Final Rule Summary

Prepared by NASCUS Legislative & Regulatory Affairs Department
January, 2016

Federal Housing Finance Agency
Amendments to the FHLB Membership Regulations


The Federal Housing Finance Agency (FHFA) has issued a final rule that revises the Federal Home Loan Bank (FHLB) membership regulations.  The membership regulations implement provisions of the Federal Home Loan Bank Act (Bank Act) that establish requirements an institution must meet to become and remain a member of a Federal Home Loan Bank (FHLB). The FHLB membership rule was revised to address recent developments in the industry that were not addressed in the existing rule. The FHFA also issued a set of “Frequently Asked Questions” to accompany the final rule.  The FAQs can be accessed here.

Note: This rule applies to credit unions.  Also, credit unions are not considered to be “community financial institutions” under this regulation.

The final rule becomes effective 30 days from publication in the Federal Register.  The final rule may be accessed here,


Membership Eligibility Requirements for Insured Depository Institutions (other than CFIs)

  • The FHFA opted not to implement ongoing investment requirements that were featured in the proposed rule.  Under the final rule, insured depository institutions (that are not community financial institutions (CFIs)) are required to have at least 10% of their assets held in residential mortgage loans at the time of application.  Institutions would not be required to hold 10% of their assets in residential mortgage loans on an ongoing basis as proposed.  

“Captive Insurers” deemed ineligible for FHLB membership

  • The FHFA revised the definition of “captive insurers” to make them ineligible for FHLB membership. The FHFA determined that “captive insurers” were being used by ineligible institutions (such as real estate investment trusts (REITS)) to circumvent the membership eligibility rules for FHLB participation.  The final rule defines “captive” as “an entity that holds an insurance license or charter under the laws of a State, but that does not meet the definition of “insurance company” or fall within any other category of institution that may be eligible for membership.” The FHFA makes a distinction between captive insurers and insurance companies, the latter being eligible for FHLB membership.  The rule defines an “insurance company” as “an entity that holds an insurance license or charter under the laws of a State and whose primary business is the underwriting or insurance products for persons or entities that are not its affiliates.”
  • The rule also provides a transition/wind down period to give FHLBs time to exit current captive insurers.  Captive insurers that were existing FHLB members prior to publication of the proposed rule (September 12, 2014) would have five years from the effective date of the final rule to wind down their relationship with the FHLB. The FHLB would be allowed to continue to make or renew advances during the five year transition period under certain circumstances.  The FHLB would be required to terminate the membership of a captive insurer that was admitted prior to the proposed rule’s publication date no later than five years after the effective date of the final rule.
  • The rule provides a one year transition/wind down period for captive insurers that were admitted to FHLB membership on or after the publication date (September 12, 2014) of the proposed rule.  A FHLB would be prohibited from making or renewing advances during this one year transition/wind down period and would not be required to liquidate any advances that may already be outstanding on the effective date of the final rule.

 “Principal Place of Business” Standard

  • Under the final rule, an institution may only be a member of the FHLB in the district where the institution’s principal place of business (PPOB) is located.  Additionally, an institution’s PPOB is considered to be “the State in which the institution maintains its home office established in conformity with the laws under which the institution is organized and where the institution conducts its business operations.” The rule also provides for an institution to request designation of its PPOB by a FHLB.
  • Where an insurance company or community development financial institution (CDFI) is unable to satisfy the PPOB standard, a FHLB may designate an institution’s PPOB as the geographic location where the institution conducts the “predominant portion” of its business activities.  The rule directs the FHLB to consider certain factors when making this determination.  Specifically, the Bank may determine that an institution conducts the “predominant portion” of its business in a particular State when two of the following factors are present:
  • The institution’s largest office (measured by number of employees) is located in that State;
  • A plurality of the institution’s employed are located in that State; or
  • The places of employment for a plurality of the institution’s senior executives are located in that State.