​Washington, D.C. – After considering input received in more than 1,300 comment letters in response to a proposed rule issued in 2014, the Federal Housing Finance Agency (FHFA) today released a final rule amending its regulation on Federal Home Loan Bank (FHLBank) membership.  The current regulation implements the provisions of the Federal Home Loan Bank Act that govern eligibility for membership and establish requirements for an institution to become and remain a member of a FHLBank.  As regulator of the FHLBanks, FHFA is responsible for implementing the statutory provisions governing membership and for ensuring that only institutions legally eligible to do so obtain the benefits of membership. 

The final rule released today does not include two provisions from the 2014 proposed rule that would have required FHLBank members to maintain ongoing minimum levels of investment in specified residential mortgage assets as a condition of remaining eligible for membership.  Based on research indicating that 98 percent of FHLBank members are currently in compliance with the proposed requirements and on concerns expressed in the comments received about implementation burdens, FHFA concluded that the benefit of forcing the remaining two percent of current members to comply with these proposals would be outweighed by the burden the proposal would impose.  "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," said FHFA Director Melvin L. Watt. 

The final rule does adopt the provision in the 2014 proposed rule that defines "insurance company" to exclude so-called "captive insurers."  The final rule, therefore, will prevent non-eligible entities from gaining de facto FHLBank membership through a captive insurer.  The primary business of a captive insurer is underwriting insurance for its parent company or for other affiliates, rather than for the public at large, and captives are generally easier and less expensive to charter, capitalize and operate.  In defining "insurance company" to exclude captives, FHFA seeks to prevent entities that do not otherwise meet the statutory requirements from becoming FHLBank members by establishing and using captives as conduits to circumvent the membership eligibility requirements and gain access to low-cost FHLBank funding and other benefits of FHLBank membership.  An increasing number of entities that are ineligible for FHLBank membership have been establishing captive subsidiaries as a means for their parent company to become a de facto FHLBank member, according to FHFA. 

"FHFA has the authority and the duty to implement the statutory membership provisions of the Federal Home Loan Bank Act and by adopting the proposal to exclude captives from the definition of insurance company we are making sure that institutions can't frustrate the intent of Congress.  Congress has amended the Federal Home Loan Bank Act in the past to allow additional entities to become members of a Federal Home Loan Bank and it can certainly do so again if it wants some of these entities to be eligible for membership," Director Watt said.

To minimize disruption of current members and the FHLBank System, the rule allows FHLBank captive insurer members that joined prior to FHFA's proposed rule up to five years to terminate their membership and those that joined after issuance of the proposed rule up to one year to terminate.

The final rule, which becomes effective 30 days from publication in the Federal Register, also requires FHLBanks to obtain and review audited financial statements for insurance company applicants when considering them for membership and clarifies the standards for determining the location of an institution's "principal place of business" for purposes of identifying the appropriate FHLBank district for membership.

Link to Final Rule

Link to FINAL FEDERAL HOME LOAN BANK MEMBERSHIP RULE FAQs (PDF)