Recent Regulatory Comment Call & Final Rule Analysis

CUNA
June 19, 2009 | COMMENTS

Proposed Revisions to Federal Home Loan Bank Membership to Include Non-Federally Insured CDFI Credit Unions

The Federal Housing Finance Agency (FHFA) has issued a proposal that will extend membership in Federal Home Loan Banks (FHLBs) to qualified Community Development Financial Institutions (CDFI) that are not federally insured. These are specific changes to implement provisions of the Federal Home Loan Bank Act (FHLB Act), which was amended by Section 1206 of the Housing and Economic Recovery Act of 2008 (HERA).

FHLBs are cooperative institutions owned by their members and provide low-cost financing for financial institutions for the making of various types of loans. Under the FHLB Act, each member of an FHLB must be either a building and loan association, cooperative bank, homestead association, insurance company, savings bank, or federally insured credit union. HERA expanded these requirements so that non-federally insured CDFI's could become members of an FHLB if they met certain criteria, listed below.

Institutions now allowed to become members of an FHLB must qualify for certification by the CDFI Fund under the Community Development Banking and Financial Institutions Act of 1994 (CDFI Act). Such institutions include loan funds, venture capital funds and state-chartered credit unions without federal deposit Insurance. These institutions must meet current membership criteria, such as buying FHLB stock and pledging collateral.

In addition to the criteria listed above, a non-federally insured CDFI seeking FHLB membership must also demonstrate that it:

• Is duly organized under a state or federal law;
• Is either subject to inspection and regulation or certified as a CDFI under the CDFI Act;
• Makes long-term mortgage loans;
• Has at least 10 percent of their total assets in residential mortgage loans;
• Is in sound financial condition;
• Has sound character of management; and
• Has a sound home-financing policy

Comments on the proposed rule are due by July 14, 2009. Please submit comments to CUNA by July 6, 2009.

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.coop and to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.coop ; or mail them to Mary and Jeff in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you have questions or would like a copy of the proposed rules. You may also access a copy of the rules here.

> Read the full comment call @ cuna.org

Fed Rule Authorizing Excess Balance Accounts and Earnings on Balances

The Federal Reserve Board (Fed) has issued a final rule that amends Regulation D, Reserve Requirements for Depository Institutions, to: 1) direct Federal Reserve Banks to continue paying interest on certain balances held by or on behalf of depository institutions, including state and federally-charted credit unions; and 2) authorize the establishment of "excess balance accounts" (EBAs) at Reserve Banks.

Last October, the Fed adopted an interim final rule that directed Reserve Banks to pay interest on certain balances held by "eligible institutions." The final rule revises those provisions as they apply to balances of respondents maintained by ineligible "pass-through correspondents."

The final rule provides that required reserve balances maintained in an "ineligible pass-through correspondent's" account on behalf of its respondents will receive interest; which must then be passed back to said respondents. Although, similarly held excess balance accounts will not bear interest.

Both required reserve and excess balances in the account of an "eligible pass-through correspondent" will continue to receive interest and those correspondents are permitted, but not required, to pass back that interest to their respondents.

In addition, the final rule amends Regulation D to authorize the establishment of EBAs at Reserve Banks; which are limited-purpose accounts for maintaining excess balances that are eligible to earn interest.

The final rule is effective as of July 2, 2009.

If you have questions regarding the final rule, please contact Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com or (800) 356-9655, extension 6736, or contact Regulatory Research Counsel Luke Martone at lmartone@cuna.com or (800) 356-9655, extension 6743. Click here for the final rule.

> Click here to read the full final rule analysis @ cuna.org