[Federal Register Volume 65, Number 128 (Monday, July 3, 2000)]
[Rules and Regulations]
[Pages 40979-40981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-16790]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 925 and 950

[No. 2000-30]
RIN 3069-AA94


Amendment of Membership Regulation and Advances Regulation

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is adopting 
as final, with several changes, the Interim Final Rule that: Amended 
its Membership Regulation and Advances Regulation to conform certain 
provisions to the requirements of the

[[Page 40980]]

Federal Home Loan Bank System Modernization Act of 1999 (Modernization 
Act); and made certain technical revisions to the Membership Regulation 
that are not related to the Modernization Act, in order to clarify the 
treatment of de novo members that fail to meet the 10 percent 
residential mortgage loans requirement within the required one-year 
time frame.

DATES: This final rule shall be effective on July 3, 2000.

FOR FURTHER INFORMATION CONTACT: James L. Bothwell, Director, (202) 
408-2821, Jennifer R. Salamon, Program Analyst, (202) 408-2974, or 
Patricia L. Sweeney, Program Analyst, (202) 408-2872, Office of Policy, 
Research and Analysis; or Sharon B. Lake, Senior Attorney-Advisor, 
(202) 408-2930, Office of General Counsel, Federal Housing Finance 
Board, 1777 F Street, NW., Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    Under the Federal Home Loan Bank Act (Bank Act), the Finance Board 
is responsible for the supervision and regulation of the 12 Federal 
Home Loan Banks (Banks), which provide advances and other financial 
services to their member institutions. See 12 U.S.C. 1422a(a) (1994). 
Institutions, including those not meeting the Qualified Thrift Leader 
(QTL) test, may become members of a Bank if they meet certain 
membership eligibility and minimum stock purchase criteria set forth in 
the Bank Act and the Finance Board's implementing Membership 
Regulation. See id. secs. 1424, 1426, 1430(e)(3) (1994); 12 CFR part 
925.\1\ Members may obtain advances from a Bank subject to certain 
statutory and regulatory requirements. See 12 U.S.C. 1430(a) (1994). 
Prior to recent amendments to the Bank Act, discussed further below, 
access to advances by non-QTL members was restricted in various ways. 
See id. sec. 1430(e).
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    \1\ The Finance Board recently reorganized and redesignated all 
of its regulations. See 65 FR 8253 (Feb. 18, 2000). The Membership 
Regulation, which formerly was part 933 of the Finance Board's 
regulations, 12 CFR part 933 of the Finance Board's regulations, 12 
CFR part 933 (1999), was redesignated as part 925. See 65 FR 8253, 
8260 (to be codified at 12 CFR part 925).
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    The recently enacted Modernization Act \2\ amended certain 
membership eligibility provisions, and repealed certain stock purchase 
and non-QTL advances provisions, in the Bank Act. See Pub. L. No. 106-
102, secs. 602, 603, 604(c), (d)(1), 605, 608 (1999). Accordingly, the 
Finance Board adopted the Interim Final Rule, which amended its 
regulations to conform them to the Modernization Act amendments. See 65 
FR 13866 (March 15, 2000). The Finance Board also took the opportunity 
in the Interim Final Rule to make certain technical revisions to the 
Membership Regulation that are not related to the Modernization Act, in 
order to clarify the treatment of de novo members that fail to meet the 
10 percent residential mortgage loans requirement within the required 
one-year time frame. See id.
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    \2\ The Modernization Act is Title VI of the Gramm-Leach-Bliley 
Act, Pub. L. No. 106-102, 113 Stat. 1338, enacted into law on 
November 12, 1999.
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    The Interim Final Rule provided for a 30-day public comment period, 
which closed on April 14, 2000. The Finance Board received a total of 7 
comment letters on the Interim Final Rule. Commenters included 4 Banks 
and three financial institutions trade associations. Commenters 
generally focused their comments on how the three-year average total 
assets number for community financial institutions (CFIs) should be 
calculated. These comments are discussed below.

II. Analysis of the Final Rule

A. Removal of the 10 Percent Residential Mortgage Loans Requirement For 
Community Financial Institution Applicants For Membership; Definition 
of ``Community Financial Institution''--Secs. 925.1(ff), 925.6(b), 
925.10, 925.14(a)(3)

    Section 4(a)(2)(A) of the Bank Act formerly provided that an 
insured depository institution may become a member of a Bank only if it 
has at least 10 percent of its total assets in residential mortgage 
loans (10 percent requirement). See 12 U.S.C. 1424(a)(2)(A) (1994). 
Section 4(a)(2) also provided that an insured depository institution 
commencing business operations after January 1, 1989 (de novo 
institution), may become a member of a Bank if at least 10 percent of 
its total assets are in residential mortgage loans, within one year 
after the commencement of its operations. See id. sec. 1424(a)(2). 
Section 4(a)(2) is implemented by Secs. 925.6(b), 925.10 and 
925.14(a)(3) of the Finance Board's Membership Regulation. See 12 CFR 
925.6(b), 925.10, 925.14(a)(3).
    The Modernization Act amended section 4(a)(2) of the Bank Act to 
exempt from the 10 percent requirement any applicants, including de 
novo institutions, that qualify as ``community financial institutions'' 
See Modernization Act, sec. 605 (to be codified at 12 U.S.C. 
1424(a)(2)(A)(4)). The Modernization Act defines a ``community 
financial institution'' to mean an institution whose deposits are 
insured under the Federal Deposit Insurance Act (FDIA) and that has, as 
of the date of the transaction at issue, less than $500 million in 
average total assets, based on an average of total assets over the 
three years preceding that date. See id. sec. 602 (to be codified at 12 
U.S.C. 1422(13)). Accordingly, the Interim Final Rule amended 
Secs. 925.6(b), 925.10 and 925.14(a)(3) of the Membership Regulation to 
include an exemption from the 10 percent requirement for CFIs, and 
added a definition of ``community financial institution'' in new 
Sec. 925.1(ff) that mirrored the statutory definition. A definition of 
``community financial institution'' that predates the Modernization 
Act, in Sec. 925.1(n)(1)(iii), also was removed. The Finance Board 
requested comments in the Interim Final Rule on what source of data 
should be used in calculating the average of total assets over the 
three preceding years.
    The issue of how to calculate an institution's average total assets 
over the three preceding years also arises in the context of the new 
authority under the Modernization Act allowing CFI members to pledge 
secured loans for small business or agriculture, or securities 
representing a whole interest in such secured loans, as security for 
advances. See Modernization Act, section 604(a)(5)(C). The Finance 
Board recently issued a proposed rule to implement this new advances 
collateral authority (Advances Collateral Rule). See 65 FR 26518 (May 
8, 2000). A number of commenters on the Interim Final Rule recommended 
that the Banks be allowed to calculate average total assets of all of 
their member institutions on an annual basis, based on calendar year-
end financial data available from the institutions' regulatory 
financial reports filed with their regulators or, in the alternative, 
based on data available from the institutions' quarterly regulatory 
financial reports for the preceding three years. Commenters stated that 
it would be confusing to determine CFI status on a quarterly or monthly 
basis when Sec. 925.22(b)(1) of the Membership Regulation requires the 
Banks to calculate annually each member's minimum capital stock 
requirement using calendar year-end financial data. Commenters stated 
that calculation of CFI status on a quarterly or monthly basis would 
result in unnecessary administrative burdens and expense. Other 
commenters supported quarterly calculations of average total assets 
based on the institutions' quarterly regulatory financial reports over 
the three preceding years.

[[Page 40981]]

Commenters also stated that calculation of CFI status on a quarterly or 
monthly basis would cause some members' CFI status to fluctuate more 
frequently, which, for members approaching the CFI asset cap, could 
have a chilling effect on their reliance on Bank funding secured by 
CFI-eligible collateral.
    For membership eligibility purposes, the determination of whether 
an institution applying for Bank membership is a CFI and, therefore, 
exempt from the 10 percent requirement, is only required to be made by 
the Bank one time, during the membership application evaluation 
process. Therefore, the comments regarding the administrative burden 
and cost of performing more frequent periodic calculations, 
coordinating with the annual stock purchase calculation, and the effect 
on use of Bank funding, are inapposite for membership eligibility 
purposes. Rather, these comments appear to be directed at how CFI 
status should be calculated for purposes of allowing CFI members to use 
the expanded collateral authority under the Modernization Act. These 
comments, and the definition of CFI for advances collateral purposes, 
are more appropriately addressed in the Finance Board's final Advances 
Collateral Rule.
    Under the Membership Regulation, the calculation of the 10 percent 
requirement is based on the applicant's total assets and residential 
mortgage loans drawn from its most recent quarterly regulatory 
financial report filed with its appropriate regulator. See 12 CFR 
925.10. Since the calculation of average total assets to determine CFI 
status is necessary in order to determine whether the 10 percent 
requirement applies, it would be consistent with the current membership 
application review process at the Banks to use the same total assets 
data from the applicant's most recent quarterly regulatory financial 
report for the CFI calculation. In addition, since an average of total 
assets over three years is required for the CFI calculation, it also 
would be reasonable to include in the calculation the total assets data 
from the quarterly regulatory financial reports filed with the 
applicant's appropriate regulator for the immediately preceding 11 
calendar quarters.
    Because the calculation of the three-year total assets average 
affects the determination of CFI status for both membership and 
advances purposes, the definition of CFI belongs in Sec. 900.1, which 
contains general definitions applying to all Finance Board regulations. 
Accordingly, this final rule removes the definitions of ``community 
financial institution'' and ``community financial institution asset 
cap'' (Sec. 925.1(ff) and (gg)) from the Membership Regulation. The 
final Advances Collecteral Rule will add the calculation for membership 
purposes as described above, as well a the calculation for advances 
purposes, to a definition of ``community financial institution'' in 
Sec. 900.1. The final Advances Collateral Rule also will add the 
definition of ``community financial institution asset cap'' to 
Sec. 900.1.

B. Readmission to Membership--Sec. 925.30

    The final rule makes technical revisions to the language on 
readmission to membership in Sec. 925.30 of the Interim Final Rule for 
greater clarity.

III. Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required for this final 
rule, the provisions of the Regulatory Flexibility Act, U.S.C. 601 et 
seq., do not apply.

IV. Paperwork Reduction Act

    For the reasons stated in the Interim Final Rule, the Finance Board 
adopted the Interim Final Rule on an expedited basis to conform 
provisions of its regulations to the recently enacted statutory 
amendments to the Bank Act. Due to the expedited nature of this 
rulemaking, the Finance Board has not completed its analysis of the 
information collection requirements contained in the final rule. The 
amendments in the final rule may result in a reduction in the 
information collection burden for institutions that qualify as 
community financial institutions, and an increase in the number of 
respondents that apply for Bank membership. The Finance Board intends 
to submit to the Office of Management and Budget the information 
collection requirements contained in this final rule in accordance with 
the requirements of section 3507(d) of the Paperwork Reudction Act of 
1995, 44 U.S.C. 3507(d).

List of Subjects in Parts 925 and 950

    Credit, Federal home loan banks, Reporting and recordkeeping 
requirements.

    Accordingly, the Interim Final Rule amending title 12, chapter IX, 
parts 925 and 950, Code of Federal Regulations, which was published at 
65 FR 13866 (March 15, 2000), is adopted as final with the following 
changes:

PART 925--MEMBERS OF THE BANKS

    1. The authority citation for part 925 continues to read as 
follows:

    Authority: 12 U.S.C. 1422, 1422a, 1422b, 1423, 1424, 1426, 1430, 
1442.


Sec. 925.1  [Amended]

    2. Amend Sec. 925.1 by removing paragraphs (ff) and (gg).
    3. Revised Sec. 925.30 to read as follows:


Sec. 925.30  Readmission to membership.

    (a) In general. An institution that has withdrawn from membership, 
or otherwise terminated its membership, may not be readmitted to 
membership in any Bank for a period of 5 years from the date on which 
its membership terminated.
    (b) Exceptions. An institution that transfers membership between 
two Banks without interruption shall not be deemed to have withdrawn 
from Bank membership. Any institution that withdrew from Bank 
membership prior to December 31, 1997, and for which the 5-year period 
has not expired, may apply for membership in a Bank at any time, 
subject to the approval of the Finance Board and the requirements of 12 
CFR part 925.

    Dated: June 23, 2000.

    By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.
[FR Doc. 00-16790 Filed 6-30-00; 8:45 am]
BILLING CODE 6725-01-M