[Federal Register Volume 60, Number 208 (Friday, October 27, 1995)]
[Proposed Rules]
[Pages 54958-54979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25823]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 60, No. 208 / Friday, October 27, 1995 /
Proposed Rules
[[Page 54958]]
FEDERAL HOUSING FINANCE BOARD
12 CFR Part 933
[No. 95-34]
Membership Approval
AGENCY: Federal Housing Finance Board.
ACTION: Proposed rule.
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SUMMARY: The Federal Housing Finance Board (Finance Board) is proposing
to amend its regulation on membership in the Federal Home Loan Banks
(Bank). The proposed rule will allow the 12 Banks, rather than the
Finance Board, to approve applications for Bank membership subject to
the standards provided in the rule. The proposed rule will require the
Banks to apply tests and criteria for determining compliance with the
statutory eligibility requirements for Bank membership currently used
by the Finance Board in approving applications. The proposed rule is
part of an effort by the Finance Board and the Banks to transfer as
many governance functions as possible from the Finance Board to the
Banks.
DATES: Comments must be submitted in writing to the Finance Board by
December 26, 1995.
ADDRESSES: Written comments may be mailed to: Elaine L. Baker,
Executive Secretary, Federal Housing Finance Board, 1777 F Street NW.,
Washington, DC 20006. Comments will be available for public inspection
at this address.
FOR FURTHER INFORMATION CONTACT: Amy R. Maxwell, Associate Director,
District Banks Secretariat, Office of Managing Director, (202) 408-
2882, or James H. Gray Jr., Associate General Counsel, Office of
General Counsel, (202) 408-2538, Federal Housing Finance Board, 1777 F
Street NW., Washington, DC 20006.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
In its role as primary regulator of the savings association
industry and as overseer of the Banks, the Finance Board's predecessor
agency, the former Federal Home Loan Bank Board (FHLBB), reviewed and
approved all applications for Bank membership from federal and state
chartered savings associations, institutions for which Bank membership
was required. The FHLBB delegated the authority to approve membership
applications from insurance companies and state-chartered savings banks
insured by the Federal Deposit Insurance Corporation (FDIC), for which
Bank membership was voluntary, to the Bank presidents acting as
Principal Supervisory Agents of the FHLBB. See 12 U.S.C. 1437 (1988),
repealed by Financial Institutions Reform, Recovery and Enforcement Act
of 1989, Pub. L. No. 101-73, 103 Stat. 183 (Aug. 9, 1989) (FIRREA).
FIRREA amended the membership provisions of the Federal Home Loan
Bank Act, 12 U.S.C. 1421-1449 (Bank Act). Section 704 of FIRREA amended
section 4 of the Bank Act to make commercial banks and credit unions
eligible for Bank membership for the first time. Section 704 of FIRREA
also revised the membership eligibility criteria. Section 702 of FIRREA
added sections 2A and 2B to the Bank Act, establishing the Finance
Board and enumerating its powers and duties. Section 2B of the Bank Act
limited the Finance Board's authority to delegate responsibilities to
the Banks. From the enactment of FIRREA in 1989 until July, 1993, all
Bank membership applications were reviewed and approved by the Finance
Board. In July 1993, the Finance Board delegated to its Managing
Director the authority to approve all applications for Bank membership
from institutions that met all of the statutory criteria and received a
composite rating of ``1,'' ``2'' or ``3'' under the Uniform Financial
Institutions Rating System (the regulatory examination rating system).
See Finance Board Res. No. 90-143 (Dec. 18, 1990); Chairman's Order No.
93-05 (July 19, 1993).
In August 1993, the Finance Board amended its membership regulation
to incorporate the FIRREA changes to the Bank Act. The revised
membership regulation established the Finance Board's general policies
pertaining to Bank membership, including specifying the appropriate
Bank district for applicants and, member stock requirements, outlining
procedures for consolidation of members with other members and with
nonmembers, and for withdrawal and removal from membership. Other than
defining certain terms, the membership regulation did not establish
standards for compliance with the statutory membership eligibility
criteria. See 58 FR 43542 (1993), codified at 12 CFR Part 933.
In November 1993, the Finance Board adopted policy guidelines to
assist staff in processing applications for Bank membership. See
Membership Application Processing Guidelines, Finance Board Res. No.
93-88 (Nov. 17, 1993) (Guidelines). The purpose of the Guidelines was
to clarify the more subjective membership eligibility criteria in the
Bank Act, such as ``character of management and * * * home-financing
policy * * * consistent with sound and economical home financing * *
*.'' 12 U.S.C. 1424(a)(2)(C). In the Guidelines, the Finance Board also
delegated to the Banks authority to approve a delineated subset of
membership applications; that is, applications from institutions
meeting all of the criteria in the Bank Act, the membership regulation
and the Guidelines.
The Guidelines set forth specific, objective primarily financial
criteria to be met in order for an applicant to be deemed in compliance
with the statutory criteria. However, the Guidelines establish neither
a minimum level of financial performance nor standards for evaluating
applicants that fail to meet the requirements in the Guidelines. So,
for instance, an application from an institution with a minimum
composite regulatory examination rating that does not satisfy the
criteria for delegated approval by the Banks must be evaluated by
Finance Board staff and approved by the Managing Director pursuant to
delegated authority. The Board of Directors of the Finance Board has
not itself considered or acted upon any membership applications since
authority to approve membership applications was delegated to the
Managing Director in July 1993. Since December 1993, the Banks have
approved 778 membership applications and the Finance Board's Managing
Director has approved 834 membership applications, all pursuant to
delegated authority.
[[Page 54959]]
The Finance Board and the Banks have been considering ways to
transfer a variety of governance responsibilities from the Finance
Board to the Banks since the completion of studies required by the
Housing and Community Development Act of 1992, Pub. L. No. 102-550, 106
Stat. 3672 (Oct. 28, 1992), including the Finance Board's own study
completed in April 1993. See Report on the Structure and Role of the
Bank System 153 (Apr. 28, 1993). Finance Board staff and Bank staff
have consistently identified membership application approval as one of
the governance responsibilities that should be devolved from the
Finance Board to the Banks because the Banks should be allowed broad
discretion to manage their affairs as long as the Banks comply with the
Bank Act and Finance Board regulations. This proposed rule is designed
to transfer authority to approve all Bank membership applications from
the Finance Board to the Banks. The proposed rule will codify many of
the tests and criteria for determining compliance with the statutory
eligibility requirements that are currently in the Finance Board's
Guidelines for approving applications.
II. Analysis of the Proposed Rule
A. Membership Application Process
1. Requirements
Section 933.2 of the proposed rule sets forth the procedures for
submission and review of membership applications. Under Sec. 933.2(a),
an applicant is required to submit an application which satisfies the
requirements of part 933 and to certify in writing that it has reviewed
the requirements of part 933, provided the most recent, accurate and
complete information available, and will supplement the application if
additional relevant information becomes available prior to the Bank's
decision on whether to approve the application and where applicable,
prior to the Finance Board's resolution of any appeal.
Under Sec. 933.2(b), a Bank is required to prepare a written digest
for each applicant that describes the reasons and findings that support
the Bank's determination whether the applicant meets the requirements
of this part. This requirement is consistent with the requirements in
the Guidelines.
Under Sec. 933.2(c), the Banks are required to maintain a
membership file for each applicant for at least three years that
includes the digest, all documents the Bank is required to obtain and
review under this part, any additional documents the Bank obtains
during the application process, and the Bank's decision resolution.
Under Sec. 933.2(d), the Banks are required to use regulatory
financial reports and other sources independent of the applicant to
evaluate and analyze all conclusions offered by the applicant regarding
its membership eligibility. ``Regulatory financial report'' is defined
in Sec. 933.1(z) of the proposed rule to include periodic financial
reports filed by the applicant with its primary regulator, including
quarterly call reports for commercial banks, thrift financial reports
for thrifts, quarterly or semi-annual call reports for credit unions,
the National Association of Insurance Commissioners' (NAIC) annual
statements or quarterly reports for insurance companies, and other
similar reports. ``Primary regulator'' is defined in Sec. 933.1(x) of
the proposed rule as the chartering authority for federally chartered
applicants, the insuring authority for federally-insured applicants
that are not federally chartered, or the appropriate state agency for
all other applicants. The Finance Board included Sec. 933.2(d) to
ensure that the Banks evaluate membership applications without relying
unduly on representations made by the applicants.
2. Decision on Application
Section 933.3 of the proposed rule establishes the Banks' authority
and method for making decisions on applications. Under Sec. 933.3(a),
the Finance Board authorizes the Banks to approve membership
applications, subject to the appeal procedure in proposed Sec. 933.5.
The proposed rule requires that the authority to approve applications
be exercised only by the Bank's board of directors, a committee of the
Bank's board of directors, the Bank president, or a senior officer who
reports directly to the Bank president other than an officer who has
responsibility for business development. Section 933.3(b) requires the
Bank to prepare for each applicant a decision resolution that includes
the Bank's decision on whether to approve the applicant and the reasons
therefor, and states that the information in the digest is accurate and
based on a diligent and comprehensive review of all available
information. If the application is approved, the decision resolution
also must state that the applicant is authorized under the laws of the
United States and the appropriate state to become a member of, purchase
stock in, do business with and maintain deposits in the Bank to the
which the applicant has applied, and that the applicant meets all of
the eligibility criteria set forth in the Bank Act and part 933. The
Guidelines currently require the Banks to make these certifications to
the Finance Board when recommending an application for approval.
Section 933.3(c) requires the Bank to act on an application within
60 calendar days of the date the Bank deems the application to be
complete. Within three business days of the Bank's decision on an
application, the Bank must provide the applicant and the Finance
Board's Executive Secretary with a copy of the Bank's decision
resolution. Section 933.3(c) is intended to ensure expeditious action
on membership applications. The current Guidelines do not establish
applications-processing time frames.
3. Automatic Membership
Section 933.4 of the proposed rule provides for automatic Bank
membership in appropriate circumstances. Section 933.4(a) continues the
automatic membership provision in current Sec. 933.2(d) for applicants
required by law to become a member of a Bank. Section 5(f) of the Home
Owners' Loan Act (HOLA) requires all federally chartered savings
associations and savings banks to be members of a Bank and to qualify
for Bank membership in the manner provided in the Bank Act. 12 U.S.C.
1464(f). The factors considered by the Office of Thrift Supervision
when reviewing an application for a federal charter include the factors
considered in determining eligibility for Bank membership. See 12
U.S.C. 1464(e). Therefore, it would be duplicative and unnecessarily
burdensome to require these institutions to file an additional
application for Bank membership. Section 933.4(b) continues the
provision in current Sec. 933.2(e) for automatic membership for insured
depository institution members that convert from one charter type to
another, provided that the converting institution continues to be an
insured depository institution and the assets of the institution
immediately before and immediately after the conversion are identical.
All relationships existing between the member and the Bank at the time
of such conversion may continue. Section 933.4(c) adds a new automatic
membership provision for members that transfer membership from one Bank
to another pursuant to Sec. 933.18(d) of this part.
4. Appeals
Section 933.5 of the proposed rule establishes a process for
appealing Bank membership decisions to the Finance Board. The appeal
procedure is intended to ensure that membership standards are applied
consistently by
[[Page 54960]]
the Banks, and that similarly situated applicants are treated
similarly. Under Sec. 933.5(a), applicants denied membership by a Bank
may, within 90 calendar days of the Bank's decision, appeal the denial
to the Finance Board by writing the Finance Board's Executive
Secretary, with a copy to the Bank. The applicant's appeal must include
a copy of the Bank's decision resolution, and a detailed statement of
the basis for the appeal, including sufficient supporting facts,
information, analysis and explanation.
Under Sec. 933.5(b), within 60 calendar days of the date that a
Bank approves an application for membership, another Bank (appellant
Bank) may appeal to the Finance Board the determination of the
appropriate district for membership, pursuant to Sec. 933.18 of this
part. The appeal must be in writing and addressed to the Finance
Board's Executive Secretary with a copy to the Bank that granted
membership, and must include a statement of the basis for the appeal
with sufficient facts, information, analysis and explanation to support
the appellant Bank's contentions. As the banking industry consolidates,
the Finance Board anticipates more questions from the Banks regarding
the determination of an applicant's principal place of business. The
appeals procedure will permit recourse to the Finance Board when Banks
cannot agree on an applicant's principal place of business. The Finance
Board invites comment on alternative means of addressing this concern.
-
Section 933.5(c) explains how the Finance Board will obtain the
information necessary to decide appeals under Sec. 933.5(a) and (b).
The Bank whose action has been appealed (appellee Bank) must provide to
the Finance Board a complete copy of the applicant's membership file
within five business days of receiving an appeal. Until the Finance
Board resolves the appeal, the appellee Bank is required to provide to
the Finance Board any new materials it receives. The Finance Board also
may request additional information from the appellant (Bank or
applicant), the appellee Bank, or any other party the Finance Board
deems appropriate.
Section 933.5(d) provides that the Finance Board must resolve
appeals based on the requirements of the Bank Act and part 933, within
90 calendar days of the date the appeal is filed with the Finance
Board, after considering the record for appeal described in
Sec. 933.5(c). When it decides an appeal, the Finance Board must follow
the presumptions in part 933, unless the appellant or appellee Bank
presents compelling evidence to rebut a presumption. The current
Guidelines do not include any provision for appeals.
B. Membership Eligibility Requirements
1. Setting Membership Standards
Like the current Guidelines, the proposed rule establishes
objective standards for approving applications for Bank membership. The
standard for each of the two objective statutory membership eligibility
criteria and each of the four subjective statutory membership
eligibility criteria are discussed below. For the objective statutory
eligibility criteria, failure to comply with the standards established
by the proposed rule will render an applicant ineligible for
membership.
For the subjective statutory eligibility criteria, including the
requirement that an applicant's financial condition be such that
advances may be safely made, id. Sec. 1424(a)(2)(B), and that the
character of an applicant's management and its home financing policy be
consistent with sound and economical home financing, id.
Sec. 1424(a)(2)(C), the proposed rule, like the Guidelines, establishes
objective, yet flexible, standards.
The proposed rule establishes the presumption that if an applicant
complies with the regulatory standards, it will be deemed to satisfy
the statutory criteria; conversely, if an applicant does not meet the
regulatory standards, it will be presumed, subject to rebuttal, not to
satisfy the statutory eligibility criteria. The proposed rule, like the
Guidelines, does allow an applicant to rebut any negative presumption,
by presenting additional information.
The Finance Board considered establishing more rigid ``bright-
line'' standards, but believed that the results--i.e., that an
applicant not meeting every standard would be ineligible for
membership, regardless of any other evidence the applicant could have
presented to demonstrate its compliance with the statutory eligibility
criteria--would be too harsh. ``Bright-line'' tests eliminate all
discretion in the approval process. The Finance Board specifically
requests comment on whether the membership eligibility standards should
be adopted as ``bright-line'' tests or as presumptions.
2. General Eligibility Requirements
Section 4(a)(1) of the Bank Act defines the types of financial
institutions eligible to become Bank members as any building and loan
association, savings and loan association, cooperative bank, homestead
association, insurance company, savings bank, or any insured depository
institution. Id. Sec. 1424(a)(1). The definition of insured depository
institution in the Bank Act includes commercial banks and credit
unions. Id. Sec. 1422(12).
The eligibility criteria set forth in section 4(a)(1) of the Bank
Act apply to all applicants for Bank membership. Under section 4(a)(1)
of the Bank Act, an institution is eligible for Bank membership if the
institution:
(A) Is duly organized under the laws of any State or of the
United States;
(B) Is subject to inspection and regulation under the banking
laws, or under similar laws, of the State or of the United States;
and
(C) Makes such home mortgage loans as, in the judgment of the
[Finance] Board, are long-term loans * * *.
Id. Sec. 1424(a)(1).
Section 4(a)(2) of the Bank Act establishes the following
membership eligibility criteria for ``insured depository institutions''
that were not Bank members on January 1, 1989 (section 4(a)(2)
criteria):
(A) The insured depository institution has at least 10 percent
of its total assets in residential mortgage loans;
(B) The insured depository institution's financial condition is
such that advances may be safely made to such institution; and
(C) The character of its management and its home-financing
policy are consistent with sound and economical home financing.
Id. Sec. 1424(a)(2). Although the section 4(a)(2) criteria apply only
to ``insured depository institutions,'' the Finance Board has
determined to extend that requirement to insurance company applicants.
-
Sections 933.10 through 933.13 of the proposed rule apply the
section 4(a)(2) criteria to insured depository institution applicants.
Section 933.16 of the proposed rule applies these criteria to insurance
company and all other applicants. Under the Finance Board's current
membership regulation, the financial condition criterion, section
4(a)(2)(B), and the character of management and home financing policy
requirement, section 4(a)(2)(C), id. Sec. 1424(a)(2)(B), (C), apply to
every applicant. See 12 CFR 933.4(a)(4), (5). In addition, prior to the
enactment of FIRREA in 1989, the financial condition, character of
management and home financing policy criteria were applicable to
insurance companies. See 47 Stat. 726 (July 22, 1932). The proposed
rule would maintain the current law requirements, and would extend the
section 4(a)(2)(A) 10 percent requirement to all applicants. The
reasons for this approach are explained more fully below in the
discussion of the 10 percent requirement.
[[Page 54961]]
3. Duly Organized Requirement -
Section 4(a)(1)(A) of the Bank Act provides that an institution is
eligible for Bank membership if it is duly organized under the laws of
any State or of the United States. Under Sec. 933.7 of the proposed
rule, an applicant is deemed to be duly organized as required by
section 4(a)(1)(A) of the Bank Act and Sec. 933.6(a)(1) of this part,
if the applicant establishes that it is chartered by a state or federal
agency as a building and loan association, savings association,
cooperative bank, homestead association, insurance company, savings
bank or insured depository institution. If an applicant does not
satisfy this requirement, the applicant is ineligible for membership.
This standard is consistent with the current Guidelines.
4. Subject to Inspection and Regulation Requirement
Section 4(a)(1)(B) of the Bank Act provides that an institution is
eligible for Bank membership if it is subject to inspection and
regulation under the banking laws, or under similar laws, of any State
or of the United States. Under Sec. 933.8 of the proposed rule, an
applicant is deemed to meet the inspection and regulation requirement
if the applicant can establish that it is subject to inspection and
regulation by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, the National Credit Union Administration, the Office of
the Comptroller of the Currency, the Office of Thrift Supervision, a
state insurance commissioner, or other state regulatory agency
authorized to regulate depository institutions or insurance companies.
If an applicant does not satisfy this requirement, the applicant is
ineligible for membership. This standard is consistent with the current
Guidelines.
5. Makes Long-Term Home Mortgage Loans Requirement
Section 4(a)(1)(C) of the Bank Act provides that an institution is
eligible for Bank membership if it makes such ``home mortgage loans''
as, in the judgment of the Finance Board, are long-term home mortgage
loans. Under Sec. 933.9(a) of the proposed rule, an applicant is deemed
to meet this requirement if it originates or purchases ``long-term''
``home mortgage loans,'' as those terms are defined in the regulation.
If an applicant does not satisfy this requirement, the applicant is
ineligible for membership, unless the Finance Board, in its sole
discretion, determines on the basis of additional information supplied
by the applicant or otherwise, that the applicant does satisfy the
requirement. This standard is consistent with the current Guidelines.
The proposed rule makes one change to the current definition of
``home mortgage loan'' at 12 CFR 933.1(j). A ``home mortgage loan'' is
defined in the Bank Act as a loan made by a member upon the security of
a ``home mortgage.'' 12 U.S.C. 1422(5). The Bank Act defines a ``home
mortgage'' as a mortgage on real estate upon which is located one or
more homes or other dwelling units, ``all of which may be defined by
the Board,'' including ``first mortgages'' and such classes of ``first
liens'' as are commonly given to secure advances on real estate. Id.
Sec. 1422(6). Based on the Bank Act definition, a ``home mortgage
loan'' essentially is a loan secured by a first mortgage on real
property with one or more structures designed primarily for residential
use.
The definition of ``home mortgage loan,'' in Sec. 933.1(m) of the
proposed rule, includes:
a. A domestic loan, whether or not fully amortizing, or an interest
in such a loan, which is secured by a mortgage, deed of trust or other
security agreement that creates a first lien on one of the following
interest in property:
(1) One-to-four family property or multifamily property, in fee
simple;
(2) A leasehold on one-to-four family property or multifamily
property under a lease of not less than 99 years which is renewable or
under a lease having a period of not less than 50 years to run from the
date the mortgage was executed; or
(3) Combination business or farm property where at least 50 percent
of the total appraised value of the combined property is attributable
to the residential portion of the property; or
b. A mortgage pass-through security that represents an undivided
ownership interest in:
(1) Long-term loans, provided that, at the time of issuance of the
security, all of the loans meet the requirements of this section; or
(2) A security that represents an undivided ownership interest in
long-term loans, provided that, at the time of issuance of the
security, all of the loans meet the requirements of this definition.
The Finance Board has deleted the provision allowing it to include
additional items within this definition. Instead, Sec. 933.9(b) of the
proposed rule allows the Finance Board the discretion to determine on
appeal in appropriate cases that an applicant satisfies the long-term
home mortgage loans requirement in section 4(a)(1)(C) of the Bank Act,
even though the applicant does not make long-term home mortgage loans
as the terms ``long-term'' and ``home mortgage loan'' are defined in
Sec. 933.1(m) and (q) of the proposed rule.
Section 933.1(i) of the proposed rule adds a definition for
``domestic loan.'' A domestic loan is defined as a loan on property
located in a state or the United States.
Section 933.1(q) of the proposed rule revises the definition of
``long-term'' at current 12 CFR 933.1(l) to delete the provision
allowing the Board to change this definition without engaging in
rulemaking.
Section 4(a)(1)(C) of the Bank Act provides that an institution is
eligible for Bank membership if it ``makes'' such home mortgage loans
as, in the judgment of the Finance Board, are long-term loans. 12
U.S.C. 1424(a)(1)(C). Thus, it is necessary to determine what
constitutes ``making'' a home mortgage loan. Both the Finance Board and
the FHLBB have interpreted ``makes'' to include originating and
purchasing qualifying loans and purchasing mortgage pass-through
securities backed by qualifying loans. Section 933.9 of the proposed
rule does not change the substance of the current Finance Board
regulation, 12 CFR 933.4(a)(3), which includes all such transactions
within the scope of the ``makes'' requirement.
6. Ten Percent Residential Mortgage Loans Requirement
Section 4(a)(2)(A) of the Bank Act provides that an insured
depository institution is eligible for Bank membership if it has at
least 10 percent of its total assets in residential mortgage loans.
Under Sec. 933.10(a) an applicant is deemed to comply with the 10
percent requirement in section 4(a)(2)(A) of the Bank Act if the
applicant has at least 10 percent of its total assets in ``residential
mortgage loans'' as defined in Sec. 933.1(aa) of the proposed rule.
Since mortgage debt securities count toward satisfaction of the 10
percent requirement, the proposed rule, like the current regulation,
excludes the assets used to secure mortgage debt securities in
determining whether the applicant has 10 percent of its assets in
residential mortgage loans. Under Sec. 933.10(b), if an applicant does
not satisfy the requirement of this section, the applicant is
ineligible for membership, unless the Finance Board, in its sole
discretion, determines on the basis of additional information supplied
by the applicant or otherwise that the applicant satisfies the
requirements of section 4(a)(2)(A) of the Bank Act. Once approved, an
institution is not required to maintain a 10 percent residential
mortgage loan ratio to retain Bank membership.
[[Page 54962]]
The Finance Board is considering whether to extend the 10 percent
test or another specific asset test to insurance company applicants
similar to the 10 percent test that applies to insured depository
institution applicants. This would represent a change from the current
Finance Board regulation, which requires applicants that are not
insured depository institutions to have ``mortgage-related assets that
reflect a commitment to housing finance, as determined by the [Finance]
Board.'' 12 CFR 933.4(c). Noninsured depository institution applicants
are not currently required to meet the 10 percent requirement, nor does
there exist in the current regulation any objective standard to meet
this requirement. 12 CFR 933.4 (b) and (c). The Finance Board realizes
that, even though an insurance company may be one of the largest
mortgage loan investors in its state, it might not be able to meet the
10 percent test because the dollar amount of residential mortgage loan
assets it holds, when compared to the total assets of the company,
could constitute less than 10 percent of the company's total assets.
However, the Finance Board also sees value in applying consistent
membership eligibility standards to all applicants to ensure that all
Bank members demonstrate a quantifiable minimum commitment to
residential housing finance before they are admitted to membership.
The Finance Board also is considering continuing the status quo by
applying the 10 percent requirement only to depository institution
applicants. The proposed rule continues this approach and does not
specifically require that insurance companies have 10 percent of their
assets in residential mortgage loans. The Finance Board requests
comment on whether the 10 percent requirement should apply to insurance
company applicants and whether a different test that would achieve the
same objectives as the 10 percent test should be applied to insurance
company applicants, and if so, what that test should be.
a. Definition of ``residential mortgage loans.''
To implement the Bank Act's 10 percent requirement, Sec. 933.10 of
the proposed rule provides that an applicant is eligible for membership
if it has at least 10 percent of its total assets in ``residential
mortgage loans.'' The term ``residential mortgage loans'' is not
defined in the Bank Act. The definition of ``residential mortgage
loans'' in Sec. 933.1(aa) of the proposed rule includes the current
definition, see 12 CFR 933.1(r), and additional loans the Finance Board
has decided to add to the definition or is considering adding to the
definition.
The definition of ``residential mortgage loans'' in Sec. 933.1(aa)
of the proposed rule, includes any one of the following types of
domestic loans, whether or not fully amortizing:
(1) Home mortgage loans;
(2) Funded residential construction loans;
(3) Loans secured by manufactured housing whether or not defined by
state law as secured by an interest in real property;
(4) Loans secured by junior liens on one-to-four family property or
multifamily property; -
(5) Qualified private activity exempt facility bonds where 95
percent or more of the net proceeds are used for the construction of
qualified residential rental projects as defined in 26 U.S.C.
142(a)(7).
(6) Mortgage pass-through securities representing an undivided
ownership interest in:
(i) Loans that meet the requirements of this definition at the time
of issuance of the security;
(ii) Securities representing an undivided ownership interest in
loans, provided that, at the time of issuance of the security, all of
the loans meet the requirements of this definition; or
(iii) Mortgage debt securities as defined herein;
(7) Mortgage debt securities secured by:
(i) Loans, provided that, at the time of issuance of the security,
all of the loans meet the requirements of this definition;
(ii) Securities that meet the requirements of this definition; or
(iii) Securities secured by assets, provided that, at the time of
issuance of the security, all of the assets meet the requirements of
this definition; or
(8) Home mortgage loans secured by leasehold interests, as defined
in Sec. 933.1(m)(1)(ii) of the proposed rule, except that the period of
the lease term may be for any duration.
The Finance Board proposes to add qualified private activity exempt
facility bonds where 95 percent or more of the net proceeds are used
for the construction of qualified residential rental property as
defined in 26 U.S.C. 142(a)(7). The Internal Revenue Code (IRC)
excludes the income from these bonds from a taxpayer's gross income,
when used to construct qualified residential rental property. See 26
U.S.C. 103, 141(e)(1)(A), 142(a)(7). To be ``qualified'' under the IRC,
a multifamily residential rental project must meet one of two tests to
ensure that it serves moderate- or low-income tenants:
(1) 20-50 test. Twenty percent or more of the units occupied by
individuals whose income is 50 percent or less of the area median
income; or
(2) 40-60 test. Forty percent or more of the units are occupied by
individuals whose income is 60 percent or less of the area median
income. 26 U.S.C. 142(d). The Finance Board has determined that such
bonds are consistent with other instruments that are treated as
``residential mortgage loans.'' Further, treating such bonds as
``residential mortgage loans'' is consistent with the purpose of the 10
percent requirement, to ensure that new members hold at least 10
percent of their assets in instruments that facilitate home mortgage
lending.
The Finance Board also is considering including within the
definition of ``residential mortgage loans'' shares of open-end
management companies, also known as ``mutual funds,'' where the assets
in the open-end management company's portfolio are comprised solely of
instruments that are ``residential mortgage loans.''
The Finance Board has deleted the provision allowing it to include
additional items within the definition of residential mortgage loans.
Instead, Sec. 933.10(b) of the proposed rule allows the Finance Board
the discretion to determine on appeal in appropriate cases that the
applicant has 10 percent of its assets in ``residential mortgage
loans'' as required by section 4(a)(2)(A) of the Bank Act, even though
the applicant does not have 10 percent of its assets in ``residential
mortgage loans'' as that term is defined in Sec. 933.1(aa) of the
proposed rule.
The Finance Board specifically requests comment on how it should
define ``residential mortgage loans'' in the final rule.
b. Definition of ``total assets.''
Section 4(a)(2)(a) of the Bank Act and Sec. 933.10 of the proposed
rule provide that an applicant is eligible for membership if it has at
least 10 percent of its ``total assets'' in residential mortgage loans.
Section 933.1(cc) of the proposed rule adds a definition of ``total
assets'' that includes all assets of a financial institution's
consolidated subsidiaries located in a state or the United States, and
all assets otherwise required to be reported on a regulatory financial
report. Applicants will use this definition of total assets to
determine whether they comply with the 10 percent requirement.
7. Financial Condition Requirement
Section 4(a)(2)(B) of the Bank Act requires that, in order to be
eligible for Bank membership, an insured depository institution's
financial condition must be such that advances
[[Page 54963]]
may be safely made to it. 12 U.S.C. 1424(a)(2)(B). Section 933.11 of
the proposed rule implements this requirement and applies it to all
applicants for membership, including applicants (such as insurance
companies) that are not insured depository institutions. However, as
discussed below, Sec. 933.16 of the proposed rule establishes financial
condition standards for insurance companies that recognize the
specialized nature of the insurance business. Section 933.11 of the
proposed rule is modeled on the current Guidelines.
a. Review requirement.
Section 933.11(a) of the proposed rule, like the current
Guidelines, sets forth the documents pertaining to financial condition
that must be reviewed for each applicant. These documents include:
(1) The regulatory financial reports for at least the last six
calendar quarters and three year-ends;
(2) The most recent annual audited financial statement, or if
unavailable, any other such independent external annual financial
report as the applicant's primary regulator may require, or if
unavailable, such financial statements as the applicant may otherwise
have available;
(3) The most recent available regulatory examination report, a
summary of the applicant's strengths and weaknesses as cited in the
examination report, and a summary of actions taken by the applicant to
respond to examination weaknesses;
(4) A description of any outstanding enforcement actions, responses
by the applicant and reports as required by the enforcement action; and
(5) Any other relevant information that comes to the Bank's
attention or reasonably should come to the Bank's attention in
reviewing the applicant's financial condition.
The final review requirement, that a Bank consider other relevant
information that comes to its attention or reasonably should come to
its attention in reviewing the applicant's financial condition, is
intended to incorporate a due diligence concept into the membership
approval process. For example, if the Bank were to receive information
through the media or other sources that is inconsistent with the
information supplied by the applicant, the Bank should evaluate the
reliability of the alternative source. The Finance Board does not
intend to hold the Banks accountable for finding information that might
have been discovered only through extraordinary means, but the Finance
Board does expect the Banks to make reasonable efforts to find
information relevant to an applicant's financial condition.
b. Standards of adequate ``financial condition.''
The Bank Act does not define the term ``financial condition'' for
purposes of membership, except that financial condition must be ``such
that advances may be safely made.'' 12 U.S.C. 1424(a)(2)(B). The
Finance Board believes that specific, uniform and quantifiable
standards for evaluating financial condition are necessary to ensure
that Bank funding may be extended in a safe and sound manner. For
applicants other than insurance companies, Sec. 933.11(b) enumerates
those factors to be reviewed. Because of the special nature of
insurance companies, the Finance Board is proposing a separate section,
Sec. 933.16 discussed below, to establish the minimum standards for
evaluating the financial condition of insurance company applicants.
Section 933.11(b) of the proposed rule establishes a standard for
adequate financial condition similar to the interpretation of the term
``financial condition'' in the current Guidelines and Finance Board
practice. An applicant that complies with the standard is presumed to
be in adequate financial condition for purposes of section 4 of the
Bank Act. This presumption is rebuttable if the Bank obtains
information to the contrary. Under Sec. 933.11(b), an applicant is
presumed to be in adequate financial condition if:
(1) The applicant received a composite regulatory examination
rating by its primary regulator within two years from the date of the
application. The Finance Board requires that the applicant be examined
within two years of the date of the application to ensure the accuracy
of critical information used for eligibility determinations. Federal
and state examiners typically examine regulated entities at least every
two years.
(2) The applicant meets all of its minimum statutory and regulatory
capital requirements as reported in its most recent quarter-end
regulatory financial report filed with its primary regulator. This
provision, modeled on the current Guidelines, supports the other
banking regulators' efforts to ensure the safety and soundness of the
industry by recognizing the importance of capital adequacy and
compliance with statutory and regulatory minimum capital standards.
(3) The applicant's most recent composite regulatory examination
rating was ``1;'' or was ``2'' or ``3'' and the applicant also
satisfies certain performance trend criteria. -
The term ``regulatory examination rating'' is defined in
Sec. 933.1(y) of the proposed rule, as a rating of capital, assets,
management, earnings and liquidity following the guidelines of the
Uniform Financial Institutions Rating System contained in a written
report of examination conducted by the applicant's appropriate
regulator, including a CAMEL rating, a MACRO rating or other similar
ratings. The composite regulatory examination rating for an insured
depository institution is determined according to the Uniform Financial
Institutions Rating System (CAMEL, MACRO or equivalent scale). This
rating system is based on an evaluation of the five critical dimensions
of an institution's operations that reflect, in a comprehensive
fashion, an institution's financial condition, compliance with banking
statutes and regulations, and overall operating soundness. A composite
regulatory examination rating of ``1'' is the highest possible rating
on a 5 point scale. A ``5'' rating is assigned to institutions that
require immediate corrective action and constant supervisory attention.
The probability of failure for ``5'' rated institutions is high.
The importance of the composite regulatory examination rating in
the membership approval process may be illustrated in the breakdown of
the ratings assigned to applicants approved by the Finance Board since
FIRREA--all but one institution approved for membership have been rated
``1,'' ``2'' or ``3''; the single ``4'' rated institution approved for
membership has since been upgraded. No ``5'' rated institutions have
been approved for membership.
Using the Uniform Financial Institutions Rating System to evaluate
membership applicants reduces the documentation requirements for
applicants, limits the potential for the Banks to be perceived by
applicants as another layer in the financial regulatory structure, adds
considerable efficiency to the application process and provides an
independent assessment by those responsible for the soundness of the
entity. The Uniform Financial Institutions Rating System is not used to
evaluate insurance company applicants.
Under the proposed rule, an applicant with a recent composite
regulatory examination rating of ``1'' meets the minimum performance
standard in Sec. 933.11(b)(3). A composite regulatory examination
rating of ``2'' or ``3'' may be an acceptable performance standard
under Sec. 933.11(b)(3) if the applicant also meets additional
performance trend
[[Page 54964]]
thresholds. These thresholds are designed to identify trends in the
institution's key performance areas by reviewing six calendar quarters
of financial data. The performance trend measures include: (1) positive
earnings in 4 of the 6 most recent calendar quarters, (2) nonperforming
assets not exceeding 10 percent of the applicant's total assets in the
most recent calendar quarter, and (3) a ratio of loan loss reserves to
nonperforming assets of 60 percent or greater during 4 of the 6 most
recent calendar quarters. These performance trends are in the current
Guidelines. The Finance Board also is considering setting the
performance trend for nonperforming assets at eight percent of the
applicant's total assets in the most recent calendar quarter and
specifically requests comment on this alternative.
The term ``nonperforming assets'' is defined in Sec. 933.1(u) of
the proposed rule as the sum of loans and leases reported on a
regulatory financial report that have been past due for 90 days or
longer; loans and leases on a nonaccrual basis; restructured loans and
leases (not already reported as nonperforming); and foreclosed real
estate, except that nonperforming assets shall be as defined by the
National Credit Union Administration (NCUA) for credit union
applicants. The Finance Board is considering substituting a specific
list of assets that the NCUA would regard as nonperforming assets for a
credit union. The term ``loan loss reserves'' is defined in
Sec. 933.1(p) of the proposed rule as a specified balance sheet account
held to fund potential losses on loans or leases. The Finance Board
requests comment on all aspects of the standard for adequate financial
condition.
The Finance Board has designed the proposed rule to ensure that no
single measure of financial condition is determinative. An applicant
with a regulatory examination rating of ``1'' may not have an adequate
financial condition if the Bank uncovers compelling evidence to the
contrary, as described below in the discussion of Sec. 933.17 of the
proposed rule. Similarly, an applicant with a low regulatory
examination rating could be admitted to membership if the applicant
demonstrates other compelling evidence of an adequate financial
condition. The Finance Board encourages all financial institutions
interested in home mortgage lending to apply for Bank membership.
The performance trend thresholds in Sec. 933.11(b)(3) measure
financial performance based on quarterly financial data. However,
Sec. 933.11(b)(3)(iv) provides that applicants that are not required to
report financial data on a quarterly basis to their primary regulator
may report the information required in Sec. 933.11(b)(3)(i)-(iii) on a
semiannual basis.
c. Eligible collateral not considered.
The Bank Act requires that an institution have a ``financial
condition such that advances may be safely made.'' 12 U.S.C.
1424(a)(2)(B). The Finance Board considered interpreting the Bank Act
to presume that any applicant with ``eligible collateral'' would meet
the financial condition requirement of section 4(a)(2)(B) of the Bank
Act. However, since the Finance Board seeks to avoid having the Banks
become lenders of last resort to failing or weak institutions, the
Finance Board has determined that a minimum level of financial analysis
should be required for all applicants as a prerequisite to membership.
Section 933.11(c) of the proposed rule states that the availability of
sufficient eligible collateral to secure advances to the applicant is
presumed and will not be considered in determining whether an applicant
meets the financial condition criteria required by section 933.6(a)(5).
The Finance Board seeks public comment on whether the financial
condition standards incorporated in the proposed rule or other
performance trends or measures of financial condition should be
incorporated in the final regulation.
8. Character of Management Requirement
Section 4(a)(2)(C) of the Bank Act requires that the ``character''
of an applicant's management be ``consistent with sound and economical
home financing.'' 12 U.S.C. 1424(a)(2)(C).
a. Review requirement. Section 933.12 of the proposed rule sets out
the review requirement and the standards to be used to determine
whether an applicant may be presumed to have the character of
management required by the Bank Act and Sec. 933.6(a)(6) of this part.
Section 933.12(a) requires the Bank to review the following to evaluate
an applicant's character of management:
(1) The names of directors and senior officers;
(2) The most recent regulatory financial report;
(3) The most recent audited financial statement, or if unavailable,
other such independent external financial report that the applicant's
primary regulator may require, or if unavailable, such financial
statements that the applicant may otherwise have available;
(4) Enforcement actions;
(5) Certain pending criminal, civil or administrative matters;
(6) Information concerning potential monetary liabilities, material
pending law suits or unsatisfied judgments; and
(7) Any other document that comes to the Bank's attention or
reasonably should come to the Bank's attention in reviewing the
applicant's character of management.
The term ``enforcement action'' is defined in Sec. 933.1(k) of the
proposed rule as any written notice, directive, order or agreement
initiated by an applicant or its appropriate regulator to address any
operational, financial, managerial or other deficiencies of the
applicant identified by the appropriate regulator. ``Appropriate
regulator'' is defined in Sec. 933.1(e) of the proposed rule and
includes the applicant's primary regulator and any officer, agency,
supervisor or other entity that has regulatory authority over, or is
empowered to institute enforcement action against, an applicant.
As explained above in the discussion of the financial condition
review requirement, the Finance Board realizes that Sec. 933.12(a)(7)
makes the Bank responsible for determining what additional documents it
should review to evaluate an applicant's character of management. The
Banks will have to make this determination on a case-by-case basis. The
Finance Board expects the Banks to exercise due diligence, but does not
expect the Banks to take extraordinary measures or incur great expense
to comply with this review requirement. For example, in the past,
several Banks have performed computer database searches to verify that
an applicant was making full disclosure of potential character of
management issues. The Finance Board cites this practice as one
relatively quick and inexpensive means by which a Bank may verify
character of management.
b. Standards of adequate ``Character of Management.''
Section 933.12(b) of the proposed rule establishes the character of
management standards. An applicant that meets these standards is deemed
to have the character of management required by the Bank Act and
Sec. 933.6(a)(6) of this part. This presumption is rebuttable. The
elements of the character of management standard are that:
(1) Neither the applicant nor any of its directors or senior
officers is subject to or operating under any enforcement action
instituted by an appropriate regulator;
(2) Neither the applicant nor any of its directors or senior
officers has been the subject of criminal, civil or administrative
proceedings reflecting upon creditworthiness, business
[[Page 54965]]
judgment or moral turpitude since the most recent examination;
(3) There are no known or potential civil, criminal, or
administrative monetary liabilities, material pending law suits or
unsatisfied judgments against the applicant, its directors or senior
officers since the most recent examination; and
(4) The applicant provides the written certification required in
Sec. 933.12(c), described below.
An applicant that does not meet the character of management
standards can still be considered for membership as provided in
Sec. 933.17 of the proposed rule, if the applicant presents a
sufficient explanation of its failure to meet the character of
management standards. The character of management standards in the
proposed rule are based on the current Guidelines.
c. Written certification.
Section 933.12(c) of the proposed rule requires a written
certification either by a majority of the board of directors of the
applicant, or by an individual with authority to act on behalf of the
board of directors of the applicant, concerning the character of
management standards described above. An applicant must provide either
an unqualified certification that there are no enforcement actions,
objectionable proceedings, or objectionable liabilities, or, if that is
not possible, the applicant must provide a qualified certification that
includes a detailed explanation regarding any exceptions noted. An
applicant that provides a qualified certification is presumed not to
have the character of management required by the Bank Act and
Sec. 933.6(a)(6) of this part, but this presumption may be rebutted.
The Finance Board is continuing the current policy of applying the
character of management requirements in Sec. 933.12 to all applicants,
rather than just insured depository institution applicants.
The Finance Board has found the written certification to be the
best way to surface any character of management issues, and to get an
explanation of those issues because the burden of disclosure is placed
on the applicant. The Finance Board requests public comment on the
character of management review requirement and standards incorporated
in the proposed rule, including alternative character of management
measures that should be considered for the final regulation.
9. Home Financing Policy Requirement
Section 4(a)(2)(C) of the Bank Act also requires that an
applicant's home financing policy be ``consistent with sound and
economical home financing.'' 12 U.S.C. 1424(a)(2)(C).
Section 933.13(a) of the proposed rule establishes the standards a
Bank must use to evaluate an applicant's home financing policy. If an
applicant meets the standards, the applicant is deemed to comply with
the home financing policy requirement of section 4(a)(2)(C) of the Bank
Act and Sec. 933.6(a)(7) of this part. This presumption is rebuttable.
Section 933.13(a) of the proposed rule is based on the home financing
policy standards in the Guidelines.
Under Sec. 933.13(a), an applicant that has been evaluated for
Community Reinvestment Act (CRA) performance within four years from the
date of application and has received a CRA rating of ``satisfactory''
or better on its most recent compliance examination, is presumed to
meet the home financing policy requirement.
Section 933.13(b) requires an applicant that is not subject to the
CRA, or an applicant that received a ``needs to improve'' rating on its
most recent CRA performance evaluation but received a ``satisfactory''
or better rating on its prior CRA performance evaluation, to file as
part of its application a written justification that demonstrates how
and why the applicant's credit policies and lending practices (if
applicable) are consistent with the Bank System's housing finance
mission.
The Finance Board acknowledges that CRA is not a perfect method for
evaluating whether an institution's home financing policy is
``consistent with sound and economical home financing.'' CRA
evaluations are based on whether a financial institution meets the
credit needs of its assessment area, rather than on its mortgage
lending activity. See 60 FR 22180 (May 4, 1995) to be codified at 12
CFR 25.22. Further, CRA does not consider whether a financial
institution's home financing policy is ``sound and economical.'' Id.
The Finance Board seeks comment on the use of CRA as a proxy for the
home financing policy criterion and suggestions for alternative
measures that the Finance Board might consider.
Since neither the Congress nor the Finance Board have yet
specifically defined the Bank System's housing finance mission, the
Finance Board also acknowledges limitations in requesting a written
justification demonstrating how and why an applicant's policies are
consistent with the Bank System's housing finance mission. The Finance
Board requests comment on how institutions might best provide the
requisite justification.
The Finance Board is continuing its current policy of applying the
home financing policy requirements in Sec. 933.17 to all applicants.
Currently, to determine whether an insurance company applicant's home-
financing policy is adequate, the Guidelines require that the applicant
provide evidence that the applicant engages in, or intends to engage
in, various housing related activities. Under the proposed rule, an
insurance company will be subject to the same requirements as all other
applicants.
An applicant that does not comply with the home financing policy
standard may still be considered for membership if the applicant can
rebut the presumption that it does not have an adequate home financing
policy, as provided in Sec. 933.17 of the proposed rule.
The Finance Board requests comment on the home financing policy
standards in the proposed rule and on alternative measures of the
adequacy of an applicant's home financing policy that should be
considered for the final regulation.
10. De Novo Insured Depository Institution Applicants
Section 933.14 of the proposed rule codifies certain exceptions to
the membership eligibility standards for de novo or newly chartered
insured depository institution applicants that are currently in the
Guidelines. An insured depository institution applicant that provides
to a Bank written confirmation from its primary regulator that it has
been chartered for less than three years or is otherwise considered a
de novo insured depository institution by the applicant's primary
regulator will receive special consideration for membership
eligibility.
Under Sec. 933.14(a)(1), a de novo applicant that has not filed
regulatory financial reports for the last six quarters and three year-
ends shall provide any such regulatory financial reports as the
applicant has filed. Under Sec. 933.14(a)(2), a de novo applicant shall
provide its most recent annual audited financial statement, or if
unavailable, other such independent external annual financial report as
the applicant's primary regulator may require, or if unavailable, a de
novo applicant shall, at a minimum, provide financial reports for at
least six calendar quarters of operation.
Section 933.14(a)(3) of the proposed rule provides that if a de
novo applicant has not yet received a composite regulatory examination
rating from its primary regulator, the applicant shall provide a
preliminary or informal
[[Page 54966]]
written regulatory examination rating from the applicant's primary
regulator, if a preliminary or informal rating is acceptable to the
Bank. Under Sec. 933.14(a)(4) of the proposed rule, a de novo applicant
need not meet the performance trend criteria in Sec. 933.11(b)(3)(i)-
(iii) of the proposed rule, if the de novo applicant has completed
regulatory financial reports for at least six full quarters of
operation and has complied with its regulatory business plan, either as
confirmed in writing by the de novo applicant's primary regulator or
based on a written analysis provided by the applicant that demonstrates
its substantial compliance with its regulatory business plan as
determined by the Bank.
Section 4(a)(2) of the Bank Act makes a special exception to the 10
percent requirement for de novo insured depository institution
applicants. The Bank Act specifically provides that a de novo applicant
may be admitted to membership if it complies with the 10 percent
requirement within 1 year after commencement of its operations. See 12
U.S.C. Sec. 1424(a)(2). The proposed rule continues the practice in
current Guidelines requiring that applicants, other than mandatory
members, must provide financial reports for at least six calendar
quarters of operation in order for the Bank to evaluate the applicant's
financial condition. Therefore, most de novo applicants already will
have been in operation for more than one year at the time of
application. However, the provision in section 4(a)(2) of the Bank Act
currently applies and, under the proposed rule, will continue to apply
during the first year of operation of a de novo applicant that is
required by law to be a member and is automatically admitted to
membership without satisfying the 10 percent requirement pursuant to
Sec. 933.4(a) of the proposed rule.
Under Sec. 933.14(b) of the proposed rule, the Bank may presume
that a de novo applicant that has not yet received a CRA performance
evaluation has a home financing policy as required by section
4(a)(2)(C) of the Bank Act and Sec. 933.6(a)(7), if the Bank's digest
establishes that the de novo applicant has a preliminary or informal
written CRA performance evaluation of ``satisfactory'' or better.
Alternatively, the Bank may presume compliance with the home financing
policy requirement if the Bank's digest establishes that the de novo
applicant has submitted a written justification acceptable to the Bank
of how the applicant intends to support the Bank System's housing
finance mission. The Guidelines are consistent with the approach taken
in the proposed rule.
11. Recent and Pending Merger Applicants
The Finance Board, based on its general supervisory authority over
the Banks, 12 U.S.C. 1422a, 1422b(a)(1), and its authority to interpret
the statutory membership eligibility requirements, id. Sec. 1424,
proposes special standards for applicants involved in a recent or
pending merger to ensure that the information evaluated to determine
eligibility is appropriate for the entity that results from the merger.
Standards for recent and pending merger applicants are not provided in
the Bank Act.
Section 933.15 of the proposed rule largely codifies the special
eligibility requirements that recent and pending merger applicants must
satisfy under the current Guidelines, in addition to or in place of the
previously described eligibility requirements. To be considered a
``pending merger applicant'' or a ``recent merger applicant,'' an
applicant must meet two tests, a timing test and a materiality test
defined in Sec. 933.15(a) of the proposed rule. For ``pending merger
applicants,'' the timing test is whether the applicant is a party to a
merger or acquisition agreement that is expected to be consummated
within two calendar quarters of submission of the membership
application. The materiality test is whether the applicant accounts for
75 percent or less of the combined assets of the resulting entity at
the time of application.
For ``recent merger applicants,'' the timing test is whether the
applicant has merged with or acquired another institution within the
six calendar quarters prior to submission of the membership
application. The materiality test is whether the applicant accounts for
75 percent or less of the combined assets of the resulting entity at
the time of application.
Section 933.15(b) of the proposed rule establishes an additional
review requirement that a Bank shall include in its digest for each
recent or pending merger applicant. The general information required
includes: (1) The name of each entity involved and its charter type;
(2) a general statement of the financial condition of each entity; (3)
a brief statement of the business reasons for the merger or
acquisition; and (4) the names and positions of management of the
resulting entity.
Section 933.15(c) of the proposed rule establishes the special
membership eligibility standards for recent and pending merger
applicants. A recent or pending merger applicant shall be deemed to be
in compliance with section 4(a) of the Bank Act and Sec. 933.6(a) of
the proposed rule, subject to rebuttal, only if the recent or pending
merger applicant satisfies the requirements of part 933 as modified and
supplemented by Sec. 933.15(c). Section 933.15(c)(1) establishes the
financial condition standard for a recent merger applicant. For recent
merger applicants that do not yet have a composite regulatory
examination rating subsequent to the merger or acquisition, each party
(other than existing Bank members) to the merger or acquisition must
satisfy the recent examination requirement, the capital requirements
and the minimum performance standards in Sec. 933.11(b). Section
933.15(c)(1)(A) of the proposed rule provides that, to the extent a
recent merger applicant does not yet have regulatory financial reports
for the six most recent calendar quarters needed to calculate
performance trends, the applicant must prepare pro forma combined
financial statements for those calendar quarters in which actual
combined regulatory financial reports are unavailable.
Section 935.15(c)(2) establishes the financial condition standard
for a pending merger applicant. Since a pending merger has by
definition not been consummated, the applicant cannot provide a
composite regulatory examination rating for the combined entity as
required by Sec. 933.11(b)(1). In lieu of that, each party to the
merger or acquisition, except an incumbent Bank member, is required by
Sec. 933.15(c)(2)(A) of the proposed rule to satisfy all of the
requirements of Sec. 933.11(b).
Section 933.15(c)(2)(B) of the proposed rule requires that in
addition to each party to a pending merger individually satisfying all
of the financial condition standards in Sec. 933.11(b), the pending
merger applicant must satisfy the capital requirements and the
performance trend requirements in Sec. 933.11(b)(2) and (3) as a
combined entity based on pro forma combined financial statements to be
prepared by the applicant for the six most recent calendar quarters.
Section 933.15(c)(3) provides that the determination of the
character of management of a recent or pending merger applicant for
purposes of Sec. 933.12 of the proposed rule shall be based on an
evaluation of the directors and senior officers of the resulting
entity. Section 933.15(c)(4) provides that for a pending merger
applicant or for a recent merger applicant that does not yet have a CRA
performance evaluation on a combined basis for the
[[Page 54967]]
merged entity, the determination of whether the merger applicant's home
financing policy satisfies the requirements of Sec. 933.13 shall be
based on a review of the most recent CRA performance evaluation
available for each party to the merger or acquisition.
12. Insurance Company Applicants
To become a Bank member, the Bank Act requires that an insurance
company applicant meet the membership eligibility requirements set
forth in section 4(a)(1) of the Bank Act. See 12 U.S.C. 1424(a)(1)(A)-
(C); Sec. 933.6(a)(1), (2) and (3) of the proposed rule, discussed in
part II(B) above. For the reasons discussed in part II(B)(6) above, the
Finance Board proposes to apply the section 4(a)(2) criteria to all
applicants for Bank membership, including insurance company applicants,
even though the Bank Act specifically applies the section 4(a)(2)
criteria only to insured depository institution applicants. See 12
U.S.C. 1424(a)(2).
a. Inspection and regulation.
Insurance companies are subject to state, not federal, regulation
and, therefore, the standards applicable to insurance companies are not
uniform. Every United States insurance company is subject to
examination and regulation by the state insurance department in its
domiciliary state, as well as to some level of regulation by the state
insurance department in each state where the insurance company
applicant is licensed to do business. State insurance laws are similar
to federal banking laws in that they require the appropriate regulator
to monitor whether the insurance company has complied with minimum
capital and reserve, financial condition, asset valuation and various
consumer related requirements.
The standards used to examine and regulate insurance companies vary
from state to state. Some states adhere to the uniform standards
established by the National Association of Insurance Commissioners
(NAIC), while other states either do not conduct examinations of
insurance companies pursuant to the NAIC standards or do not conduct
on-site examinations. Thus, there is no single objective measurement
applicable to all insurance companies. The Finance Board specifically
requests comment on whether the degree of inspection and regulation
imposed by a particular state should be a factor in determining whether
an insurance company applicant satisfies the ``inspection and
regulation'' requirement. For example, the Finance Board seeks comment
on whether it should require that an insurance company applicant be
regulated and examined by an NAIC accredited state insurance
commissioner in order to satisfy the ``inspection and regulation''
requirement.
b. Financial condition.
The differences between the regulatory scheme for insurance
companies and the regulatory scheme for insured depository institutions
has led the Finance Board to propose a separate set of financial
condition standards for insurance company applicants. Section 933.16 of
the proposed rule establishes financial condition standards for
insurance company applicants that differ from the financial condition
standards applicable to other applicants under Sec. 933.11.
Section 933.16(a) of the proposed rule defines certain terms that
are used only in this section.
Section 933.16(b) of the proposed rule establishes performance
standards for insurance company applicants.
(1) Examination rating and independent rating.
Section 933.16(b)(1) requires the Bank to review the most recent
examination report of an insurance company applicant by its primary
regulator. Most insurance company examination reports do not include a
rating; however, several private firms rate insurance company
performance. Therefore, the Finance Board also requires that an
insurance company applicant have a rating from one of the five
principal private companies that rate insurance companies, A.M. Best
Company, Duff & Phelps, Inc., Moody's Investor Service, Inc., Standard
& Poor's Corp., or Weiss Research, Inc. Relying in part on the
independent rater's evaluation of an insurance company applicant
reduces documentation requirements and makes the application process
more efficient.
Section 933.16(b)(2) of the proposed rule requires that an
insurance company applicant's most recent examination indicate no major
adverse findings pertaining to the applicant's financial condition.
(2) Capital requirement.
Section 933.16(b)(3) of the proposed rule requires that an
insurance company applicant meets all of its minimum statutory and
regulatory capital requirements and the NAIC capital standards as
reported in its most recent quarter-end or year-end regulatory
financial report filed with its primary regulator.
(3) Minimum performance standard.
Section 933.16(b)(4) of the proposed rule establishes the minimum
performance standard for an insurance company applicant. Under
Sec. 933.16(b)(4)(i), the applicant's most recent composite insurance
company rating must have been ``strong,'' defined in the proposed rule
as: ``A-'' or above from A.M. Best Company; ``AA-'' or above from Duff
& Phelps, Inc.; ``Aa'' or above from Moody's Investor Service, Inc.;
``AA'' or above from Standard & Poor's Corp.; or ``A'' from Weiss
Research, Inc.
Alternatively, under Sec. 933.16(b)(4)(ii), an insurance company
applicant can establish an acceptable financial condition if it has an
``adequate'' rating and earnings. An ``adequate'' rating is defined in
the proposed rule as: ``C+'' to ``B++'' from A.M. Best Company; ``BB-''
to ``A+'' from Duff & Phelps, Inc.; ``Ba'' to ``A'' from Moody's
Investor Service, Inc.; ``BB'' to ``A'' from Standard & Poor's Corp.;
or ``B'' or ``C'' from Weiss Research, Inc. To establish that it has
adequate earnings, an insurance company applicant must have positive
annualized earnings in two of the three most recent calendar years.
(4) Minimum performance ratios.
(i) Overall ratios.
All insurance company applicants also must meet certain minimum
performance ratios established by Sec. 933.16(b)(5) of the proposed
rule during the most recent year-end or quarter-end period. Section
933.16(b)(5)(i) defines certain terms that are used only in this
paragraph. Section 933.16(b)(5)(ii) establishes the overall minimum
performance ratios for insurance company applicants.
Section 933.16(b)(5)(ii)(A) establishes a premium to surplus ratio
standard that is designed to measure the adequacy of an insurance
company's reserves for absorbing above-average losses. To calculate
this ratio, divide net premiums written by total capital and surplus.
To meet the standard, an applicant's net premiums may not exceed three
times the level of capital and surplus. Section 933.16(a)(7) defines
the term ``net premiums written'' as the total consideration paid for
an insurance contract during a specified period of time, net of
reinsurance assumed and ceded.
Section 933.16(a)(8) defines the term ``reinsurance'' as
transactions in which an assuming enterprise, known as a reinsurer,
assumes, for a premium, all or part of a risk undertaken originally by
another insurer.
Section 933.16(a)(9) defines the term ``reinsurance assumed'' as
all premiums generated by policies issued to assume a liability, in
whole or in part, of another insurer that is already covering the risk
with a policy.
Section 933.16(a)(10) defines the term ``reinsurance ceded'' as all
premiums generated by policies or coverage purchased from another
insurer that
[[Page 54968]]
transfer liability, in whole or in part, from direct or reinsurance
policies.
Section 933.16(a)(14) defines the term ``surplus'' as the total of
common and preferred capital stock, aggregate write-ins for other than
special surplus funds, gross paid-in and contributed surplus, surplus
notes and unassigned funds, less treasury stock.
Section 933.16(b)(5)(ii)(B) establishes a change in net premiums
written ratio standard that is designed to measure the stability of an
insurance company's operation. Major increases or decreases in net
premiums written may indicate a lack of stability in company operations
or an abrupt entry into new product lines or sales territory. To
calculate this ratio, divide the change in net premiums written between
the two most recent consecutive calendar years by the total net
premiums written in the first year. To meet the standard, an
applicant's ratio must be between -10 percent and +50 percent.
Section 933.16(b)(5)(ii)(C) establishes a surplus relief ratio
standard that is designed to measure the insurance company's level of
dependence on net income generated by reinsurance activities to fund
capital and surplus. Dependence on income from reinsurance ceded
premiums may indicate that company management believes current capital
and surplus to be inadequate. To calculate the surplus relief ratio,
divide the net of commissions and expenses generated by reinsurance
ceded and assumed by total capital and surplus. To meet the standard,
an applicant's surplus relief ratio must be less than 30 percent.
Section 933.16(b)(5)(ii)(D) establishes an adequacy of investment
income ratio standard that is designed to measure whether the insurance
company's investment income is adequate to cover contractual interest
obligations on policies and funds held on deposit. To calculate this
ratio, divide net investment income by the sum of total tabular
interest required on life insurance, accident and health reserves, and
total interest credited on funds held on deposit. Section 933.16(a)(15)
defines the term ``tabular interest'' as interest, required by the
primary regulator, to be set aside to cover all contractual
obligations.
Section 933.16(a)(11) defines the term ``reserves'' as funds set
aside for possible losses on insurance policies, annuities, claims
unpaid, funds held for policyholders, and deposit funds.
To meet the adequacy of investment income ratio standard, an
applicant's net investment income must provide no less than 1.25 times
the coverage on total funds held in reserves to pay interest on
contractual obligations and funds held on deposit.
Section 933.16(b)(5)(ii)(E) establishes a change in capital and
surplus ratio standard that is designed to provide an overall
measurement of improvement or deterioration in an insurance company's
financial condition. To calculate this ratio, divide the net change in
capital and surplus between the two most recent consecutive calendar
years, by total capital and surplus in the first year. To meet this
standard, an applicant's ratio must be between -10 percent and +50
percent.
(ii) Solvency ratios.
Section 933.16(b)(5)(iii) establishes the solvency ratios for
insurance company applicants. --
Section 933.16(b)(5)(iii)(A) establishes a highly liquid ratio
standard that is designed to measure the relationship between highly
liquid assets and those liabilities that can be withdrawn or must be
paid by the company in less than 30 days.
Section 933.16(a)(4) defines the term ``highly liquid assets'' as
cash or cash equivalent assets readily convertible to cash, including
marketable Class 1 (highest investment grade) publicly traded bonds,
marketable preferred and common stock, short-term investments, and
investment income due. To calculate this ratio, divide highly liquid
assets by annuity and deposit fund reserves less reserves with no
withdrawal privileges, separate accounts and reinsurance.
To meet the standard, an applicant's highly liquid ratio must be no
less than: (1) 75 percent on traditional life insurance products; (2)
85 percent on interest sensitive life insurance products; (3) 85
percent on individual annuity insurance products; (4) 100 percent on
group annuity insurance products; (5) 79 percent on property and
liability insurance products; (6) 75 percent on accident and health
insurance products; and (7) 50 percent on disability income insurance
products.
Section 933.16(b)(5)(i)(A) defines ``traditional life insurance
products'' as insurance business that consists of individual term life
insurance contracts, individual permanent fixed value life insurance
contracts, or policies that consist of fixed premiums, fixed dollar
amounts of contract, or fixed reserves (cash value) established by each
state.
Section 933.16(b)(5)(i)(B) defines ``interest sensitive life
insurance products'' as insurance business that consists of individual
life insurance policies characterized by flexible premiums, dollar
amounts of contract that can vary, and reserves which represent a pool
of assets such as mutual funds that are held for the benefit of, and
support the investment return to, policy holders.
Section 933.16(b)(5)(i)(D) defines ``individual and group annuity
insurance products'' as insurance business that consists of contracts
that accumulate and disburse retirement benefits to individual
policyholders or to companies for their employees, hold pension deposit
funds, or distribute and hold funds under guaranteed interest
contracts.
Section 933.16(b)(5)(i)(F) defines ``property insurance products''
as insurance business that consists of policies where the majority of
premiums go to cover losses to real property, automobiles or similar
tangible assets.
Section 933.16(b)(5)(i)(G) defines ``liability insurance products''
as insurance business that consists of policies that cover losses
arising from actions taken by individuals or companies, including
losses from litigation or mutual agreements as to the amount of a
claim, such as product liability, medical malpractice and worker's
compensation.
Section 933.16(b)(5)(i)(C) defines ``accident and health insurance
products'' as insurance business that consists of coverage for care
such as basic hospital expense, basic surgical expense, dental care,
specific hospital reimbursement, long-term nursing home or home care
expenses for the aged or disabled, major medical expense, and Medicare
supplemental insurance.
Section 933.16(b)(5)(i)(E) defines ``disability income insurance
products'' as insurance business that consists of contracts that pay
income periodically to insureds who are unable to work as a result of
sickness or injury.
Section 933.16(b)(5)(iii)(B) establishes a current ratio standard
that is designed to measure the relationship between liquid assets and
liabilities that are available to meet a company's obligations if the
obligations are paid in an orderly fashion in the normal course of
business. Section 933.16(a)(6) defines the term ``liquid assets'' as
installment premiums booked but deferred and not yet due, cash, accrued
investment income, marketable Class 1 (highest investment grade
quality) publicly traded bonds and marketable Class 2 (high investment
grade quality) publicly traded bonds, marketable preferred and common
stock, cash, short-term investments, and investment income due, less
investments in affiliated companies and excess of real estate over five
percent of liabilities.
To calculate the current ratio, divide liquid assets by annuity,
ordinary life,
[[Page 54969]]
and deposit fund reserves, less reserves with no withdrawal privileges,
separate accounts, reinsurance, and policy loans. -
Section 933.16(a)(12) defines the term ``separate accounts'' as
assets and liabilities maintained by an insurance company predominately
to fund fixed-benefit or variable annuity contracts and pension plans.
The contract holder assumes the investment risk while the insurance
company receives a fee for managing or maintaining the investments.
To meet the standard, an applicant's current ratio must be no less
than: (1) 60 percent on traditional life insurance products; (2) 75
percent on interest sensitive life insurance products; (3) 75 percent
on individual and group annuity insurance products; (4) 87 percent on
property and liability insurance products; (5) 75 percent on accident
and health insurance products; and (6) 50 percent on disability income
insurance products.
Section 933.16(b)(5)(iii)(C) establishes an adjusted liabilities to
adjusted surplus ratio standard that is designed to measure whether an
insurance company's surplus account is adequate in relation to its
level of current contractual obligations outstanding.
Section 933.16(a)(1) defines the term ``adjusted liabilities'' as
total statutory liabilities less separate account liabilities, asset
valuation reserves, and interest maintenance reserves. Section
933.16(a)(13) defines the term ``statutory liabilities'' as the total
of funds set aside to pay future claims and operating expenses,
including separate account liabilities and funds held for the benefit
of others, as established under the accounting rules and techniques
permitted by the NAIC. Examples of statutory liabilities are policy
reserves, premiums collected in advance, commissions and expenses
payable, and provisions for policyholder dividends.
Section 933.16(a)(3) defines the term ``asset valuation reserves''
as reserves on the liability side of the balance sheet that are
established by the primary regulator to guard against fluctuations in
the value of securities and to absorb all unrealized capital gains and
losses and certain realized gains and losses on investment activity.
Section 933.16(a)(5) defines the term ``interest maintenance
reserves'' as reserves on the liability side of the balance sheet that
are established to hold the amount of realized capital gains and losses
on fixed income securities that result from overall interest rate
changes.
Section 933.16(a)(2) defines the term ``adjusted surplus'' as
surplus plus asset valuation reserves and interest maintenance
reserves.
To calculate the adjusted liabilities to adjusted surplus ratio,
divide adjusted liabilities by adjusted surplus. To meet the standard,
an applicant's adjusted liabilities to adjusted surplus ratio must not
exceed: (1) 10 to 1 on traditional life insurance products; (2) 10 to 1
on interest sensitive life insurance products; (3) 10 to 1 on
individual and group annuity insurance products; (4) 3 to 1 on property
and liability insurance products; (5) 3 to 1 on accident and health
insurance products; and (6) 5 to 1 on disability income insurance
products.
13. Rebuttable Presumptions
For each membership eligibility criteria required by the Bank Act
and this part, the Finance Board, based on its general supervisory
authority over the Banks, 12 U.S.C. 1422a, 1422b(a)(1), and its
authority to interpret the Bank Act's membership requirements, id.
Sec. 1424, is proposing to establish flexible standards. In the
proposed rule, an applicant that meets those standards is presumed to
be in compliance with the statutory membership eligibility criteria.
So, too, applicants not meeting the standards are presumed not to be in
compliance with the Bank Act criteria. The proposed rule provides that
these presumptions may be rebutted if the applicant provides compelling
or substantial evidence, depending on the standard at issue, or if the
Bank otherwise obtains compelling evidence to the contrary. Section
933.17 of the proposed rule establishes the method by which a
presumption may be rebutted.
This approach is similar to the current Guidelines, in that it
allows an applicant that fails to meet a standard to establish an
alternative basis for complying with the statutory membership
eligibility criteria.
Under Sec. 933.17(a) of the proposed rule, even if an applicant
meets all of the standards, it may not be admitted to membership if the
Bank obtains compelling evidence to overcome the presumption that the
applicant is in compliance with the Bank Act and the general
eligibility requirements of Sec. 933.6(a).
Section 933.17(b) provides that an applicant that does not meet all
of the standards or that is unable to provide information sufficient
for the Bank to evaluate whether it meets the standards, may
nevertheless have the opportunity to rebut the presumption that it is
therefore not in compliance with the Bank Act and the general
eligibility requirements in Sec. 933.6(a).
The remaining provisions of section 933.17 describe specific
rebuttal procedures. Section 933.17(c) of the proposed rule sets out
the requirements for rebutting the presumption of noncompliance with
the financial condition standards. Under Sec. 933.17(c)(1), for each
variance from the required minimum regulatory examination rating, an
applicant must prepare a written justification that provides compelling
evidence that the applicant is in the financial condition required by
Sec. 933.6(a)(4) of the proposed rule, notwithstanding the variance.
The Finance Board is proposing a compelling evidence standard to rebut
a low regulatory examination rating, a rating of ``4'' or ``5,''
because of the importance of the regulatory examination rating in
determining an applicant's financial condition.
Under section 933.17(c)(2) of the proposed rule, for each variance
from a performance trend criterion required by Sec. 933.11(b)(3), the
applicant must prepare a written justification that provides
substantial evidence that the applicant is in an adequate financial
condition, notwithstanding the variance. The Finance Board is proposing
a substantial evidence standard to rebut the failure to meet a
performance trend standard because, while the performance trend
criteria are important, they are less important than the regulatory
examination ratings in evaluating financial condition.
Section 933.17(d) of the proposed rule sets out the requirements
for rebutting the presumption of noncompliance with the character of
management standards. Under Sec. 933.17(d)(1) of the proposed rule, if
an applicant or any of its directors or senior officers is subject to
or operating under an enforcement action, the applicant must provide
written confirmation from its appropriate regulator that the applicant,
its directors or senior officers are in substantial compliance with all
aspects of the enforcement action. Alternatively, an applicant may
prepare a written analysis stating each action the applicant, director
or senior officer is required to take by the enforcement action, the
actions actually taken by the applicant, director or senior officer,
and whether the applicant regards this as substantial compliance. If
the Bank is not certain that the applicant has substantially complied
with all aspects of the enforcement action, the Bank must consult the
applicant's appropriate regulator.
Under Sec. 933.17(d)(2) of the proposed rule, if an applicant or
any of its directors or senior officers is subject to criminal, civil
or administrative
[[Page 54970]]
proceedings that reflect on creditworthiness, business judgment or
moral turpitude since the last examination, the applicant must provide
written confirmation from the applicant's primary regulator that the
proceedings will not likely result in enforcement action.
Alternatively, the applicant may prepare a written analysis of the
severity of the pending charges and any mitigating actions taken by the
applicant, director or senior officer. If the Bank is uncertain whether
the proceedings will result in enforcement action, the Bank must
consult the applicant's primary regulator.
Under Sec. 933.17(d)(3) of the proposed rule, if there are any
material known or potential civil, criminal or administrative monetary
liabilities, pending lawsuits, or unsatisfied judgments against the
applicant or any of its directors or senior officers as of the most
recent quarter-end, the applicant must provide written confirmation
from its primary regulator that the matter will not likely cause the
applicant to fall below its minimum capital requirements.
Alternatively, the applicant may provide a written analysis of each
matter, the likelihood of the applicant or its directors or senior
officers prevailing and the financial consequences if the applicant or
its directors or senior officers do not prevail. If the Bank is
uncertain whether the matter will cause the applicant to fall below its
minimum capital requirements, the Bank must consult the applicant's
primary regulator.
Section 933.17(e) of the proposed rule sets out the requirements
for rebutting the presumption of noncompliance with the home financing
policy standards. If an applicant received a ``substantial non-
compliance'' rating on its most recent CRA performance evaluation, or
two consecutive ``needs to improve'' CRA ratings, or has not received a
CRA performance evaluation within four years from the date of the
membership application, the applicant must provide written confirmation
from its primary regulator of the applicant's recent satisfactory CRA
performance, including any corrective action that substantially
improved upon the deficiencies cited in any recent CRA performance
evaluation. Alternatively, the applicant may provide a written analysis
demonstrating that the applicant's low CRA rating is unrelated to
housing finance, or providing substantial evidence that the applicant's
home financing credit policies and lending practices (if applicable)
are consistent with the Bank System's housing finance mission. The
Finance Board is proposing a compelling evidence standard to overcome
the presumption of an inadequate home financing policy because of the
likelihood that a ``substantial non-compliance'' rating or two
consecutive ``needs to improve'' ratings indicate a poor home financing
policy.
The Finance Board has made no change to Sec. 933.18, Determination
of appropriate Bank district for membership, other than conforming
citations to the proposed rule. For the sake of brevity, conforming
change to the citations in subparts D through I of part 933 are set out
in a table. Part 933 as revised will be set out in its entirety when
the final rule is published.
III. Regulatory Flexibility Act
The proposed rule implements statutory requirements binding on all
applicants for Bank membership, regardless of their size. The Finance
Board is not at liberty to make adjustments in those requirements to
accommodate small entities. The Finance Board has not imposed any
additional regulatory requirements that will have a disproportionate
impact on small entities. The proposed rule would, to some extent,
reduce the tests and criteria for determining compliance with statutory
eligibility requirements that currently are used by the Finance Board
in approving membership applications. Therefore, it is certified,
pursuant to section 605(b) of the Regulatory Flexibility Act, 5 U.S.C.
605(b), that this proposed rule, if promulgated as a final rule, would
not have a significant economic impact on a substantial number of small
entities.
Paperwork Reduction Act
The Finance Board has submitted to the Office of Management and
Budget (OMB) an analysis of membership approval collections of
information contained in Secs. 933.2, 933.3, 933.5, and 933.7 through
933.17 of the proposed rule, described more fully in part II of the
Supplementary Information, as well as an analysis of other information
collection requirements in redesignated Secs. 933.18, 933.22, 933.25,
933.26 and 933.31 of the current membership regulation, which are not
otherwise affected by this proposed rule. These information collections
are necessary to enable the Finance Board and/or the Banks to determine
whether applicants qualify for Bank membership and to satisfy various
statutory requirements that apply to FHLBank members. Responses are
required to obtain or retain a benefit. See 12 U.S.C. 1424, 44 U.S.C.
3512.
The information collections will be used by Finance Board and/or
Bank staff as part of the membership process to determine the
eligibility of applicants for Bank membership under the Bank Act and
Finance Board regulation, the amount of stock that each member is
required to hold pursuant to statutory requirements, information the
Finance Board must collect to comply with statutory requirements in the
event of a member's withdrawal from membership, and information the
Finance Board is required by statute to collect to determine a member's
actual principal place of business. Confidentiality of information
obtained from respondents pursuant to the collections of information
will be maintained by the Finance Board as required by applicable
statute, regulation and agency policy. Books or records relating to
these collections of information must be retained as provided in the
regulation or proposed rule. -
Likely respondents and/or recordkeepers will be the types of
financial institutions eligible to become Bank members under the Bank
Act, 12 U.S.C. 1424(a)(1), including any building and loan association,
savings and loan association, cooperative bank, homestead association,
insurance company, savings bank, or insured depository institution; the
Banks; and the Finance Board. Potential respondents are not required to
respond to the collections of information unless the regulation
collecting the information displays a currently valid control number
assigned by the OMB. See 44 U.S.C. 3512(a).
The estimated annual reporting and recordkeeping hour burden is:
a. Number of respondents--6,412.
b. Total annual responses--6,412.
Percentage of these responses collected electronically 0%.
c. Total annual hours requested--59,152.1.
d. Current OMB inventory--38,889.6.
e. Difference--20,262.5.
The estimated annual reporting and recordkeeping cost burden is:
a. Total annualized capital/startup costs--0.
b. Total annual costs (O&M)--$1,683,923.95.
c. Total annualized cost requested--1,683,923.95.
d. Current OMB inventory--1,754,181.95.
e. Difference--($70,258.00).
Comments concerning the accuracy of the burden estimates and
suggestions for reducing the burden may be submitted to the Finance
Board in writing at the address listed above.
[[Page 54971]]
The collections of information have been submitted to OMB for
review in accordance with section 3507(d) of the Paperwork Reduction
Act of 1995, 44 U.S.C. 3507(d). Comments regarding the proposed
collections of information may be submitted in writing to the Office of
Information and Regulatory Affairs of OMB, Attention: Desk Officer for
Federal Housing Finance Board, Washington, DC 20503, by December 26,
1995.
List of Subjects in 12 CFR Part 933
Credit, Federal home loan banks, Reporting and recordkeeping
requirements.
Accordingly, the Board hereby amends title 12, chapter IX, part
933, of the Code of Federal Regulations as follows:
PART 933--MEMBERS OF THE BANKS
1. The heading for part 933 is revised as set forth above.
1a. The authority citation for part 933 continues to read as
follows:
Authority: 12 U.S.C. 1422a, 1422b, 1424, 1426, 1430, 1442.
2. The table of contents to part 933 is revised to read as follows:
Subpart A--Definitions
Sec.
933.1 Definitions.
Subpart B--Membership Application Process
933.2 Membership application requirements.
933.3 Decision on application.
933.4 Automatic membership.
933.5 Appeals.
Subpart C--Eligibility Requirements
933.6 General eligibility requirements.
933.7 Duly organized requirement.
933.8 Subject to inspection and regulation requirement.
933.9 Makes long-term home mortgage loans requirement.
933.10 Ten percent requirement
933.11 Financial condition requirement.
933.12 Character of management requirement.
933.13 Home financing policy requirement.
933.14 De novo insured depository institution applicants.
933.15 Recent and pending merger applicants.
933.16 Financial condition standards for insurance company
applicants.
933.17 Rebuttable presumptions.
933.18 Determination of appropriate Bank district for membership.
Subpart D--Stock Requirements
933.19 Par value and price of stock.
933.20 Stock purchase.
933.21 Issuance and form of stock.
933.22 Adjustments in stock holdings.
933.23 Purchase of excess stock.
Subpart E--Consolidations Involving Members
933.24 Consolidation of members.
933.25 Consolidations involving nonmembers.
Subpart F--Withdrawal and Removal From Membership
933.26 Procedure for withdrawal.
933.27 Procedure for removal.
933.28 Automatic termination of membership for institutions placed
in receivership.
Subpart G--Orderly Liquidation of Advances and Redemption of Stock
933.29 Orderly liquidation of advances and redemption of stock.
Subpart H--Reacquisition of Membership
933.30 Reacquisition of membership.
Subpart I--Bank Access to Information
933.31 Reports and examinations.
Subpart J--Membership Insignia
933. 32 Official membership insignia.
Subparts C Through I of Part 933 [Redesignated as Subparts D Through
J]
3. Subparts C through I of Part 933 are redesignated as Subparts D
through J, respectively.
Secs. 933.6 Through 933.19 [Redesignated as Secs. 933.19 Through
933.32]
4. Sections 933.6 through 933.19 are redesignated as Secs. 933.19
through 933.32, respectively.
5. Subpart A of part 933 is revised to read as follows:
Subpart A--Definitions
Sec. 933.1 Definitions.
For purposes of this part:
(a) Act means the Federal Home Loan Bank Act, as amended (12 U.S.C.
1421 through 1449).
(b) Aggregate unpaid load principal means the aggregate unpaid
principal of a subscriber's or member's home mortgage loans, home
purchase contracts, and similar obligations.
(c) Annualized adjusted earnings means net earnings, excluding
extraordinary items such as income received from or expense incurred in
sales of securities or fixed assets.
(d) Appropriate Federal banking agency has the same meaning as used
in 12 U.S.C. 1813(q) and, for federally insured credit unions, shall
mean the National Credit Union Administration.
(e) Appropriate regulator means any officer, agency, supervisor or
other entity that has regulatory authority over, or is empowered to
institute enforcement action against, an applicant.
(f) Bank means a Federal Home Loan Bank established under the
authority of the Act.
(g) Board means the Federal Housing Finance Board.
(h) Combination business or farm property means real property for
which the total appraised value is attributable to residential, and
business or farm uses.
(i) Domestic loan means a loan on property located in a state or
the United States.
(j) Dwelling unit means a single room or a unified combination of
rooms designed for residential use.
(k) Enforcement action means any written notice, directive, order
or agreement initiated by an applicant or its appropriate regulator to
address any operational, financial, managerial or other deficiencies of
the applicant identified by the appropriate regulator.
(l) Funded residential construction loan means the portion of a
loan secured by real property made to finance the on-site construction
of dwelling units on one-to-four family property or multifamily
property disbursed to the borrower.
(m) Home mortgage loan means:
(1) A domestic loan, whether or not fully amortizing, or an
interest in such a loan, which is secured by a mortgage, deed of trust,
or other security agreement that creates a first lien on one of the
following interests in property:
(i) One-to-four family property or multifamily property, in fee
simple;
(ii) A leasehold on one-to-four family property or multifamily
property under a lease of not less than 99 years that is renewable, or
under a lease having a period of not less than 50 years to run from the
date the mortgage was executed; or
(iii) Combination business or farm property where at least 50
percent of the total appraised value of the combined property is
attributable to the residential portion of the property; or
(2) A mortgage pass-through security that represents an undivided
ownership interest in:
(i) Long-term loans, provided that, at the time of issuance of the
security, all of the loans meet the requirements of paragraph (m)(1) of
this section; or
(ii) A security that represents an undivided ownership interest in
long-term loans, provided that, at the time of issuance of the
security, all of the loans meet the requirements of paragraph (m)(1) of
this section.
(n) Institutions which are eligible to make application to become
members means for purposes of 12 U.S.C. 1431(e)(2)(A), any building and
loan association, savings association, cooperative bank, homestead
association, insurance company, savings bank or any insured depository
[[Page 54972]]
institution, regardless of whether the institution applies for or would
be approved for membership.
(o) Insured depository institution means an insured depository
institution as defined in 12 U.S.C. 1422(12).
(p) Loan loss reserves means a specified balance-sheet account held
to fund potential losses on loans or leases.
(q) Long-term means a term to maturity of five years or greater.
(r) Manufactured housing means a manufactured home as defined in
section 603(6) of the Manufactured Home Construction and Safety
Standards Act of 1974, as amended (42 U.S.C. 5402(6)).
(s) Member means an institution that has been approved for
membership in a Bank and has purchased capital stock in the Bank in
accordance with Secs. 933.20 or 933.24 of this part.
(t) Multifamily property means:
(1) Real property that is solely residential and includes five or
more dwelling units; or
(2) Real property that includes five or more dwelling units
combined with commercial units, provided that the property is primarily
residential; and
(3) Property that includes, but is not limited to, nursing homes,
dormitories and homes for the elderly.
(u) Nonperforming assets means the sum of loans and leases reported
on a regulatory financial report that have been past due for 90 days or
longer; loans and leases on a nonaccrual basis; restructured loans and
leases (not already reported as nonperforming); and foreclosed real
estate, except that nonperforming assets shall be as defined by the
National Credit Union Administration for credit union applicants.
(v) Nonresidential real property means real property that is not
used for residential purposes, including business or industrial
property, hotels, motels, churches, hospitals, educational and
charitable institution buildings or facilities, clubs, lodges,
association buildings, golf courses, recreational facilities, farm
property not containing a dwelling unit, or similar types of property,
except as otherwise determined by the Board, in its discretion.
(w) One-to-four family property means:
(1) Real property that is solely residential, including one-to-four
family dwelling units or more than four family dwelling units if each
dwelling unit is separated from the other dwelling units by dividing
walls that extend from ground to roof, such as row houses, townhouses
or similar types of property;
(2) Manufactured housing if applicable state law defines the
purchase or holding of manufactured housing as the purchase or holding
of real property;
(3) Individual condominium dwelling units or interests in
individual cooperative housing dwelling units that are part of a
condominium or cooperative building without regard to the number of
total dwelling units therein; or
(4) Real property which includes one-to-four family dwelling units
combined with commercial units, provided the property is primarily
residential.
(x) Primary regulator means the chartering authority for federally-
chartered applicants, the insuring authority for federally-insured
applicants that are not federally-chartered; or the appropriate state
agency for all other applicants.
(y) Regulatory examination rating means a rating of capital,
assets, management, earnings and liquidity following the guidelines of
the Uniform Financial Institutions Rating System contained in a written
report of examination conducted by the applicant's appropriate
regulator, including a CAMEL rating, a MACRO rating, or other similar
ratings.
(z) Regulatory financial report means a financial report that an
applicant is required to file with its primary regulator on a specific
periodic basis, including the quarterly call report for commercial
banks, thrift financial report for thrifts, quarterly or semi-annual
call report for credit unions, the National Association of Insurance
Commissioners' annual or quarterly report for insurance companies and
other similar reports.
(aa) Residential mortgage loan means any one of the following types
of domestic loans, whether or not fully amortizing:
(1) Home mortgage loans;
(2) Funded residential construction loans;
(3) Loans secured by manufactured housing whether or not defined by
state law as secured by an interest in real property;
(4) Loans secured by junior liens on one-to-four family property or
multifamily property;
(5) Qualified private activity exempt facility bonds where 95
percent or more of the net proceeds are used for the construction of
qualified residential rental projects as defined in 20 U.S.C.
142(a)(7);
(6) Mortgage pass-through securities representing an undivided
ownership interest in:
(i) Loans that meet the requirements of paragraphs (aa)(1) through
(4) of this section at the time of issuance of the security;
(ii) Securities representing an undivided ownership interest in
loans, provided that, at the time of issuance of the security, all of
the loans meet the requirements of paragraphs (r)(1) through (4) of
this section; or
(iii) Mortgage debt securities as defined in paragraph (aa)(7) of
this section;
(7) Mortgage debt securities secured by:
(i) Loans, provided that, at the time of issuance of the security,
all of the loans meet the requirements of paragraphs (aa)(1) through
(4) of this section;
(ii) Securities that meet the requirements of paragraph (aa)(6) of
this section; or
(iii) Securities secured by assets, provided that, at the time of
issuance of the security, all of the assets meet the requirements of
paragraphs (aa)(1) through (5) of this section; or
(8) Home mortgage loans secured by a leasehold interest, as defined
in paragraph (m)(1)(ii) of this section, except that the period of the
lease term may be for any duration.
(bb) State means a State of the United States, the District of
Columbia, Guam, Puerto Rico or the U.S. Virgin Islands.
(cc) Total assets means cash and balances due from depository
institutions, held to maturity securities, available-for-sale
securities, federal funds sold and securities purchased under
agreements to resell (in domestic subsidiaries), loans and lease
financing receivables, assets held in trading accounts (in domestic
offices of the company and its domestic subsidiaries), premiums and
fixed assets, other real estate owned, investments in unconsolidated
subsidiaries and associated companies, customers' liability to the
reporting bank on acceptances outstanding, intangible assets, and other
assets.
6. Subpart B of part 933 is revised to read as follows:
Subpart B--Membership Application Process
Sec. 933.2 Membership application requirements.
(a) Application. An applicant for membership in a Bank shall submit
to that Bank an application that satisfies the requirements of this
part. The application shall include a written certification by a
majority of the applicant's directors or by an individual with
authority to act on behalf of the applicant of the following:
[[Page 54973]]
(1) Applicant review. Applicant has reviewed the requirements of
this part and, as required by this part, has provided to the best of
applicant's knowledge the most recent, accurate and complete
information available; and
(2) Duty to supplement. Applicant will promptly supplement the
application with any relevant information that comes to applicant's
attention prior to the Bank's decision on whether to approve the
application, and if the Bank's decision is appealed pursuant to
Sec. 933.5 of this part, prior to resolution of any appeal by the
Board.
(b) Digest. The Bank shall prepare a written digest for each
applicant stating whether or not the applicant meets each of the
requirements in Secs. 933.6 to 933.18 of this part, the Bank's findings
and the reasons therefor.
(c) File. The Bank shall maintain a membership file for each
applicant for at least three years after the Bank decides whether to
approve membership and the resolution of any appeal to the Board. The
membership file shall contain at a minimum:
(1) Digest. The digest required by paragraph (b) of this section.
(2) Required documents. All documents required by Secs. 933.6 to
933.18 of this part, including those documents required to establish or
rebut a presumption under this part, shall be described in and attached
to the digest. If an applicant's primary regulator requires return of a
regulatory examination report, the date that the report is returned
shall be noted in the digest.
(3) Additional documents. Any document submitted by the applicant,
or otherwise obtained or generated by the Bank, concerning the
applicant.
(4) Decision resolution. Decision resolution described in
Sec. 933.3(b) of this part.
(d) Independent evaluation. The Bank shall use regulatory financial
reports and other sources independent of the applicant to evaluate and
analyze all conclusions offered by the applicant regarding the
applicant's eligibility for membership. No applicant shall be admitted
to membership until the Bank is satisfied that the applicant meets the
requirements of the Act and this part independent of any
representations by the applicant.
Sec. 933.3 Decision on application.
(a) Authority. The Board authorizes the Banks to approve or deny
all applications for membership, subject to Sec. 933.5 of this part.
The Bank may delegate the authority to approve membership applications
only to a committee of the Bank's board of directors, the Bank
president or a senior officer who reports directly to the Bank
president other than an officer with responsibility for business
development.
(b) Decision resolution. For each applicant, the Bank shall prepare
a resolution of its board of directors signed by a majority of the
directors or by an officer with delegated authority to approve
membership applications. The decision resolution shall state:
(1) That the information in the digest is accurate and is based on
a diligent and comprehensive review of all available information; and
(2) The Bank's decision and the reasons therefor. Decisions to
approve an application should specifically state that the applicant is
authorized under the laws of the United States and the laws of the
appropriate state to become a member of, purchase stock in, do business
with and maintain deposits in the Bank to which the applicant has
applied; and, that the applicant meets all of the membership
eligibility criteria of the Act and this part.
(c) Action on applications. The Bank shall act on an application
within 60 calendar days of the date the Bank deems the application to
be complete. Within three business days of a Bank's decision on an
application, the Bank shall provide the applicant and the Board's
Executive Secretary with a copy of the Bank's decision resolution.
Sec. 933.4 Automatic membership.
(a) Automatic membership for mandatory members. Any institution
required by law to become a member of a Bank automatically shall become
a member of the Bank of the district in which its principal place of
business is located upon the purchase of stock in that Bank pursuant to
Sec. 933.20(b)(1) of this part.
(b) Automatic membership for certain charter conversions. An
insured depository institution member that converts from one charter
type to another automatically shall become a member of the Bank of
which the converting institution was a member on the effective date of
such conversion, provided that the converting institution continues to
be an insured depository institution and the assets of the institution
immediately before and immediately after the conversion are identical.
In such case, all relationships existing between the member and the
Bank at the time of such conversion may continue.
(c) Automatic membership for transfers. Any member whose membership
is transferred pursuant to Sec. 933.18(d) of this part automatically
shall become a member of the Bank to which it transfers.
Sec. 933.5 Appeals.
(a) Appeals by applicants--(1) Filing procedure. Within 90 calendar
days of the date of a Bank's decision to deny an application for
membership, the applicant may file a written appeal of the decision
with the Board.
(2) Documents. The applicant's appeal shall be addressed to the
Executive Secretary, Federal Housing Finance Board, 1777 F Street,
N.W., Washington, D.C. 20006, with a copy to the Bank, and shall
include the following documents:
(i) Bank's decision. A copy of the Bank's decision resolution; and
(ii) Basis for appeal. A statement of the basis for the appeal by
the applicant with sufficient facts, information, analysis and
explanation to support the applicant's contentions.
(b) Appeals by Banks. Within 60 days of the date that a Bank grants
an application for membership, another Bank (appellant Bank) may file a
written appeal with the Board of the determination of the appropriate
district for membership pursuant to Sec. 933.18 of this part, by
writing to the Board's Executive Secretary with a copy to the Bank that
granted membership. The appeal shall include a statement of the basis
for appeal by the appellant Bank with sufficient facts, information,
analysis and explanation to support the appellant Bank's contentions.
(c) Record for appeal.--(1) Copy of membership file. Within five
business days of receiving an appeal, the Bank whose action has been
appealed (appellee Bank) shall provide the Board with a complete copy
of the applicant's membership file. Until the Board resolves the
appeal, the appellee Bank shall supplement the materials provided to
the Board as new materials are received.
(2) Additional information. The Board may request additional
information or further supporting arguments from the appellant, the
appellee Bank or any other party that the Board deems appropriate.
(d) Deciding appeals. The Board shall consider the record for
appeal described in paragraph (c) of this section and shall resolve the
appeal based on the requirements of the Act and this part within 90
calendar days of the date the appeal is filed with the Board. In
deciding the appeal, the Board shall follow the presumptions in this
part, unless the appellant or appellee Bank presents compelling
evidence to rebut a presumption.
[[Page 54974]]
7. Subpart C of part 933 is added to read as follows:
Subpart C--Eligibility Requirements
Sec. 933.6 General eligibility requirements.
(a) Requirements. Any building and loan association, savings and
loan association, cooperative bank, homestead association, insurance
company, savings bank, or insured depository institution, upon
application satisfying all of the requirements of the Act and this
part, shall be eligible to become a member of a Bank if:
(1) It is duly organized under the laws of any State of the United
States;
(2) It is subject to inspection and regulation under the banking
laws, or under similar laws, of any State or the United States;
(3) It makes long-term home mortgage loans;
(4) It has at least ten percent of its total assets in residential
mortgage loans;
(5) Its financial condition is such that advances may be safely
made to it;
(6) The character of its management is consistent with sound and
economical home financing; and
(7) Its home-financing policy is consistent with sound and
economical home financing.
(b) Ineligibility. Except as otherwise provided in this part, if an
applicant does not satisfy the requirements of this part, the applicant
is ineligible for membership.
Sec. 933.7 Duly organized requirement.
An applicant shall be deemed to be duly organized as required by
section 4(a)(1)(A) of the Act and Sec. 933.6(a)(1) of this part,
subject to rebuttal, if it is chartered by a state or federal agency as
a building and loan association, savings association, cooperative bank,
homestead association, insurance company, savings bank or insured
depository institution.
Sec. 933.8 Subject to inspection and regulation requirement.
An applicant shall be deemed to meet the inspection and regulation
requirement of section 4(a)(1)(B) of the Act and Sec. 933.6(a)(2) of
this part, subject to rebuttal, if it is inspected and regulated by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, the
National Credit Union Administration, the Office of the Comptroller of
the Currency, the Office of Thrift Supervision, a state insurance
commissioner or other state regulatory agency authorized to regulate
depository institutions or insurance companies.
Sec. 933.9 Makes long-term home mortgage loans requirement.
(a) Requirement. An applicant shall be deemed to meet the makes
long-term mortgage loans requirement of section 4(a)(1)(C) of the Act
and Sec. 933.6(a)(3) of this part, subject to rebuttal, if the
applicant originates or purchases long-term home mortgage loans.
(b) Ineligible. If an applicant does not satisfy the requirement in
paragraph (a) of this section, the applicant is ineligible for
membership, unless the Board, in its sole discretion, determines on
appeal, on the basis of additional information supplied by the
applicant or otherwise, that the applicant satisfies the requirements
of section 4(a)(1)(C) of the Act.
Sec. 933.10 Ten percent requirement.
(a) Insured depository institution applicants. Except as provided
in Sec. 933.14(b) of this part, an insured depository institution
applicant shall be deemed to be in compliance with the ten percent
requirement of section 4(a)(2)(A) of the Act and Sec. 933.6(a)(4) of
this part, subject to rebuttal, if, as of the date of the application,
the applicant had at least ten percent of its total assets, as reported
to its primary regulator, in residential mortgage loans, except that
any assets used to secure mortgage debt securities as described in
Sec. 933.1(aa)(7) of this part shall not be used to meet this
requirement.
(b) Noninsured depository institution applicants. A noninsured
depository institution applicant shall be deemed to be in compliance
with the 10 percent requirement of section 4(a)(2)(A) of the Act and
Sec. 933.6(a)(4) of this part, subject to rebuttal, if the applicant
has mortgage-related assets that reflect a commitment to housing
finance, as determined by the Board.
(c) Ineligible. If an applicant does not satisfy the requirements
of this section, the applicant is ineligible for membership, unless the
Board, in its sole discretion, determines on appeal, on the basis of
additional information supplied by the applicant or otherwise, that the
applicant otherwise satisfies the requirements of section 4(a)(2)(A) of
the Act.
Sec. 933.11 Financial condition requirement.
(a) Review requirement. Except as provided in Sec. 933.14 of this
part, in determining whether an applicant has complied with the
financial condition requirement of section 4(a)(2)(B) of the Act and
Sec. 933.6(a)(5) of this part, the Bank shall obtain as a part of the
membership application, and consider each of the following documents:
(1) Financial report. The regulatory financial reports for the last
six calendar quarters and three year-ends;
(2) Financial statement. The most recent annual audited financial
statement, or if unavailable, any other such independent external
annual financial report as the applicant's primary regulator may
require, or if unavailable, such financial statements as the applicant
may otherwise have available;
(3) Examination report. The most recent available regulatory
examination report, a summary of the applicant's strengths and
weaknesses as cited in the examination report, and a summary of actions
taken by the applicant to respond to examination weaknesses;
(4) Enforcement actions. A description of any outstanding
enforcement actions, responses by the applicant and reports as required
by the enforcement action; and
(5) Additional information. Any other relevant information that
comes to the Bank's attention or reasonably should come to the Bank's
attention in reviewing the applicant's financial condition.
(b) Standards. Except as provided in Secs. 933.14(a) and 933.16 of
this part, an applicant shall be deemed to be in compliance with the
financial condition requirement of section 4(a)(2)(B) of the Act and
Sec. 933.6(a)(5) of this part, subject to rebuttal, if:
(1) Recent examination. The applicant has received a composite
regulatory examination rating by its primary regulator within two years
from the date of application;
(2) Meets capital requirement. The applicant meets all of its
minimum statutory and regulatory capital requirements as reported in
its most recent quarter-end regulatory financial report filed with its
primary regulator; and
(3) Minimum performance standard. (i) The applicant's most recent
composite regulatory examination rating was ``1;'' or, was ``2'' or
``3'' and, based on the applicant's most recent regulatory financial
report, the applicant satisfied all of the following performance trend
criteria:
(A) Earnings. Applicant had positive annualized adjusted earnings
in four of the six most recent calendar quarters;
(B) Nonperforming assets. Applicant's nonperforming assets did not
exceed ten percent of its total assets in the most recent calendar
quarter; and
(C) Loan loss reserves. Applicant had a ratio of loan loss reserves
to nonperforming assets of 60 percent or greater during 4 of the 6 most
recent calendar quarters.
[[Page 54975]]
(ii) For applicants that are not required to report financial data
to their primary regulator on a quarterly basis, the information
required in paragraphs (b)(3)(i) of this section may be reported on a
semiannual basis.
(c) Eligible collateral not considered. The availability of
sufficient eligible collateral to secure advances to the applicant is
presumed and shall not be considered in determining whether an
applicant is in the financial condition required by Sec. 933.6(a)(5) of
this part.
Sec. 933.12 Character of management requirement.
(a) Review requirement. For each applicant, the Bank shall review:
(1) The names of directors and senior officers;
(2) The most recent regulatory financial report;
(3) The most recent audited financial statement, or if unavailable,
other such independent external financial report that the applicant's
primary regulator may require, or if unavailable, such financial
statements that the applicant may otherwise have available;
(4) Enforcement actions as described in paragraph (b)(1) of this
section;
(5) Certain pending criminal, civil or administrative matters as
described in paragraph (b)(2) of this section;
(6) Information concerning potential monetary liabilities, material
pending law suits or unsatisfied judgments as described in paragraph
(b)(3) of this section; and
(7) Any other document that comes to the Bank's attention or
reasonably should come to the Bank's attention in reviewing the
applicant's character of management.
(b) Standards. An applicant shall be deemed to be in compliance
with the character of management required by section 4(a)(2)(C) of the
Act and Sec. 933.6(a)(6) of this part, subject to rebuttal, if:
(1) No enforcement actions. Neither the applicant nor any of its
directors or senior officers is subject to, or operating under, any
enforcement action instituted by an appropriate regulator;
(2) No objectionable proceedings. Neither the applicant nor any of
its directors or senior officers has been the subject of any criminal,
civil or administrative proceedings reflecting upon creditworthiness,
business judgment, or moral turpitude since the most recent
examination; and
(3) No objectionable liabilities. There are no known or potential
civil, criminal or administrative monetary liabilities, material
pending law suits, or unsatisfied judgments against the applicant, its
directors or senior officers since the most recent examination; and
(4) Applicant certification. The applicant makes the unqualified
certification described in paragraph (c)(1) of this section.
(c) Applicant certification. Either a majority of the members of
the board of directors of the applicant, or an individual with
authority to act on behalf of the board of directors of the applicant
shall provide to the Bank:
(1) Unqualified certification. An unqualified written certification
that the statements submitted in response to the requirements of
paragraphs (b) (1) through (3) of this section are true and correct
without exception; or
(2) Qualified certification. A qualified written certification that
the statements submitted in response to the requirements of paragraphs
(b) (1) through (3) of this section are true and correct and detailed
explanations of any exceptions noted.
Sec. 933.13 Home financing policy requirement.
(a) Standards. An applicant shall be deemed to be in compliance
with the home financing policy requirement of section 4(a)(2)(C) of the
Act and Sec. 933.6(a)(7) of this part, subject to rebuttal, if the
applicant has received:
(1) Recent evaluation. A Community Reinvestment Act (CRA)
performance evaluation within four years from the date of application;
and
(2) Minimum rating. A CRA rating of ``Satisfactory'' or better in
the most recent compliance examination.
(b) Written justification required. An applicant that is not
subject to CRA or an applicant that received a ``needs to improve''
rating in its most recent CRA performance evaluation but has received a
``satisfactory'' or better rating on its prior CRA performance
evaluation, shall file as a part of its application, a written
justification that demonstrates how and why the applicant's home
financing credit policies and lending practices (if applicable) are
consistent with the Bank System's housing finance mission.
Sec. 933.14 De novo insured depository institution applicants.
An insured depository institution applicant that provides a Bank
with written confirmation from its primary regulator that it has been
chartered for less than three years or is otherwise considered to be a
de novo insured depository institution (de novo applicant) by the
applicant's primary regulator shall receive special consideration for
eligibility as follows:
(a) Financial condition--(1) Financial report. For purposes of
Sec. 933.11(a)(1) of this part, a de novo applicant that has not filed
regulatory financial reports for the last six calendar quarters and
three year-ends shall provide any regulatory financial reports the
applicant has filed.
(2) Financial statement. For purposes of Sec. 933.11(a)(2) of this
part, a de novo applicant shall provide the most recent annual audited
financial statement, or if unavailable other such independent external
annual financial report as the applicant's primary regulator may
require, or if unavailable, a de novo applicant shall, at a minimum,
provide financial reports for six calendar quarters of operation.
(3) Regulatory examination rating. For purposes of
Sec. 933.11(b)(1) of this part, if a de novo applicant has not yet
received a composite regulatory examination rating from its primary
regulator, the applicant shall provide a preliminary or informal
written regulatory examination rating from the applicant's primary
regulator, if a preliminary or informal rating is acceptable to the
Bank.
(4) Performance trends. A de novo applicant need not meet the
performance trend criteria in Sec. 933.11(b)(3)(i) of this part; if:
(i) Reports for six quarters. Applicant has completed regulatory
financial reports for at least six calendar quarters of operation; and
(ii) Business plan compliance. Applicant has provided written
confirmation from its primary regulator that applicant is in compliance
with the terms of its regulatory business plan; or applicant has
prepared a written analysis demonstrating that it is in substantial
compliance with its regulatory business plan as determined by the Bank.
(b) Home financing policy. For purposes of Sec. 933.13(b) of this
part, a de novo applicant that has not yet received a CRA performance
evaluation shall be deemed to have a home financing policy as required
by Sec. 933.6(a)(7) of this part if it has received a preliminary or
informal written CRA performance evaluation of ``Satisfactory'' or
better; or it has submitted a written justification acceptable to the
Bank of how the applicant intends to support the Bank System's housing
finance mission.
Sec. 933.15 Recent and pending merger applicants.
(a) Definitions--(1) Pending merger applicant means an institution
that meets both of the following tests:
(i) Timing test. The institution is a party to a merger or
acquisition agreement expected to be consummated within two calendar
quarters of submission of the membership application; and
(ii) Materiality test. The institution will account for 75 percent
or less of the
[[Page 54976]]
combined assets of the resulting entity at the time of the merger or
acquisition.
(2) Recent merger applicant means an institution that meets both of
the following tests:
(i) Timing test. The institution merged with or acquired another
institution within the six calendar quarters prior to submission of the
membership application; and
(ii) Materiality test. The institution accounts for 75 percent or
less of the combined assets of the resulting entity at the time of the
merger or acquisition.
(b) Review requirement. For each recent or pending merger
applicant, the digest shall include the following additional
information:
(1) The name of each entity involved and its charter type;
(2) A general statement of the financial condition of each entity;
(3) A brief statement of the business reasons for the merger or
acquisition; and
(4) The names and positions of management of the resulting entity.
(c) Standards. A recent or pending merger applicant shall be deemed
to be in compliance with section 4(a) of the Act and Sec. 933.6(a) of
this part, subject to rebuttal, only if the recent or pending merger
applicant satisfies the requirements of this part as modified and
supplemented by this section.
(1) Recent merger applicant financial condition--(i) Recent
examination and minimum performance standards. A recent merger
applicant that does not have a composite regulatory examination rating
subsequent to the merger or acquisition, shall satisfy the requirements
of Sec. 933.11(b) of this part on a combined basis and for each party
to the merger or acquisition, except an incumbent Bank member.
(ii) Performance trends. To the extent that a recent merger
applicant does not yet have regulatory financial reports for the six
most recent calendar quarters, the applicant shall prepare pro forma
combined financial statements for those calendar quarters in which an
actual combined regulatory financial report is unavailable to determine
whether the applicant meets the performance trend requirements of
Sec. 933.11(b)(3) of this part.
(2) Pending merger applicant financial condition--(i) Recent
examination and minimum performance standards. In lieu of a composite
regulatory examination rating for the combined entity, as required by
Sec. 933.11(b)(1) of this part, each party to the merger or
acquisition, except an incumbent Bank member, must satisfy all of the
requirements of Sec. 933.11(b) of this part.
(ii) Capital requirements and performance trends. In addition to
each party to a pending merger individually satisfying all of the
requirements of Sec. 933.11(b) of this part, the pending merger
applicant shall satisfy the requirements in Sec. 933.11(b) (2) and (3)
of this part as a combined entity based on pro forma combined financial
statements to be prepared by the applicant for the six most recent
calendar quarters.
(iii) Character of management. For purposes of Sec. 933.12 of this
part, the determination of the character of management of a recent or
pending merger applicant shall be based on an evaluation of the
directors and senior officers of the resulting entity.
(iv) Home financing policy. For a pending merger applicant or for a
recent merger applicant that does not yet have a CRA performance
evaluation on a combined basis for the merged entity, the determination
of whether the merger applicant's home financing policy satisfies the
requirements of Sec. 933.13 of this part, shall be based on a review of
the most recent CRA performance evaluation for each party to the merger
or acquisition.
Sec. 933.16 Financial condition standards for insurance company
applicants.
(a) Definitions. For purposes of this section:
(1) Adjusted liabilities means total statutory liabilities less
separate account liabilities, asset valuation reserves, and interest
maintenance reserves.
(2) Adjusted surplus means surplus plus asset valuation reserves
and interest maintenance reserves.
(3) Asset valuation reserves means reserves on the liability side
of the balance sheet that are established by the primary regulatory to
guard against fluctuations in the value of securities and to absorb all
unrealized capital gains and losses and certain realized gains and
losses on investment activity.
(4) Highly liquid assets means cash or cash equivalents readily
convertible to cash, including marketable Class 1 (highest investment
grade) publicly traded bonds, marketable preferred and common stock,
short-term investments, and investment income due.
(5) Interest maintenance reserves means reserves on the liability
side of the balance sheet that are established to hold the amount of
realized capital gains and losses on fixed income securities that
result from overall interest rates changes.
(6) Liquid assets means installment premiums booked but deferred
and not yet due, cash, accrued investment income, marketable Class 1
(highest investment grade quality) publicly traded bonds and marketable
Class 2 (high investment grade quality) publicly traded bonds,
marketable preferred and common stock, cash, short-term investments,
and investment income due, less investments in affiliated companies and
excess of real estate over five percent of liabilities.
(7) Net premiums written means the total consideration paid for an
insurance contract during a specified period of time, net of
reinsurance assumed and ceded.
(8) Reinsurance means transactions in which an assuming enterprise,
known as a reinsurer, assumes, for a premium, all or part of a risk
undertaken originally by another insurer.
(9) Reinsurance assumed means all premiums generated by policies
issued to assume a liability, in whole or part, of another insurer that
is already covering the risk with a policy.
(10) Reinsurance ceded means all premiums generated by policies or
coverage purchased from another insurer that transfer liability, in
whole or part, from direct or reinsurance policies.
(11) Reserves means funds set aside for possible losses on
insurance policies, annuities, claims unpaid, funds held for
policyholders, and deposit funds.
(12) Separate accounts means assets and liabilities maintained by
an insurance company predominately to fund fixed-benefit or variable
annuity contracts and pension plans. The contract holder assumes the
investment risk while the insurance company receives a fee for managing
or maintaining the investments.
(13) Statutory liabilities means the total of funds set aside to
pay future claims and operating expenses, including separate account
liabilities and funds held for the benefit of others, as established
under the accounting rules and techniques permitted by the National
Association of Insurance Commissioners. Examples of statutory
liabilities are policy reserves, premiums collected in advance,
commission and expenses payable, and provisions for policyholder
dividends.
(14) Surplus means the total of common and preferred capital stock,
aggregate write-ins for other than special surplus funds, gross paid-in
and contributed surplus, surplus notes and unassigned funds less
treasury stock.
(15) Tabular interest means interest, required by the primary
regulator, to be set aside to cover all contractual obligations.
(b) Performance standards. An insurance company applicant shall be
[[Page 54977]]
deemed to meet the financial condition requirement of section
4(a)(2)(B) of the Act and Sec. 933.6(a)(5) of this part, subject to
rebuttal, if:
(1) Recent examination and rating. The applicant has received a
regulatory examination by its primary regulator and a composite
independent insurance company rating from A.M. Best Company, Duff &
Phelps, Inc., Moody's Investor Service, Inc., Standard & Poor's Corp.
or Weiss Research Inc. within three years of the date of application;
(2) Satisfactory examination. The applicant's most recent
regulatory examination by its primary regulator indicates no major
adverse findings pertaining to the company's financial condition;
(3) Meets capital requirements. The applicant meets all of its
minimum statutory and regulatory capital requirements and the capital
standards established by the National Association of Insurance
Commissioners as reported in the applicant's most recent regulatory
financial report filed with its primary regulator;
(4) Minimum performance standard--(i) Strong rating. The
applicant's most recent composite independent insurance company rating
was:
(A) A.M. Best Company: ``A-'' or above;
(B) Duff & Phelps, Inc.: ``AA-'' or above;
(C) Moody's Investor Service, Inc.: ``Aa'' or above;
(D) Standard & Poor's Corp.: ``AA'' or above; or
(E) Weiss Research, Inc.: ``A''; or
(ii) Adequate rating and earnings--(A) Adequate rating. The
applicant's most recent composite independent insurance company rating
was:
(1) A.M. Best Company: ``C+'' to ``B++'';
(2) Duff & Phelps, Inc.: ``BB-'' to ``A+'';
(3) Moody's Investor Service, Inc.: ``Ba'' to ``A'';
(4) Standard & Poor's Corp.: ``BB'' to ``A''; or
(5) Weiss Research, Inc.: ``B'' or ``C''; and
(B) Earnings. The applicant had positive annualized adjusted
earnings in two of the three most recent calendar years; and
(5) Minimum performance ratios. The applicant meets the minimum
performance ratios in paragraph (b)(5)(ii) of this section during the
most recent year-end or quarter-end period.
(i) Definitions. For purposes of this paragraph (b)(5):
(A) Traditional life insurance products means insurance business
that consists of individual term life insurance contracts, individual
permanent fixed value life insurance contracts, or policies that
consist of fixed premiums, fixed dollar amounts of contract, or fixed
reserves (cash value) established by each state.
(B) Interest sensitive life insurance products (universal or whole
life) means insurance business that consists of individual life
insurance policies characterized by flexible premiums, dollar amounts
of contract that can vary, and reserves which represent a pool of
assets such as mutual funds that are held for the benefit of, and
support the investment return to, policy holders.
(C) Accident and health insurance products (indemnity) means
insurance business that consists of coverage for care such as basic
hospital expense, basic surgical expense, dental care, specific
hospital reimbursement, long-term nursing home or home care expenses
for the aged or disabled, major medical expense, and Medicare
supplemental insurance.
(D) Individual and group annuity insurance products means insurance
business that consists of contracts that accumulate and disburse
retirement benefits to individual policyholders or to companies for
their employees, hold pension deposit funds or distribute and hold
funds under guaranteed interest contracts.
(E) Disability income insurance products means insurance business
that consists of contracts that pay income periodically to insureds who
are unable to work as a result of sickness or injury.
(F) Property insurance products means insurance business that
consists of policies where the majority of premiums go to cover losses
to real property, automobiles or similar tangible assets.
(G) Liability insurance products means insurance business that
consists of policies that cover losses arising from actions taken by
individuals or companies, including losses from litigation or mutual
agreements as to the amount of a claim such as product liability,
medical malpractice and worker's compensation.
(ii) Overall minimum performance ratios.--(A) Premium to surplus
ratio. (1) Calculation. Divide net premiums written by total capital
and surplus.
(2) Standard. The applicant's net premiums may not exceed three
times the level of capital and surplus.
(B) Change in net premiums written ratio.--(1) Calculation. Divide
the change in net premiums written between the two most recent
consecutive calendar years by the total net premiums written in the
first year.
(2) Standard. The applicant's ratio must be between -10 percent and
+50 percent.
(C) Surplus relief ratio.--(1) Calculation. Divide the net of
commissions and expenses generated by reinsurance ceded and assumed by
total capital and surplus.
(2) Standard. The applicant's ratio must be less than 30 percent.
(D) Adequacy of investment income ratio.--(1) Calculation. Divide
net investment income by the sum of total tabular interest required on
life insurance, accident and health reserves, and total interest
credited on funds held on deposit.
(2) Standard. The applicant's net investment income must provide no
less than 1.25 times the coverage on total funds held in reserves to
pay interest on contractual obligations and funds held on deposit.
(E) Change in capital and surplus ratio.--(1) Calculation. Divide
the net change in capital and surplus between the two most recent
consecutive calendar years, by total capital and surplus in the first
year.
(2) Standard. The applicant's ratio must be between -10 percent and
+50 percent.
(iii) Solvency ratios.--(A) Highly liquid ratio.--(1) Calculation.
Divide highly liquid assets by annuity and deposit fund reserves less
reserves with no withdrawal privileges, separate accounts and
reinsurance.
(2) Standard. The applicant's ratio must be no less than:
(i) 75 percent on traditional life insurance products;
(ii) 85 percent on interest sensitive life insurance products;
(iii) 85 percent on individual annuity insurance products;
(iv) 100 percent on group annuity insurance products;
(v) 79 percent on property and liability insurance products;
(vi) 75 percent on accident and health insurance products; and
(vii) 50 percent on disability income insurance products.
(B) Current ratio.--(1) Calculation. Divide liquid assets by
annuity, ordinary life, and deposit fund reserves, less reserves with
no withdrawal privileges, separate accounts, reinsurance, and policy
loans.
(2) Standard. The applicant's ratio must be no less than:
(i) 60 percent on traditional life insurance products;
(ii) 75 percent on interest sensitive life insurance products;
(iii) 75 percent on individual and group annuity insurance
products;
(iv) 87 percent on property and liability insurance products;
[[Page 54978]]
(v) 75 percent on accident and health insurance products; and
(vi) 50 percent on disability income insurance products.
(C) Adjusted liabilities to adjusted surplus ratio.--(1)
Calculation. Divide adjusted liabilities by adjusted surplus.
(2) Standard. The applicant's ratio must not exceed:
(i) 10 to 1 on traditional life insurance products;
(ii) 10 to 1 on interest sensitive life insurance products;
(iii) 10 to 1 on individual and group annuity insurance products;
(iv) 3 to 1 on property and liability insurance products;
(v) 3 to 1 on accident and health insurance products; and
(vi) 5 to 1 on disability income insurance products.
Sec. 933.17 Rebuttable presumptions.
(a) Overcoming presumptive compliance. The presumption that an
applicant meeting the standards described in Secs. 933.7 to 933.16 of
this part is in compliance with the Act and Sec. 933.6(a) of this part,
may be overcome if the Bank obtains compelling evidence to the
contrary.
(b) Overcoming presumptive noncompliance. An applicant that does
not meet all of the standards in Secs. 933.7 to 933.16 of this part, or
that is unable to provide the information required to evaluate whether
or not it meets those standards, shall be deemed not to be in
compliance with the Act and Sec. 933.6(a) of this part unless the
applicant rebuts the presumption, as described in this section, and the
Bank determines that the applicant has complied with the Act and
Sec. 933.6(a) of this part.
(c) Noncompliance with financial condition standards.--(1)
Compelling written justification. For each variance from the minimum
regulatory examination rating required by Sec. 933.11(b)(3) of this
part, an applicant shall prepare a written justification that provides
compelling evidence that the applicant is in the financial condition
required by Sec. 933.6(a)(4) of this part, notwithstanding the
variance.
(2) Substantial written justification. For each variance from a
performance criterion required by Sec. 933.11(b)(3), of this part, the
applicant shall prepare a written justification pertaining to that
performance criterion that provides substantial evidence that the
applicant is in the financial condition required by Sec. 933.6(a)(4) of
this part, notwithstanding the variance.
(d) Noncompliance with character of management standards.--(1)
Enforcement actions. If an applicant or any of its directors or senior
officers is subject to or operating under an enforcement action, the
applicant shall provide:
(i) Regulator confirmation. Written confirmation from the
applicant's appropriate regulator that the applicant or its directors
or senior officers are in substantial compliance with all aspects of
the enforcement action; or
(ii) Written analysis. A written analysis stating each action the
applicant or its directors or senior officers is required to take by
the enforcement action, the actions actually taken by the applicant or
its directors or senior officers, and whether the applicant regards
this as substantial compliance. If the Bank is uncertain whether the
applicant has substantially complied with all aspects of the
enforcement action, the Bank shall consult the applicant's appropriate
regulator.
(2) Certain criminal, civil or administrative proceedings. If an
applicant or any of its directors or senior officers is subject to
criminal, civil or administrative proceedings that reflect on
creditworthiness, business judgment or moral turpitude since the last
examination, the applicant shall provide:
(i) Regulator confirmation. Written confirmation from the
applicant's primary regulator that the proceedings will not likely
result in enforcement action; or
(ii) Written analysis. A written analysis of the severity of the
pending charges and any mitigating action taken by the applicant or its
directors or senior officers. If the Bank is uncertain whether the
proceedings will result in enforcement action, the Bank shall consult
the applicant's primary regulator.
(3) Material monetary liabilities. If there are any material known
or potential civil, criminal or administrative monetary liabilities,
pending law suits, or unsatisfied judgments against the applicant or
its directors or senior officers as of the most recent quarter-end, the
applicant shall provide:
(i) Regulator confirmation. Written confirmation from the
applicant's primary regulator that the matter will not likely cause the
applicant to fall below its minimum capital requirements; or
(ii) Written analysis. A written analysis of each matter, the
likelihood of the applicant or its directors or senior officers
prevailing and the financial consequences if the applicant or its
directors or senior officers do not prevail. If the Bank is uncertain
whether the matter will cause the applicant to fall below its minimum
capital requirements, the Bank shall consult the applicant's primary
regulator.
(e) Noncompliance with home financing policy standards. If an
applicant received a ``substantial non-compliance'' rating on its most
recent CRA performance evaluation, two consecutive ``needs to improve''
CRA ratings, or has not received a CRA performance evaluation within
four years from the date of the membership application, the applicant
shall provide:
(1) Regulator confirmation. Written confirmation from the
applicant's primary regulator of the applicant's recent satisfactory
CRA performance, including any corrective action that substantially
improved upon the deficiencies cited in any recent CRA performance
evaluation; or
(2) Written analysis. A written analysis demonstrating that the CRA
rating is unrelated to housing finance, or providing substantial
evidence that the applicant's home financing credit policies and
lending practices (if applicable) are consistent with the Bank System's
housing finance mission.
Sec. 933.18 Determination of appropriate Bank district for membership.
(a) Eligibility. (1) An institution eligible to become a member of
a Bank under the Act and this part may become a member only of the Bank
of the district in which the institution's principal place of business
is located, except as provided in paragraph (a)(2) of this section.
(2) An institution eligible to become a member of a Bank under the
Act and this part may become a member of the Bank of a district
adjoining the district in which the institution's principal place of
business is located, if demanded by convenience and then only with the
approval of the Board.
(b) Principal place of business. Except as otherwise designated in
accordance with this section, the principal place of business of an
institution is the state in which the institution maintains its home
office established as such in conformity with the laws under which the
institution is organized.
(c) Designation of principal place of business. (1) A member or an
applicant for membership may request in writing to the Bank in the
district where the institution maintains its home office that a state
other than the state in which it maintains its home office that a state
other than the state in which it maintains its home office be
designated as its principal place of business. Within 90 days of
receipt of such written request, the board of directors of the Bank in
the district where the
[[Page 54979]]
institution maintains its home office shall designate a state other
than the state where the institution maintains its home office as the
institution's principal place of business, provided all of the
following criteria are satisfied:
(i) At least 80 percent of the institution's accounting books,
records and ledgers are maintained, located or held in such designated
state;
(ii) A majority of meetings of the institution's board of directors
and constituent committees are conducted in such designated state; and
(iii) A majority of the institution's five highest paid officers
have their place of employment located in such designated state.
(2) Written notice of a designation made pursuant to paragraph
(c)(1) of this section shall be sent to the Bank in the district
containing the designated state, the Board and the institution.
(3) The notice of designation made pursuant to paragraph (c)(1) of
this section shall include the state designated as the principal place
of business and the resulting Bank to which membership will be
transferred.
(4) If the board of directors of the Bank in the district where the
institution maintains its home office fails to make the designation
requested by the member or applicant pursuant to paragraph (c)(1) of
this section, then the member or applicant may request in writing that
the board make the designation.
(d) Transfer of membership. (1) No transfer of membership from one
Bank to another Bank shall take effect until the Banks involved reach
agreement on a method of orderly transfer.
(2) In the event that the Banks involved fail to agree on a method
of orderly transfer, the Board shall determine the conditions under
which the transfer shall take place.
(e) Effect of transfer. A transfer of membership pursuant to this
section shall be effective for all purposes including directorial
representation under section 7(c) of the Act, 12 U.S.C. 1427(c), and
Sec. 932.11 of this chapter, but shall not be subject to the provisions
on termination of membership set forth in section 6 of the Act, 12
U.S.C. 1426, or Secs. 933.26, 933.27 and 933.29 of this part, including
the restriction on reacquiring Bank membership set forth in Sec. 933.30
of this part.
8. In the list below, for each section indicated in the left
column, remove the reference indicated in the middle column from where
it appears and add the reference indicated in the right column:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Section Remove - Add
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933.20(b)(1).......................... Secs. 933.2(c) or 933.3..................................... Sec. 933.3 -
Sec. 933.2(d)............................................... Sec. 933.4(a)
933.20(b)(2).......................... Sec. 933.2(d)............................................... Sec. 933.4(a)
933.22(b)(1).......................... Sec. 933.7(a)............................................... Sec. 933.20(a)
Sec. 933.18(d).............................................. Sec. 933.31(d)
933.23................................ Sec. 933.7(a)............................................... Sec. 933.20(a)
933.24(a)(2).......................... Sec. 933.7(a)............................................... Sec. 933.20(a)
933.24(b)(2).......................... Sec. 933.16................................................. Sec. 933.29
933.25(c)............................. Sec. 933.2.................................................. Subpart B
933.25(d)(2)(ii) (A) and (B).......... Sec. 933.7(a)............................................... Sec. 933.20(a)
933.25(d)(3).......................... Sec. 933.16................................................. Sec. 933.29
933.26(c)............................. Sec. 933.16................................................. Sec. 933.29
933.27(e)............................. Sec. 933.16................................................. Sec. 933.29
933.28(b)............................. Sec. 933.16................................................. Sec. 933.29
933.29(a)(1).......................... Secs. 933.13, 933.14 or 933.15.............................. Secs. 933.26, 933.27 or 933.28
Secs. 933.11(b) or 933.12(d)(3)............................. Secs. 933.24(b) or 933.25(d)(3)
933.30 introductory text.............. Sec. 933.13................................................. Sec. 933.26
933.30(a)............................. Sec. 933.5.................................................. Sec. 933.18
933.30(b)............................. Sec. 933.2(d)............................................... Sec. 933.4(a)
933.31(d)............................. Sec. 933.9(b)(1)............................................ Sec. 933.22(b)(1)
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Dated: October 5, 1995.
By the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.
[FR Doc. 95-25823 Filed 10-26-95; 8:45 am]
BILLING CODE 6725-01-U