Transparency in Federal Home Loan Bank Membership Act of 2020

To amend the Federal Home Loan Bank Act to enable captive insurance companies to apply for membership in the Federal Home Loan Bank System, to add additional membership criteria for captive insurance companies, to require a study on Federal Home Loan Bank membership, and for other purposes. 1. Short title This Act may be cited as the Transparency in Federal Home Loan Bank Membership Act of 2020 2. Definitions Section 2 of the Federal Home Loan Bank Act ( 12 U.S.C. 1422 (13) Captive insurance company The term captive insurance company (14) Insurance company The term insurance company (15) Parent company The term parent company . 3. Captive insurance company eligibility for membership (a) In general Section 4(a) of the Federal Home Loan Bank Act ( 12 U.S.C. 1424(a) (6) Eligible captive insurance companies (A) In general A captive insurance company shall be eligible to become a member of a Federal Home Loan Bank only if the parent company of the captive insurance company meets the following requirements: (i) Mission alignment standards (I) Housing investment At least 51 percent of the total assets of the parent company are invested in residential mortgage loans. (II) Form of investments At least 60 percent of the total assets of the parent company are held in real estate assets, cash and cash equivalents, and government securities (as such terms are used under section 856(c)(4)(A) (ii) Capital standards Such capital standards as the Director determines appropriate, by rule, which shall be as close as practicable to those capital standards applicable to insured depository institutions (as defined under section 3 of the Federal Deposit Insurance Act). (B) Ongoing membership (i) Reporting requirement Every 5 years after becoming a member of a Federal Home Loan Bank, a captive insurance company shall submit a report, prepared by a third-party auditor, to the Director containing information on compliance by the parent company with the requirements described under subparagraph (A). (ii) Parent company requirements A parent company of a captive insurance company that is a member of a Federal Home Loan Bank shall— (I) maintain the mission alignment standards described under subparagraph (A)(i); (II) maintain the capital standards described under subparagraph (A)(ii); (III) be deemed a regulated entity 12 U.S.C. 4514 (IV) be subject to such additional reporting requirements as the Director determines appropriate, by rule. (iii) Failure to meet mission alignment standards requirement If the Director determines that a parent company no longer meets the mission alignment standards described under subparagraph (A)(i), the Director shall require the parent company to file quarterly reports with the Director for a 1-year period, showing how the parent company is seeking to comply with such mission alignment standards. (iv) Report on parent company compliance with capital standards (I) In general Each captive insurance company that is a member of a Federal Home Loan Bank shall issue a quarterly report to the Bank containing information on the compliance, by the parent company of the captive insurance company, with the capital standards described under subparagraph (A)(ii). (II) Report on non-compliance If a Federal Home Loan Bank receiving reports described under subclause (I) determines that a parent company has failed to meet the capital standards described under subparagraph (A)(ii) for 2 consecutive quarters, the Bank shall notify the Director of such failure. (v) Failure to meet capital standards requirement If the Director determines that a parent company no longer meets the capital standards described under subparagraph (A)(ii), the Director shall require the parent company to file a capital restoration plan with the Director and the Federal Home Loan Bank with respect to which the parent company’s captive insurance company is a member. (vi) Termination of membership A captive insurance company’s membership of a Federal Home Loan Bank shall be terminated, in accordance with section 6(d)(2) of the Federal Home Loan Bank Act ( 12 U.S.C. 1426(d)(2) (I) the parent company of the captive insurance company does not submit a capital restoration plan required under clause (v) that is substantially in compliance with section 1369C of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 ( 12 U.S.C. 4622 (II) the Director does not approve such a capital restoration plan required under clause (v); (III) the Director determines that the parent company has failed to comply with such a capital restoration plan; or (IV) with respect to a parent company that the Director has determined no longer meets the mission alignment standards described under subparagraph (A)(i), the parent company has not returned to compliance with such standards before the end of the 1-year period described under clause (iii). (vii) Reapplication A captive insurance company whose membership in a Federal Home Loan Bank is terminated under clause (vi) may not reapply for membership in a Federal Home Loan Bank until the end of the 5-year period beginning on the date of such termination. (C) Parent company support (i) In general The Director shall require the parent company of the captive insurance company, in the event that the captive insurance company defaults on any amounts owed to a Federal Home Loan Bank, to pay the Bank the amount of any such default. (ii) Enforcement powers For purposes of enforcing this subparagraph, a parent company shall be deemed a regulated entity under sections 1371, 1372, and 1376 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 ( 12 U.S.C. 4631 (D) Clarification of priority of secured interests Any security interest granted to a Federal Home Loan Bank by any captive insurance company, or by its parent company or any affiliate company on its behalf, shall be entitled to priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor) other than claims and rights that— (i) would be entitled to priority under otherwise applicable law; and (ii) are held by actual bona fide purchasers for value or by actual secured parties that are secured by actual perfected security interests. . (b) Rulemaking Not later than the end of the 1-year period beginning on the date of enactment of this Act, the Director of the Federal Housing Finance Agency shall issue the capital standards and reporting requirements rules described under subparagraphs (A)(ii) and (B)(ii)(IV) of section 4(a)(6) of the Federal Home Loan Bank Act. (c) Applicability Section 4(a)(6) of the Federal Home Loan Bank Act, as added by subsection (a), shall take effect with respect to a captive insurance company on the effective date of the rules required under subsection (b). (d) Captive insurance company eligibility transition period A captive insurance company that has, or will have, the company’s membership in a Federal Home Loan Bank terminated due solely to the change in the treatment of captive insurance companies under the final rule of the Federal Housing Finance Agency titled Members of Federal Home Loan Banks (1) the Federal Home Loan Bank determines, including based on information submitted by the captive insurance company, that— (A) the affiliate insured by the captive insurance company makes, owns, or acquires residential mortgage loans; and (B) the captive insurance company will comply with the membership eligibility requirements described in paragraphs (a), (b), and (c) of section 1263.6 of title 12, Code of Federal Regulations, during such period; and (2) the captive insurance company continues to be owned, or upon restoration of membership is owned and continues to be owned, including direct ownership by a controlling entity or indirect ownership through one or more holding companies, by the same entity that owned the captive insurance company on the date of enactment of this subsection. 4. Study on impact of expansion of membership (a) Study The Director of the Federal Housing Finance Agency shall conduct a study on the impact of the expansion of the Federal Home Loan Bank System to additional types of entities involved in the housing finance system. The study shall consider— (1) how liquidity provided through the Federal Home Loan Bank System could be increased in a manner that is consistent with its mission; (2) what initial and ongoing capital and reporting requirements for membership could be used to minimize risk to the Federal Home Loan Bank System; (3) how the Federal Housing Finance Agency could use its oversight and authority to ensure that expanded membership would not pose excessive risk to the Federal Home Loan Bank System; (4) mitigants and transaction structures to address risk of an insolvency proceeding affecting the parent of a captive insurance company member; and (5) other topics relevant to developing a framework for membership that promotes the mission of the Federal Home Loan Bank System. (b) Report Not later than one year after the date of enactment of this Act, the Director shall submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives a report on the study required under subsection (a), including all findings and determinations made in carrying out the study.

Summary: Transparency in Federal Home Loan Bank Membership Act of 2020 This bill allows a captive insurance company—an insurer that primarily insures its parent company and affiliates—to apply for membership with a Federal Home Loan Bank. To qualify for membership, the parent company of a captive insurance company must comply with certain investment requirements and capital standards.