The Federal Housing Finance Agency has finalized a rule to allow credit unions without federal share insurance to become Federal Home Loan Bank (FHLBank) members in order to implement changes under the Fixing America’s Surface Transportation Act. The final rule is substantially the same form as the proposed rule, except for a revision intended to streamline the application process. The final rule takes effect July 5, 2017.
Non-federally-insured credit unions. Until recently, state-chartered credit unions without federal share insurance were ineligible for FHLBank membership, except to the limited extent that a credit union certified as a "community development financial institution" (CDFI) could meet the eligibility requirements applicable to CDFIs.
In December 2015, Congress enacted the FAST Act, which amended Federal Home Loan Bank Act to permit credit unions without federal share insurance that were not certified as CDFIs, referred to as non-federally-insured credit unions (NFICUs), to become FHLBank members, provided that certain prerequisites are met.
FHFA’s final rule implements the amended law as it pertains to NFICUs. CDFI-certified credit unions would continue to be treated as they are under the existing regulations and would not be subject to the proposed regulatory provisions governing NFICUs.
Application prerequisites. In accordance with the final rule, any qualifying NFICU applying for FHLBank membership is subject to all of the provisions of the membership regulations that apply to insured depository institutions generally, except where otherwise provided.
As a result, a qualifying NFICU applicant is eligible for membership only if:
- it is duly organized under federal or state law;
- it is subject to inspection and regulation under federal or state banking laws, or similar laws;
- it makes long-term home mortgage loans;
- its financial condition is such that advances may be safely made to it (the financial condition requirement);
- its management and its home financing policy are both consistent with sound and economical home financing; and
- it has at least 10 percent of its assets in "residential mortgage loans."
With the exception of the financial condition requirement, an NFICU applicant would be required to demonstrate compliance with each of those eligibility requirements in the same manner that is required of insured depository institutions generally. NFICU applicants will be required to demonstrate compliance with the financial condition requirement in the same manner as a CDFI-certified credit union.
Application process. The final rule also adds a new section 1263.19 that sets forth the application process. An NFICU initiates the application process by first submitting to the FHLBank all of the information that the FHLBank generally requires to process membership applications from federally insured depository institutions, including all of the information needed to demonstrate compliance with the eligibility requirements.
Once the FHLBank has obtained that information, the FHLBank must notify the NFICU that its application will not be deemed to be complete until the FHLBank has received acceptable documentation that the NFICU’s state regulator has determined that the NFICU satisfies the requirements for obtaining federal share insurance as of the date of the request. After receiving the notice, the NFICU should submit a written request to its state regulator for the required determination and send a copy of the request to the FHLBank.
The FHLBank must deem an NFICU’s application complete after it has received any one of the following items:
- a written statement from the state regulator confirming that the NFICU satisfies the requirements for federal share insurance;
- a written statement from the state regulator that it is unable to make that determination; or
- a written statement from the NFICU that it has not received either a response from the state regulator within six months from the date of the NFICU’s request or a response stating that the NFICU does not meet the requirements for federal share insurance.
Once the application is deemed complete, the FHLBank must either approve or deny the application within 60 calendar days of the date it made the determination—the same amount of time afforded to any other type of eligible institution.
Change from proposed rule. In September 2016, FHFA issued the proposed rule for input and received comments from one FHLBank, one provider of private credit union share insurance, and five credit union trade associations (see Banking and Finance Law Daily, Sept. 27, 2016). According to FHFA, all generally supported the proposal, but each suggested one or two amendments.
After carefully considering the submissions, FHFA adopted one suggestion and revised the final rule to permit an NFICU applicant to submit its official request for a determination to its state regulator at any time after it has submitted its application to the FHLBank to initiate the membership application process. Under the proposed rule, the NFICU applicant could not submit its determination to its state regulator until the FHLBank had deemed the application provisionally complete. FHFA said that it was persuaded that allowing an NFICU to request a determination at an earlier stage in the membership application process would result in a more efficient process than would the approach of the proposed rule.
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