directors were more likely to report having skills in project development, community and economic development, and affordable housing.
Women and Minority Representation on Federal Home Loan Bank Boards, 2014
FHLBanks and FHFA have taken steps to increase board diversity. Since HERA's enactment, FHLBanks and their boards have developed processes to identify and nominate independent directors. GAO found that these processes generally followed several commonly cited practices for improving diversity, such as diversifying the applicant pools for directors. A 2009 FHFA rule encourages FHLBanks to consider diversity when selecting candidates, and a 2015 rule requires the FHLBanks to report information on board diversity in their annual reports. FHFA plans to begin evaluating board data and other information on outreach activities related to board diversity.
Community lending varies across the FHLBanks. For example, 6 of the 12 FHLBanks offer unique community lending programs in addition to the system-wide programs. Under the Community Investment Program, which provides funds for housing and economic development, 4 of the 12 FHLBanks used the funds for economic development in 2014. FHLBanks have committees that are responsible for overseeing these activities, and, according to GAO survey results, directors serving on these committees have greater responsibility for overseeing community lending programs.