Final Rule Summary

Prepared by NASCUS Legislative & Regulatory Affairs Department
June, 2017

FHFA Final Rule
FHLB Membership for Non-Federally Insured Credit Unions

The Federal Housing Finance Agency (FHFA) has published final rules governing Federal Home Loan Bank (FHLB) membership for non-federally insured credit unions pursuant to ยง82001 of the Fixing America’s Surface Transportation Act (FAST Act). The FAST Act authorized non-federally insured credit unions (NFICUs) to join the FHLBs. Federally insured credit unions (FICUs) have been eligible for membership since 1989.

The final rule makes 1 substantive change from the proposed rule: it allows NFICUs to submit their request to their state regulator for a share insurance determination at the same time as it submits its initial application to the FHLB. This starts the 6 month default timetable if the state regulator is unwilling to make the determination.

The FHFA’s final rule for non-federally insured credit union membership in the FHLB may be read here. The rule is effective July 5, 2017.

The FAST Act changes provide that a NFICU shall be treated as a federally insured depository institution when the FHLB is making membership decisions so long as:

  • The NFICU’s state credit union regulator has determined that it met all of the requirements for Federal share insurance as of the date of its application for membership.
  • If the NFICU’s state regulator has not made a determination with respect to federal share insurance requirements within six months of the application for Bank membership, then NFICU shall be deemed to have met those requirements.

A NFICU must meet 2 eligibility prongs for membership in a FHLB. First, the NFICU must meet the same eligibility requirements as a FICU:

  • It is duly organized under Federal or state law
  • It is subject to federal or state supervision
  • It makes long-term home mortgage loans
  • Its financial condition is such that advances may be safely made to it**
  • Its management and its home financing policy are both consistent with sound and economical home financing
  • It has at least 10% of its assets in ‘‘residential mortgage loans.’’

The second membership eligibility prong requires a NFICU to provide the FHLB with:

  • A copy of the NFICU’s request to its state regulator for a determination that the NICU meets all eligibility requirements for federal share insurance
  • A copy of the response from the state regulator stating:
    • that the NFICU satisfied all of the eligibility requirements for Federal share insurance as of the date of the request; or
    • a written statement from the state regulator that it is unable or unwilling to make a determination as to the NFICU’s eligibility for Federal share insurance; or
    • a written statement from the NFICU certifying that it did not receive a response from its state regulator within the six-month waiting period provided for in the statuteWith respect to the 6 month waiting period if there is no response from the state regulator, the final rule allows the NFICU to submit its request to the state regulator and begin the 6 month tolling period at the same time it submits its initial information to the FHLB. This is a change from the proposed rule. Under the proposed rule, the NFICU would have had to submit its information to the FHLB and then wait for the FHLB to determine that the NFICU met prong 1. With the change, the overall time it could take for a NPICU to gain membership to the FHLB has been shortened.

However, the FHLB will still require each applying NFICU to request its state regulator make a determination. It had been requested that the FHLB accept a blanket policy statement from the state regulator where the state will not make the determination.

Treatment of a Credit Union That Becomes an NFICU When Already a Member
As with the proposed rule, the final rule allows an existing FICU FHLB member that cancels its federal share insurance to remain a FHLB member provided the FHLB determines that the credit union canceled its Federal share insurance voluntarily.

Compliance with the Financial Condition Requirement
The existing provision allows a FHLB to deem a depository institution applicant in compliance with the financial condition requirement if:

  • The applicant has received a composite exam rating within the past 2 years;
  • The applicant meets its regulatory capital requirements; and
  • The applicant’s most recent composite examination rating was ‘‘1,’’ or the most recent rating was ‘‘2’’ or ‘‘3’’ and the applicant satisfies certain ‘‘performance trend criteria’’ pertaining to its earnings, nonperforming assets, and allowance for loan and lease losses.

However, NFICUs and non-federally insured CDFI credit union applicants, including those that had received a composite examination rating of ‘‘1’’ from their state regulators, must also to satisfy the performance trend criteria.

Stipulations: Reports and Examinations
As a condition of joining, each NFICU FHLB member will stipulate that the private share insurer may furnish the member’s reports of examination to the FHLB or to FHFA upon request. This is the same requirement as for FICUs. In addition, NFICUs would have to agree to provide the FHLB, within 20 days of filing, with copies of reports of condition and operations filed with its state regulator and the private entity providing it with share insurance. This is also the same requirement as for FICUs.