Background Airline customer service agents have a number of duties to assist passengers at the airport (see fig. 1). Customer service agents can check passengers into flights; handle and tag checked bags; and board and deplane passengers on the aircraft; in addition to assisting passengers when service failures occur, such as helping to locate a lost bag. At many airports and airlines, customer service agents are trained to work the ticket counter and the arrival and departure gates. In this role, airline customer service agents’ interactions with passengers can range from pleasant to routine to contentious. For example, if bad weather causes an airline to delay or cancel flights, harried passengers trying to make connecting flights or get to a destination may take their frustration out on a customer service agent. The following entities are responsible for helping to prevent or address passenger assaults: Airlines seek to provide a safe work environment for customer service agents. Among other things, airlines set policies and procedures instructing customer service agents how to handle and report incidents, in addition to how management should respond. Airport law enforcement responds to allegations of violence at airports and enforces state and local laws. According to airport law enforcement, when they respond to incidents, they generally capture information in police reports. Airport management, such as a security director, may be informed of alleged passenger assaults at the airport or support ensuing investigations and prosecutions. Prosecutors at the federal and state level decide whether to charge passengers for offenses that violate laws. No one federal agency is responsible for addressing passenger assaults against customer service agents at the airport. For example, FAA sets policies that airlines and their employees must adhere to for aviation safety, but TSA oversees the security of the nation’s civil aviation system. However, officials from both TSA and FAA told us their responsibilities for passenger assaults at airports are limited. In particular, FAA officials said their primary responsibility is for assaults onboard aircraft as opposed to at the airport. Similarly, TSA officials said they only get involved in assaults of airline customer service agents in the rare instances where incidents affect airport security. Within DOJ, FBI conducts investigations of incidents that are deemed to violate federal law, and federal prosecutors can decide whether to prosecute individuals for alleged incidents that are deemed to violate federal law. While Information Is Limited, Almost All Surveyed Customer Service Agents Reported Verbal Harassment, and Some Reported Physical Assaults No Comprehensive Information Is Available to Understand Assaults by Passengers against Airline Customer Service Agents Limited data are available to determine the frequency or nature of passenger assaults at airports against airline customer service agents. We reviewed selected data from DOJ, DOT, FAA, FBI, and TSA and found that no dataset can isolate such passenger assaults. For example, while the FBI collects transportation crime data from law enforcement agencies about incidents that occur at air, bus, or train terminals— including information on the victim, offender, and location of the crime— the data cannot isolate passenger assaults against airline customer service agents. While representatives from selected airport law enforcement agencies and airlines we interviewed said they collect information related to passenger assaults for their respective airports or airlines, these data were generally unavailable. In particular, representatives from all six selected airport law enforcement agencies we interviewed said providing data on passenger assaults against airline customer service agents would require manually reviewing all police reports. Results from one selected airport law enforcement agency that had manually reviewed its data for 2018 found that of the 237 assistance calls it received for incidents between customer service agents and passengers, law enforcement completed an incident report for 12 of these calls, and referred two reports to state prosecutors. Representatives from five of the six selected airlines declined to share data with us, saying data were not readily available, or were business proprietary, or business sensitive. Representatives from the remaining airline provided us with data from the third and fourth quarters of 2018; this data indicated that incidents between passengers and customer service agents generally remained constant, with an average of approximately 1.2 disruptive passengers per 1,000 passenger boardings. About 10 Percent of Surveyed Customer Service Agents Said Passengers Physically Assaulted Them in the Past Year In the absence of available data, we surveyed a non-generalizable sample of 104 randomly selected customer service agents to understand their experiences performing their jobs over the last year. According to these 104 customer service agents, almost all (96) reported experiencing verbal harassment, such as passengers yelling, cursing, or being argumentative (see fig. 2). Almost half (46) reported experiencing verbal threats, such as passengers threatening to harm the customer service agent. Twenty-two customer service agents reported that a passenger attempted to physically assault them by, for example, attempting to push them. Fewer (12) customer service agents said that passengers actually physically assaulted them. We also found that about one-third (34) of surveyed customer service agents said they experienced “other types of harmful actions,” which agents said included passengers destroying property, taking video of agents, grabbing agents’ identification badges, and stalking agents after work. Stakeholders we interviewed from selected airports, airport law enforcement, and airlines generally agreed that passengers can be verbally disruptive but that physical assaults are less frequent. More specifically, of these 17 stakeholders, most (13) agreed that disruptive passenger behavior is frequent. Most (11) also agreed that physical assaults occur less frequently than verbal threats. Nevertheless, while representatives from two selected unions did not have data on such actions, they emphasized to us that the customer service agents they represent face difficult working conditions. The union representatives also stated that passenger assaults, including verbal threats and physical assaults, are becoming more common. Further, three of the nine stakeholders who provided a perspective said that incidents against customer service agents are increasing. For example, representatives from one airline we interviewed said that over the past 5 years, they have observed an increase in both the frequency and severity of passenger assaults, in addition to other disruptive behavior. A number of factors may contribute to passenger assaults. Selected stakeholders, including those from airlines, airports, airport law enforcement, and other industry associations most commonly cited (24) alcohol consumption at the airport or drug use as a contributing factor. For example, according to representatives from one law enforcement agency, when customer service agents deny boarding to intoxicated passengers, passengers can become verbally or physically aggressive toward customer service agents. Other stakeholders told us that passengers increasingly have more opportunities to consume alcohol while waiting for their flights, thereby increasing alcohol-related incidents. For example, representatives from one airport noted that tablets at the boarding area allow passengers to place orders for alcohol while seated at the gate. Seventeen selected stakeholders we interviewed also told us that airlines’ business practices, such as charging fees for checked and carry-on baggage or policies around delays and cancellations might aggravate or surprise passengers and lead them to be aggressive toward customer service agents. Some stakeholders (10) also said that other factors, such as long lines and large crowds in the airport can increase passengers’ stress levels. Moreover, according to some stakeholders, service failures—such as flight delays, cancellations, or lost baggage—can exacerbate these stressors. Of the 61 surveyed customer service agents who reported experiencing verbal threats, attempted physical assaults, actual physical assaults, or other harmful actions, most (45) said these incidents negatively affected their overall well-being. Similarly, selected union representatives we interviewed also said that these incidents can increase stress and anxiety for customer service agents. Almost All Surveyed Customer Service Agents Who Said They Experienced a Passenger Assault Reported It, and Airline Management or Airport Law Enforcement Often Took Some Action Almost all customer service agents (56 of 61) who stated in our survey that they experienced passenger conduct amounting to more than harassment said they reported the conduct to someone. Specifically, 46 customer service agents stated that they contacted their immediate airline manager; 28 stated that they contacted airport law enforcement; and 6 stated that they contacted airport staff or other entities. These actions described by customer service agents we surveyed generally aligned with selected airlines’ procedures for handling passenger assaults. Specifically, representatives from five selected airlines told us that while their respective airline’s policy generally calls for agents to contact management first, agents can also contact airport law enforcement if they feel like their safety is threatened. However, representatives from two selected unions told us that airline managers are sometimes hesitant to inform law enforcement about incidents—or have their agents contact law enforcement—or to elevate incidents internally. According to one union representative, airlines prefer to keep such incidents internal and emphasize providing on-time service to their passengers. Contacting law enforcement could make this difficult to achieve, so when disruptive passenger behavior occurs, airlines may be inclined to allow the passenger onboard the aircraft instead of contacting law enforcement. Of the 56 customer service agents who stated they reported the passenger conduct, over half (33) said that, to their knowledge, representatives from airlines, law enforcement, or airports took action in response. According to our survey results, these representatives generally took a range of actions, including but not limited to, requesting that a passenger stop the disruptive behavior, completing an airline or police report, denying a passenger boarding, or arresting a passenger. Representatives most commonly removed passengers from an area or denied passengers from boarding (18); diffused the situation (7); or arrested the passenger (4). Twenty-six customer service agents said that no action was taken in response to the incident, which left some to not feel supported by airline management. Moreover, according to representatives from one union, in some instances, customer service agents feel that if airline management provides passengers with travel benefits, such as seat upgrades or airline miles, to diffuse these types of situations, it can appear to be condoning or rewarding any passenger misbehavior. The FAA Reauthorization Act of 2018 requires airlines to develop and submit employee assault-prevention and response plans to FAA by January 2019. In these plans, airlines are required to document: reporting protocols for airline customer service agents who have been the victim of a verbal or physical assault; protocols for notifying law enforcement after an incident of verbal or physical assault committed against an airline customer service agent; protocols for informing federal law enforcement about violations of federal law that prohibits interference with security screening personnel; protocols for ensuring that a passenger involved in a violent incident with an airline customer service agent is not allowed to move through airport security or board an aircraft until appropriate law enforcement has an opportunity to assess the incident and take appropriate action; and protocols for informing passengers of federal laws protecting federal, airport, and airline employees who have security duties within an airport. In March 2019, FAA officials said they had not received employee assault-prevention and response plans from all of the 49 U.S. airlines that were required to submit such plans. However, at that time, officials also said they were not concerned about any delays because they believed airlines already have internal policies and procedures for handling these types of incidents. Nevertheless, FAA officials told us they intended to issue a reminder to the airlines. Of the six selected airlines we interviewed, representatives from two airlines said they had submitted their plans to FAA, and representatives from the remaining four airlines said their plans were in development. Further, when we asked airlines to describe their policies for handling assaults, some of the policies that representatives described aligned to some requirements in the Act for the plans. For example, as discussed previously, all six selected airlines told us they had policies for how customer service agents or managers should notify airport law enforcement when assaults occur. Moreover, representatives from all six airlines also described reports that that customer service agents and employees complete when such incidents occur. In July 2019, FAA issued a notification to airlines, reminding them to develop and submit their plans. FAA officials attributed delays in following up with airlines to the government shutdown in early 2019 and multiple competing requirements in the Act. FAA officials also said they were initially hesitant to issue a notification around these plans, since the agency has a limited role and does not promulgate requirements for the training or oversight of customer service agents. Nevertheless, FAA officials said they plan to continue to follow up with the airlines as needed to collect the remaining plans. Most Selected Stakeholders Said State and Local Laws and Resources Sufficiently Deter and Address Passenger Assaults against Airline Customer Service Agents Despite General Satisfaction, Some Said Stronger Penalties and Other Legal Avenues Could Be Pursued All selected stakeholders we interviewed representing airlines, airports, airport law enforcement, and prosecutors (23 of 23) who provided a perspective said that current state and local laws sufficiently deter and address passenger assaults. We spoke with seven selected state prosecutors who told us that, among other offenses, they can charge passengers for actions against customer service agents with assault; battery (e.g., intentional causing of bodily harm); disorderly conduct (i.e., acts that are of a nature to outrage the sense of public decency, or affect the peace and quiet of persons who may witness them, or engaging in brawling or fighting); and trespassing. According to these prosecutors, they typically charge passengers for assaults as misdemeanors, which one prosecutor told us generally does not result in passengers’ serving any jail time. While four selected state prosecutors who regularly handle misdemeanor prosecutions did not have data isolating these crimes, three recalled charging passengers for assaults against customer service agents. For example, a representative from one prosecutor’s office estimated that, over the last 5 years, law enforcement had referred 25 to 30 of these incidents to his office and that his office had prosecuted six or seven of these cases. In determining whether to pursue a case, five prosecutors we interviewed told us they weigh a number of factors, such as whether the customer service agent is willing to file charges; whether law enforcement observed the assault; and whether witnesses are available to testify. Nonetheless, according to prosecutors we interviewed, crimes committed at airports present unique challenges. More specifically, according to one prosecutor we spoke with, the transitory nature of airports makes it difficult to get witnesses to testify at a trial, because they are often passing through the airport en route to another destination. Four selected prosecutors also told us that passenger assaults might be charged as felonies if, for example, the crime involves the use of a deadly weapon or causes serious physical injury to the victim. However, these prosecutors told us such instances are infrequent and incidents between passengers and customer service agents rarely rise to the level of severity of a felony charge. To that end, none of the three prosecutors we interviewed who typically prosecute felony cases could remember charging a passenger for an assault of a customer service agent within the last year. Nevertheless, some selected stakeholders told us opportunities exist to strengthen penalties for passenger assaults. More broadly, a few stakeholders that we interviewed—including one airline, one prosecutor, and one union—suggested opportunities exist to pursue harsher penalties. According to selected stakeholders, this could be achieved by, for example, prosecuting passenger assaults as felonies, prosecuting these incidents at the federal level, or seeking a legislative change to classify airline customer service agents as a protected class. For example, under Florida statute, an alleged battery against certain specified protected classes, including elected officials and teachers, are automatically reclassified from a first degree misdemeanor to a third degree felony charge, resulting in potentially harsher penalties. While Selected Stakeholders Generally Agreed Resources Are Sufficient, Some Suggested Improvements Most selected stakeholders we interviewed who provided a perspective said that their current resources sufficiently deter and address passenger assaults. Specifically, of the 20 selected stakeholders who provided a perspective, 15 said that current resources are sufficient and did not identify other resources that could improve their ability to address or mitigate passenger assaults. The remaining five stakeholders would like to see additional resources directed toward airport’s law enforcement agencies. In particular, four selected stakeholders said they believe that increasing the number and presence of law enforcement in airports would help deter or address passenger assaults. Representatives from one airline told us they hired private security officers to monitor ticketing and baggage areas at the airport to increase their security posture. While the purpose is not to address passenger assaults, representatives told us that these officers can respond to such assaults. The remaining stakeholder suggested law enforcement could receive additional training to improve responses when passenger assaults occur. Some of the selected stakeholders we interviewed who did not identify gaps in resources nonetheless offered suggestions to further deter or mitigate passenger assaults, including: Provide additional training for customer service agents. Three stakeholders told us customer service agents should receive additional training on conflict de-escalation. Increase information sharing and reporting. Three selected stakeholders said that information sharing could be improved among relevant stakeholders—including airlines and airport law enforcement. For example, representatives from one airline said they have limited insight into the outcomes of passenger assaults unless they contact airport law enforcement or prosecutors. Two selected union representatives said that having better data on these incidents could be beneficial to understand the scope of the problem. Increase public education and support for customer service agents. Representatives from two unions would like to see (1) signage at airports saying that assaults by passengers are subject to prosecution, and (2) airlines provide additional support to customer service agents, in the form of legal assistance or time off, to press charges against passengers alleged to have committed such assaults. Moving forward, the FAA Reauthorization Act of 2018 requires airlines to provide initial and recurrent training for all employees on, among other things, de-escalating hostile situations, and, as previously noted, the reporting protocols for these incidents. Providing such training and having additional reporting protocols could provide customer service agents with additional tools for diffusing these incidents and standardize how airlines respond to these incidents, respectively. Agency Comments We provided a draft of this report to DHS, DOJ, and DOT for review and comment. DOJ provided technical comments, which we incorporated as appropriate. DHS and DOT did not have any comments. We are sending copies of this report to the appropriate congressional committees, the Secretary of the Department of Transportation, the Attorney General, the Secretary of Homeland Security, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff any have questions about this report, please contact me at (202) 512-2834 or VonahA@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Survey for Airline Customer Service Agents In the past year, how many times have experienced the following incidents: Passenger verbally harassed you Passenger verbally threatened you (i.e., said they would do something to you specifically) Passenger attempted to physically assault you (tried to hurt you) Passenger committed other harmful action (please describe) 3. How, if at all, have these incidents affected your overall well-being? a. No effect b. Slightly negative effect c. Very negative effect 4. Now thinking about the most severe incident you have experienced in the past year, which of the following airport officials, if any, did you contact about this incident? a. Immediate airline manager b. Airport law enforcement c. Airport staff d. Other–Please identify ______________________________ e. None 5. Did any airport or airline officials take action because of your most severe incident in the past year? a. No b. Don’t know c. Yes. Please describe the action that was taken. 6. How, if at all, could airlines support customer-service representatives when these incidents happen? Appendix II: GAO Contact and Staff Acknowledgments GAO Contact: Andrew Von Ah, (202) 512-2834 or VonahA@gao.gov. Staff Acknowledgements: In addition to the individual named above, other key contributors to this report were Jonathan Carver, Assistant Director; Melissa Swearingen, Analyst-in-Charge; Emily Flores; Clara Goldrich; Geoffrey Hamilton; Delwen Jones; Dawn Locke; Malika Rice; Kelly Rubin; and Amy Suntoke.


Background Overview of the FHLBanks The FHLBank System comprises 11 federally chartered banks. The FHLBanks represent 11 districts and are headquartered in Atlanta, Boston, Chicago, Cincinnati, Dallas, Des Moines, Indianapolis, New York City, Pittsburgh, San Francisco, and Topeka (see fig. 1). Each FHLBank is cooperatively owned by its members––such as commercial and community banks, thrifts, credit unions, and insurance companies. As previously noted, the FHLBank System also includes the Office of Finance, which is the fiscal agent for the 11 banks. As of December 31, 2018, the total amount of assets each FHLBank held varied widely, as did the number of member institutions in each district (see table 1). FHLBanks’ Capital Markets Activities FHLBanks primarily obtain funding to provide loans to their member institutions by issuing debt. The Office of Finance (also regulated by FHFA) issues the debt on behalf of the FHLBanks. FHLBanks’ debt products include discount notes (short-term debts) and bonds (short- to long-term debts). The debt transactions can vary in size and be conducted by one or more broker-dealers. Additionally, FHLBanks individually invest in permissible securities, including mortgage-backed securities, which generate additional income for the banks. Broker- dealers are compensated in fees for certain transactions they conduct. Generally, the fees a broker-dealer can earn for capital markets transactions depend on the type of the transactions or the broker-dealer’s role in transactions. The Office of Finance identifies and approves broker-dealers for the banks’ debt issuance transactions, including diverse broker-dealers that are minority-, women-, disabled-, and veteran-owned. As part of its approval process, the Office of Finance assesses the broker-dealers based on their track record in conducting certain debt transactions, and reviews documents including broker-dealers’ audited financial statements, documentation on capital sustainability, legal or regulatory issues, diversity certification, procedures, and any other issues that may affect their eligibility or performance. For investment transactions, the banks approve broker-dealers for their own investment needs according to their own qualification requirements. Similar to the Office of Finance’s requirements, the banks’ qualification requirements can include financial performance and capital requirements. FHFA’s Diversity-Related Requirements and Oversight of FHLBanks To implement requirements in HERA, in December 2010, FHFA issued the Minority and Women Inclusion rule to set forth minimum requirements for FHLBank diversity programs and reporting, as previously noted. Among other things, the 2010 rule required each bank to create its own OMWI or designate an office to perform duties related to the bank’s diversity efforts, and establish policies related to diversity and inclusion, including workforce and business activities (which can include suppliers and broker-dealers used for capital markets activities). The 2010 rule also requires FHLBanks to submit an annual report to FHFA that describes the gender and racial/ethnic composition of the bank’s workforce and of the suppliers and broker-dealers used in business activities and past and future diversity and inclusion efforts in these areas. The 2010 rule also requires the banks to report on businesses owned by individuals with disabilities that enter into contracts with the FHLBank and the number of individuals with a disability or disabilities for certain workforce data, including the number of individuals who separated from the bank and the number of employees promoted. In 2017, FHFA added the requirement for each FHLBank to develop a standalone strategic plan on diversity and inclusion or incorporate a diversity and inclusion plan into their general strategic plan. FHFA conducts annual examinations and off-site monitoring of FHLBanks. FHFA’s examination includes reviewing the banks’ diversity and inclusion efforts, financial reporting, and corporate governance by bank board directors. Our Previous Work on Diversity in the Financial Services Sector We previously reported on diversity in the financial services sector, including FHLBank board governance and board diversity. In 2017, we reported that representation of women and minorities at the management level in the financial services sector showed marginal or no increase during 2007–2015. In a 2015 report on FHLBank board governance, we found that FHFA and FHLBanks had taken steps to increase board diversity, including creating regulations that encouraged the banks to consider diversity in board candidate selection and developing processes to identify and nominate independent directors. In a 2019 report on FHLBank board diversity, we found that since 2015, FHLBanks increased the share of women and minority directors on FHLBank boards, but the banks continued to face challenges in increasing diversity among directors elected from member institutions. We recommended that FHFA, in consultation with FHLBanks, review the banks’ data collection processes for board demographic information and communicate effective practices to banks. FHFA agreed with our recommendation. The agency stated that it planned to engage with FHLBank leadership in 2019 to discuss board data collection issues and explore the feasibility and practicability for FHLBanks to adopt processes that could lead to more complete data on board director demographics. FHLBanks Increased Gender Diversity in Senior Management in 2011–2017 and Reported Taking Steps to Promote Workforce Diversity Across the 11 FHLBanks, the share of women in senior-management positions increased from 2011 to 2017, while the share of minorities remained about the same. In the FHLBank workforce overall, the share of female and minority employees was similar in 2011 and 2017. Individual FHLBanks reported a number of challenges in recruiting and retaining a diverse workforce, including limited hiring opportunities due to low employee turnover and a small workforce and competition for diverse talent from larger and better-known companies. Despite these challenges, banks have been taking steps to help maintain or increase a diverse workforce. Share of Women in Senior Management Increased and Minorities Remained about the Same across the FHLBank System, but Varied by Bank Female representation. The share of women in senior management across all 11 FHLBanks increased by about 7 percentage points from 2011 to 2017 based on the most recently available EEOC data. As shown in figure 2, the percentage of women across 11 banks was about 21 percent in 2011 (35 individuals) and 28 percent in 2017 (47 individuals). While female representation in senior management collectively increased for the 11 FHLBanks from 2011 to 2017, there was substantial variation among the individual banks. We discuss representation at individual banks in more detail later in this section. Six banks increased the share of women in senior management during this time period (ranging from about 10 to 20 percentage points); three banks decreased (from about 6 to 13 percentage points); and the share for two banks did not change. One FHLBank decreased its number of senior-management positions between 2011 and 2017 by reclassifying those positions, while another bank increased the number of senior-management positions through reclassification, according to staff from each bank respectively. Bank staff noted some banks have fewer senior-management positions because they interpret EEOC’s definition of senior management more narrowly, while others have more senior-management positions because they interpret the definition more broadly. These differences could have affected the comparability of the share of women and minorities in senior management among individual banks in the period we reviewed. Also, because of the relatively small number of senior managers at the FHLBanks, a small change in the number of such managers can result in a larger change in the associated percentage. Minority representation. The share of minority senior management across all 11 FHLBanks was approximately 14 percent (23 individuals) in both 2011 and 2017. Five banks increased the share of minority senior management (from about 1 to 23 percentage points); three banks decreased (from about 6 to 13 percentage points); and three banks did not change. Four banks did not have any minorities in senior management in 2017 (see fig. 3). The largest racial/ethnic group among senior management in 2017 was Asian (about 5 percent) followed by African-American and Hispanic (both at about 4 percent). See figure 4. Female and minority representation combined. The combined share of female and minority senior management across 11 banks increased 7 percentage points—from about 32 percent (54 employees) in 2011 to 39 percent (65 employees) in 2017. At individual FHLBanks, the percentage of female and minority senior management increased at seven banks by a range of about 3 to 29 percentage points, decreased at three FHLBanks by about 11 to 13 percentage points, and stayed the same at one bank. While combined female and minority representation increased overall, eight of the 11 banks did not have any female minorities in senior- management positions in 2017 (see fig. 5). Share of Women and Minorities in FHLBank Senior Management Was Similar to That of Financial Services Industry Using EEOC data, we also examined the composition of the senior- management workforce in the financial services industry to determine how FHLBank senior management compares with the broader financial services industry. The percentage of women, minorities, and women and minorities combined in senior management in FHLBanks overall was similar to the corresponding share of senior management in the financial services industry in 2017. Specifically, the respective percentages for the FHLBanks and the financial services industry in 2017 were approximately 28 percent and 30 percent for female senior management; 14 percent and 13 percent for minority senior management; and 39 percent and 38 percent for female and minority senior management. Shares of women and minorities in senior management for individual FHLBanks varied more in comparison with the financial services industry in their districts. Four banks had a higher share of women in senior management than the financial services industry in their respective bank districts (from about 1 to 14 percentage points higher); and seven banks had a lower share (from about 3 to 15 percentage points lower). Five FHLBanks had a higher share of minorities in senior management than the financial services industry in their respective districts (from about 2 to 27 percentage points higher); the other six had a similar or lower share (from about 1 to 8 percentage points lower). Four banks had a higher percentage of women and minorities combined in senior management than the financial service industry in their respective bank districts (from about 7 to 27 percentage points higher), two banks had a modestly lower share (no more than 3 percentage points), and the remaining five banks had a share that was lower by more than 8 percentage points. Share of Female and Minority Employees Overall Did Not Change Significantly in 2011–2017 We also reviewed the representation of women and minorities in the overall FHLBank workforce and for each FHLBank. Although the difference in the share of female and minority employees across 11 FHLBanks in 2011–2017 was not large, both women and minorities were better represented in first- and mid-level management and professional positions than in senior management. Female representation. Across the 11 FHLBanks, the overall share of female employees in 2017 (about 45 percent) was somewhat lower than the share in 2011 (about 47 percent), although the total number of female employees increased from 1,317 in 2011 to 1,355 in 2017 (see fig. 6). In 2017, the share of women in job categories below the senior- management level was higher than the share of women in senior management. Specifically, the share of women in first- and mid-level management positions was about 41 percent and in professional positions about 44 percent, both higher than the percentage of women in senior management (about 28 percent). Employees in these positions can be potential candidates for the banks’ management. Minority representation. The share of racial/ethnic minority employees in the overall FHLBank workforce in 2017 (about 33 percent) was slightly higher than the share in 2011 (about 31 percent), and the number of racial/ethnic minorities increased during this period from 864 employees in 2011 to 1,007 employees in 2017. During this time period, the share of minorities in first- and mid-level management positions increased by approximately 6 percentage points (from about 21 percent in 2011 to 27 percent in 2017); the share of professionals increased by about 3 percentage points (from about 34 percent in 2011 to 37 percent in 2017), and the share of minorities in other job categories, such as administrative, decreased by about 3 percentage points (from about 41 percent in 2011 to 38 percent in 2017). Similar to the share of female employees, the share of minority employees in first- and mid-level management (about 27 percent) and professional positions (about 37 percent) was higher than that for senior management (about 14 percent) in 2017. Among these employees in 2017, Asians accounted for the largest share (about 16 percent), followed by African-Americans (about 11 percent) and Hispanics (about 5 percent), as shown in figure 7. Female and minority representation. When looking at the combined representation of women and minorities in the overall FHLBank workforce, the share of women and minorities was similar in 2011 and 2017 at about 61 percent (1,704 employees in 2011 and 1,847 employees in 2017). The number of female and minority employees increased by 143 (about 8 percent) during this period. Similarly, the number of total employees increased by about 200 (about 8 percent) from 2011 to 2017. At the individual bank level, the share of female and minority employees increased at six banks (from about 1 to 6 percentage points) and decreased at the remaining five banks (from about 2 to 4 percentage points) from 2011 to 2017. In 2017, the percentage of female and minority employees across the 11 banks ranged from about 48 to 77 percent of the workforce at the individual banks (see fig. 8). Share of Women Was Lower among FHLBank Employees Than in the Financial Services Industry and General Population but Share of Minorities Was Similar Women generally were less represented among FHLBank employees than in the financial services industry (overall and by FHLBank district) and in college-educated populations in selected metropolitan areas. Minorities were similarly represented across the categories. First, we compared the representation of women and minorities among FHLBank employees (overall and by bank) with such representation in the financial services industry (overall and by FHLBank district) in 2017 to help determine how similar the FHLBank workforce was to that of other financial institutions. The workforce in the financial service industry can represent a pool of potential employees for the FHLBanks. The share of female employees in FHLBanks overall was about 14 percentage points lower than the corresponding share in the financial services industry (about 45 percent in FHLBanks and 59 percent in the financial services industry) in 2017. Each of the FHLBanks had a lower share of female employees than the financial services industry in the bank’s district (by about 2 to 27 percentage points). The share of racial/ethnic minority employees was about 33 percent across the FHLBanks and the financial services industry in 2017. Six FHLBanks had a similar or higher share of minority employees than the financial services industry in their respective districts (by about 1 to 21 percentage points); the other five had a lower share (by less than 1 percentage point to about 11 percentage points). The combined percentage of female and minority employees across the FHLBanks was about 10 percentage points lower than the corresponding percentage in the financial services industry in 2017 (about 61 percent and 71 percent, respectively). All FHLBanks except one had a lower share in this combined category than the financial services industry in their districts. Second, we compared the share of women and minorities among each FHLBank’s employees in 2017 with the population with at least a bachelor’s degree in the metropolitan statistical areas associated with each bank’s headquarters city in 2018 (see table 2). This population can provide potential employees for the banks’ workforce. The percentage of female employees in seven banks was lower than the estimated share of females with at least a bachelor’s degree in their respective metropolitan areas (smaller than the lower end of the range of the estimated percentage for each area). For the remaining four banks, the share of female employees was similar to that of the estimated share for their respective metropolitan areas (within the range of the estimated percentage for each area). The percentage of minority employees in nine banks was similar to the estimated share of minorities in the population in the respective metropolitan areas around each bank’s headquarters. In two banks, the share of minority employees exceeded the corresponding estimated percentage for this population (larger than the upper end of the range of the estimated percentage for each area). To provide additional context on the demographic composition of the population served by the FHLBanks, we compared the share of female and minority employees at each FHLBank in 2017 with the share of the female and minority population in each bank district (all of which are multistate areas). All FHLBanks except two had a lower share of female employees than the female share of the population in their respective bank districts (by at least 5 percentage points). The percentage of minority employees at one bank was higher than the share of the minority population in its bank district (by about 11 percentage points); the individual percentages at five banks were similar (no more than 3 percentage points difference); and the individual percentages at the remaining five banks were lower by at least 4 percentage points. FHLBanks Reported Some Challenges and Have Been Taking Steps to Help Maintain and Increase a Diverse Workforce FHLBanks Reported Ongoing Challenges to Recruiting and Retaining a Diverse Workforce FHLBanks reported continuing challenges to recruiting and retaining a diverse workforce, including the following: Low turnover rates and small workforce. Staff of four banks said that low turnover rates have limited opportunities for hiring or promoting diverse candidates. For example, the percentage of employees leaving individual banks in 2017 ranged from about 5 to 12 percent. In comparison, the average estimated separation rate for the financial services industry as a whole was about 25 percent in 2017. Additionally, staff of four banks noted that the size of their workforce is relatively small, which also limits opportunities for hiring and promotion. The number of employees in individual FHLBanks ranged from 202 to 462 in 2017 (see table 3). Population in geographic location not diverse. Staff of four banks stated that their geographic location makes it challenging to recruit diverse talent because the population in the area is relatively undiverse. Two banks indicated it can be difficult to attract potential candidates to work in their geographic location. Despite these stated challenges, as we previously noted, the 2017 share of minorities in each bank was similar to or exceeded the 2018 share of minorities with at least a bachelor’s degree in their respective metropolitan areas. Competition for women and minority candidates. Staff of five banks said that competition for diverse talent is high because banks compete with other companies in their districts that are larger or have better brand recognition, such as large investment banks and technology companies. For example, staff of four banks noted that the FHLBanks are not well known compared with these larger organizations. Staff from one bank noted that the compensation the bank offered was lower than that of larger firms—including for internships—which can make it difficult to attract diverse candidates. Staff of two banks also noted that relatively low unemployment rates in their areas mean that diverse candidates have other employment options, making it more challenging to attract such candidates. Difficulty aligning bank needs and requirements with skillsets of diverse candidates. Staff of six banks said that there may be few women or minority candidates who meet specific skill or job requirements. For example, staff of five of these banks noted that it can be challenging to find diverse candidates in certain technical fields, such as information technology. Staff of three banks also noted that diversity in the financial services industry overall is limited, which contributes to a limited pool of diverse candidates. FHLBanks Described Practices They Use to Help Maintain and Increase Workforce Diversity We found that FHLBanks implemented and continue to implement a variety of practices to maintain and increase diversity in their workforces, based on our review of the FHLBanks’ annual Office of Minority and Women Inclusion (OMWI) reports, FHFA examination documents, FHLBank diversity and inclusion strategic plans, and interviews with FHLBank staff from all 11 banks. These practices align with leading practices we previously identified on diversity management. The leading practices can help the banks address some of the challenges described previously and recruit and retain a diverse workforce, which also can contribute to a more diverse pipeline for management positions. Bank leadership commitment to diversity and inclusion. All 11 FHLBanks have implemented practices intended to demonstrate leadership’s commitment to diversity and inclusion, which included the following examples. All 11 FHLBanks include workforce diversity objectives in their diversity and inclusion strategic plans and generally established goals that were quantitative, qualitative, or both related to their workforce diversity programs, based on our review of the banks’ annual reports. Examples of such goals included increasing employee awareness of diversity and inclusion and percentage targets for workforce diversity composition and recruitment. The FHLBanks also incorporate diversity and inclusion into their incentive compensation goals or performance competencies. An example of such goals relates to participation in diversity and inclusion training and other events. All 11 FHLBanks track data on the diversity composition of their workforce; external and internal applicants for open positions, new hires, promotions, and separated employees; and progress in meeting diversity and inclusion goals and objectives. The OMWI officers at all 11 banks report directly to the bank’s chief executive officer/president or the equivalent of the chief operating officer. The board of each bank also receives periodic updates on the bank’s diversity and inclusion efforts. Staff of eight banks said that senior leaders, such as the chief executive officer, express their commitment to diversity and inclusion through participation in internal diversity and inclusion events, in written materials, and by sponsoring employee groups that represent diverse employees. Targeted recruitment. All 11 banks reported several targeted diversity recruitment efforts to increase recognition and build a potential pipeline of diverse employees. For example, all banks conducted outreach to colleges that have diverse student populations, according to banks’ annual reports and staff, and FHFA examination documents. All banks also conducted outreach to local and national professional and other organizations that represent diverse communities. Seven banks indicated that they engage with their communities, such as by participating in community events and volunteer activities, and partnering with community organizations. They noted that these efforts can help enhance their bank’s brand recognition and in turn can help recruit and retain diverse employees. To build a pipeline of diverse employees, all 11 banks offered a college internship program and six banks offered a high school internship or work study program for which they try to recruit diverse candidates. The banks also engaged in efforts to build the potential pipeline of diverse employees in the long term, such as by participating in programs or activities to increase skillsets among young women and minorities in technical or financial services fields. Employee involvement/feedback. All 11 banks described efforts to create a more inclusive environment for employees, according to banks’ annual reports and bank staff. For example, nine banks have an employee resource group or other organization representing employees, and can engage in diversity and inclusion activities, such as professional development and cultural events, according to the banks’ annual reports. Nine banks reported that they conducted employee surveys or meetings to obtain feedback from employees on diversity and inclusion efforts, according to the banks’ annual reports and staff. Staff from one bank told us that when conducting interviews with employees leaving their organization, they include a question specifically on diversity and inclusion to identify potential employee retention practices. Training on diversity and inclusion topics. Ten banks offered training courses on diversity and inclusion topics for all employees, according to the banks’ annual reports and FHFA examination documents. Ten banks hosted events or informal training related to diversity and inclusion, including events sponsored by employee groups, according to bank documents and staff. Development of succession plans that address diversity and inclusion. All 11 banks engaged in succession planning, but FHFA’s 2018 diversity and inclusion examination found that the banks addressed diversity and inclusion in their succession planning to varying degrees. FHFA staff explained that banks should evaluate potential successors on their demonstrated ability to manage diversity and inclusion using performance competencies. Examples of such competencies include assessing candidates on their ability to include diverse groups when making team decisions and supporting the bank’s diversity and inclusion efforts. FHLBanks’ Use of Diverse Suppliers and Broker-Dealers Varied among Banks in 2018, and FHLBanks Implemented Key Diversity Practices FHLBanks Used a New Format for More Consistent Reporting in 2018 and Varied in Their Use of Diverse Suppliers and Broker-Dealers FHFA worked with FHLBanks and developed instructions and templates for more consistent reporting of 2018 data on the banks’ use of diverse suppliers and broker-dealers, including those that are minority- and women-owned. FHLBanks’ use of minority- and women-owned suppliers and broker-dealers in 2018 varied among the banks. Banks also told us there are challenges that may slow or limit their use of diverse suppliers and broker-dealers. They generally implemented key practices to help ensure they consider diverse suppliers and broker-dealers in searches for business partners. Data reporting. Before 2018, FHFA had not issued a standardized data reporting template for FHLBank data on use of diverse suppliers and broker-dealers; therefore, data were not comparable across banks or years. As part of the requirements of FHFA’s 2010 Minority and Women Inclusion regulation, in 2012 the banks and the Office of Finance began reporting data on their business activities with diverse businesses (minority-, women-, and disabled-owned) in the preceding year. However, the data prior to 2018 were not comparable across years and banks because the banks did not use consistent methods or definitions in their data reporting. To develop a common understanding and make the data more consistent, FHFA and the banks began working together in 2017 to develop a data dictionary and data templates. FHLBanks used the new templates to report their 2018 data. Minority- and women-owned suppliers. In 2018, FHLBanks varied in their use of minority- and women-owned suppliers (see fig. 9). The 11 banks entered into more than 2,900 supplier contracts overall in 2018 (ranging from 60 to 477 per bank). Of the total number of contracts, about 10 percent (279 contracts) were with minority-owned suppliers and about 12 percent (340 contracts) were with women-owned suppliers. Among the individual banks, the share of contracts entered into with minority- owned suppliers in 2018 ranged from about 1 percent to 38 percent and from about 4 percent to 25 percent for contracts with women-owned suppliers. In 2018, FHLBanks’ total supplier expenditure was about $453 million, of which about 8 percent and 13 percent, respectively, went to minority- and women-owned suppliers. Among the individual banks, the percentage of the total annual 2018 expenditure that went to minority-owned businesses varied from about 3 percent to 15 percent, and to women-owned businesses from about 2 percent to 31 percent (see fig. 10). According to FHFA staff, annual expenditure paid to suppliers can vary from year to year. More specifically, an increase in a bank’s annual supplier expenditure in any one year is usually related to long-term, large investments made during that year, such as construction costs or investment in technology products and services. FHFA staff noted that these one-time increases in expenditures can provide opportunities to increase the use of diverse suppliers. FHFA staff said bank data showed that for example, in 2018, three FHLBanks each had large one time investments in construction or building maintenance. Diverse broker-dealers in debt transactions. FHLBanks conduct capital markets transactions with broker-dealers that meet certain qualifications (such as capital sustainability and financial performance), including those that have been approved as diverse broker-dealers. As previously mentioned, these transactions include debt issuance and investments. The Office of Finance acts as an agent to the banks and primarily functions to issue and service all debt transactions. In addition, it identifies and approves broker-dealers for the banks’ debt issuance transactions, including dealers that are minority-, women-, disabled-, and veteran-owned. As of December 31, 2018, the Office of Finance had 64 approved broker- dealers, 16 of which were diverse broker-dealers, including seven minority-owned and five women-owned firms. In 2019, the Office of Finance added two additional diverse broker-dealers, one minority-owned and one disabled veteran-owned, bringing the total to 18. This represents an increase in the number of approved diverse broker-dealers from 10 in 2014 (see table 4). A total of 69 broker-dealers conducted at least one debt transaction with the Office of Finance in 2018. Ten percent of these broker-dealers were minority-owned and 7 percent were women-owned. In 2018, FHLBanks issued about $8 trillion in debt transactions. Of this total volume, approximately 3 percent of transactions were conducted with minority-owned broker-dealers and less than 1 percent with women- owned broker-dealers. Similarly, minority-owned broker-dealers received approximately 5 percent of the fees paid to broker-dealers overall on these transactions, and women-owned broker-dealers received approximately 0.5 percent. While the Office of Finance reports debt volume data and other data, such as number of transactions conducted by diverse broker-dealers, to FHFA, staff noted that they also use two other performance goals to measure their capital markets diversity efforts. These two goals are the utilization of diverse broker-dealers in debt issuance programs and the number of outreach engagements with diverse broker-dealers (such as marketing and investor meetings). According to Office of Finance staff, as of June 2019, diverse broker- dealers had the opportunity to participate in all FHLBank debt issuance programs. However, as discussed later, some practices that the Office of Finance implements to control risk may limit diverse broker-dealers from taking a more substantial role in certain types of transactions. Diverse broker-dealers in investment transactions. FHLBanks make investments based on their investment needs and identify and approve broker-dealers for their investment needs according to their own qualification requirements. As shown in figure 11, the number of minority- owned broker-dealers approved by the FHLBanks ranged from five to 12, and the number of approved women-owned broker-dealers ranged from one to seven as of December 2018. Of the total number of broker-dealers that conducted at least one investment transaction with FHLBanks in 2018, the share of minority- or women-owned broker-dealers varied among banks (see fig. 12). Of the 10 banks that made investment transactions in 2018, shares for individual banks ranged from 0 percent to about 22 percent for minority-owned broker-dealers and from 0 percent to 10 percent for women-owned broker-dealers. In 2018, FHLBanks conducted about $12 trillion in investment transactions, less than 1 percent of which was conducted with minority- owned broker-dealers or with women-owned broker-dealers. Of the total number of transactions conducted by the banks, minority-owned dealers and women-owned dealers each accounted for less than 1 percent. FHLBanks Described Challenges That May Slow or Limit Their Use of Diverse Suppliers and Broker-Dealers FHLBank staff reported some challenges that may slow or limit their use of diverse suppliers and broker-dealers, such as those owned by minorities, women, and individuals with a disability. For example, staff from seven banks said that the bank’s needs for goods and services are small or can fluctuate from year to year. Staff from two banks added that this can make it difficult to consistently increase or maintain the use of diverse suppliers. For example, staff from one bank described a building construction project that increased the use of diverse suppliers during the year in which the construction took place, but had no effect in the subsequent year because construction had been completed. In addition, staff from five banks said some bank procurement needs are fulfilled by continuing contracts with existing vendors. For example, staff from two banks said that some bank needs, such as existing information system support, are offered by continuing suppliers that may not be diverse suppliers. Additionally, staff from five banks said that there are not always diverse suppliers that can meet the bank’s needs. For instance, staff from one bank said it can be difficult to find diverse suppliers to fill some contracting needs that require specific skills or expertise, such as the vendors used to review technical risk-assessment models. FHLBank staff also reported challenges that may slow or limit their use of diverse broker-dealers. For example, staff from six banks and the Office of Finance said that diverse broker-dealers often do not have the level of capital required by the banks to make the capital markets transactions the banks need. Staff from five banks said this is because diverse broker- dealers generally are smaller firms. In addition, staff from seven banks said that diverse broker-dealers may be limited in the services and products they can offer the banks. For example, staff from one bank told us that some diverse broker-dealers have fewer financial resources, which limits them to basic transactions as opposed to more complex transactions. Staff from six banks also said that their capital markets transactions are dependent on membership needs or market conditions for funding, which can lead to year-by-year fluctuations in transaction levels. Staff from four banks said that the fluctuations affect the bank’s need for broker-dealers overall, and make it challenging for the bank to maintain or increase use of diverse broker-dealers. Office of Finance staff also noted this challenge, adding that many factors, such as underwriting capacity and experience, may affect a broker-dealer’s ability and desire to participate in the FHLBanks’ debt issuance programs. Staff further said that individual broker-dealers are responsible for identifying investors to be able to participate in debt transactions; the Office of Finance cannot control whether a broker-dealer can identify an investor. FHLBanks Generally Implemented Key Practices That Can Help Ensure They Consider Qualified Diverse Businesses We previously identified key practices for increasing opportunities for minority- and women-owned asset managers. We found these practices can be applied to diverse suppliers and broker-dealers and used by organizations, such as FHLBanks, to help ensure they consider qualified diverse suppliers and broker-dealers in their selection process. Diverse suppliers and broker-dealers include businesses owned by minorities, women, and individuals with a disability. The key practices are Demonstrate top leadership commitment: Demonstrate commitment to increasing opportunities for diverse businesses. Conduct outreach: Conduct outreach to inform diverse businesses about opportunities and the selection processes. Communicate priorities and expectations: Explicitly communicate priorities and expectations about inclusive practices to staff and ensure those expectations are met. Remove potential barriers: Review policies and practices to remove barriers that limit the participation of diverse businesses. FHLBanks Implemented Key Practices for Supplier Diversity We found that FHLBanks generally implemented the four key practices in their supplier management programs, based on our review of the FHLBanks’ 2017 and 2018 annual OMWI reports and interviews with OMWI staff from all 11 banks, and with bank staff with responsibility for vendor management. Demonstrate top leadership commitment. The FHLBanks demonstrated top leadership commitment to supplier diversity through strategic plans, goals, and reporting. All 11 FHLBanks include supplier diversity as a component of their diversity and inclusion strategic plans. In addition, the banks generally established quantitative or qualitative goals related to their supplier diversity programs; for example, the percentage of total expenditure with diverse suppliers. FHFA told us that they have been working with the banks to assess these goals and ensure they are outcome-based. Furthermore, the 11 banks track their progress in meeting diversity and inclusion objectives and goals. Each FHLBank’s OMWI director reports to the bank’s chief executive officer/president or the equivalent of the chief operating officer. The FHLBank boards also receive periodic updates on the bank’s diversity and inclusion efforts. Conduct outreach. FHLBanks use a variety of methods to reach potential diverse suppliers. All 11 banks work with local or national industry organizations, such as the National Minority Supplier Development Council and Women’s Business Enterprise National Council, to identify potential suppliers. Nine banks described attending events hosted by these organizations, such as matchmaking sessions or business fairs, and at least two banks reported using their databases to search for diverse suppliers. Staff from seven banks said that they proactively meet with potential vendors to educate them on bank needs and processes. Staff from one bank said they have invited a number of diverse vendors to the bank to meet bank managers and discuss their goods and services. This has resulted in contract proposals from five different diverse vendors. Staff from five banks also described using advertising and social media to reach a broad base of potential diverse suppliers; for example, one bank described placing advertisements in publications that target diverse businesses. Communicate priorities and expectations. FHLBanks communicated priorities and expectations on supplier diversity to bank staff through policies and training. All 11 banks have a written policy that outlines the requirements for bank staff to include a diverse supplier in their search whenever the need for a new contract is identified. In addition, all 11 banks conducted staff training on supplier diversity or on their vendor management policy. Remove potential barriers. According to our interviews with external stakeholders knowledgeable about working with diverse suppliers, diverse businesses may face barriers as they seek to obtain contracts. FHLBanks took steps that could ameliorate these barriers. Supplier contracts are often made through existing relationships and networks. Diverse suppliers may not have access to these networks and therefore miss opportunities to apply for contracts. As previously mentioned, FHLBanks conducted targeted recruitment of diverse suppliers. By actively seeking to build relationships with these suppliers, the FHLBanks have been working to address this barrier. The procurement process itself can be complicated and difficult to understand. Smaller diverse businesses may have limited staff and skill to navigate the process. Staff from seven banks have addressed this barrier by conducting one-on-one meetings with potential vendors to walk them through the bank’s procurement processes. Third- Party Certification of Supplier Diversity Status According to the Federal Housing Finance Agency’s (FHFA) 2010 Minority and Women Inclusion regulation, a firm qualifies as a minority- or women-owned business when it is more than 50 percent owned and controlled by one or more minority individuals or women and more than 50 percent of net profit or loss accrues to a member of those groups. Businesses can submit documentation to approved third-party certifiers to obtain a certification of their diversity status. Certifiers then review the documentation and sometimes conduct site visits to confirm the diversity status of the business. The process to certify as a diverse business with a third party can be confusing or costly, according to two external stakeholders we interviewed. The preambles to the 2010 Minority and Women Inclusion rule and its 2017 amendments state that while FHFA prefers reliance on certifications from qualified, independent third parties, FHFA also allows for reliance on self-certifications by the businesses. The FHLBanks each confirmed that they allow businesses to self- certify their diversity status. A small diverse supplier may not be able to fulfill a large contract requiring multiple services. An external stakeholder we interviewed told us that this barrier can be overcome when diverse suppliers join forces to fulfill multipart contracts. For example, a supplier that provides pens can join with a supplier that provides paper to fulfill a single office supplies contract. To do this, suppliers need advance notice of bank needs to create a business plan. Three banks told us that before meeting with potential suppliers, they work with various business departments in the bank to identify upcoming purchasing needs and share those with the suppliers. All 11 banks have a representative on the systemwide OMWI Council Procurement Sub-Working Group, which meets monthly. The subgroup spent the majority of 2017 addressing the challenge of FHFA data reporting. An OMWI Council representative told us that the members use the subgroup as forum to discuss key issues. In addition, the representative said the subgroup plans to focus on improving its outreach efforts in 2019. Two banks reported that they hold internal meetings to discuss trends and potential barriers and make updates to their supplier diversity program. FHLBanks Implemented Key Practices for Broker- Dealer Diversity We found that the FHLBanks and the Office of Finance generally implemented the four key practices for their capital markets programs, based on our review of the FHLBanks’ 2017 and 2018 annual OMWI reports and interviews with OMWI staff from all 11 banks, the Office of Finance, and with bank staff with responsibility for capital market activities. Demonstrate top leadership commitment. Similar to the banks’ supplier management programs, FHLBanks demonstrated top leadership commitment to capital markets diversity through strategic plans, goals, and reporting. All 11 FHLBanks and the Office of Finance include capital markets diversity as a component of their diversity and inclusion strategic plans. They also generally established quantitative or qualitative goals related to their capital markets diversity programs, such as the percentage of transactions conducted with diverse broker-dealers. The 11 banks and the Office of Finance track their progress in meeting diversity and inclusion objectives and goals. In addition, the OMWI director reports to the chief executive officer/president or the equivalent of the chief operating officer. The FHLBank and the Office of Finance boards also receive periodic updates on the bank’s and the Office of Finance’s diversity and inclusion efforts, respectively. Conduct outreach. FHLBanks and the Office of Finance interacted with diverse broker-dealers through regular communication and face-to-face meetings. Staff from all 11 banks and the Office of Finance reported some form of regular communication with diverse broker-dealers to keep the broker-dealers informed on bank capital markets activities and needs. In addition, all 11 banks and the Office of Finance reported attending events to interact with diverse broker-dealers. For example, on behalf of the OMWI Council Capital Markets Subgroup, the FHLBank of New York hosts an annual Diverse Dealer Reception at which the banks and the Office of Finance can interact with current approved diverse broker- dealers and those in the pipeline for potential approval. At the 2017 reception, diverse broker-dealers were provided with contact information for all capital market staff in the FHLBank System and a brochure listing examples of ways diverse broker-dealers could engage with the system. Staff from all 11 banks and the Office of Finance also told us they hold one-on-one meetings with diverse broker-dealers to explain bank processes and needs. In addition, Office of Finance staff told us they help diverse broker-dealers build relationships with investors by accompanying them to one-on-one meetings with investors to introduce FHLBank securities products. Communicate priorities and expectations. FHLBanks communicate priorities and expectations on capital markets diversity to bank staff through policies and by sharing practices systemwide. Ten of the banks and the Office of Finance have a written policy or procedure related to the use of diverse broker-dealers, which outlines the importance of engagement with diverse broker-dealers or how bank staff should interact with them. The OMWI Council Capital Markets Subgroup also developed a list of aspirational practices for the 11 banks. These practices include many activities related to the four key practices we identified, such as engaging in regular communication and periodically examining capital market operations to identify potential obstacles to increasing business with diverse broker-dealers. Staff from one bank told us that having the practices codified in a document helps ensure consistent expectations across the system. Remove potential barriers. FHLBanks and the Office of Finance made changes to their capital markets practices and certain features of their debt products to increase access for diverse broker-dealers. For example, the Office of Finance, with input from the OMWI Council Capital Markets Subgroup, reduced the capital requirements on some types of debt transactions to bring in more diverse broker-dealers. The Office of Finance also told us that in the case of a new type of debt product created in November 2018, they allow multiple broker-dealers to participate in various roles, including diverse broker-dealers. However, FHFA staff told us that although the FHLBanks and the Office of Finance made changes to debt and investment products offered to diverse dealers, the banks and the Office of Finance have not always used a systematic process to review and evaluate debt and investment policies and procedures for potential changes that may expand participation by diverse broker-dealers. In 2017 and 2018, FHFA asked the banks and the Office of Finance, respectively, to develop such a process to facilitate opportunities for diverse broker-dealers. FHFA determined that 10 banks had addressed this request. FHFA staff noted that they will review the remaining entities’ progress in addressing this request in 2019 examinations. In addition, each bank and the Office of Finance has a representative on the systemwide OMWI Council Capital Markets Subgroup. According to staff from four banks, the subgroup’s monthly meetings provide them with an opportunity to discuss barriers and practices. In 2018, the subgroup administered a survey to the approved diverse broker-dealers to solicit suggestions and feedback on their interactions with the banks. Bank staff told us the survey did not result in any program changes, but provided information on how they could communicate more effectively. However, diverse broker-dealers still may face barriers in some areas, according to three diverse broker-dealers and two industry stakeholders, with whom we spoke. The Office of Finance has been taking steps to address these barriers where possible. Some practices that the Office of Finance implements to control risk can limit diverse broker-dealers from taking a more substantial role in transactions associated with certain debt products. For example, according to Office of Finance staff, only the top eight broker-dealers (ranked by the Office of Finance based on performance) can lead transactions for certain longer-term and larger-size debt products. Two diverse broker-dealers told us this requirement limits their ability to participate in these transactions. For example, one broker-dealer told us that because diverse broker-dealers generally are newer firms with less capacity relative to the top eight broker-dealers, it would be unlikely that they would ever be one of the top eight. Office of Finance staff told us these products accounted for less than 1 percent of the FHLBank’s total debt issuance in 2018 based on net proceeds received. According to the Office of Finance, they rely on these top eight broker-dealers because they can better cover any risk posed by the transactions. The Office of Finance allows diverse broker-dealers to serve as co-managers on these larger transactions, but diverse broker-dealers told us that acting as a co-manager did not noticeably increase the share of transactions they could execute or their own fee revenue. Staff from the Office of Finance said the office does not implement quotas as a way to maintain or increase the use of diverse broker- dealers, but rather focuses on providing diverse broker-dealers with opportunities and on implementing outreach opportunities. According to these staff, the percentage of transactions conducted and fees received by diverse broker-dealers as a whole has increased over time. The Office of Finance told us they recently met with diverse broker- dealers about another risk-management practice that may limit the participation of diverse broker-dealers. According to Office of Finance staff, this practice requires broker-dealers to have at least $100 million in capital to conduct certain complex debt transactions. According to external stakeholders, a higher capital requirement may limit the participation of diverse broker-dealers, who generally have less capital, in these transactions. Staff from the Office of Finance said that they have been evaluating whether it is appropriate to modify the requirement. Their evaluation is part of the office’s continual process to evaluate debt issuance programs. Three diverse broker-dealers and one industry stakeholder we interviewed said that increased transparency by FHLBanks and the Office of Finance in information provided to broker-dealers could help diverse broker-dealers identify opportunities and better understand the banks’ needs. For example, one diverse broker-dealer and one industry stakeholder said that access to information on the fees paid to broker-dealers on different types of capital markets transactions could help them take advantage of areas of greater opportunity. This information is reported by the Office of Finance and FHLBanks to FHFA, but generally is not released publicly. The preamble of FHFA’s Minority and Women Inclusion rule notes that FHFA treats this information as confidential because it can affect the agency’s oversight of the banks. However, FHFA does not prohibit FHLBanks and the Office of Finance from publishing their diversity information if they so choose. Office of Finance staff told us that they do not publish data on fees or broker-dealer transactions for certain debt product because they consider this proprietary and competitive information. They said publishing the data could increase the leverage of broker- dealers and also could lead to an adverse impact on investor participation and support. FHFA Oversight of FHLBanks’ Diversity and Inclusion Efforts Includes Conducting Examinations and Reviewing Bank Data FHFA’s oversight of FHLBanks includes annual examinations, development of instructions and templates to improve data quality, incorporation of bank data in oversight, and communication of agency expectations for diversity and inclusion efforts to the banks through various mechanisms. Began examining FHLBanks’ diversity and inclusion efforts in 2017. In 2017, FHFA started reviewing FHLBanks’ diversity and inclusion efforts in its annual examinations of the banks. FHFA developed a separate examination module (to add to its examination manual) in 2016 for reviewing the banks’ diversity and inclusion efforts and the banks’ oversight of these efforts. The areas that FHFA reviews include strategic planning and associated goals for diversity and inclusion, board oversight, organizational structure of diversity and inclusion programs, workforce, suppliers (which encompasses broker-dealers in the capital markets program), reporting structure and processes, and internal audit and compliance. In the 2017 and 2018 examinations, FHFA found the banks generally took steps to promote and maintain diversity and inclusion in their workforce and use of diverse suppliers and broker-dealers. FHFA also identified some areas for improvement. Specifically, in the 2017 examinations, FHFA recommended that all 11 banks improve their reporting and program goals on workforce diversity and use of diverse suppliers and broker-dealers. For example, FHFA specifically found that six banks needed to improve performance measurement of their supplier diversity goals. In the 2018 examinations, FHFA recommended that seven banks enhance their succession planning to ensure that potential successors are assessed on how well they manage and implement diversity and inclusion. As previously discussed, FHFA also asked FHLBanks and the Office of Finance to develop a more systematic process to review and determine potential changes to their debt and investment policies that could expand participation by diverse broker-dealers. Based on our review of FHFA’s examination documentation, FHFA followed its processes to document, communicate, and resolve examination findings related to diversity and inclusion in its 2017 and 2018 examinations. For example, FHFA examiners prepared memorandums to document the assessment and findings of each individual bank’s diversity and inclusion efforts and communicated findings to bank management and boards. Consistent with the examination manual, FHFA followed up on 2017 examination findings and banks’ remediation actions during the 2018 examinations. As of March 2019, FHFA determined that 10 banks satisfactorily remediated findings from the 2017 examination related to goals and reporting issues, among other things. For the remaining bank, management has not completed all remediation steps to address FHFA’s examination findings, according to FHFA staff. FHFA staff added that they will review the bank’s actions again in the 2019 examination and assess the banks’ progress in addressing the 2018 examination findings. According to FHFA staff, they plan to make some changes to the diversity and inclusion examination module. For example, in the module FHFA plans to more explicitly separate the information on the review of diversity efforts related to use of diverse broker-dealers from use of diverse suppliers (they are currently under one examination component). Developed instructions and templates to improve data quality. To enhance the quality of the data and information submitted by FHLBanks on their workforce diversity and use of diverse suppliers and broker- dealers, FHFA worked with FHLBanks and developed instructions and templates to help FHLBanks submit more consistent data on a quarterly basis. During 2018, FHFA requested that banks submit quarterly diversity data on their workforce and the use of diverse suppliers and broker- dealers. FHFA also developed a data reporting manual that includes a data dictionary, and templates for the quarterly and annual data and for the annual report to help FHLBanks more consistently report diversity data for their workforces and use of diverse suppliers and broker-dealers. FHFA staff told us that they reviewed the banks’ 2018 data to identify any discrepancies, and they worked with the banks to clarify data definitions and correct the discrepancies. For example, some banks had used an incorrect definition to account for their diverse supplier expenditures. Because 2018 was the first year in which the banks used the new templates, FHFA staff said they had expected some discrepancies in the data as the banks became familiar with the data definitions. Staff said FHFA plans to continue to work with the banks to help them achieve a common understanding of the data definitions. Incorporated bank data in oversight. According to FHFA staff, in 2018 they began to use the banks’ quarterly data for ongoing monitoring of the banks’ diversity and inclusion efforts in workforce, procurement, and capital markets. For example, the FHFA OMWI office assesses each bank’s diversity performance in these three areas using the quarterly data, and has been considering developing benchmarks. FHFA staff said the quarterly data provide more detailed information on the banks’ use of diverse businesses; for example, the types of goods or services for which the banks contract with diverse businesses. FHFA staff noted that the additional data not only inform FHFA’s oversight but also can help the banks’ internal reporting on diversity and inclusion efforts. Additionally, FHFA plans to review the banks’ data reporting systems as part of its annual examinations to help ensure banks have the appropriate controls for data reporting. FHFA staff said that the agency expects the banks to establish the appropriate data system to ensure the quality of data reported to FHFA and for internal reporting. Communicated with FHLBanks, including on data templates and expectations. FHFA provided clarification on the roles and duties of the banks’ OMWI officers and the scope of diversity regulations. FHFA collected the banks’ feedback and responded to questions on the new quarterly data reporting and the new data instructions and templates. Subsequently, FHFA modified the data templates in 2019 to allow the banks to more efficiently report their diversity data on a quarterly and annual basis. For example, FHFA consolidated data fields common to quarterly and annual reporting, among other things. Additionally, FHFA provided responses to the banks on their questions on the data and annual report templates when the templates were first introduced in 2018 and revised in 2019. FHFA staff said the annual report template helped clarify FHFA’s expectation on annual report content. In addition, FHFA staff noted that since 2015, FHFA’s OMWI director has met with the bank presidents and board of directors of most of the FHLBanks, and began in 2018 to have at least one visit for each bank every other year. The FHFA OMWI director also generally attends the semi-annual conferences of the banks’ OMWI officers, during which she has the opportunity to meet with the banks’ presidents individually. During these meetings, the OMWI director or staff discussed diversity issues such as strategic planning, results of the banks’ annual reports, and examinations. Agency Comments We provided a draft of this report to FHFA, each of the 11 FHLBanks, and the Office of Finance for review and comment. FHFA, six FHLBanks, and the Office of Finance provided technical comments, which we incorporated as appropriate. The other five FHLBanks did not have any comments. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Director of FHFA, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8678 or ortiza@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix I. Appendix I: GAO Contact and Staff Acknowledgments GAO Contact Anna Maria Ortiz, (202) 512-8678, ortiza@gao.gov. Staff Acknowledgments In additional to the individual named above, Kay Kuhlman (Assistant Director), Anna Chung (Analyst in Charge), Meghana Acharya, Laurie Chin, Kaitlan Doying, Jill Lacey, Moon Parks, Barbara Roesmann, Jessica Sandler, and Jena Sinkfield made key contributions to this report.