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Change in FHLB Membership Criteria Proposed

Posted on 9/3/2014

The Federal Housing Finance Agency yesterday proposed several significant changes to eligibility for membership in the Federal Home Loan Bank system. In a new quantitative test that the agency said reflects its statutory mandate, members would be required to hold 1 percent of assets in home mortgage loans. They would also be required to have at least 10 percent of assets in residential mortgage loans on an ongoing basis, not just upon application for membership.

The FHLBs would be required to ensure member compliance with these requirements each year, calculating the relevant ratios based on a three-year rolling average. FHLB members not meeting these requirements would be given one year to return to compliance. The FHFA proposed to expand the list of assets that qualify as "home mortgage loans" for the 1 percent test to include securities fully backed by first mortgages on single- or multifamily properties and by other securities backed by these loans.

The rule would also revise insurance company membership eligibility to exclude captive insurers. In 2011, ABA opposed a similar advance notice of rulemaking on FHLB membership, noting that eligibility should be defined by statute and that the measures envisioned would add unnecessarily to compliance costs.

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