ABA Prevails on Asset Test for FHLB Membership

The Federal Housing Finance Agency today issued its final rule changing eligibility for membership in the Federal Home Loan Bank system. In a win for ABA and the state bankers associations, the FHFA did not include in the rule a controversial provision requiring all FHLB members to hold at least 1 percent of assets in home mortgage loans and larger members to have at least 10 percent of assets in residential mortgage loans on an ongoing basis.

“The statutory requirements for members to continue their commitment to housing finance can be addressed by monitoring the levels of residential mortgage assets they hold and we, therefore, decided not to include the ongoing investment requirements in the final rule,” remarked FHFA Director Mel Watt.

“We are pleased that FHFA listened to the more than 1,300 comment letters from ABA, state associations and banks opposing this provision,” said ABA President and CEO Rob Nichols. “There was no demonstrable need for the proposed changes, which contradicted congressional intent and would have harmed the FHLBs, their member banks and the communities they serve.”

The final rule did include restrictions on “captive insurance” companies’ membership in the FHLB system. ABA, ABIA and state bankers associations had raised concerns that the proposal to ban all captives was overly broad. The groups noted that they do share the FHFA’s concerns over otherwise ineligible entities using captives to gain access to the system but urged a less sweeping approach.  The final rule, while still banning captive insurance companies, does appear to allow entities that are otherwise eligible for membership to retain membership in the system. ABA and ABIA will continue to evaluate all aspects of the final rule.

In October, a bipartisan group of lawmakers introduced a bill that would stop the FHFA from implementing any changes to FHLB membership — including those related to captive insurers — and require a Government Accountability Office study of the proposal’s effects. The final rule will take effect 30 days after it is published in the Federal Register. For more information, contact ABA’s Joe Pigg or ABIA’s Kevin McKechnie.