Title: Transparency in Federal Home Loan Bank Membership Act of 2020
Policy area: Finance and Financial Sector

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.

[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[H.R. 8872 Introduced in House (IH)]

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116th CONGRESS
  2d Session
                                H. R. 8872

  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.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            December 4, 2020

 Mr. Hollingsworth (for himself and Mr. Heck) introduced the following 
    bill; which was referred to the Committee on Financial Services

_______________________________________________________________________

                                 A BILL


 
  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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Transparency in Federal Home Loan 
Bank Membership Act of 2020''.

SEC. 2. DEFINITIONS.

    Section 2 of the Federal Home Loan Bank Act (12 U.S.C. 1422) is 
amended by adding at the end the following:
            ``(13) Captive insurance company.--The term `captive 
        insurance company' means an insurance company whose primary 
        business is the insurance of its affiliates.
            ``(14) Insurance company.--The term` insurance company' 
        means an entity that holds an insurance license or charter 
        under the laws of a State.
            ``(15) Parent company.--The term `parent company' means the 
        ultimate parent company.''.

SEC. 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)) is amended by adding at the end the following:
            ``(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) of the Internal Revenue 
                                Code of 1986).
                            ``(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' under section 1314 of the 
                                Federal Housing Enterprises Financial 
                                Safety and Soundness Act of 1992 (12 
                                U.S.C. 4514); and
                                    ``(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)), if--
                                    ``(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) 
                                within the applicable period;
                                    ``(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, 4632, 
                        and 4636).
                    ``(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'' (81 Fed. Reg. 3246; published January 20, 2016) may 
continue membership or have membership restored, as applicable, in the 
same Federal Home Loan Bank during the period beginning on the date of 
enactment of this Act and ending on the day the Director issues the 
rules required under subsection (b), if--
            (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.

SEC. 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.
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