22848 Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 

FEDERAL HOUSING FINANCE BOARD 

12 CFR Part 925 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1263 

RIN 2590–AA18 

Federal Home Loan Bank Membership 

for Community Development Financial 

Institutions 

AGENCY: Federal Housing Finance Board 

and Federal Housing Finance Agency. 

ACTION: Proposed rule. 

SUMMARY: Pursuant to the requirements 

of the Federal Home Loan Bank Act 

(Bank Act), as amended by section 1206 

of the Housing and Economic Recovery 

Act of 2008 (HERA), the Federal 

Housing Finance Agency (FHFA) 

proposes to amend its membership 

regulations to authorize non-federally 

insured, CDFI Fund-certified 

community development financial 

institutions (CDFIs) to become members 

of a Federal Home Loan Bank (Bank). 

The newly eligible CDFIs include 

community development loan funds, 

venture capital funds and statechartered credit unions without federal 

insurance. This notice of proposed 

rulemaking sets out the eligibility and 

procedural requirements for CDFIs that 

wish to become members of a Bank. 

DATES: FHFA will accept written 

comments on this proposed rule on or 

before July 14, 2009. 

ADDRESSES: You may submit your 

comments on the proposed regulation 

identified by regulatory information 

number (RIN) 2590–AA18, by any one 

of the following methods: 

• U.S. Mail, United Parcel Post, 

Federal Express, or Other Mail Service: 

The mailing address for comments is: 

Alfred M. Pollard, General Counsel, 

Attention: Comments/RIN 2590–AA18, 

Federal Housing Finance Agency, 

Fourth Floor, 1700 G Street, NW., 

Washington, DC 20552. 

• Hand Delivered/Courier: The hand 

delivery address is: Alfred M. Pollard, 

General Counsel, Attention: Comments/ 

RIN 2590–AA18, Federal Housing 

Finance Agency, Fourth Floor, 1700 G 

Street, NW., Washington DC 20552. The 

package should be logged at the Guard 

Desk, First Floor, on business days 

between 9 a.m. and 5 p.m. 

• E-mail: Comments to Alfred M. 

Pollard, General Counsel may be sent by 

e-mail to RegComments@fhfa.gov. 

Please include ‘‘RIN 2590–AA18’’ in the 

subject line of the message. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. If 

you submit your comment to the 

Federal eRulemaking Portal, please also 

send it by e-mail to FHFA at 

RegComments@fhfa.gov to ensure 

timely receipt by the agency. Include 

the following information in the subject 

line of your submission: Federal 

Housing Finance Agency, Proposed 

Rule: Federal Home Loan Bank 

Membership for Community 

Development Financial Institutions, RIN 

2590–AA18. 

We will post all public comments we 

receive without change, including any 

personal information you provide, such 

as your name and address, on the FHFA 

Web site at http://www.fhfa.gov. 

FOR FURTHER INFORMATION CONTACT: 

Sylvia Martinez, Senior Policy Analyst/ 

Adviser, 202–408–2825, 

sylvia.martinez@fhfa.gov; Amy Bogdon, 

Senior Advisor, 202–408–2546, 

amy.bogdon@fhfa.gov, Division of 

Federal Home Loan Bank Regulation; 

Deattra Perkins, Community 

Development Specialist, 202–408–2527, 

deattra.perkins@fhfa.gov, Division of 

Housing Mission and Goals. For legal 

questions contact Sharon B. Like, 

Associate General Counsel, 202–414– 

8950, sharon.like@fhfa.gov. You can 

send regular mail to the Federal 

Housing Finance Agency, Fourth Floor, 

1700 G Street, NW., Washington DC 

20552. The telephone number for the 

Telecommunications Device for the Deaf 

is 800–877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Statutory and Regulatory Background 

Effective July 30, 2008, Division A of 

HERA, Public Law No. 110–289, 122 

Stat. 2654 (2008), titled the Federal 

Housing Finance Regulatory Reform Act 

of 2008, created FHFA as an 

independent agency of the Federal 

Government. HERA transferred 

supervisory and oversight 

responsibilities over the Federal 

National Mortgage Association (Fannie 

Mae), the Federal Home Loan Mortgage 

Corporation (Freddie Mac), and the 

Federal Home Loan Banks (collectively, 

Regulated Entities) from the Office of 

Federal Housing Enterprise Oversight 

(OFHEO) and the Federal Housing 

Finance Board (FHFB) to FHFA. The 

Regulated Entities continue to operate 

under regulations promulgated by 

OFHEO and FHFB until such time as 

the existing regulations are supplanted 

by regulations promulgated by FHFA. 

Each Bank is a cooperative institution 

that is owned by its members, all of 

which must comply with certain 

statutory requirements in order to 

become members. To be eligible for 

Bank membership, an applicant must be 

one of the several types of financial 

institutions listed in section 4(a)(1) of 

the Bank Act, must meet certain other 

eligibility criteria, and must purchase 

stock of the Bank, as set forth in sections 

4 and 6 of the Bank Act. See 12 U.S.C. 

1424, 1426. The existing FHFB 

regulation implementing the 

membership eligibility and minimum 

stock purchase provisions of the Bank 

Act (Membership Regulation) is codified 

at 12 CFR part 925. The proposed rule 

would relocate part 925 in its entirety to 

part 1263, and would amend certain 

provisions of the existing Membership 

Regulation to accommodate the addition 

of CDFIs to the institutions that may 

become Bank members. 

As a threshold matter, in order to be 

eligible for Bank membership, an 

applicant must be authorized under 

federal or state law to become a member 

of, purchase stock in, do business with, 

and maintain deposits in, the Bank to 

which the applicant has applied for 

membership. Prior to amendment by 

HERA, section 4(a)(1) provided that any 

building and loan association, savings 

and loan association, cooperative bank, 

homestead association, insurance 

company, savings bank, or federally 

insured depository institution 

(including credit unions) was eligible to 

become a Bank member. Thus, until 

HERA was enacted a CDFI could not 

become a member of a Bank unless it 

also was a federally insured depository 

institution, such as a community 

development bank, thrift or credit 

union. As of September 30, 2008, 125 

such depository institution CDFIs had 

become members of the Bank System. 

Section 1206 of HERA amended section 

4(a)(1) to make all CDFIs that are 

certified by the CDFI Fund of the US 

Department of the Treasury under the 

Community Development Banking and 

Financial Institutions Act of 1994 (CDFI 

Act) eligible to become members of a 

Bank. See 12 U.S.C. 1424(a)(1) (as 

amended). Thus, loan funds, venture 

capital funds and state-chartered credit 

unions without federal deposit 

insurance are now eligible for Bank 

membership provided they are certified 

by the CDFI Fund and have the 

authority under state law to do those 

things necessary to become a member, 

i.e., to buy Bank stock, borrow and 

pledge collateral. The proposed rule 

would apply only to those newly 

eligible institutions. CDFIs that also are 

eligible for membership because they 

are federally insured depository 

Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 22849 

1A ‘‘community financial institution’’ is a 

depository institution that is insured by the Federal 

Deposit Insurance Corporation and has average total 

assets of $1 billion or less. 12 U.S.C. 1422(10) (as 

amended). This proposed rulemaking does not 

affect the terms under which a ‘‘community 

financial institution’’ may become a member of a 

Bank. 

2See 12 CFR 925.2(a). Generally speaking, an 

institution is eligible to become a member only of 

the Bank of the district in which its principal place 

of business is located. An institution is deemed to 

be located in the state in which it maintains its 

home office, established as such in conformity with 

the laws under which the institution is organized. 

See 12 CFR 925.18. 

3Although the proposed rule includes provisions 

relating to the financial condition of a CDFI 

applicant, those provisions are threshold 

requirements for admission to membership. As is 

the case with respect to all other members, a Bank 

will typically conduct a more thorough analysis of 

a CDFI’s financial condition and the adequacy of its 

collateral when determining whether to make 

advances to such members. 

4Because the Chicago Bank has not yet 

implemented its capital structure plan, any CDFI 

that becomes a member of that Bank must purchase 

stock in the amount specified by 12 CFR 1263.20 

of the proposed rule, which carries over the 

provisions from 12 CFR 925.20 of the existing rules. 

institutions would continue to follow 

the existing rules relating to 

membership for depository institutions. 

All institutions that are eligible for 

membership under section 4(a)(1) also 

must comply with certain additional 

criteria specified in section 4(a)(1) and 

(2) in order to be approved for 

membership. Specifically, under section 

4(a)(1), as amended by HERA, an 

applicant must demonstrate that it: (a) Is 

duly organized under state or federal 

law; (b) either is subject to inspection 

and regulation under banking or similar 

laws or is certified as a CDFI under the 

CDFI Act; and (c) makes such home 

mortgage loans as are long-term loans. 

In addition, under section 4(a)(2), an 

insured depository institution applicant 

must: (a) Have at least 10 percent of its 

total assets in residential mortgage loans 

(unless it qualifies as a ‘‘community 

financial institution’’) 1; (b) be in sound 

financial condition such that a Bank 

may safely make advances to it; (c) have 

a character of management that is 

consistent with sound and economical 

home financing; and (d) have a homefinancing policy that is consistent with 

sound and economical home financing. 

12 U.S.C. 1424(a)(1), (2). 

The existing Membership Regulation 

expands on those statutory requirements 

and further establishes a review and 

approval process for applications for 

membership in a Bank. See 12 CFR 

925.2, 925.3. Any institution seeking 

membership in a Bank is required to 

submit an application to the Bank for 

approval.2 The Membership Regulation 

also includes separate provisions 

governing the admission of depository 

institutions and insurance companies, 

respectively, recognizing that each type 

of institution operates under a different 

business model and a different 

regulatory structure. The proposed rule 

would follow a similar approach for 

CDFIs, and would establish separate 

provisions for CDFI applicants, 

recognizing that they too operate in a 

different environment and under a 

different regulatory structure. The 

proposed rule would delineate the 

documentation and other information 

that a CDFI applicant must submit to a 

Bank as part of a membership 

application, as well as the standards 

that a CDFI applicant must meet in 

order to be deemed to have satisfied the 

various statutory and regulatory 

requirements for membership.3

Once a Bank has approved a CDFI for 

membership, the CDFI must purchase 

the required amount of Bank stock in 

order to complete the process of 

becoming a member of the Bank. See 12 

U.S.C. 1426. The specific amount of 

stock that any new member, including 

a CDFI, must purchase is set out in each 

Bank’s capital structure plan, and will 

vary from Bank to Bank.4 Typically, an 

institution must purchase a certain 

amount of stock in order to become a 

member, and may be required to 

purchase additional stock in order to 

borrow from the Bank or to obtain other 

services from the Bank. In addition to 

purchasing stock, any member, 

including a CDFI, that wishes to borrow 

from its Bank must pledge certain types 

of collateral to secure its repayment 

obligation, and must otherwise 

demonstrate to the Bank that it is 

creditworthy. Under the Bank Act, a 

member may pledge only the following 

types of collateral for an advance: (a) 

Fully disbursed, whole first mortgages 

on improved residential property not 

more than 90 days delinquent, or 

securities representing a whole interest 

in such mortgages; (b) securities issued, 

insured or guaranteed by the U.S. 

Government or any agency thereof; (c) 

cash or deposits of a Bank; (d) other real 

estate-related collateral acceptable to the 

Bank, provided its value is readily 

ascertainable and the Bank can perfect 

its interest; and (e) for institutions that 

qualify as ‘‘community financial 

institutions,’’ secured loans for small 

business, agriculture or community 

development activities, or securities 

representing a whole interest in such 

secured loans. See 12 U.S.C. 1430(a)(3) 

(as amended). Each Bank sets its own 

lending and collateral policies, which 

may vary from Bank to Bank and which 

will apply to all borrowing members of 

that Bank. 

Under the Bank Act and FHFA 

regulations, all members also must 

comply with certain community 

investment and first-time homebuyer 

lending standards in order to maintain 

access to long-term advances. See 12 

U.S.C. 1430(g)(2); 12 CFR part 944. As 

discussed below, FHFA believes that 

any CDFI that becomes a member of a 

Bank should be able to satisfy the 

current community support 

requirements and therefore is not 

proposing to establish community 

support requirements unique to CDFIs, 

but welcomes comment on whether 

certain CDFIs may have difficulties in 

complying with the current 

requirements that would warrant 

establishing separate community 

support standards for CDFIs. 

B. CDFIs 

CDFIs are private nonprofit and forprofit financial institutions providing 

financial services dedicated to economic 

development and community 

revitalization in underserved markets. 

The CDFIs comprise diverse 

institutional structures and business 

lines. The four categories of institutions 

eligible for CDFI certification and CDFI 

Fund financial support are: (1) Federally 

regulated insured depository 

institutions and holding companies 

(bank CDFIs); (2) credit unions, whether 

federally or state chartered; (3) 

community development loan funds, 

which are unregulated institutions 

specializing in financing of housing, 

businesses or community facilities that 

provide health care, childcare, 

educational, cultural or social services; 

and (4) community development 

venture capital funds, which are 

unregulated institutions that provide 

equity and debt-with-equity-features to 

small and medium-sized businesses in 

distressed communities. 

The CDFIs serve as intermediary 

financial institutions that promote 

economic growth and stability in lowand-moderate-income communities. A 

large number are not-for-profit 

community development organizations 

with a long history of providing lending 

and services to low-and-moderateincome communities. They provide a 

unique range of financial products and 

services, such as mortgage financing for 

low-income and first-time homebuyers; 

homeowner or homebuyer counseling; 

financing for not-for-profit affordable 

housing developers; flexible 

underwriting and risk capital for needed 

community facilities; financial literacy 

training; technical assistance; and 

commercial loans and investments to 

assist small start-up businesses in lowincome areas. Some CDFIs provide 

22850 Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 

5See Abt Associates, Assessment of Community 

Development Financial Institutions Fund (CDFI) 

Training Program, Training Program & CDFI 

Certification, August 17, 2007 (p.2). This estimate 

is based on a list of CDFIs that either were included 

in one of the CDFI Fund’s databases or had received 

a CDFI Data Project (CDP) survey in the past three 

years. 

6Community Development Financial Institutions 

Fund, ‘‘Overview. CDFI Fund Director’s 

presentation before the National Interagency 

Community Reinvestment Conference.’’ San 

Francisco: Federal Reserve Bank of San Francisco, 

April 1, 2008. 

7Community Development Financial Institutions 

Fund, ‘‘Overview.’’ Presented April 1, 2008. 

8Community Development Financial Institutions 

Fund, Three Year Trend Analysis of Community 

Investment Impact System Institutional Level 

Report Data FY 2003–2005. US Department of the 

Treasury. December 2007. The report includes data 

for 2003 from 223 CDFIs, for 2004 from 236 CDFIs 

and for 2005 from 173 CDFIs. 

9Opportunity Finance Network, Overview: About 

Opportunity Finance Network. See http:// 

www.opportunityfinance.net/about/about.aspx. 

Accessed on December 15, 2008. 

10Opportunity Finance Network, Findings from 

the Third Quarter 2008 CDFI Market Conditions 

Survey, October 2008. 

community facilities such as child care 

centers alongside affordable housing. 

Frequently, CDFIs serve communities 

that are underserved by conventional 

financial institutions and may offer 

products and services that are not 

available from conventional financial 

institutions. Their lending and 

community support activities are thus 

consistent with the Banks’ housing 

mission. By stabilizing the communities 

in a Bank’s District, CDFIs can provide 

added value to that Bank as well as its 

members. 

There is no single source of 

information covering all CDFIs, but 

reports from the CDFI Fund and other 

organizations provide a picture of the 

industry. A 2007 study by Abt 

Associates,5 which included both 

certified and uncertified CDFIs, 

estimated that there were as many as 

1,122 CDFIs throughout the country in 

2005. The CDFI Fund reported that 

there were 804 certified CDFIs as of 

March 1, 2008.6 Loan funds, most of 

which are nonprofit organizations, 

accounted for 68 percent of the certified 

CDFIs. Eighteen percent of certified 

CDFIs were credit unions, 10 percent 

were banks or holding companies, and 

3.5 percent were community venture 

funds. 

CDFIs are generally small in asset 

size. The CDFI Fund reported that the 

average asset size for certified CDFIs 

was $32 million for depository 

institutions and $22.5 million for nondepository institutions.7 Despite the 

typical CDFI’s relatively small asset 

size, studies demonstrate meaningful 

impact to low-and-moderate income 

communities by these intermediaries. 

The CDFIs provide diverse financial 

services and other benefits to urban, 

rural and Native communities. A 2003– 

2005 trend analysis by the CDFI Fund 8

reported that its sample of CDFIs 

financed over 90,000 units of housing, 

80,000 of which were affordable 

housing units. This group of CDFIs also 

provided financing and counseling for 

over 12,000 first-time homebuyers over 

this period. The Opportunity Finance 

Network, a trade association of 160 

CDFI members, reports that over the 

past 20 years, its members financed over 

533,394 housing units.9 Given the credit 

conditions across the country, demand 

for CDFI products and services is 

expected to increase. In a recent survey 

conducted by the Opportunity Finance 

Network, CDFI respondents reported an 

increase in demand for their products as 

a result of the declining availability of 

bank credit.10 However, one common 

problem facing non-depository CDFIs is 

that they do not have access to longterm funding, limiting their ability to 

provide housing finance to their 

communities. 

The CDFI Fund of the U.S. Treasury 

was created to promote economic 

revitalization and community 

development through investment in and 

financial and technical assistance to 

CDFIs. See 12 U.S.C. 4701(b). The CDFI 

Fund promotes these purposes through 

several programs, including the CDFI 

Program, the New Markets Tax Credit 

Program, the Bank Enterprise Award 

Program and Native Initiatives. See 12 

U.S.C. 4701 et seq.; 12 CFR part 1805; 

http://www.cdfifund.gov. 

An institution must apply to the CDFI 

Fund in order to receive awards under 

its programs. See 12 U.S.C. 4704; 12 

CFR 1805.200. To receive a CDFI award, 

an institution must be certified by the 

CDFI Fund as a qualifying CDFI under 

the CDFI Act. An institution may apply 

for CDFI certification at any time. If an 

organization is already certified as a 

CDFI, the CDFI Fund may require as a 

condition for receiving an award, that a 

CDFI submit a Certification of Material 

Events form attesting that there has been 

no occurrence that affects the 

organization’s strategic direction, 

mission or business operation and, 

thereby, its status as a CDFI. An 

applicant for CDFI certification must 

meet each of the following general 

requirements in order to be certified as 

a CDFI: 

(i) Is a legal entity at the time of 

certification application; 

(ii) Has a primary mission of 

promoting community development; 

(iii) Is a financing entity; 

(iv) Principally serves an 

economically distressed area, lowincome population, or other population 

that lacks access to financing (known as 

an eligible ‘‘target market’’); 

(v) Provides technical assistance, 

training or other development services 

in conjunction with its financing 

activities; 

(vi) Is accountable to its target market 

through representation on its board or 

other means; and 

(vii) Is a non-governmental entity that 

is not controlled by one or more 

governmental entities (Tribal 

governments excluded). 

See 12 U.S.C. 4702(5); 12 CFR 

1805.201. 

The CDFI certification eligibility 

requirements are more fully elaborated 

in the CDFI program regulations. See 12 

CFR 1805.201. The CDFI Fund is not a 

regulator of CDFIs, and does not 

evaluate their safety and soundness 

during either the certification or awards 

application processes at the level that 

would be conducted by a financial 

safety and soundness regulator. The 

CDFI Fund regulations further state that 

a CDFI certification does not constitute 

an opinion by the CDFI Fund as to the 

financial viability of the certified CDFI 

or that the CDFI will be selected to 

receive an award from the CDFI Fund. 

See 12 CFR 1805.201(a). Thus, receipt of 

a certification or award alone does not 

indicate that a CDFI is financially 

sound, but only that it meets the 

certification or award eligibility criteria. 

C. HERA Section 1201 

Section 1201 of HERA requires the 

FHFA Director to consider the 

differences between the Banks and the 

Enterprises in rulemakings that affect 

the Banks with respect to the Banks’ 

cooperative ownership structure, 

mission of providing liquidity to 

members, affordable housing and 

community development mission, 

capital structure and joint and several 

liability. See 12 U.S.C. 4513(f). In 

preparing the proposed rule, the 

Director considered these factors and 

determined that the rule is appropriate, 

particularly because the proposed 

amendments would implement 

statutory provisions of the Bank Act that 

apply only to the Banks. See 12 U.S.C. 

1424(a). Nonetheless, FHFA requests 

comments about whether these factors 

should result in a revision of the 

proposed amendment as it relates to the 

Banks. 

Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 22851 

II. Analysis of Proposed Rule 

A. Relocation of Membership Regulation 

to Part 1263 

The proposed rule would relocate the 

Membership Regulation in its entirety 

from part 925 of the FHFB regulations 

to part 1263 of the FHFA regulations. 

The proposed rule also would amend 

certain provisions of the relocated 

Membership Regulation to allow CDFIs 

to become Bank members. Although 

those amendments are not evident from 

the regulatory text of the proposed rule 

because the provisions are being 

relocated in their entirety, any material 

revisions to the regulatory text are 

discussed in this preamble. 

B. Scope of the Proposed Regulation 

As noted previously, approximately 

125 depository institutions that also are 

CDFIs have already become members of 

a Bank by virtue of their status as 

federally insured depository 

institutions. Under the terms of this 

proposed rule, any such institutions that 

seek to become members of a Bank in 

the future would be required to follow 

the existing membership regulations 

and procedures applicable for insured 

depository institutions. The 

amendments embodied in this proposed 

rule are intended to apply only to those 

types of CDFIs that were not eligible for 

membership prior to the passage of 

HERA, such as loan funds, venture 

capital funds and credit unions with 

state or private insurance. 

C. Definitions 

Consistent with the scope of the 

proposed regulation, FHFA is proposing 

to amend the definitions section of the 

Membership Regulation by revising 

existing definitions and adding new 

definitions to reflect the statutory 

changes related to CDFI members. Thus, 

section 1263.1 of the proposed rule 

defines ‘‘community development 

financial institution’’ and ‘‘CDFI’’ to 

include any institution that is certified 

as a CDFI by the CDFI Fund of the U.S. 

Department of the Treasury, other than 

a bank or savings association that is 

insured under the Federal Deposit 

Insurance Act (12 U.S.C. 1811 et seq.) or 

a credit union that is insured under the 

Federal Credit Union Act (12 U.S.C. 

1751 et seq.). Because federally insured 

depository institutions and credit 

unions already are eligible for 

membership under the pre-HERA law, 

the definition of CDFI excludes those 

institutions. The proposal also defines 

‘‘CDFI credit union’’ as a state chartered 

credit union that has been certified by 

the CDFI Fund and does not have 

federal deposit insurance. The CDFI 

credit unions are the only types of 

depository institution that are affected 

by the HERA CDFI amendments and, for 

reasons stated below, those entities will 

be evaluated for financial condition 

under the same provisions that 

currently apply to state chartered credit 

unions that are currently eligible for 

membership because they are insured 

by the National Credit Union 

Administration (NCUA). 

The proposed rule also adds or revises 

several other definitions in order to 

accommodate the admission of CDFIs to 

Bank membership. Those defined terms 

are ‘‘appropriate regulator,’’ ‘‘CDFI 

Fund,’’ ‘‘gross revenues,’’ ‘‘operating 

expenses,’’ ‘‘restricted assets,’’ ‘‘total 

assets,’’ and ‘‘unrestricted cash and cash 

equivalents.’’ The proposal would revise 

the existing definition of ‘‘appropriate 

regulator’’ to add CDFI credit unions to 

the list of financial institutions included 

within the current rule. As noted 

previously, FHFA is proposing to 

subject CDFI credit unions to the same 

financial condition provisions that 

apply to state chartered credit unions 

that are insured by the NCUA, and these 

definitions are consistent with that 

approach. Most of the other new 

definitions relate to terms that are used 

elsewhere in the proposal to measure 

the financial condition and performance 

of those CDFIs that are not subject to 

state or federal regulation. Generally 

speaking, these financial definitions are 

intended to reflect the terms used in the 

financial performance standards 

employed by the CDFI Fund or by thirdparty auditors experienced in assessing 

the financial performance of the CDFIs. 

FHFA requests comments on whether 

the proposed definitions are appropriate 

in the context of assessing the financial 

condition of CDFI applicants. 

Apart from those new or revised 

definitions, the proposed rule carries 

over into part 1263 all of the existing 

definitions from the Membership 

Regulation, some of which include 

minor clarifying or technical changes. 

D. Application Process 

Subpart B of the current Membership 

Regulation includes several 

provisions—§§ 925.2 to 925.5—relating 

to the process for the submission and 

consideration of applications for 

membership. The proposed rule would 

relocate all of those provisions without 

substantive change to proposed 

§§ 1263.2, 1263.3, 1263.4, and 1263.5, 

respectively. The proposed rule would 

make minor changes to certain of those 

provisions, none of which are intended 

to change the substance of those 

provisions. 

E. Eligibility Requirements 

Subpart C of the current Membership 

Regulation includes 13 provisions 

relating principally to the eligibility 

requirements for membership and how 

they are to be applied to the various 

types of institutions that may become 

members of a Bank. Some of these 

regulatory provisions are readily 

applicable to CDFIs in the same manner 

as other financial institutions, but others 

require some adaptation to reflect the 

unique characteristics of CDFIs. The 

proposed rule would amend certain of 

these provisions to address the statutory 

changes that have allowed CDFIs to 

become members. In proposing these 

amendments, FHFA has sought to 

develop regulatory standards that 

recognize the unique characteristics of 

CDFIs and the valuable contribution 

they make to their communities, while 

remaining sufficiently rigorous to 

comply with the statutory requirements. 

General eligibility requirements. 

Section 4(a)(1) of the Bank Act requires 

that all applicants for Bank membership 

meet certain requirements for 

membership. These requirements are 

currently listed in § 925.6(a) of the 

Membership Regulation and are being 

retained in the proposed rule at 

proposed § 1263.6(a). With respect to 

proposed § 1263.6(a), the only change to 

the existing regulatory text would be to 

add ‘‘community development financial 

institution’’ to the list of entities eligible 

for membership. As discussed above, 

that term has been defined to exclude 

federally insured depository institutions 

and credit unions, because such 

institutions are already authorized to 

become Bank members. 

Section 4(a)(2) of the Bank Act further 

requires any ‘‘insured depository 

institution’’ applicant to have at least 10 

percent of its assets in residential 

mortgage loans, be in sound financial 

condition, and have sound management 

and home financing policy. 12 U.S.C. 

1424(a)(2). The term ‘‘insured 

depository institution’’ is defined in the 

Bank Act to include any federallyinsured bank, savings association or 

credit union, and thus does not include 

the newly-eligible CDFIs or insurance 

companies. See 12 U.S.C. 1422(9). 

Nonetheless, the Bank Act does not 

preclude FHFA from applying these 

concepts to other types of applicants, 

based on its authority to ensure that the 

Banks operate in a safe and sound 

manner and carry out their public 

policy missions. Indeed, FHFA’s 

predecessor agency, FHFB, exercised 

that authority to require all applicants 

without federal deposit insurance, i.e., 

insurance companies, to have mortgageVerDate Nov<24>2008 15:20 May 14, 2009 Jkt 217001 PO 00000 Frm 00011 Fmt 4702 Sfmt 4702 E:\FR\FM\15MYP1.SGM 15MYP1
22852 Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 

11As of December 31, 2008, 955 credit unions 

were members of the Bank System. Of that number, 

476 are state chartered and 479 are federal credit 

unions. 

related assets that reflect a commitment 

to housing finance. 12 CFR 925.6(c); See 

58 FR 43522 (Aug. 17, 1993). FHFB 

reasoned that such an approach treated 

all applicants in an equitable and 

consistent manner, and was consistent 

with the housing finance mission of the 

Banks. See id. at 43531–43533. FHFA 

believes that rationale can apply as well 

to the newly eligible CDFI applicants, 

and thus is proposing to require such 

CDFI applicants to have mortgage 

related assets that reflect a commitment 

to housing finance. FHFA expects that 

the Banks will assess the commitment to 

housing finance requirements in light of 

the unique community development 

focus of the business of CDFIs. Because 

the language of the current regulation 

already applies to any applicant that is 

not an insured depository institution, no 

amendment to proposed § 1263.6(c) is 

necessary to affect this change. 

In a similar manner, the proposed rule 

would require the newly eligible CDFI 

applicants to satisfy requirements 

relating to financial condition, character 

of management and home financing 

policy. When FHFB extended those 

provisions to insurance companies, it 

reasoned that they were sufficiently 

important to concepts of safety and 

soundness and the housing finance 

mission to warrant doing so. See 58 FR 

at 43533. FHFA believes that the same 

rationale should apply to the newly 

eligible category of CDFI applicants. 

Thus, the proposed rule would retain 

the provisions within Subpart C, which 

would be amended as necessary to 

implement the CDFI provisions of 

HERA. The amendments to particular 

provisions within Subpart C are 

discussed separately below. 

Duly organized requirement. Section 

4(a)(1)(A) of the Bank Act requires that 

an applicant for membership be duly 

organized under the laws of any state or 

of the United States. 12 U.S.C. 

1424(a)(1)(A). Section 1263.7 of the 

proposed rule would amend the current 

language of § 925.7, which implements 

this provision, to provide that a newly 

eligible CDFI applicant shall be deemed 

to be duly organized if it is incorporated 

under state law. The current regulation 

allows an applicant to satisfy this 

provision if it is chartered as one of 

several types of depository institutions 

or as an insurance company. Because 

most CDFIs will not have such a charter, 

FHFA believes that being incorporated 

under state law is sufficient to 

demonstrate that a CDFI meets this 

requirement of the statute. 

Inspection and regulation 

requirement. Section 4(a)(1)(B) of the 

Bank Act generally requires an 

applicant for membership to be subject 

to inspection and regulation under state 

or federal banking or similar laws. In the 

case of a CDFI, the statute imposes an 

alternative requirement, which is that 

the applicant be certified by the CDFI 

Fund. See 12 U.S.C. 1424(a)(1)(B). 

Accordingly, newly-eligible CDFI 

applicants are not required to meet the 

inspection and regulation requirement 

and, therefore, there is no need to 

amend the existing regulatory language, 

which would be carried over into 

proposed § 1263.8. As discussed earlier, 

the requirement that a CDFI applicant 

be certified by the CDFI Fund in order 

to be eligible for membership is 

addressed by the definition of ‘‘CDFI’’ in 

proposed § 1263.1. The proposed rule, 

however, does make certain clarifying 

revisions to the existing regulation text 

of proposed § 1263.8, which are not 

intended to alter the substance of the 

provision. 

Long-term mortgage loans 

requirement. Section 4(a)(1)(C) of the 

Bank Act requires that an applicant for 

membership make long-term home 

mortgage loans. 12 U.S.C. 1424(a)(1)(C). 

‘‘Long-term’’ is defined in § 925.1 to 

include loans with a term to maturity of 

five years or greater. 12 CFR 925.1. 

‘‘Home mortgage loan’’ is defined in 

§ 925.1 to include, among other things, 

first mortgages on one-to-four family or 

multifamily property, and mortgage 

pass-through securities backed by such 

mortgages. See id. Section 925.9 of the 

Membership Regulation, which 

implements these provisions, provides 

that an applicant is deemed to meet this 

requirement if, based on the applicant’s 

most recent regulatory financial report 

filed with its appropriate regulator, the 

applicant originates or purchases longterm home mortgage loans. 12 CFR 

925.9. Some newly-eligible CDFI 

applicants, such as loan funds and 

venture capital funds, do not file 

regulatory financial reports. 

Accordingly, proposed § 1263.9 would 

amend the existing language to provide 

that a Bank shall determine whether a 

CDFI applicant meets the ‘‘makes longterm home mortgage loans’’ requirement 

based on other documentation provided 

to the Bank, and contemplates that a 

Bank can decide what level of 

documentation can best allow it to 

determine whether a particular type of 

CDFI satisfies this requirement. 

Financial condition requirements. 

The current Membership Regulation 

includes two separate provisions 

relating to the financial condition of 

applicants for membership. Section 

925.11 relates to depository institutions 

(which includes federally insured state 

chartered credit unions), while § 925.16 

relates to insurance companies. The 

proposed rule would relocate those 

provisions to proposed §§ 1263.11 and 

1263.16, respectively, and would amend 

both of them to incorporate language 

relating to CDFI applicants. 

In proposed § 1263.11, FHFA would 

require CDFI credit unions to comply 

with the same financial condition 

requirements that currently apply to 

state chartered credit unions that are 

insured by the NCUA.11 All credit 

unions chartered by a particular state 

operate under the same state laws and 

regulations. All are subject to oversight 

by the same state regulatory agency and 

would have the same financial reporting 

and examination requirements at the 

state level. Thus, for this category of 

CDFI, FHFA believes that it is most 

appropriate for the Banks to evaluate 

financial condition under the same 

regulatory provisions that apply to all 

other credit union and depository 

institution applicants. Those provisions 

are set out in proposed § 1263.11(a) and 

(b) and require the Banks to evaluate the 

financial condition of the applicants 

based on information in the regulatory 

financial reports they file with their 

applicable regulators, their audited 

financial statements, and the 

examination reports prepared by their 

regulators. The key distinction for CDFI 

credit unions is that they are not subject 

to oversight by the NCUA and 

consequently do not file financial 

regulatory reports with the NCUA. 

Nonetheless, the CDFI credit unions 

should file comparable reports with 

their appropriate state regulator, and 

FHFA believes that those documents 

can be used by the Banks to assess the 

financial condition of the CDFI credit 

unions, applying the same criteria as in 

the existing regulations. To the extent 

that any state chartered credit unions 

without NCUA insurance may not in 

fact file regulatory financial reports with 

their state regulator that are comparable 

to those filed by NCUA-regulated credit 

unions, or are not required to have 

audited financial statements or submit 

to regulatory examinations, FHFA 

requests comments on what other 

documentation such entities would 

prepare that would provide the Banks 

with comparable information about 

their financial condition. 

To bring the CDFI credit unions 

within the scope of the current financial 

condition requirements for depository 

institutions, the proposed rule would 

amend the existing regulatory text in 

two locations. The first amendment 

Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 22853 

would revise proposed § 1263.11(a) to 

list the types of depository institutions 

that are subject to its provisions and to 

include CDFI credit unions within that 

list. The second amendment would add 

a new provision, proposed 

§ 1263.11(b)(3)(iii), which would require 

all CDFI credit unions to meet certain 

performance trend criteria. Under the 

current regulation, the only depository 

institutions that must satisfy those 

criteria are institutions with a composite 

examination rating of ‘‘2’’ or ‘‘3’’. 

Because the CDFI credit unions are not 

subject to oversight by the NCUA and 

because the Banks may be less familiar 

with state examination ratings, FHFA 

believes that it is prudent to require all 

such CDFI credit unions to demonstrate 

that their earnings, nonperforming 

assets, and allowance for loan and lease 

losses are consistent with the existing 

performance criteria. Apart from those 

amendments, proposed § 1263.11 would 

retain all of the language from the 

existing § 925.11. FHFA requests 

comments on whether the application of 

these standards is appropriate for CDFI 

credit unions and whether the nature or 

extent of oversight and examination by 

a state regulator differs in any manner 

that would require any of the provisions 

in this section to be modified. For 

example, the current rule requires the 

submission of quarterly regulatory 

financial reports and information from a 

regulatory examination report. To the 

extent that any state chartered CDFI 

credit unions might not have quarterly 

reports, financial statements audited by 

a certified public accountant or 

regulatory examination reports, FHFA 

seeks information on the types of 

financial condition statements and 

regulatory reports that such entities do 

submit and what types of examination 

and rating are provided by the state 

regulators. 

For all other CDFIs, such as CDFI loan 

funds and venture capital funds, FHFA 

is proposing new financial condition 

requirements. These requirements 

would be incorporated into the existing 

provisions relating to insurance 

companies, set out in proposed 

§ 1263.16(b). Institutions in this 

category of CDFIs are not subject to the 

same degree of state or federal oversight 

as are depository institutions and 

insurance companies. Thus, they may 

not be able to provide the Banks with 

documentation similar to examination 

reports or periodic regulatory financial 

reports to aid the Banks in assessing 

their financial condition. Although 

these CDFIs will have been certified by 

the CDFI Fund, that process does not 

include an assessment of the CDFI’s 

financial condition. Moreover, the type 

and extent of available financial 

documentation will differ for the 

various categories of CDFIs. Although 

some CDFI loan funds and venture 

capital funds may be able to obtain 

private ratings that would be analogous 

to those relating to depository 

institutions, those are not routinely 

generated. Because of those differences, 

FHFA is proposing to establish separate 

financial documentation requirements 

and approval standards for assessing the 

financial condition of this category of 

CDFIs, which are intended to be 

analogous to those applicable to other 

applicants, while taking into account 

the unique characteristics of CDFIs. 

The structure of proposed 

§ 1263.16(b) would generally parallel 

that used for depository institutions, 

i.e., the regulation would identify the 

types of financial documents that a 

Bank must review in assessing a CDFI’s 

financial condition and would establish 

standards for determining whether an 

applicant’s financial condition is 

sufficiently sound to admit it to Bank 

membership. Those amendments are 

described below. 

Section 1263.16(b)(1) of the proposed 

rule would specify two categories of 

financial documents that a Bank must 

obtain and review when assessing a 

CDFI’s financial condition, and would 

authorize a Bank to request any 

additional documents that it deems 

necessary to assessing the financial 

condition of the CDFI applicant. The 

first category of documentation relates 

to financial statements, and requires the 

submission of an independent audit that 

has been conducted within the prior 

year by a certified public accounting 

firm, in accordance with generally 

accepted auditing standards (GAAS), as 

well as more recent quarterly financial 

statements, if those are available. An 

applicant also must submit financial 

statements for the two years prior to the 

most recent audited financial statement. 

At a minimum, all such financial 

statements must include income and 

expense statements, statements of 

activities, statements of financial 

position, and statements of cash flows. 

The financial statements for the most 

recent year also must include detailed 

disclosures or schedules relating to the 

affiliates of the CDFI applicant regarding 

the financial position of each affiliate, 

their lines of business, and the 

relationship between the affiliates and 

the applicant CDFI. 

FHFA believes that the use of a 

GAAS-consistent audited financial 

statement is a uniform and reliable 

means by which an applicant can 

demonstrate to a Bank that it is in sound 

financial condition, particularly in the 

absence of the regulatory financial and 

examination reports that the Banks 

typically consider in evaluating other 

depository institutions and insurance 

companies for membership. 

Nonetheless, FHFA requests comments 

on whether there might be alternatives 

to GAAS-compliant audited financial 

statements that would allow a Bank to 

assess accurately the financial condition 

of a CDFI applicant. If certain CDFIs do 

not typically obtain audited financial 

statements, FHFA might consider 

allowing the Banks to use alternative 

financial statements, but asks that any 

persons recommending such 

alternatives provide detailed 

information about the quality of such 

alternatives and the frequency at which 

they would be prepared. Examples of 

such alternatives might include 

financial statements that, while not 

prepared by a certified public 

accounting firm, would be substantially 

similar to audited financial statements, 

or financial statements prepared by a 

CDFI that have some other means of 

assuring that they accurately present its 

financial condition. FHFA will consider 

allowing the use of such alternative 

financial statements in the final rule if 

it can be reasonably assured that the 

Banks can rely on them to determine 

that the CDFI applicant is in sound 

financial condition. 

Section 1263.16(b)(1)(ii) and (iii) of 

the proposed rule further requires a 

CDFI applicant to provide the Bank with 

a copy of the certification it has received 

from the CDFI Fund, as well as any 

other financial information concerning 

its financial condition that is requested 

by the Bank. With respect to the issue 

of certification, each CDFI applicant 

generally must provide a certification 

issued by the CDFI Fund no more than 

three years prior to the date of the 

CDFI’s application for Bank 

membership. If an applicant’s CDFI 

certification does not meet that 

requirement, the applicant must submit 

to the Bank a written statement that 

there have been no material events or 

occurrences since the date of 

certification that would adversely affect 

its strategic direction, mission, or 

business operations, and thereby its 

status as a CDFI. 

Section 1263.16(b)(2) of the proposed 

rule sets out minimum financial 

condition standards that a CDFI must 

meet in order to become a member of a 

Bank. Those standards relate to net 

assets, earnings, loan loss reserves, and 

liquidity, and are described below. 

Net asset ratio. The proposed rule 

would require that a CDFI applicant 

have a ratio of net assets to total assets 

22854 Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 

12By way of reference, between 2003 and 2005, 

the sustainability ratio for CDFI loan funds averaged 

around 65 percent; the median was 63 percent. 

Venture capital funds, which have a different 

business line, had a sustainability ratio of 68 

percent. Credit unions principally dedicated to 

lending would be expected to consistently have 

ratios in excess of 100 percent. See Approaches to 

CDFI Sustainability: Report prepared by the Aspen 

Institute Economic Opportunities Program, for the 

Department of the Treasury, Community 

Development Financial Institutions Fund, July 

2008. 

of at least 20 percent, which is intended 

to address the capital adequacy of the 

CDFI. For purposes of this provision, 

‘‘net assets’’ is to be calculated as the 

residual value of assets (including 

restricted assets) over liabilities and is 

to be based on information derived from 

the applicant’s most recent financial 

statements. 

FHFA is proposing this approach 

because it understands that the 

inclusion of restricted assets within net 

assets is consistent with the approach 

used by the CDFI Fund and others in the 

CDFI industry, as well as with the 

accounting standards for nonprofit 

entities. Restricted assets typically 

appear on CDFI balance sheets when 

donor or government funds are 

specifically designated as capital, and 

are thereby ‘‘restricted’’ as to their 

possible uses. When used in this 

manner, the capital may be classified as 

restricted, but it is nonetheless available 

to absorb any losses. For example, the 

CDFI Fund commonly awards funding 

for loan loss reserves, which may serve 

to lower a CDFI’s borrowing costs. 

FHFA requests comment on the 

inclusion of restricted assets in the net 

asset ratio, and on the proposed use of 

a minimum net asset ratio of 20 percent 

for membership eligibility. 

Earnings. The proposed rule would 

require a CDFI applicant to demonstrate 

that it has some earnings capacity. Thus, 

an applicant must show that it has 

generated a positive net income for any 

two of the three most recent years. For 

purposes of this provision, net income 

would be defined as gross revenues less 

total expenses, based on information 

derived from the applicant’s most recent 

financial statements. In the definitions 

section of the regulation, the proposal 

defines ‘‘gross revenues’’ to mean total 

revenues received from all sources, 

including earnings from operations, 

grants and other donor contributions. 

This requirement is adapted from the 

earnings requirement for insured 

depository institutions in the current 

regulation, which requires that the 

applicant’s adjusted net income be 

positive in four of the six most recent 

calendar quarters. Because CDFIs may 

not typically file quarterly regulatory 

reports, and generally obtain an audit of 

their financial statements only once a 

year, FHFA proposes to require that 

earnings be positive in two of the three 

most recent years, rather than four of the 

six most recent calendar quarters. FHFA 

requests comment on the 

appropriateness of this measure of 

earnings and on the proposed minimum 

eligibility standard. 

Loan loss reserves. The proposed rule 

would require that an applicant’s ratio 

of loan loss reserves to loans and leases 

90 or more days delinquent, including 

loans sold with full recourse, be not less 

than 30 percent. The information to 

determine compliance with this 

provision should be derived from the 

applicant’s most recent financial 

statements. Loan loss reserves, which 

help the CDFIs self-insure against 

losses, are defined within this provision 

to mean a specified balance sheet 

account that reflects the amount 

reserved for loans expected to be 

uncollectible. The proposed rule is 

intended to provide a flexible and 

relative standard, to acknowledge the 

CDFIs’ mission and loan origination 

practices while also requiring a buffer to 

protect the organization’s continued 

solvency and ongoing operation. The 30 

percent threshold is half of the 

requirement that would apply to 

depository institution applicants. FHFA 

is proposing to allow the lower ratio in 

recognition of a historically lower 

delinquency rate among CDFI-originated 

loans, which have performed equal to or 

better than prime loans. As noted, the 

CDFIs’ fundamental mission is to 

stabilize communities. Most CDFIs hold 

the loans they make and, consequently, 

the risk in portfolio. These two 

conditions prompt the use of careful 

underwriting, intensive homeowner and 

financial counseling, and subsidies to 

assure borrower affordability. CDFIs 

have the ability to modify a loan in 

response to a borrower’s adverse life 

event, thus preventing a foreclosure. 

Given these unique circumstances, 

lower loan loss reserves would permit 

more capital to go to borrowers. 

However, given current housing market 

conditions, FHFA requests comment on 

the appropriateness of the proposed 

loan loss reserve measure, the rationale 

for the different standard for CDFIs, or 

whether there are any alternative 

standards that might also serve this 

purpose. 

Liquidity ratio. The proposed rule 

would require that an applicant’s 

operating liquidity ratio be no less than 

1.0 for the current year, i.e., the year 

during which a CDFI applies for 

membership, as well as in at least one 

of the two years preceding the current 

year. The operating liquidity ratio is to 

include in the numerator unrestricted 

cash and cash equivalents and in the 

denominator the average quarterly 

operating expense for the four most 

recent quarters. FHFA believes that this 

operating liquidity ratio provides a 

measure of funds available to pay 

expenses and creditors by requiring a 

CDFI to have sufficient liquidity to 

cover average operating expenses for 

one quarter. FHFA requests comment on 

the appropriateness of the proposed 

requirement for operating liquidity. 

Self-Sufficiency or Sustainability 

Ratio. The self-sufficiency or 

sustainability ratio is a measure used to 

evaluate the extent to which a CDFI can 

cover its expenses from earned revenue 

and, by inference, the CDFI’s 

independence from grants and loans. 

The ratio is computed as earned revenue 

divided by total expenses. Full selfsufficiency is achieved when a CDFI 

achieves a ratio of 1.0 (100 percent) or 

greater. However, self-sufficiency ratios 

are affected by the type of services and 

grant programs operated by the CDFI. In 

some cases, the self-sufficiency ratio 

may not adequately portray the financial 

condition of the CDFI, and too stringent 

a ratio could countermand the service 

delivery requirements for certification 

by the CDFI Fund. See 12 U.S.C. 

4701(b). The proposed rule does not 

include a requirement for the selfsufficiency ratio, but FHFA seeks 

comment on whether to include a 

standard for the self-sufficiency ratio as 

part of the minimum financial condition 

standards for CDFI members and, if so, 

what the threshold standard should 

be.12

CDFI Bank Holding Companies. FHFA 

understands that there are some bank 

holding companies that are certified as 

CDFIs, but it is not including that 

category of institution in the proposed 

rule. Any bank holding company would, 

by definition, control a federally insured 

commercial bank, which is eligible for 

Bank membership in its own right. 

Given that authority, FHFA believes that 

the appropriate vehicle for Bank 

membership for such enterprises is 

through the existing process for insured 

depository institutions. Nonetheless, 

FHFA requests comment on whether it 

should include in the final rule 

additional provisions relating to bank 

holding company membership based on 

CDFI status. To the extent that any 

commenters address this issue, FHFA 

also asks that they provide information 

about specific holding companies that 

operate as CDFIs, their relationships to 

their depository institution subsidiaries, 

and how membership via the CDFI 

Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 22855 

provisions would provide benefits not 

available as a result of the depository 

institution becoming a member. 

Character of Management. The 

current § 925.12 requires that an 

applicant’s character of management be 

consistent with sound and economical 

home financing. To meet the existing 

requirement, an applicant must provide 

the Bank with a certification that it has 

not, since the applicant’s most recent 

regulatory examination report, been 

subject to any enforcement actions, 

criminal, civil or administrative 

proceedings, or criminal, civil or 

administrative monetary liabilities, 

lawsuits or judgments. 

The proposed rule would amend the 

existing provision by replacing the 

reference to ‘‘applicant’’ with a listing of 

the types of entities to which proposed 

§ 1263.12(a) would apply. The list 

would include the institutions currently 

covered by this provision, i.e., 

depository institutions and insurance 

companies, and also would add CDFI 

credit unions to that category. As noted 

previously, because state chartered 

credit unions that are insured by NCUA 

must comply with this provision, FHFA 

believes that those provisions should 

apply as well to state chartered credit 

unions that qualify as CDFI credit union 

applicants. 

Because certain of the newly-eligible 

CDFIs, such as loan funds and venture 

capital funds, are not regulated and, 

therefore, do not undergo regulatory 

examinations and are not subject to 

enforcement actions, the proposed rule 

would amend proposed § 1263.12(b) to 

require such applicants to provide to the 

Bank the same certification, except for 

enforcement actions, with respect to the 

past three years. In light of the fact that 

these CDFIs are not subject to CAMELStype ratings produced by the banking 

regulators, which evaluate an 

institution’s management, FHFA 

requests comment on whether there are 

any other means by which a Bank can 

assess the character of a CDFI 

applicant’s management. 

Home Financing Policy. Under the 

current Membership Regulation, 

applicants with a ‘‘Satisfactory’’ or 

better Community Reinvestment Act 

(CRA) rating are deemed to meet the 

requirement that their home financing 

policy is consistent with sound and 

economical home financing. Section 

1263.13(b) of the proposed rule would 

retain the existing requirement that 

applicants not subject to the CRA—such 

as CDFI applicants—must provide a 

written justification, acceptable to the 

Bank, explaining how and why their 

home financing policy is consistent 

with the Bank System’s housing finance 

mission. 

Rebuttable Presumptions. Section 

925.17 of the Membership Regulation 

allows presumptions of compliance or 

noncompliance with certain 

membership eligibility requirements to 

be rebutted, upon meeting certain 

requirements set forth in that regulation. 

The proposed rule would amend the 

regulatory language to enable newlyeligible CDFI applicants to rebut 

presumptive noncompliance with such 

membership eligibility requirements, in 

the same manner as other applicants 

may do under the current regulations. 

Accordingly, the proposed rule would 

extend the existing rebuttal provisions 

relating to presumptive noncompliance 

with the financial condition and 

character of management requirements 

to CDFI applicants. Such applicants 

could rebut those presumptions by 

submitting a written justification 

providing substantial evidence, 

acceptable to the Bank, demonstrating 

that their financial condition and 

character of management are both 

consistent with the standards for 

approval as members. 

Proposed § 1263.17(e)(2) would 

provide that if a CDFI applicant or any 

of its directors or senior officers has 

been the subject of any criminal, civil or 

administrative proceedings reflecting 

upon creditworthiness, business 

judgment, or moral turpitude in the past 

three years, the applicant must provide 

a written analysis indicating that the 

proceedings will not likely have a 

significantly deleterious effect on the 

applicant’s operations. The written 

analysis must address the severity of the 

charges, and any mitigating action taken 

by the applicant or its directors or 

senior officers. 

Proposed § 1263.17(e)(3) would 

provide that if there are any known 

potential criminal, civil or 

administrative monetary liabilities, 

material pending lawsuits, or 

unsatisfied judgments against the CDFI 

applicant or any of its directors or 

senior officers in the past three years 

that are significant to the applicant’s 

operations, the applicant must provide 

a written analysis acceptable to the 

Bank indicating that the liabilities, 

lawsuits or judgments will not likely 

cause the applicant to fall below its 

applicable net asset ratio set forth in 

proposed § 1263.16(b)(2)(i). The written 

analysis shall state the likelihood of the 

applicant or its directors or senior 

officers prevailing, and the financial 

consequences if the applicant or its 

directors or senior officers do not 

prevail. 

F. Subpart D—Stock Purchase 

Requirements 

The proposed rule would make 

various technical changes to the stock 

purchase requirements currently set 

forth in various provisions of Subpart D. 

At present, the minimum stock 

purchase requirements specified in 

§ 925.20(a) are based on statutory 

provisions that cease to apply to a Bank 

once it has converted its capital 

structure to the form required by the 

Gramm-Leach-Bliley Act (GLB Act). 

Because all but one of the Banks has 

completed its capital conversion, 

proposed § 1263.20 is being amended to 

add language to indicate that the 

minimum stock purchase requirement 

for a member shall be the minimums 

specified in each Bank’s capital 

structure plan. For members of the Bank 

that has not converted, the stock 

purchase requirement shall continue to 

be as specified in the Membership 

Regulation. The proposed rule also 

makes some conforming changes to 

proposed §§ 1263.21 and 1263.22, both 

of which relate to distinctions based on 

conversion to the GLB Act capital 

structure. 

G. Other Subparts 

The proposed rule makes no 

substantive changes in any of the 

remaining subparts of the Membership 

Regulation. In Subpart H, relating to the 

reacquisition of membership, the 

proposed rule would delete language 

from the current § 925.30(b) relating to 

institutions that withdrew from 

membership prior to December 31, 

1997, as the passage of time has 

rendered that language moot. 

H. Community Support Amendment— 

Part 944 

Section 10(g)(1) of the Bank Act 

requires FHFA to establish standards of 

community investment or service for 

members of the Banks to maintain 

continued access to long-term Bank 

advances, taking into account factors 

such as a member’s performance under 

the CRA and the member’s record of 

lending to first-time homebuyers. See 12 

U.S.C. 1430(g)(1), (2). The FHFB 

regulation setting forth such 

‘‘community support’’ standards is at 12 

CFR part 944. Under these provisions, a 

Bank member that is subject to the CRA 

is deemed to meet the CRA standard if 

its most recent CRA evaluation is 

‘‘outstanding’’ or ‘‘satisfactory.’’ See 12 

CFR 944.3(b)(1). A member also is 

presumed to meet the first-time 

homebuyer lending standard if its CRA 

evaluation is ‘‘outstanding’’ and there 

are no public comments or other 

22856 Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 

information to the contrary. 12 CFR 

944.3(c). Members that are not subject to 

the CRA, such as credit unions and 

insurance companies, are only required 

to meet the first-time homebuyer 

lending standard. Id. Because the newly 

eligible CDFIs are not subject to the 

CRA, they would only be subject to the 

first-time homebuyer lending standard. 

Section 944.3(c)(1) includes a nonexclusive list of eligible activities that 

meet the first-time homebuyer lending 

standard, such as: having an established 

record of lending to first-time 

homebuyers; providing homeownership 

counseling programs for first-time 

homebuyers; providing or participating 

in marketing plans and related outreach 

programs targeted to first-time 

homebuyers; and providing technical 

assistance or financial support to 

organizations that assist first-time 

homebuyers. See id. at 944.3(c)(1). 

FHFA believes that a CDFI should be 

able to comply with these requirements, 

even if it is not subject to the CRA and 

may have limited experience in lending 

to first-time homebuyers. Nonetheless, 

FHFA requests comments on whether it 

is appropriate to apply the current 

requirements to CDFIs or whether it 

would be appropriate to adopt an 

alternative community support standard 

for CDFIs that recognizes their unique 

mission and business practices while 

still complying with this statutory 

requirement. 

I. Community Financial Institution 

Amendments 

Apart from the amendments 

authorizing certified CDFIs to become 

Bank members, HERA included certain 

other amendments relating to 

‘‘community development activities.’’ 

Section 1211 of HERA amended the 

Bank Act to broaden the circumstances 

under which ‘‘community financial 

institutions’’ (CFI), which are FDICinsured members with average total 

assets of $1 billion or less, may obtain 

advances. Specifically, HERA allowed 

CFIs to obtain long-term advances for 

the purpose of funding ‘‘community 

development activities’’ and further 

allowed CFIs to pledge secured loans for 

‘‘community development activities’’ as 

collateral for their advances. Because a 

CFI must be an institution with FDIC 

insurance, it does not appear that any of 

the newly eligible CDFIs, all of which 

would lack FDIC insurance, would be 

eligible to take advantage of these 

amendments to the advances and 

collateral provisions of the Bank Act. 

Nonetheless, the Finance Agency 

requests comments on whether there is 

any basis in the legislative history to 

HERA or otherwise on which it could 

reasonably rely to construe the new CFI 

provisions as applying to CDFIs as well 

as CFIs. 

III. Paperwork Reduction Act 

The information collection contained 

in the current Membership Regulation, 

entitled ‘‘Members of the Banks,’’ has 

been assigned control number 2590– 

0003 by the Office of Management and 

Budget (OMB). The proposed rule, if 

adopted as a final rule, would not 

substantively or materially modify the 

approved information collection. 

Consequently, FHFA has not submitted 

any information to OMB for review 

under the Paperwork Reduction Act of 

1995. 44 U.S.C. 3501, et seq. 

IV. Regulatory Flexibility Act 

The proposed rule, if adopted as a 

final rule, will apply only to the Banks, 

which do not come within the meaning 

of ‘‘small entities,’’ as defined in the 

Regulatory Flexibility Act (RFA). See 5 

U.S.C. 601(6). Therefore, in accordance 

with section 605(b) of the RFA, 5 U.S.C. 

605(b), the General Counsel of FHFA 

hereby certifies that the proposed rule, 

if promulgated as a final rule, will not 

have a significant economic impact on 

a substantial number of small entities. 

List of Subjects in 12 CFR Parts 925 and 

1263 

Federal home loan banks, Reporting 

and recordkeeping requirements. 

For the reasons stated in the 

preamble, FHFA proposes to amend 

chapters IX and XII of title 12 of the 

Code of Federal Regulations as follows: 

CHAPTER IX—FEDERAL HOUSING 

FINANCE BOARD 

PART 925—MEMBERS OF THE BANKS 

1. Transfer 12 CFR part 925 from 

chapter IX, subchapter D, to chapter XII, 

subchapter D and redesignate as 12 CFR 

part 1263. 

2. Newly redesignated part 1263 is 

revised to read as follows: 

PART 1263—MEMBERS OF THE 

BANKS 

Subpart A—Definitions 

Sec. 

1263.1 Definitions. 

Subpart B—Membership Application 

Process 

1263.2 Membership application 

requirements. 

1263.3 Decision on application. 

1263.4 Automatic membership. 

1263.5 Appeals. 

Subpart C—Eligibility Requirements 

1263.6 General eligibility requirements. 

1263.7 Duly organized requirement. 

1263.8 Subject to inspection and regulation 

requirement. 

1263.9 Makes long-term home mortgage 

loans requirement. 

1263.10 Ten percent requirement for certain 

insured depository institution 

applicants. 

1263.11 Financial condition requirement 

for depository institutions and CDFI 

credit unions. 

1263.12 Character of management 

requirement. 

1263.13 Home financing policy 

requirement. 

1263.14 De novo insured depository 

institution applicants. 

1263.15 Recent merger or acquisition 

applicants. 

1263.16 Financial condition requirement 

for insurance company and certain CDFI 

applicants. 

1263.17 Rebuttable presumptions. 

1263.18 Determination of appropriate Bank 

district for membership. 

Subpart D—Stock Requirements 

1263.19 Par value and price of stock. 

1263.20 Stock purchase. 

1263.21 Issuance and form of stock. 

1263.22 Adjustments in stock holdings. 

1263.23 Excess stock. 

Subpart E—Consolidations Involving 

Members 

1263.24 Consolidations involving members. 

Subpart F—Withdrawal and Removal From 

Membership 

1263.26 Voluntary withdrawal from 

membership. 

1263.27 Involuntary termination of 

membership. 

Subpart G—Orderly Liquidation of 

Advances and Redemption of Stock 

1263.29 Disposition of claims. 

Subpart H—Reacquisition of Membership 

1263.30 Readmission to membership. 

Subpart I—Bank Access to Information 

1263.31 Reports and examinations. 

Subpart J—Membership Insignia 

1263.32 Official membership insignia. 

Authority: 12 U.S.C. 1422, 1423, 1424, 

1426, 1430, 1442, 4511, 4513. 

Subpart A—Definitions 

§ 1263.1 Definitions. 

For purposes of this part: 

Adjusted net income means net 

income, excluding extraordinary items 

such as income received from, or 

expense incurred in, sales of securities 

or fixed assets, reported on a regulatory 

financial report. 

Aggregate unpaid loan principal 

means the aggregate unpaid principal of 

a subscriber’s or member’s home 

mortgage loans, home-purchase 

contracts and similar obligations. 

Allowance for loan and lease losses 

means a specified balance-sheet account 

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held to fund potential losses on loans or 

leases, that is reported on a regulatory 

financial report. 

Appropriate regulator means: 

(1) In the case of an insured 

depository institution or CDFI credit 

union, the Federal Deposit Insurance 

Corporation, Board of Governors of the 

Federal Reserve System, National Credit 

Union Administration, Office of the 

Comptroller of the Currency, Office of 

Thrift Supervision, or appropriate state 

regulator that has regulatory authority 

over, or is empowered to institute 

enforcement action against, the 

institution, as applicable, and 

(2) In the case of an insurance 

company, an appropriate state regulator 

accredited by the National Association 

of Insurance Commissioners. 

Bank Act means the Federal Home 

Loan Bank Act, as amended (12 U.S.C. 

1421 through 1449). 

CDFI credit union means a state 

chartered credit union that has been 

certified as a CDFI by the CDFI Fund 

and that does not have federal share 

insurance. 

CDFI Fund means the Community 

Development Financial Institutions 

Fund established under section 104(a) 

of the Community Development 

Banking and Financial Institutions Act 

of 1994 (12 U.S.C. 4701 et seq.). 

CFI asset cap means $1 billion, as 

adjusted annually by FHFA, beginning 

in 2009, to reflect any percentage 

increase in the preceding year’s 

Consumer Price Index (CPI) for all urban 

consumers, as published by the U.S. 

Department of Labor. 

Class A stock means capital stock 

issued by a Bank, including subclasses, 

that has the characteristics specified in 

section 6(a)(4)(A)(i) of the Bank Act (12 

U.S.C. 1426(a)(4)(A)(i)) and applicable 

FHFA regulations. 

Class B stock means capital stock 

issued by a Bank, including subclasses, 

that has the characteristics specified in 

section 6(a)(4)(A)(ii) of the Bank Act (12 

U.S.C. 1426(a)(4)(A)(ii)) and applicable 

FHFA regulations. 

Combination business or farm 

property means real property for which 

the total appraised value is attributable 

to residential, and business or farm 

uses. 

Community development financial 

institution or CDFI means an institution 

that is certified as a community 

development financial institution by the 

CDFI Fund under the Community 

Development Banking and Financial 

Institutions Act of 1994 (12 U.S.C. 4701 

et seq.), other than a bank or savings 

association insured under the Federal 

Deposit Insurance Act (12 U.S.C. 1811 et 

seq.) or a credit union insured under the 

Federal Credit Union Act (12 U.S.C. 

1751 et seq.). 

Community financial institution or 

CFI means an institution: 

(1) The deposits of which are insured 

under the Federal Deposit Insurance Act 

(12 U.S.C. 1811 et seq.); and 

(2) The total assets of which, as of the 

date of a particular transaction, are less 

than the CFI asset cap, with total assets 

being calculated as an average of total 

assets over three years, with such 

average being based on the institution’s 

regulatory financial reports filed with its 

appropriate regulator for the most recent 

calendar quarter and the immediately 

preceding 11 calendar quarters. 

Composite regulatory examination 

rating means a composite rating 

assigned to an institution following the 

guidelines of the Uniform Financial 

Institutions Rating System (issued by 

the Federal Financial Institutions 

Examination Council), including a 

CAMELS rating or other similar rating, 

contained in a written regulatory 

examination report. 

Consolidation includes a 

consolidation, a merger, or a purchase of 

all of the assets and assumption of all 

of the liabilities of an entity by another 

entity. 

Director means the Director of FHFA 

or his or her designee. 

Dwelling unit means a single room or 

a unified combination of rooms 

designed for residential use. 

Enforcement action means any 

written notice, directive, order or 

agreement initiated by an applicant for 

Bank membership or by its appropriate 

regulator to address any operational, 

financial, managerial or other 

deficiencies of the applicant identified 

by such regulator, but does not include 

a board of directors resolution adopted 

by the applicant in response to 

examination weaknesses identified by 

such regulator. 

Funded residential construction loan 

means the portion of a loan secured by 

real property made to finance the on-site 

construction of dwelling units on oneto-four family property or multifamily 

property disbursed to the borrower. 

Gross revenues means, in the case of 

a CDFI applicant, total revenues 

received from all sources, including 

grants and other donor contributions 

and earnings from operations. 

Home mortgage loan means: 

(1) A loan, whether or not fully 

amortizing, or an interest in such a loan, 

which is secured by a mortgage, deed of 

trust, or other security agreement that 

creates a first lien on one of the 

following interests in property: 

(i) One-to-four family property or 

multifamily property, in fee simple; 

(ii) A leasehold on one-to-four family 

property or multifamily property under 

a lease of not less than 99 years that is 

renewable, or under a lease having a 

period of not less than 50 years to run 

from the date the mortgage was 

executed; or 

(iii) Combination business or farm 

property where at least 50 percent of the 

total appraised value of the combined 

property is attributable to the residential 

portion of the property or, in the case 

of any community financial institution, 

combination business or farm property, 

on which is located a permanent 

structure actually used as a residence 

(other than for temporary or seasonal 

housing), where the residence 

constitutes an integral part of the 

property; or 

(2) A mortgage pass-through security 

that represents an undivided ownership 

interest in: 

(i) Long-term loans, provided that, at 

the time of issuance of the security, all 

of the loans meet the requirements of 

paragraph (1) of this definition; or 

(ii) A security that represents an 

undivided ownership interest in longterm loans, provided that, at the time of 

issuance of the security, all of the loans 

meet the requirements of paragraph (1) 

of this definition. 

Insured depository institution means 

an insured depository institution as 

defined in section 2(9) of the Bank Act, 

as amended (12 U.S.C. 1422(9)). 

Long-term means a term to maturity of 

five years or greater. 

Manufactured housing means a 

manufactured home as defined in 

section 603(6) of the Manufactured 

Home Construction and Safety 

Standards Act of 1974, as amended (42 

U.S.C. 5402(6)). 

Multifamily property means: 

(1) Real property that is solely 

residential and includes five or more 

dwelling units; 

(2) Real property that includes five or 

more dwelling units combined with 

commercial units, provided that the 

property is primarily residential; or 

(3) Nursing homes, dormitories, or 

homes for the elderly. 

Nonperforming loans and leases 

means the sum of the following, 

reported on a regulatory financial 

report: 

(1) Loans and leases that have been 

past due for 90 days (60 days in the case 

of credit union applicants) or longer but 

are still accruing; 

(2) Loans and leases on a nonaccrual 

basis; and 

(3) Restructured loans and leases (not 

already reported as nonperforming). 

Nonresidential real property means 

real property that is not used for 

22858 Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 

residential purposes, including business 

or industrial property, hotels, motels, 

churches, hospitals, educational and 

charitable institution buildings or 

facilities, clubs, lodges, association 

buildings, golf courses, recreational 

facilities, farm property not containing a 

dwelling unit, or similar types of 

property. 

One-to-four family property means: 

(1) Real property that is solely 

residential, including one-to-four family 

dwelling units or more than four family 

dwelling units if each dwelling unit is 

separated from the other dwelling units 

by dividing walls that extend from 

ground to roof, such as row houses, 

townhouses or similar types of property; 

(2) Manufactured housing if 

applicable state law defines the 

purchase or holding of manufactured 

housing as the purchase or holding of 

real property; 

(3) Individual condominium dwelling 

units or interests in individual 

cooperative housing dwelling units that 

are part of a condominium or 

cooperative building without regard to 

the number of total dwelling units 

therein; or 

(4) Real property which includes oneto-four family dwelling units combined 

with commercial units, provided the 

property is primarily residential. 

Operating expenses means, in the 

case of a CDFI applicant, expenses for 

business operations, including, but not 

limited to, staff salaries and benefits, 

professional fees, interest, loan loss 

provision, and depreciation, contained 

in the applicant’s audited financial 

statements. 

Other real estate owned means all 

other real estate owned (i.e., foreclosed 

and repossessed real estate), reported on 

a regulatory financial report, and does 

not include direct and indirect 

investments in real estate ventures. 

Regulatory examination report means 

a written report of examination 

prepared by the applicant’s appropriate 

regulator, containing, in the case of 

insured depository institution 

applicants, a composite rating assigned 

to the institution following the 

guidelines of the Uniform Financial 

Institutions Rating System, including a 

CAMELS rating or other similar rating. 

Regulatory financial report means a 

financial report that an applicant is 

required to file with its appropriate 

regulator on a specific periodic basis, 

including the quarterly call report for 

commercial banks, thrift financial report 

for savings associations, quarterly or 

semi-annual call report for credit 

unions, the National Association of 

Insurance Commissioners’ annual or 

quarterly report for insurance 

companies, or other similar report, 

including such report maintained by the 

appropriate regulator on a computer online database. 

Residential mortgage loan means any 

one of the following types of loans, 

whether or not fully amortizing: 

(1) Home mortgage loans; 

(2) Funded residential construction 

loans; 

(3) Loans secured by manufactured 

housing whether or not defined by state 

law as secured by an interest in real 

property; 

(4) Loans secured by junior liens on 

one-to-four family property or 

multifamily property; 

(5) Mortgage pass-through securities 

representing an undivided ownership 

interest in: 

(i) Loans that meet the requirements 

of paragraphs (1) through (4) of this 

definition at the time of issuance of the 

security; 

(ii) Securities representing an 

undivided ownership interest in loans, 

provided that, at the time of issuance of 

the security, all of the loans meet the 

requirements of paragraphs (1) through 

(4) of this definition; or 

(iii) Mortgage debt securities as 

defined in paragraph (6) of this 

definition; 

(6) Mortgage debt securities secured 

by: 

(i) Loans, provided that, at the time of 

issuance of the security, substantially all 

of the loans meet the requirements of 

paragraphs (1) through (4) of this 

definition; 

(ii) Securities that meet the 

requirements of paragraph (5) of this 

definition; or 

(iii) Securities secured by assets, 

provided that, at the time of issuance of 

the security, all of the assets meet the 

requirements of paragraphs (1) through 

(5) of this definition; 

(7) Home mortgage loans secured by 

a leasehold interest, as defined in 

paragraph (1)(ii) of the definition of 

‘‘home mortgage loan,’’ except that the 

period of the lease term may be for any 

duration; or 

(8) Loans that finance properties or 

activities that, if made by a member, 

would satisfy the statutory requirements 

for the CIP established under section 

10(i) of the Bank Act (12 U.S.C. 1430(i)), 

or the regulatory requirements 

established for any CICA program. 

Restricted assets means both 

permanently restricted assets and 

temporarily restricted assets, as those 

terms are used in Financial Accounting 

Standard No. 117, or any successor 

publication. 

Total assets means the total assets 

reported on a regulatory financial report 

or, in the case of a CDFI applicant, the 

total assets contained in the applicant’s 

audited financial statements. 

Unrestricted cash and cash 

equivalents means, in the case of a CDFI 

applicant, cash and highly liquid assets 

that can be easily converted into cash 

that are not restricted in a manner that 

prevents their use in paying expenses, 

as contained in the applicant’s audited 

financial statements. 

Subpart B—Membership Application 

Process 

§ 1263.2 Membership application 

requirements. 

(a) Application. An applicant for 

membership in a Bank shall submit to 

that Bank an application that satisfies 

the requirements of this part. The 

application shall include a written 

resolution or certification duly adopted 

by the applicant’s board of directors, or 

by an individual with authority to act 

on behalf of the applicant’s board of 

directors, of the following: 

(1) Applicant review. Applicant has 

reviewed the requirements of this part 

and, as required by this part, has 

provided to the best of applicant’s 

knowledge the most recent, accurate 

and complete information available; and 

(2) Duty to supplement. Applicant 

will promptly supplement the 

application with any relevant 

information that comes to applicant’s 

attention prior to the Bank’s decision on 

whether to approve or deny the 

application, and if the Bank’s decision 

is appealed pursuant to § 1263.5, prior 

to resolution of any appeal by FHFA. 

(b) Digest. The Bank shall prepare a 

written digest for each applicant stating 

whether or not the applicant meets each 

of the requirements in §§ 1263.6 to 

1263.18, the Bank’s findings and the 

reasons therefor. 

(c) File. The Bank shall maintain a 

membership file for each applicant for 

at least three years after the Bank 

decides whether to approve or deny 

membership or, in the case of an appeal 

to FHFA, for three years after the 

resolution of the appeal. The 

membership file shall contain at a 

minimum: 

(1) Digest. The digest required by 

paragraph (b) of this section. 

(2) Required documents. All 

documents required by §§ 1263.6 to 

1263.18, including those documents 

required to establish or rebut a 

presumption under this part, shall be 

described in and attached to the digest. 

The Bank may retain in the file only the 

relevant portions of the regulatory 

financial reports required by this part. If 

an applicant’s appropriate regulator 

Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 22859 

requires return or destruction of a 

regulatory examination report, the date 

that the report is returned or destroyed 

shall be noted in the file. 

(3) Additional documents. Any 

additional document submitted by the 

applicant, or otherwise obtained or 

generated by the Bank, concerning the 

applicant. 

(4) Decision resolution. The decision 

resolution described in § 1263.3(b). 

§ 1263.3 Decision on application. 

(a) Authority. FHFA hereby authorizes 

the Banks to approve or deny all 

applications for membership, subject to 

the requirements of this part. The 

authority to approve membership 

applications may be exercised only by a 

committee of the Bank’s board of 

directors, the Bank president, or a senior 

officer who reports directly to the Bank 

president, other than an officer with 

responsibility for business development. 

(b) Decision resolution. For each 

applicant, the Bank shall prepare a 

written resolution duly adopted by the 

Bank’s board of directors, by a 

committee of the board of directors, or 

by an officer with delegated authority to 

approve membership applications. The 

decision resolution shall state: 

(1) That the statements in the digest 

are accurate to the best of the Bank’s 

knowledge, and are based on a diligent 

and comprehensive review of all 

available information identified in the 

digest; and 

(2) The Bank’s decision and the 

reasons therefor. Decisions to approve 

an application should state specifically 

that: the applicant is authorized under 

the laws of the United States and the 

laws of the appropriate state to become 

a member of, purchase stock in, do 

business with, and maintain deposits in, 

the Bank to which the applicant has 

applied; and the applicant meets all of 

the membership eligibility criteria of the 

Bank Act and this part. 

(c) Action on applications. The Bank 

shall act on an application within 60 

calendar days of the date the Bank 

deems the application to be complete. 

An application is ‘‘complete’’ when a 

Bank has obtained all the information 

required by this part, and any other 

information the Bank deems necessary, 

to process the application. If an 

application that was deemed complete 

subsequently is deemed incomplete 

because the Bank determines during the 

review process that additional 

information is necessary to process the 

application, the Bank may stop the 60- 

day clock until the application again is 

deemed complete, and then resume the 

clock where it left off. The Bank shall 

notify an applicant in writing when its 

application is deemed by the Bank to be 

complete, and shall maintain a copy of 

such letter in the applicant’s 

membership file. The Bank shall notify 

an applicant if the 60-day clock is 

stopped, and when the clock is 

resumed, and shall maintain a written 

record of such notifications in the 

applicant’s membership file. Within 

three business days of a Bank’s decision 

on an application, the Bank shall 

provide the applicant and FHFA with a 

copy of the Bank’s decision resolution. 

§ 1263.4 Automatic membership. 

(a) Automatic membership for certain 

charter conversions. An insured 

depository institution member that 

converts from one charter type to 

another automatically shall become a 

member of the Bank of which the 

converting institution was a member on 

the effective date of such conversion, 

provided that the converting institution 

continues to be an insured depository 

institution and the assets of the 

institution immediately before and 

immediately after the conversion are not 

materially different. In such case, all 

relationships existing between the 

member and the Bank at the time of 

such conversion may continue. 

(b) Automatic membership for 

transfers. Any member whose 

membership is transferred pursuant to 

§ 1263.18(d) automatically shall become 

a member of the Bank to which it 

transfers. 

(c) Automatic membership, in the 

Bank’s discretion, for certain 

consolidations. (1) If a member 

institution (or institutions) and a 

nonmember institution are consolidated 

and the consolidated institution has its 

principal place of business in a state in 

the same Bank district as the 

disappearing institution (or 

institutions), and the consolidated 

institution will operate under the 

charter of the nonmember institution, 

on the effective date of the 

consolidation, the consolidated 

institution may, in the discretion of the 

Bank of which the disappearing 

institution (or institutions) was a 

member immediately prior to the 

effective date of the consolidation, 

automatically become a member of such 

Bank upon the purchase of the 

minimum amount of Bank stock 

required for membership in that Bank as 

required by § 1263.20, provided that: 

(i) 90 percent or more of the total 

assets of the consolidated institution are 

derived from the total assets of the 

disappearing member institution (or 

institutions); and 

(ii) The consolidated institution 

provides written notice to such Bank, 

within 60 calendar days after the 

effective date of the consolidation, that 

it desires to be a member of the Bank. 

(2) The provisions of § 1263.24(b)(4)(i) 

shall apply, and upon approval of 

automatic membership by the Bank, the 

provisions of § 1263.24(c) and (d) shall 

apply. 

§ 1263.5 Appeals. 

(a) Appeals by applicants—(1) Filing 

procedure. Within 90 calendar days of 

the date of a Bank’s decision to deny an 

application for membership, the 

applicant may file a written appeal of 

the decision with FHFA. 

(2) Documents. The applicant’s appeal 

shall be addressed to the Deputy 

Director for Federal Home Loan Bank 

Regulation, Federal Housing Finance 

Agency, 1625 Eye Street, NW., 

Washington, DC 20006, with a copy to 

the Bank, and shall include the 

following documents: 

(i) Bank’s decision resolution. A copy 

of the Bank’s decision resolution; and 

(ii) Basis for appeal. A statement of 

the basis for the appeal by the applicant 

with sufficient facts, information, 

analysis and explanation to rebut any 

applicable presumptions and otherwise 

support the applicant’s position. 

(b) Record for appeal—(1) Copy of 

membership file. Upon receiving a copy 

of an appeal, the Bank whose action has 

been appealed (appellee Bank) shall 

provide FHFA with a copy of the 

applicant’s complete membership file. 

Until FHFA resolves the appeal, the 

appellee Bank shall supplement the 

materials provided to FHFA as any new 

materials are received. 

(2) Additional information. FHFA 

may request additional information or 

further supporting arguments from the 

appellant, the appellee Bank or any 

other party that FHFA deems 

appropriate. 

(c) Deciding appeals. FHFA shall 

consider the record for appeal described 

in paragraph (b) of this section and shall 

resolve the appeal based on the 

requirements of the Bank Act and this 

part within 90 calendar days of the date 

the appeal is filed with FHFA. In 

deciding the appeal, FHFA shall apply 

the presumptions in this part, unless the 

appellant or appellee Bank presents 

evidence to rebut a presumption as 

provided in § 1263.17. 

Subpart C—Eligibility Requirements 

§ 1263.6 General eligibility requirements. 

(a) Requirements. Any building and 

loan association, savings and loan 

association, cooperative bank, 

homestead association, insurance 

company, savings bank, community 

22860 Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 

development financial institution, or 

insured depository institution, upon 

application satisfying all of the 

requirements of the Bank Act and this 

part, shall be eligible to become a 

member of a Bank if: 

(1) It is duly organized under the laws 

of any State or of the United States; 

(2) It is subject to inspection and 

regulation under the banking laws, or 

under similar laws, of any State or of the 

United States; 

(3) It makes long-term home mortgage 

loans; 

(4) Its financial condition is such that 

advances may be safely made to it; 

(5) The character of its management is 

consistent with sound and economical 

home financing; and 

(6) Its home financing policy is 

consistent with sound and economical 

home financing. 

(b) Additional eligibility requirement 

for insured depository institutions other 

than community financial institutions. 

In order to be eligible to become a 

member of a Bank, an insured 

depository institution applicant other 

than a community financial institution 

also must have at least 10 percent of its 

total assets in residential mortgage 

loans. 

(c) Additional eligibility requirement 

for applicants that are not insured 

depository institutions. In order to be 

eligible to become a member of a Bank, 

an applicant that is not an insured 

depository institution also must have 

mortgage-related assets that reflect a 

commitment to housing finance, as 

determined by the Bank in its 

discretion. 

(d) Ineligibility. Except as otherwise 

provided in this part, if an applicant 

does not satisfy the requirements of this 

part, the applicant is ineligible for 

membership. 

§ 1263.7 Duly organized requirement. 

An applicant shall be deemed to be 

duly organized, as required by section 

4(a)(1)(A) of the Bank Act (12 U.S.C. 

1424(a)(1)(A)) and § 1263.6(a)(1) of this 

part, if it is chartered by a state or 

federal agency as a building and loan 

association, savings and loan 

association, cooperative bank, 

homestead association, insurance 

company, savings bank, or insured 

depository institution, or in the case of 

a CDFI applicant, is incorporated under 

state law. 

§ 1263.8 Subject to inspection and 

regulation requirement. 

An applicant shall be deemed to be 

subject to inspection and regulation, as 

required by section 4(a)(1)(B) of the 

Bank Act (12 U.S.C. 1424 (a)(1)(B)) and 

§ 1263.6(a)(2) of this part, if, in the case 

of an insured depository institution or 

insurance company applicant, it is 

subject to inspection and regulation by 

its appropriate regulator. 

§ 1263.9 Makes long-term home mortgage 

loans requirement. 

An applicant shall be deemed to make 

long-term home mortgage loans, as 

required by section 4(a)(1)(C) of the 

Bank Act (12 U.S.C. 1424(a)(1)(C)) and 

§ 1263.6(a)(3) of this part if, based on 

the applicant’s most recent regulatory 

financial report filed with its 

appropriate regulator, or other 

documentation provided to the Bank in 

the case of a CDFI applicant that does 

not file such reports, the applicant 

originates or purchases long-term home 

mortgage loans. 

§ 1263.10 Ten percent requirement for 

certain insured depository institution 

applicants. 

An insured depository institution 

applicant that is subject to the 10 

percent requirement of section 

4(a)(2)(A) of the Bank Act (12 U.S.C. 

1424(a)(2)(A)) and § 1263.6(b) of this 

part shall be deemed to be in 

compliance with such requirement if, 

based on the applicant’s most recent 

regulatory financial report filed with its 

appropriate regulator, the applicant has 

at least 10 percent of its total assets in 

residential mortgage loans, except that 

any assets used to secure mortgage debt 

securities as described in paragraph (6) 

of the definition of ‘‘residential 

mortgage loan’’ set forth in § 1263.1 

shall not be used to meet this 

requirement. 

§ 1263.11 Financial condition requirement 

for depository institutions and CDFI credit 

unions. 

(a) Review requirement. In 

determining whether a building and 

loan association, savings and loan 

association, cooperative bank, 

homestead association, savings bank, 

insured depository institution, or CDFI 

credit union has complied with the 

financial condition requirement of 

section 4(a)(2)(B) of the Bank Act (12 

U.S.C. 1424(a)(2)(B)) and § 1263.6(a)(4) 

of this part, the Bank shall obtain as a 

part of the membership application and 

review each of the following documents: 

(1) Regulatory financial reports. The 

regulatory financial reports filed by the 

applicant with its appropriate regulator 

for the last six calendar quarters and 

three year-ends preceding the date the 

Bank receives the application; 

(2) Financial statement. In order of 

preference: the most recent independent 

audit of the applicant conducted in 

accordance with generally accepted 

auditing standards by a certified public 

accounting firm which submits a report 

on the applicant; the most recent 

independent audit of the applicant’s 

parent holding company conducted in 

accordance with generally accepted 

auditing standards by a certified public 

accounting firm which submits a report 

on the consolidated holding company 

but not on the applicant separately; the 

most recent directors’ examination of 

the applicant conducted in accordance 

with generally accepted auditing 

standards by a certified public 

accounting firm; the most recent 

directors’ examination of the applicant 

performed by other external auditors; 

the most recent review of the applicant’s 

financial statements by external 

auditors; the most recent compilation of 

the applicant’s financial statements by 

external auditors; or the most recent 

audit of other procedures of the 

applicant; 

(3) Regulatory examination report. 

The applicant’s most recent available 

regulatory examination report prepared 

by its appropriate regulator, a summary 

prepared by the Bank of the applicant’s 

strengths and weaknesses as cited in the 

regulatory examination report, and a 

summary prepared by the Bank or 

applicant of actions taken by the 

applicant to respond to examination 

weaknesses; 

(4) Enforcement actions. A 

description prepared by the Bank or 

applicant of any outstanding 

enforcement actions against the 

applicant, responses by the applicant, 

reports as required by the enforcement 

action, and verbal or written 

indications, if available, from the 

appropriate regulator of how the 

applicant is complying with the terms of 

the enforcement action; and 

(5) Additional information. Any other 

relevant document or information 

concerning the applicant that comes to 

the Bank’s attention in reviewing the 

applicant’s financial condition. 

(b) Standards. An applicant of the 

type described in paragraph (a) of this 

section shall be deemed to be in 

compliance with the financial condition 

requirement of section 4(a)(2)(B) of the 

Bank Act (12 U.S.C. 1424(a)(2)(B)) and 

§ 1263.6(a)(4) of this part, if: 

(1) Recent composite regulatory 

examination rating. The applicant has 

received a composite regulatory 

examination rating from its appropriate 

regulator within two years preceding the 

date the Bank receives the application; 

(2) Capital requirement. The applicant 

meets all of its minimum statutory and 

regulatory capital requirements as 

reported in its most recent quarter-end 

Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 22861 

regulatory financial report filed with its 

appropriate regulator; and 

(3) Minimum performance standard. 

(i) Except as provided in paragraph 

(b)(3)(iii) of this section, the applicant’s 

most recent composite regulatory 

examination rating from its appropriate 

regulator within the past two years was 

‘‘1;’’ or was ‘‘2’’ or ‘‘3’’ and, based on the 

applicant’s most recent regulatory 

financial report filed with its 

appropriate regulator, the applicant 

satisfied all of the following 

performance trend criteria: 

(A) Earnings. The applicant’s adjusted 

net income was positive in four of the 

six most recent calendar quarters; 

(B) Nonperforming assets. The 

applicant’s nonperforming loans and 

leases plus other real estate owned, did 

not exceed 10 percent of its total loans 

and leases plus other real estate owned, 

in the most recent calendar quarter; and 

(C) Allowance for loan and lease 

losses. The applicant’s ratio of its 

allowance for loan and lease losses plus 

the allocated transfer risk reserve to 

nonperforming loans and leases was 60 

percent or greater during four of the six 

most recent calendar quarters. 

(ii) For applicants that are not 

required to report financial data to their 

appropriate regulator on a quarterly 

basis, the information required in 

paragraph (b)(3)(i) of this section may be 

reported on a semiannual basis. 

(iii) a CDFI credit union applicant 

must meet the performance trend 

criteria in paragraph (b)(3)(i) of this 

section irrespective of its composite 

regulatory examination rating. 

(c) Eligible collateral not considered. 

The availability of sufficient eligible 

collateral to secure advances to the 

applicant is presumed and shall not be 

considered in determining whether an 

applicant is in the financial condition 

required by section 4(a)(2)(B) of the 

Bank Act (12 U.S.C. 1424(a)(2)(B)) and 

§ 1263.6(a)(4) of this part. 

§ 1263.12 Character of management 

requirement. 

(a) General. A building and loan 

association, savings and loan 

association, cooperative bank, 

homestead association, savings bank, 

insured depository institution, 

insurance company, and CDFI credit 

union shall be deemed to be in 

compliance with the character of 

management requirement of 

§ 1263.6(a)(5), if the applicant provides 

to the Bank an unqualified written 

certification duly adopted by the 

applicant’s board of directors, or by an 

individual with authority to act on 

behalf of the applicant’s board of 

directors, that: 

(1) Enforcement actions. Neither the 

applicant nor any of its directors or 

senior officers is subject to, or operating 

under, any enforcement action 

instituted by its appropriate regulator; 

(2) Criminal, civil or administrative 

proceedings. Neither the applicant nor 

any of its directors or senior officers has 

been the subject of any criminal, civil or 

administrative proceedings reflecting 

upon creditworthiness, business 

judgment, or moral turpitude since the 

most recent regulatory examination 

report; and 

(3) Criminal, civil or administrative 

monetary liabilities, lawsuits or 

judgments. There are no known 

potential criminal, civil or 

administrative monetary liabilities, 

material pending lawsuits, or 

unsatisfied judgments against the 

applicant or any of its directors or 

senior officers since the most recent 

regulatory examination report, that are 

significant to the applicant’s operations. 

(b) CDFIs other than CDFI credit 

unions. A CDFI applicant other than a 

CDFI credit union shall be deemed to be 

in compliance with the character of 

management requirement of 

§ 1263.6(a)(5), if the applicant provides 

an unqualified written certification duly 

adopted by the applicant’s board of 

directors, or by an individual with 

authority to act on behalf of the 

applicant’s board of directors, that: 

(1) Neither the applicant nor any of its 

directors or senior officers has been the 

subject of any criminal, civil or 

administrative proceedings reflecting 

upon creditworthiness, business 

judgment, or moral turpitude in the past 

three years; and 

(2) There are no known potential 

criminal, civil or administrative 

monetary liabilities, material pending 

lawsuits, or unsatisfied judgments 

against the applicant or any of its 

directors or senior officers arising 

within the past three years that are 

significant to the applicant’s operations. 

§ 1263.13 Home financing policy 

requirement. 

(a) Standard. An applicant shall be 

deemed to be in compliance with the 

home financing policy requirement of 

§ 1263.6(a)(6) if the applicant has 

received a Community Reinvestment 

Act (CRA) rating of ‘‘Satisfactory’’ or 

better on its most recent formal, or if 

unavailable, informal or preliminary, 

CRA performance evaluation. 

(b) Written justification required. An 

applicant that is not subject to the CRA 

shall file as part of its application for 

membership a written justification 

acceptable to the Bank of how and why 

the applicant’s home financing policy is 

consistent with the Bank System’s 

housing finance mission. 

§ 1263.14 De novo insured depository 

institution applicants. 

(a) Duly organized, subject to 

inspection and regulation, financial 

condition and character of management 

requirements. An insured depository 

institution applicant whose date of 

charter approval is within three years 

prior to the date the Bank receives the 

applicant’s application for membership 

in the Bank (de novo applicant) is 

deemed to meet the requirements of 

§§ 1263.7, 1263.8, 1263.11 and 1263.12. 

(b) Makes long-term home mortgage 

loans requirement. A de novo applicant 

shall be deemed to make long-term 

home mortgage loans as required by 

§ 1263.9 if it has filed as part of its 

application for membership a written 

justification acceptable to the Bank of 

how its home financing credit policy 

and lending practices will include 

originating or purchasing long-term 

home mortgage loans. 

(c) 10 percent requirement—(1) Oneyear requirement. A de novo applicant 

that is subject to the 10 percent 

requirement of section 4(a)(2)(A) of the 

Bank Act (12 U.S.C. 1424(a)(2)(A)) and 

§ 1263.6(b) of this part shall have until 

one year after commencing its initial 

business operations to meet the 10 

percent requirement of § 1263.10. 

(2) Conditional approval. A de novo 

applicant shall be conditionally deemed 

to be in compliance with the 10 percent 

requirement of section 4(a)(2)(A) of the 

Bank Act (12 U.S.C. 1424(a)(2)(A)) and 

§ 1263.6(b) of this part. A de novo 

applicant that receives such conditional 

membership approval is subject to the 

stock purchase requirements established 

by FHFA regulation or the Bank’s 

capital plan, as applicable, as well as 

the FHFA regulations governing 

advances to members. 

(3) Approval. A de novo applicant 

shall be deemed to be in compliance 

with the 10 percent requirement of 

section 4(a)(2)(A) of the Bank Act (12 

U.S.C. 1424(a)(2)(A)) and § 1263.6(b) of 

this part upon receipt by the Bank from 

the applicant, within one year after 

commencement of the applicant’s initial 

business operations, of evidence 

acceptable to the Bank that the 

applicant satisfies the 10 percent 

requirement. 

(4) Conditional approval deemed null 

and void. If the requirements of 

paragraph (c)(3) of this section are not 

satisfied, a de novo applicant shall be 

deemed to be in noncompliance with 

the 10 percent requirement of section 

4(a)(2)(A) of the Bank Act (12 U.S.C. 

1424(a)(2)(A)) and § 1263.6(b) of this 

22862 Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 

part, and its conditional membership 

approval is deemed null and void. 

(5) Treatment of outstanding 

advances and Bank stock. If a de novo 

applicant’s conditional membership 

approval is deemed null and void 

pursuant to paragraph (c)(4) of this 

section, the liquidation of any 

outstanding indebtedness owed by the 

applicant to the Bank and redemption of 

stock of such Bank shall be carried out 

in accordance with § 1263.29. 

(d) Home financing policy 

requirement—(1) Conditional approval. 

A de novo applicant that has not 

received its first formal, or, if 

unavailable, informal or preliminary, 

Community Reinvestment Act (CRA) 

performance evaluation, shall be 

conditionally deemed to be in 

compliance with the home financing 

policy requirement of section 4(a)(2)(C) 

of the Bank Act (12 U.S.C. 1424(a)(2)(C)) 

and § 1263.6(a)(6) of this part, if the 

applicant has filed as part of its 

application for membership a written 

justification acceptable to the Bank of 

how and why its home financing credit 

policy and lending practices will meet 

the credit needs of its community. An 

applicant that receives such conditional 

membership approval is subject to the 

stock purchase requirements established 

by FHFA regulation or the Bank’s 

capital plan, as applicable, as well as 

the FHFA regulations governing 

advances to members. 

(2) Approval. A de novo applicant 

that has been granted conditional 

approval under paragraph (d)(1) of this 

section shall be deemed to be in 

compliance with the home financing 

policy requirement of section 4(a)(2)(C) 

of the Bank Act (12 U.S.C. 1424(a)(2)(C)) 

and § 1263.6(a)(6) of this part upon 

receipt by the Bank of evidence from the 

applicant that it received a CRA rating 

of ‘‘Satisfactory’’ or better on its first 

formal, or if unavailable, informal or 

preliminary, CRA performance 

evaluation. 

(3) Conditional approval deemed null 

and void. If the de novo applicant’s first 

such CRA rating is ‘‘Needs to Improve’’ 

or ‘‘Substantial Non-Compliance,’’ the 

applicant shall be deemed to be in 

noncompliance with the home financing 

policy requirement of section 4(a)(2)(C) 

of the Bank Act (12 U.S.C. 1424(a)(2)(C)) 

and § 1263.6(a)(6) of this part, subject to 

rebuttal by the applicant under 

§ 1263.17(f), and its conditional 

membership approval is deemed null 

and void. 

(4) Treatment of outstanding 

advances and Bank stock. If the 

applicant’s conditional membership 

approval is deemed null and void 

pursuant to paragraph (d)(3) of this 

section, the liquidation of any 

outstanding indebtedness owed by the 

applicant to the Bank and redemption of 

stock of such Bank shall be carried out 

in accordance with § 1263.29. 

§ 1263.15 Recent merger or acquisition 

applicants. 

An applicant that merged with or 

acquired another institution prior to the 

date the Bank receives its application 

for membership is subject to the 

requirements of §§ 1263.7 to 1263.13 

except as provided in this section. 

(a) Financial condition requirement— 

(1) Regulatory financial reports. For 

purposes of § 1263.11(a)(1), an applicant 

that, as a result of a merger or 

acquisition preceding the date the Bank 

receives its application for membership, 

has not yet filed regulatory financial 

reports with its appropriate regulator for 

the last six calendar quarters and three 

year-ends preceding such date, shall 

provide any regulatory financial reports 

that the applicant has filed with its 

appropriate regulator. 

(2) Performance trend criteria. For 

purposes of § 1263.11(b)(3)(i)(A) to (C), 

an applicant that, as a result of a merger 

or acquisition preceding the date the 

Bank receives its application for 

membership, has not yet filed combined 

regulatory financial reports with its 

appropriate regulator for the last six 

calendar quarters preceding such date, 

shall provide pro forma combined 

financial statements for those calendar 

quarters in which actual combined 

regulatory financial reports are 

unavailable. 

(b) Home financing policy 

requirement. For purposes of § 1263.13, 

an applicant that, as a result of a merger 

or acquisition preceding the date the 

Bank receives its application for 

membership, has not received its first 

formal, or if unavailable, informal or 

preliminary, Community Reinvestment 

Act performance evaluation, shall file as 

part of its application a written 

justification acceptable to the Bank of 

how and why the applicant’s home 

financing credit policy and lending 

practices will meet the credit needs of 

its community. 

(c) Makes long-term home mortgage 

loans requirement; 10 percent 

requirement. For purposes of 

determining compliance with §§ 1263.9 

and 1263.10, a Bank may, in its 

discretion, permit an applicant that, as 

a result of a merger or acquisition 

preceding the date the Bank receives its 

application for membership, has not yet 

filed a consolidated regulatory financial 

report as a combined entity with its 

appropriate regulator, to provide the 

combined pro forma financial statement 

for the combined entity filed with the 

regulator that approved the merger or 

acquisition. 

§ 1263.16 Financial condition requirement 

for insurance company and certain CDFI 

applicants. 

(a) Insurance companies. An 

insurance company applicant shall be 

deemed to meet the financial condition 

requirement of § 1263.6(a)(4) if, based 

on the information contained in the 

applicant’s most recent regulatory 

financial report filed with its 

appropriate regulator, the applicant 

meets all of its minimum statutory and 

regulatory capital requirements and the 

capital standards established by the 

National Association of Insurance 

Commissioners. 

(b) CDFIs other than CDFI credit 

unions—(1) Review requirement. In 

determining whether a CDFI applicant, 

other than a CDFI credit union, has 

complied with the financial condition 

requirement of § 1263.6(a)(4), the Bank 

shall obtain as a part of the membership 

application and review each of the 

following documents: 

(i) Financial statements. An 

independent audit conducted within the 

prior year in accordance with generally 

accepted auditing standards by a 

certified public accounting firm, plus 

more recent quarterly statements, if 

available, and financial statements for 

the two years prior to the most recent 

audited financial statement. At a 

minimum, all such financial statements 

must include income and expense 

statements, statements of activities, 

statements of financial position, and 

statements of cash flows. The financial 

statement for the most recent year must 

include separate schedules or 

disclosures of the financial position of 

each of the applicant’s affiliates, 

descriptions of their lines of business, 

detailed financial disclosures of the 

relationship between the applicant and 

its affiliates (such as indebtedness or 

subordinate debt obligations), 

disclosures of interlocking directorships 

with each affiliate, and identification of 

temporary and permanently restricted 

funds and the requirements of these 

restrictions. 

(ii) CDFI Fund certification. The 

certification that the applicant has 

received from the CDFI Fund. If the 

certification is more than three years 

old, the applicant must also submit a 

written statement certifying that there 

have been no material events or 

occurrences since the date of 

certification that would adversely affect 

its strategic direction, mission, or 

business operations. 

Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 22863 

(iii) Additional information. Any 

other relevant document or information 

concerning the financial condition of 

the applicant requested by the Bank and 

that is not contained in the applicant’s 

financial statements. 

(2) Standards. A CDFI applicant, 

other than a CDFI credit union, shall be 

deemed to be in compliance with the 

financial condition requirement of 

§ 1263.6(a)(4) if it meets all of the 

following minimum financial standards: 

(i) Net asset ratio. The applicant’s 

ratio of net assets to total assets is at 

least 20 percent, with net and total 

assets including restricted assets, where 

net assets is calculated as the residual 

value of assets over liabilities and is 

based on information derived from the 

applicant’s most recent financial 

statements; 

(ii) Earnings. The applicant has 

shown a positive net income for two of 

the three most recent years, where net 

income is calculated as gross revenues 

less total expenses and is based on 

information derived from the 

applicant’s most recent financial 

statements; 

(iii) Loan loss reserves. The 

applicant’s ratio of loan loss reserves to 

loans and leases 90 days or more 

delinquent (including loans sold with 

full recourse) is at least 30 percent, 

where loan loss reserves are a specified 

balance sheet account that reflects the 

amount reserved for loans expected to 

be uncollectible and are based on 

information derived from the 

applicant’s most recent financial 

statements; 

(iv) Liquidity. The applicant has an 

operating liquidity ratio of at least 1.0 

for the current year, and for one or both 

of the two preceding years, where the 

numerator of the ratio includes 

unrestricted cash and cash equivalents 

and the denominator of the ratio is the 

average quarterly operating expense for 

the four most recent quarters. 

§ 1263.17 Rebuttable presumptions. 

(a) Rebutting presumptive 

compliance. The presumption that an 

applicant meeting the requirements of 

§§ 1263.7 to 1263.16 is in compliance 

with section 4(a) of the Bank Act (12 

U.S.C. 1424(a)) and § 1263.6(a) and (b) 

of this part, may be rebutted, and the 

Bank may deny membership to the 

applicant, if the Bank obtains 

substantial evidence to overcome the 

presumption of compliance. 

(b) Rebutting presumptive 

noncompliance. The presumption that 

an applicant not meeting a particular 

requirement of §§ 1263.8, 1263.11, 

1263.12, 1263.13, or 1263.16 is in 

noncompliance with section 4(a) of the 

Bank Act (12 U.S.C. 1424(a)) and 

§ 1263.6(a)(2), (4), (5), or (6) of this part, 

may be rebutted, and the applicant shall 

be deemed to meet such requirement, if 

the applicable requirements in this 

section are satisfied. 

(c) Presumptive noncompliance by 

insurance company applicant with 

‘‘subject to inspection and regulation’’ 

requirement of § 1263.8. If an insurance 

company applicant is not subject to 

inspection and regulation by an 

appropriate state regulator accredited by 

the National Association of Insurance 

Commissioners (NAIC), as required by 

§ 1263.8, the applicant or the Bank shall 

prepare a written justification that 

provides substantial evidence 

acceptable to the Bank that the 

applicant is subject to inspection and 

regulation as required by § 1263.6(a)(2), 

notwithstanding the lack of NAIC 

accreditation. 

(d) Presumptive noncompliance with 

financial condition requirements of 

§§ 1263.11 and 1263.16—(1) Applicants 

subject to § 1263.11. For applicants 

subject to § 1263.11, in the case of an 

applicant’s lack of a composite 

regulatory examination rating within the 

two-year period required by 

§ 1263.11(b)(1), a variance from the 

rating required by § 1263.11(b)(3)(i), or a 

variance from a performance trend 

criterion required by § 1263.11(b)(3)(i), 

the applicant or the Bank shall prepare 

a written justification pertaining to such 

requirement that provides substantial 

evidence acceptable to the Bank that the 

applicant is in the financial condition 

required by § 1263.6(a)(4), 

notwithstanding the lack of rating or 

variance. 

(2) Applicants subject to § 1263.16. 

For applicants subject to § 1263.16, in 

the case of an insurance company 

applicant’s variance from a capital 

requirement or standard of § 1263.16(a) 

or in the case of a CDFI applicant’s 

variance from the standards of 

§ 1263.16(b), the applicant or the Bank 

shall prepare a written justification 

pertaining to such requirement or 

standard that provides substantial 

evidence acceptable to the Bank that the 

applicant is in the financial condition 

required by § 1263.6(a)(4), 

notwithstanding the variance. 

(e) Presumptive noncompliance with 

character of management requirement 

of § 1263.12—(1) Enforcement actions. If 

an applicant or any of its directors or 

senior officers is subject to, or operating 

under, any enforcement action 

instituted by its appropriate regulator, 

the applicant shall provide or the Bank 

shall obtain: 

(i) Regulator confirmation. Written or 

verbal confirmation from the applicant’s 

appropriate regulator that the applicant 

or its directors or senior officers are in 

substantial compliance with all aspects 

of the enforcement action; or 

(ii) Written analysis. A written 

analysis acceptable to the Bank 

indicating that the applicant or its 

directors or senior officers are in 

substantial compliance with all aspects 

of the enforcement action. The written 

analysis shall state each action the 

applicant or its directors or senior 

officers are required to take by the 

enforcement action, the actions actually 

taken by the applicant or its directors or 

senior officers, and whether the 

applicant regards this as substantial 

compliance with all aspects of the 

enforcement action. 

(2) Criminal, civil or administrative 

proceedings. If an applicant or any of its 

directors or senior officers has been the 

subject of any criminal, civil or 

administrative proceedings reflecting 

upon creditworthiness, business 

judgment, or moral turpitude since the 

most recent regulatory examination 

report, or in the case of a CDFI 

applicant, during the past three years, 

the applicant shall provide or the Bank 

shall obtain: 

(i) Regulator confirmation. Written or 

verbal confirmation from the applicant’s 

appropriate regulator that the 

proceedings will not likely result in 

enforcement action; or 

(ii) Written analysis. A written 

analysis acceptable to the Bank 

indicating that the proceedings will not 

likely result in enforcement action, or in 

the case of a CDFI applicant, that the 

proceedings will not likely have a 

significantly deleterious effect on the 

applicant’s operations. The written 

analysis shall state the severity of the 

charges, and any mitigating action taken 

by the applicant or its directors or 

senior officers. 

(3) Criminal, civil or administrative 

monetary liabilities, lawsuits or 

judgments. If there are any known 

potential criminal, civil or 

administrative monetary liabilities, 

material pending lawsuits, or 

unsatisfied judgments against the 

applicant or any of its directors or 

senior officers since the most recent 

regulatory examination report, or in the 

case of a CDFI applicant, occurring 

within the past three years, that are 

significant to the applicant’s operations, 

the applicant shall provide or the Bank 

shall obtain: 

(i) Regulator confirmation. Written or 

verbal confirmation from the applicant’s 

appropriate regulator that the liabilities, 

lawsuits or judgments will not likely 

cause the applicant to fall below its 

22864 Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 

applicable capital requirements set forth 

in §§ 1263.11(b)(2) and 1263.16(a); or 

(ii) Written analysis. A written 

analysis acceptable to the Bank 

indicating that the liabilities, lawsuits or 

judgments will not likely cause the 

applicant to fall below its applicable 

capital requirements set forth in 

§ 1263.11(b)(2) or § 1263.16(a), or the 

net asset ratio set forth in 

§ 1263.16(b)(2)(i). The written analysis 

shall state the likelihood of the 

applicant or its directors or senior 

officers prevailing, and the financial 

consequences if the applicant or its 

directors or senior officers do not 

prevail. 

(f) Presumptive noncompliance with 

home financing policy requirements of 

§§ 1263.13 and 1263.14(d). If an 

applicant received a ‘‘Substantial NonCompliance’’ rating on its most recent 

formal, or if unavailable, informal or 

preliminary, Community Reinvestment 

Act (CRA) performance evaluation, or a 

‘‘Needs to Improve’’ CRA rating on its 

most recent formal, or if unavailable, 

informal or preliminary, CRA 

performance evaluation and a CRA 

rating of ‘‘Needs to Improve’’ or better 

on any immediately preceding CRA 

performance evaluation, the applicant 

shall provide or the Bank shall obtain: 

(1) Regulator confirmation. Written or 

verbal confirmation from the applicant’s 

appropriate regulator of the applicant’s 

recent satisfactory CRA performance, 

including any corrective action that 

substantially improved upon the 

deficiencies cited in the most recent 

CRA performance evaluation(s); or 

(2) Written analysis. A written 

analysis acceptable to the Bank 

demonstrating that the CRA rating is 

unrelated to home financing, and 

providing substantial evidence of how 

and why the applicant’s home financing 

credit policy and lending practices meet 

the credit needs of its community. 

§ 1263.18 Determination of appropriate 

Bank district for membership. 

(a) Eligibility. (1) An institution 

eligible to become a member of a Bank 

under the Bank Act and this part may 

become a member only of the Bank of 

the district in which the institution’s 

principal place of business is located, 

except as provided in paragraph (a)(2) of 

this section. A member shall promptly 

notify its Bank in writing whenever it 

relocates its principal place of business 

to another state and the Bank shall 

inform FHFA in writing of any such 

relocation. 

(2) An institution eligible to become 

a member of a Bank under the Bank Act 

and this part may become a member of 

the Bank of a district adjoining the 

district in which the institution’s 

principal place of business is located, if 

demanded by convenience and then 

only with the approval of FHFA. 

(b) Principal place of business. Except 

as otherwise designated in accordance 

with this section, the principal place of 

business of an institution is the state in 

which the institution maintains its 

home office established as such in 

conformity with the laws under which 

the institution is organized. 

(c) Designation of principal place of 

business. (1) A member or an applicant 

for membership may request in writing 

to the Bank in the district where the 

institution maintains its home office 

that a state other than the state in which 

it maintains its home office be 

designated as its principal place of 

business. Within 90 calendar days of 

receipt of such written request, the 

board of directors of the Bank in the 

district where the institution maintains 

its home office shall designate a state 

other than the state where the 

institution maintains its home office as 

the institution’s principal place of 

business, provided all of the following 

criteria are satisfied: 

(i) At least 80 percent of the 

institution’s accounting books, records 

and ledgers are maintained, located or 

held in such designated state; 

(ii) A majority of meetings of the 

institution’s board of directors and 

constituent committees are conducted 

in such designated state; and 

(iii) A majority of the institution’s five 

highest paid officers have their place of 

employment located in such designated 

state. 

(2) Written notice of a designation 

made pursuant to paragraph (c)(1) of 

this section shall be sent to the Bank in 

the district containing the designated 

state, FHFA and the institution. 

(3) The notice of designation made 

pursuant to paragraph (c)(1) of this 

section shall include the state 

designated as the principal place of 

business and the resulting Bank to 

which membership will be transferred. 

(4) If the board of directors of the 

Bank in the district where the 

institution maintains its home office 

fails to make the designation requested 

by the member or applicant pursuant to 

paragraph (c)(1) of this section, then the 

member or applicant may request in 

writing that FHFA make the 

designation. 

(d) Transfer of membership. (1) No 

transfer of membership from one Bank 

to another Bank shall take effect until 

the Banks involved reach agreement on 

a method of orderly transfer. 

(2) In the event that the Banks 

involved fail to agree on a method of 

orderly transfer, the FHFA shall 

determine the conditions under which 

the transfer shall take place. 

(e) Effect of transfer. A transfer of 

membership pursuant to this section 

shall be effective for all purposes, but 

shall not affect voting rights in the year 

of the transfer and shall not be subject 

to the provisions on termination of 

membership set forth in section 6 of the 

Bank Act (12 U.S.C. 1426) or §§ 1263.26 

and 1263.27, nor the restriction on 

reacquiring Bank membership set forth 

in § 1263.30. 

Subpart D—Stock Requirements 

§ 1263.19 Par value and price of stock. 

The capital stock of each Bank shall 

be sold at par, unless the Director has 

fixed a higher price. 

§ 1263.20 Stock purchase. 

(a) Minimum stock purchase. Each 

member shall purchase stock in the 

Bank of which it is a member in an 

amount specified by the Bank’s capital 

plan, except that each member of a Bank 

that has not converted to the capital 

structure authorized by the GLB Act 

shall purchase stock in the Bank in an 

amount equal to the greater of: 

(1) $500; 

(2) 1 percent of the member’s 

aggregate unpaid loan principal; or 

(3) 5 percent of the member’s 

aggregate amount of outstanding 

advances. 

(b) Timing of minimum stock 

purchase. (1) Within 60 calendar days 

after an institution is approved for 

membership in a Bank, the institution 

shall purchase its minimum stock 

requirement as set forth in paragraph (a) 

of this section. 

(2) In the case of a Bank that has not 

converted to the capital structure 

authorized by the GLB Act, an 

institution that has been approved for 

membership may elect to purchase its 

minimum stock requirement in 

installments, provided that not less than 

one-fourth of the total amount shall be 

purchased within 60 calendar days of 

the date of approval of membership, and 

that a further sum of not less than onefourth of such total shall be purchased 

at the end of each succeeding period of 

four months from the date of approval 

of membership. 

(c) Commencement of membership. 

An institution that has been approved 

for membership shall become a member 

at the time it purchases its minimum 

stock requirement or the first 

installment thereof pursuant to this 

section. 

(d) Failure to purchase minimum 

stock requirement. If an institution that 

Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 22865 

has submitted an application and been 

approved for membership fails to 

purchase its minimum stock 

requirement or its first installment 

within 60 calendar days of the date of 

its approval for membership, such 

approval shall be null and void and the 

institution, if it wants to become a 

member, shall be required to submit a 

new application for membership. 

(e) Reports. The Bank shall make 

reports to FHFA setting forth purchases 

by institutions approved for 

membership of their minimum stock 

requirement pursuant to this section in 

accordance with the instructions 

provided in the Data Reporting Manual 

issued by FHFA, as amended from time 

to time. 

§ 1263.21 Issuance and form of stock. 

(a) A Bank shall issue to each new 

member, as of the effective date of 

membership, stock in the member’s 

name for the amount of stock purchased 

and paid for in full. 

(b) If the member purchases stock in 

installments, the stock shall be issued in 

installments with the appropriate 

number of shares issued after each 

payment is made. 

(c) A Bank that has not converted to 

the capital structure authorized by the 

GLB Act may issue stock in certificated 

or uncertificated form at the discretion 

of the Bank. 

(d) A Bank that has not converted to 

the capital structure authorized by the 

GLB Act may convert all outstanding 

certificated stock to uncertificated form 

at its discretion. 

§ 1263.22 Adjustments in stock holdings. 

(a) Adjustment in general. A Bank 

may from time to time increase or 

decrease the amount of stock any 

member is required to hold. 

(b)(1) Annual adjustment. A Bank 

shall calculate annually, in the manner 

set forth in § 1263.20(a), each member’s 

required minimum holdings of stock in 

the Bank in which it is a member using 

calendar year-end financial data 

provided by the member to the Bank, 

pursuant to § 1263.31(d), and shall 

notify each member of the adjustment. 

The notice shall clearly state that the 

Bank’s calculation of each member’s 

minimum stock holdings is to be used 

to determine the number of votes that 

the member may cast in that year’s 

election of directors and shall identify 

the state within the district in which the 

member will vote. A member that does 

not agree with the Bank’s calculation of 

the minimum stock requirement or with 

the identification of its voting state may 

request FHFA to review the Bank’s 

determination. FHFA shall promptly 

determine the member’s minimum 

required holdings and its proper voting 

state, which determination shall be 

final. 

(2) Redemption of excess shares. If, in 

the case of a Bank that has not 

converted to the capital structure 

authorized by the GLB Act and after the 

annual adjustment required by 

paragraph (b)(1) of this section is made, 

the amount of stock that a member is 

required to hold is decreased, the Bank 

may, in its discretion and upon proper 

application of the member, retire such 

excess stock, and the Bank shall pay for 

each share upon surrender of the stock 

an amount equal to the par value thereof 

(except that if at any time FHFA finds 

that the paid-in capital of a Bank is or 

is likely to be impaired as a result of 

losses in or depreciation of the assets 

held, the Bank shall on the order of 

FHFA withhold from the amount to be 

paid in retirement of the stock a pro rata 

share of the amount of such impairment 

as determined by FHFA) or, at its 

election, the Bank may credit any part 

of such payment against the member’s 

debt to the Bank. The Bank’s authority 

to retire such excess stock shall be 

further subject to the limitations of 

section 6(f) of the Bank Act (12 U.S.C. 

1426(f)). 

(c) A member’s stock holdings shall 

not be reduced under this section to an 

amount less than required by sections 

6(b) and 10(c) of the Bank Act (12 U.S.C. 

1426(b), 1430(c)). 

§ 1263.23 Excess stock. 

(a) Sale of excess stock. Subject to the 

restriction in paragraph (b) of this 

section, a member may purchase excess 

stock as long as the purchase is 

approved by the member’s Bank and is 

permitted by the laws under which the 

member operates. 

(b) Restriction. Any Bank with excess 

stock greater than 1 percent of its total 

assets shall not declare or pay any 

dividends in the form of additional 

shares of Bank stock or otherwise issue 

any excess stock. A Bank shall not issue 

excess stock, as a dividend or otherwise, 

if after the issuance, the outstanding 

excess stock at the Bank would be 

greater than 1 percent of its total assets. 

Subpart E—Consolidations Involving 

Members 

§ 1263.24 Consolidations involving 

members. 

(a) Consolidation of members. Upon 

the consolidation of two or more 

institutions that are members of the 

same Bank into one institution 

operating under the charter of one of the 

consolidating institutions, the 

membership of the surviving institution 

shall continue and the membership of 

each disappearing institution shall 

terminate on the cancellation of its 

charter. Upon the consolidation of two 

or more institutions, at least two of 

which are members of different Banks, 

into one institution operating under the 

charter of one of the consolidating 

institutions, the membership of the 

surviving institution shall continue and 

the membership of each disappearing 

institution shall terminate upon 

cancellation of its charter, provided, 

however, that if more than 80 percent of 

the assets of the consolidated institution 

are derived from the assets of a 

disappearing institution, then the 

consolidated institution shall continue 

to be a member of the Bank of which 

that disappearing institution was a 

member prior to the consolidation, and 

the membership of the other institutions 

shall terminate upon the effective date 

of the consolidation. 

(b) Consolidation into nonmember— 

(1) In general. Upon the consolidation of 

a member into an institution that is not 

a member of a Bank, where the 

consolidated institution operates under 

the charter of the nonmember 

institution, the membership of the 

disappearing institution shall terminate 

upon the cancellation of its charter. 

(2) Notification. If a member has 

consolidated into a nonmember that has 

its principal place of business in a state 

in the same Bank district as the former 

member, the consolidated institution 

shall have 60 calendar days after the 

cancellation of the charter of the former 

member within which to notify the 

Bank of the former member that the 

consolidated institution intends to 

apply for membership in such Bank. If 

the consolidated institution does not so 

notify the Bank by the end of the period, 

the Bank shall require the liquidation of 

any outstanding indebtedness owed by 

the former member, shall settle all 

outstanding business transactions with 

the former member, and shall redeem or 

repurchase the Bank stock owned by the 

former member in accordance with 

§ 1263.29. 

(3) Application. If such a consolidated 

institution has notified the appropriate 

Bank of its intent to apply for 

membership, the consolidated 

institution shall submit an application 

for membership within 60 calendar days 

of so notifying the Bank. If the 

consolidated institution does not submit 

an application for membership by the 

end of the period, the Bank shall require 

the liquidation of any outstanding 

indebtedness owed by the former 

member, shall settle all outstanding 

business transactions with the former 

22866 Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 

member, and shall redeem or 

repurchase the Bank stock owned by the 

former member in accordance with 

§ 1263.29. 

(4) Outstanding indebtedness. If a 

member has consolidated into a 

nonmember institution, the Bank need 

not require the former member or its 

successor to liquidate any outstanding 

indebtedness owed to the Bank or to 

redeem its Bank stock, as otherwise may 

be required under § 1263.29, during: 

(i) The initial 60 calendar-day 

notification period; 

(ii) The 60 calendar-day period 

following receipt of a notification that 

the consolidated institution intends to 

apply for membership; and 

(iii) The period of time during which 

the Bank processes the application for 

membership. 

(5) Approval of membership. If the 

application of such a consolidated 

institution is approved, the consolidated 

institution shall become a member of 

that Bank upon the purchase of the 

amount of Bank stock required by 

section 6 of the Bank Act (12 U.S.C. 

1426). If a Bank’s capital plan has not 

taken effect, the amount of stock that the 

consolidated institution is required to 

own shall be as provided in §§ 1263.20 

and 1263.22. If the capital plan for the 

Bank has taken effect, the amount of 

stock that the consolidated institution is 

required to own shall be equal to the 

minimum investment established by the 

capital plan for that Bank. 

(6) Disapproval of membership. If the 

Bank disapproves the application for 

membership of the consolidated 

institution, the Bank shall require the 

liquidation of any outstanding 

indebtedness owed by, and the 

settlement of all other outstanding 

business transactions with, the former 

member, and shall redeem or 

repurchase the Bank stock owned by the 

former member in accordance with 

§ 1263.29. 

(c) Dividends on acquired Bank stock. 

A consolidated institution shall be 

entitled to receive dividends on the 

Bank stock that it acquires as a result of 

a consolidation with a member in 

accordance with applicable FHFA 

regulations. 

(d) Stock transfers. With regard to any 

transfer of Bank stock from a 

disappearing member to the surviving or 

consolidated member, as appropriate, 

for which the approval of FHFA is 

required pursuant to section 6(f) of the 

Bank Act (12 U.S.C. 1426(f)), as in effect 

prior to November 12, 1999, such 

transfer shall be deemed to be approved 

by FHFA by compliance in all 

applicable respects with the 

requirements of this section. 

Subpart F—Withdrawal and Removal 

From Membership 

§ 1263.26 Voluntary withdrawal from 

membership. 

(a) In general. (1) Any institution may 

withdraw from membership by 

providing to the Bank written notice of 

its intent to withdraw from 

membership. A member that has so 

notified its Bank shall be entitled to 

have continued access to the benefits of 

membership until the effective date of 

its withdrawal, but the Bank need not 

commit to providing any further 

services, including advances, to a 

withdrawing member that would mature 

or otherwise terminate subsequent to 

the effective date of the withdrawal. A 

member may cancel its notice of 

withdrawal at any time prior to its 

effective date by providing a written 

cancellation notice to the Bank. A Bank 

may impose a fee on a member that 

cancels a notice of withdrawal, 

provided that the fee or the manner of 

its calculation is specified in the Bank’s 

capital plan. 

(2) A Bank shall notify FHFA within 

10 calendar days of receipt of any notice 

of withdrawal or notice of cancellation 

of withdrawal from membership. 

(b) Effective date of withdrawal. The 

membership of an institution that has 

submitted a notice of withdrawal shall 

terminate as of the date on which the 

last of the applicable stock redemption 

periods ends for the stock that the 

member is required to hold, as of the 

date that the notice of withdrawal is 

submitted, under the terms of a Bank’s 

capital plan as a condition of 

membership, unless the institution has 

cancelled its notice of withdrawal prior 

to the effective date of the termination 

of its membership. 

(c) Stock redemption periods. The 

receipt by a Bank of a notice of 

withdrawal shall commence the 

applicable 6-month and 5-year stock 

redemption periods, respectively, for all 

of the Class A and Class B stock held by 

that member that is not already subject 

to a pending request for redemption. In 

the case of an institution the 

membership of which has been 

terminated as a result of a merger or 

other consolidation into a nonmember 

or into a member of another Bank, the 

applicable stock redemption periods for 

any stock that is not subject to a 

pending notice of redemption shall be 

deemed to commence on the date on 

which the charter of the former member 

is cancelled. 

(d) Certification. No institution may 

withdraw from membership unless, on 

the date that the membership is to 

terminate, there is in effect a 

certification from FHFA that the 

withdrawal of a member will not cause 

the Bank System to fail to satisfy its 

requirements under section 21B(f)(2)(C) 

of the Bank Act (12 U.S.C. 

1441b(f)(2)(C)) to contribute toward the 

interest payments owed on obligations 

issued by the Resolution Funding 

Corporation. 

§ 1263.27 Involuntary termination of 

membership. 

(a) Grounds. The board of directors of 

a Bank may terminate the membership 

of any institution that: 

(1) Fails to comply with any 

requirement of the Bank Act, any 

regulation adopted by FHFA, or any 

requirement of the Bank’s capital plan; 

(2) Becomes insolvent or otherwise 

subject to the appointment of a 

conservator, receiver, or other legal 

custodian under federal or state law; or 

(3) Would jeopardize the safety or 

soundness of the Bank if it were to 

remain a member. 

(b) Stock redemption periods. The 

applicable 6-month and 5-year stock 

redemption periods, respectively, for all 

of the Class A and Class B stock owned 

by a member and not already subject to 

a pending request for redemption, shall 

commence on the date that the Bank 

terminates the institution’s membership. 

(c) Membership rights. An institution 

whose membership is terminated 

involuntarily under this section shall 

cease being a member as of the date on 

which the board of directors of the Bank 

acts to terminate the membership, and 

the institution shall have no right to 

obtain any of the benefits of 

membership after that date, but shall be 

entitled to receive any dividends 

declared on its stock until the stock is 

redeemed or repurchased by the Bank. 

Subpart G—Orderly Liquidation of 

Advances and Redemption of Stock 

§ 1263.29 Disposition of claims. 

(a) In general. If an institution 

withdraws from membership or its 

membership is otherwise terminated, 

the Bank shall determine an orderly 

manner for liquidating all outstanding 

indebtedness owed by that member to 

the Bank and for settling all other claims 

against the member. After all such 

obligations and claims have been 

extinguished or settled, the Bank shall 

return to the member all collateral 

pledged by the member to the Bank to 

secure its obligations to the Bank. 

(b) Bank stock. If an institution that 

has withdrawn from membership or that 

otherwise has had its membership 

terminated remains indebted to the 

Bank or has outstanding any business 

Federal Register / Vol. 74, No. 93 / Friday, May 15, 2009 / Proposed Rules 22867 

transactions with the Bank after the 

effective date of its termination of 

membership, the Bank shall not redeem 

or repurchase any Bank stock that is 

required to support the indebtedness or 

the business transactions until after all 

such indebtedness and business 

transactions have been extinguished or 

settled. 

Subpart H—Reacquisition of 

Membership 

§ 1263.30 Readmission to membership. 

(a) In general. An institution that has 

withdrawn from membership or 

otherwise has had its membership 

terminated and which has divested all 

of its shares of Bank stock, may not be 

readmitted to membership in any Bank, 

or acquire any capital stock of any Bank, 

for a period of 5 years from the date on 

which its membership terminated and it 

divested all of its shares of Bank stock. 

(b) Exceptions. An institution that 

transfers membership between two 

Banks without interruption shall not be 

deemed to have withdrawn from Bank 

membership or had its membership 

terminated. 

Subpart I—Bank Access to Information 

§ 1263.31 Reports and examinations. 

As a condition precedent to Bank 

membership, each member: 

(a) Consents to such examinations as 

the Bank or FHFA may require for 

purposes of the Bank Act; 

(b) Agrees that reports of 

examinations by local, state or federal 

agencies or institutions may be 

furnished by such authorities to the 

Bank or FHFA upon request; 

(c) Agrees to give the Bank or the 

appropriate Federal banking agency, 

upon request, such information as the 

Bank or the appropriate Federal banking 

agency may need to compile and 

publish cost of funds indices and to 

publish other reports or statistical 

summaries pertaining to the activities of 

Bank members; 

(d) Agrees to provide the Bank with 

calendar year-end financial data each 

year, for purposes of making the 

calculation described in § 1263.22(b)(1); 

and 

(e) Agrees to provide the Bank with 

copies of reports of condition and 

operations required to be filed with the 

member’s appropriate Federal banking 

agency, if applicable, within 20 calendar 

days of filing, as well as copies of any 

annual report of condition and 

operations required to be filed. 

Subpart J—Membership Insignia 

§ 1263.32 Official membership insignia. 

Members may display the approved 

insignia of membership on their 

documents, advertising and quarters, 

and likewise use the words ‘‘Member 

Federal Home Loan Bank System.’’ 

Dated: May 7, 2009. 

James B. Lockhart III, 

Director, Federal Housing Finance Agency. 

[FR Doc. E9–11329 Filed 5–14–09; 8:45 am] 

BILLING CODE 8070–01–P 

DEPARTMENT OF AGRICULTURE 

Forest Service 

36 CFR Part 242 

DEPARTMENT OF THE INTERIOR 

Fish and Wildlife Service 

50 CFR Part 100 

[FWS–R7–SM–2009–0001; 70101–1261– 

0000L6] 

RIN 1018–AW30 

Subsistence Management Regulations 

for Public Lands in Alaska—2010–11 

and 2011–12 Subsistence Taking of 

Wildlife Regulations 

AGENCIES: Forest Service, Agriculture; 

Fish and Wildlife Service, Interior. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

establish regulations for hunting and 

trapping seasons, harvest limits, 

methods, and means related to taking of 

wildlife for subsistence uses during the 

2010–11 and 2011–12 regulatory years. 

The Federal Subsistence Board 

completes the biennial process of 

revising subsistence hunting and 

trapping regulations in even-numbered 

years and subsistence fishing and 

shellfish regulations in odd-numbered 

years; public proposal and review 

processes take place during the 

preceding year. The Board also 

addresses customary and traditional use 

determinations during the applicable 

biennial cycle. When final, the resulting 

rulemaking will replace the existing 

subsistence wildlife taking regulations, 

which expire on June 30, 2010. This 

rule would also amend the customary 

and traditional use determinations of 

the Federal Subsistence Board and the 

general regulations on subsistence 

taking of fish and wildlife. 

DATES: Public meetings: The Federal 

Subsistence Regional Advisory Councils 

will hold public meetings to receive 

comments and make proposals to 

change this proposed rule on several 

dates between August 25 and October 

28, 2009, and then hold another round 

of public meetings to discuss and 

receive comments on the proposals, and 

make recommendations on the 

proposals to the Federal Subsistence 

Board, on several dates between 

February and April, 2010. The Board 

will discuss and evaluate proposed 

regulatory changes during a public 

meeting in Anchorage, AK, on May 4, 

2010. See SUPPLEMENTARY INFORMATION

for specific information on dates and 

locations of the public meetings. 

Public comments: Comments and 

proposals to change this proposed rule 

must be received or postmarked by 

November 5, 2009. 

ADDRESSES: Public meetings: The 

Federal Subsistence Board and the 

Regional Advisory Councils’ public 

meetings will be held at various 

locations in Alaska. See SUPPLEMENTARY

INFORMATION for specific information on 

dates and locations of the public 

meetings. 

Public comments: You may submit 

comments by one of the following 

methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• U.S. mail or hand-delivery to: 

USFWS, Office of Subsistence 

Management, 1011 East Tudor Road, MS 

121, Attn: Theo Matuskowitz, 

Anchorage, AK 99503–6199. 

• Hand delivery to the Designated 

Federal Official attending any of the 

Federal Subsistence Regional Advisory 

Council public meetings. See 

SUPPLEMENTARY INFORMATION for 

additional information on locations of 

the public meetings. 

We will post all comments on http:// 

www.regulations.gov. This generally 

means that we will post any personal 

information you provide us (see the 

Public Review Process section below for 

more information). 

FOR FURTHER INFORMATION CONTACT: 

Chair, Federal Subsistence Board, c/o 

U.S. Fish and Wildlife Service, 

Attention: Peter J. Probasco, Office of 

Subsistence Management; (907) 786– 

3888 or subsistence@fws.gov. For 

questions specific to National Forest 

System lands, contact Calvin Casipit, 

Regional Subsistence Program Leader, 

USDA, Forest Service, Alaska Region; 

(907) 586–7918. 

SUPPLEMENTARY INFORMATION: