FHFA Issues Final Rule Amending Regulations Governing Eligibility for FHLBank Membership

On January 12, the FHFA issued a final rule amending membership eligibility in the Federal Home Loan Bank (FHLBank) system. The final rule, which follows the FHFAs September 2014 proposal to revise the requirements for financial institutions applying for and retaining membership in the FHLBank system, removes two provisions from the proposal that would have required FHLBank members to maintain ongoing minimum levels of investment in specified residential mortgage assets as a condition of remaining eligible for membership. In addition, the final rule defines insurance company to exclude captive insurers, rendering such entities ineligible for FHLBank membership. According to the FHFA, a captive insurers primary business is to underwrite insurance for its parent company or for other affiliates, rather than for the public at large. According to the FHFA, REITs and other entities have been forming captives solely for the purpose of providing ineligible institutions access to Bank advances, and the FHFAs final rule is intended to prevent further use of captives to circumvent the membership eligibility of the Bank Act. The final rule allows current captive insurer members who joined prior to the 2014 proposal up to five years to terminate their membership, and captive insurers who joined after the issuance of the 2014 proposal have one year to terminate. The final rule becomes effective 30 days from publication in the Federal Register.