[Federal Register Volume 62, Number 39 (Thursday, February 27, 1997)]
[Rules and Regulations]
[Pages 8868-8871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4795]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 935
[No. 97-12]
Restrictions on Advances to Non-Qualified Thrift Lenders
AGENCY: Federal Housing Finance Board.
ACTION: Interim rule with request for comments.
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SUMMARY: The Board of Directors of the Federal Housing Finance Board
(Finance Board) is amending its regulations on advances to members that
are not qualified thrift lenders to implement certain changes made by
the Economic Growth and Regulatory Paperwork Reduction Act of 1996
(EGRPRA). Among other things, the EGRPRA broadened the universe of
assets that a savings association may use in meeting its qualified
thrift lender (QTL) requirement. Non-savings association members are
not directly subject to the QTL requirement, although their ability to
obtain advances is restricted if they do not meet the QTL requirement.
The amendments should prove beneficial to many non-savings association
members by allowing them to report increases in their levels of
qualified thrift investments and, in some cases, satisfy the QTL
requirement. Because certain of the items authorized by EGRPRA to be
included in the QTL calculation are not separately identified on a non-
savings association member's published financial reports, such as a
call report, the Federal Home Loan Banks (Banks) have no readily
available source from which to obtain or verify that information. To
allow the Banks to include the newly authorized items when conducting
their annual QTL calculation of their non-savings association members,
the Finance Board has determined that the Banks may rely on a
certification from their members of any relevant QTL financial
information that is not available from published financial reports.
Because the Banks must complete the annual QTL calculations for
calendar year 1996 no later than April 15, 1997, the Finance Board is
issuing this rule as an interim final rule. As the certification
process raises a number of questions about how best the Banks can
determine the QTL status of their non-savings association members, and
because the Office of Thrift Supervision (OTS) is in the process of a
rulemaking relating to the EGRPRA amendments, the Finance Board has
determined to solicit comments on the interim final rule for a period
of 30 days.
DATES: The interim rule is effective on February 27, 1997. Comments
must be received by March 31, 1997.
ADDRESSES: Mail comments 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: Steven P. Wojtaszek, Financial
Analyst, Financial Research Division, Office of Policy, (202) 408-2863,
or Neil R. Crowley, Senior Attorney, Office of General Counsel, (202)
408-2990, Federal Housing Finance Board, 1777 F Street, NW.,
Washington, DC 20006.
SUPPLEMENTARY INFORMATION:
I. Background
Historically, membership in the Federal Home Loan Bank System
(System) had been comprised predominantly of savings associations,
which tended to concentrate their investments in residential mortgage
loans. In 1987, Congress established the QTL test, which required
savings associations to maintain 60 percent of their assets in
instruments related to domestic residential real estate or manufactured
housing. Competitive Equality Banking Act of 1987, Public Law 100-86,
section 104(c), 101 Stat. 571-573 (August 10, 1987). Among other
things, a savings association that failed the QTL test was limited in
the amount of advances that it could receive from its Bank. Id. section
105. In 1989, Congress authorized commercial banks and credit unions,
institutions that historically had not been so concentrated in
residential mortgage lending, to become members of the System.
Financial Institutions Reform, Recovery , and Enforcement Act of 1989
(FIRREA), Public Law 101-73, section 704(a), 103 Stat. 415 (August 9,
1989),
[[Page 8869]]
codified at 12 U.S.C. 1424(a). FIRREA also limited the amount of
advances that such non-savings association members could obtain from
their Bank, and imposed a 30 percent System-wide limit on the aggregate
amount of advances that could be outstanding to such non-QTL members.
12 U.S.C. 1430(e).
As a general matter, the QTL test now requires a savings
association to maintain 65 percent or more of its portfolio assets in
certain designated instruments, which are characterized as ``qualified
thrift investments.'' The QTL test requires one to determine an
institution's ``actual thrift investment percentage'' (ATIP), which is
obtained by dividing the institution's ``qualified thrift investments''
by its ``portfolio assets.'' The QTL test applies directly only to
savings associations, and OTS, as the principal federal regulator of
savings associations, determines their QTL compliance. The QTL test
does not apply to commercial banks, credit unions, or insurance
companies, although if such institutions become members of the System
their ability to obtain advances is restricted if they do not meet the
QTL test. 12 U.S.C. 1430(e). The Banks are required to determine the
ATIP for each non-savings association member at least annually, between
January 1 and April 15, based on financial information as of December
31 of the prior calendar year. 12 CFR 935.13(a)(3).
In EGRPRA (Public Law 104-208, 110 Stat. 3009, September 30, 1996),
Congress made it easier for all members to achieve QTL compliance by
broadening the universe of ``qualified thrift investments'' that may be
included in calculating an institution's ATIP. Those changes could
benefit non-savings association members by allowing them to increase
their ATIP, possibly to the point of satisfying the QTL test. Even
those members that do not meet the QTL requirement should benefit from
the amendments because an increase in their ATIP should allow them to
obtain a greater amount of advances based on their existing level of
Bank stock. Under the amendments made by EGRPRA, a member now may
include without limit as ``qualified thrift investments'' the full
amount of its loans for educational purposes, loans to small
businesses, and loans made through credit cards or credit card
accounts. In addition, institutions may include an increased amount of
consumer loans, subject to certain aggregate limits. For purposes of
the EGRPRA amendments, the director of OTS is required to define the
terms ``small business,'' ``small business loans,'' and ``credit
card,'' which the OTS has done by means of an interim final rule. 61 FR
60179 (November 27, 1996), to be codified at, 12 CFR 560.3.
Although EGRPRA clearly specifies the types of additional assets
that may be included as qualified thrift investments (and OTS has
defined small business loans), the Banks cannot readily incorporate
those items into their annual QTL calculations because the call reports
of the commercial bank and credit union members, and the comparable
reports of insurance company members, do not separately identify those
items. The absence of these QTL items from the available regulatory
financial reports of the non-savings association members complicates
the Banks' annual task of determining the ATIP for those members. As a
consequence of the additional items added by EGRPRA, the number of
elements within the QTL calculation for which the Banks lack accurate
and readily available data has increased, which introduces a greater
element of uncertainty into the accuracy of the Banks' QTL
determinations. This is not so much of a concern with respect to
savings association members because OTS routinely examines the
associations for QTL compliance, and the Finance Board and the Banks
can rely on those OTS determinations. With respect to the non-savings
association members, however, the principal federal regulators do not
conduct examinations for QTL compliance and the Banks cannot look to
those regulators as a source for the required QTL information.
For example, a commercial bank's outstanding credit card loans are
separately stated on its Report of Condition and Income (Call Report),
but its education loans and small business loans (at least as defined
for QTL purposes) are not separately identified. Although the Call
Report includes information about small business loans, that
information does not correspond to the information that the Banks
require when making the annual QTL calculations for their non-savings
association members. The OTS regulation defines the term ``small
business loans'' by incorporating the definitions from the Small
Business Act and its implementing regulations promulgated by the Small
Business Administration (SBA). Thus, for QTL purposes, a small business
loan is one made to a ``small business.'' Under the SBA regulations, a
``small business'' is an entity the gross receipts of which (or the
number of its employees) fall below certain thresholds specified by
SBA. By comparison, the Call Report defines a small business loan based
on the size of the loan, not the size of the borrowing entity. Thus,
the Banks' use of the ``small business loan'' information that is
available from the Call Report likely will overstate the amount of
``small business loans'' that are eligible to be used in deter mining a
commercial bank member's QTL status. The same problem exists with
respect to the reports submitted by credit union and insurance company
members, neither of which separately identify the amount of loans
meeting the SBA definition of small business loans.
This disparity between the statutory requirements of the QTL test
and the information that is readily available to the Banks is not
limited to the items added by EGRPRA. For example, the QTL test
includes within a member's ``portfolio assets'' certain government,
agency, and other debt securities with specified maturities (from two
to five years), none of which is separately identified by maturity on
the published financial statements. Similarly, the QTL test includes
within a member's ``qualified thrift investments'' certain construction
loans related to one-to four-family residential properties, 50 percent
of residential mortgage loans sold during a calendar quarter, 200
percent of affordable housing-related loans, and 200 percent of service
facility loans, none of which is separately identified on the available
reports.
The Finance Board believes that non-savings association members can
benefit from the newly authorized qualified thrift investments, and
that it is appropriate to allow the Banks to incorporate the new
classes of investments into their ATIP calculations for the calendar
year ending December 31, 1996. Of supervisory concern to the Finance
Board, however, is how best to ensure that the Banks conduct their
annual QTL determinations consistently with Section 10(e) of the
Federal Home Loan Bank Act (Bank Act), 12 U.S.C. 1430(e). The Finance
Board believes that it would be imprudent for the Banks to confer QTL
status on non-savings association members that cannot demonstrate that
their qualified thrift investments actually include the claimed amount
of the newly authorized investments.
One means of ensuring this result would be through an examination
process. The Finance Board believes that it has the authority, under
Sections 2A(a)(3), 2B(a), and 22, of the Bank Act, 12 U.S.C.
1422a(a)(3), 1422b(a), and 1442(a), to examine, or to require the Banks
to request an examination of, individual members if necessary to ensure
that the Banks operate in compliance with the law. The Finance
[[Page 8870]]
Board believes, however, that the more reasonable and efficient
approach is to allow the Banks to obtain that information from their
members. As a matter of practice, some Banks already obtain from their
members information regarding certain QTL items that are not separately
identified on the published financial reports. For example, some Banks
obtain all QTL-related financial data from the member and use the
published financial reports, such as a Call Report, to confirm the
general accuracy of the information. Other Banks calculate a member's
ATIP as a service to their members using the most recently published
financial reports and either obtain any additional data from the member
or estimate it from other known sources.
Accordingly, through this interim final rule the Finance Board will
allow the Banks to accept from their non-savings association members
supplemental QTL information that does not appear in the published
financial statements. The chief executive officer (CEO) of the member
must certify to the Bank that the information is accurate and complete
as of the date provided. The Finance Board believes that such an
arrangement strikes an appropriate balance between its need to ensure
that the Banks base their QTL calculations on accurate financial
information, and the practice of allowing the Banks to manage their own
business. To allow the Banks to make use of the newly authorized QTL
categories prior to the April 15, 1997, deadline for their QTL
calculations, the Finance Board has determined to issue this rule as an
interim final rule, but also is soliciting comments on the specific
provisions of the rule. The Finance Board appreciates that OTS may yet
revise the QTL definitions established through its recent interim rule,
and intends to monitor the OTS rulemaking proceeding. The Finance Board
anticipates that it will make corresponding changes to its advances
regulation should the OTS further amend the QTL regulation in any
material respect.
II. Description of the Interim Final Rule
The interim rule amends the definitions of ``actual thrift
investment percentage,'' ``Qualified Thrift Lender,'' and ``Qualified
Thrift Lender test,'' in the Finance Board's advances regulation, 12
CFR 935.1, to delete references to OTS regulations that no longer
exist. The interim rule also amends the Finance Board's advances
regulations, 12 CFR 935.13(a)(3), to direct the Banks to use the
financial information from the call report (which term is defined to
include the published financial reports submitted by credit union and
insurance company members) as the primary source for QTL
determinations. In those cases in which not all of the information
needed to perform an accurate QTL calculation is included in the call
report, the Bank may accept other information submitted by the member,
provided that the CEO of the member certifies in writing that the
information is accurate and complete as of the relevant date. As it
appears to have been the practice of some Banks to obtain the required
financial information for the QTL calculation from their members and
then compare that information to the call report, the rule allows the
Banks to continue to obtain information from their members as the first
step in the process, provided that any information not in the call
report must be subject to the same certification requirement. By
requiring the formality of a certification from the CEO the Finance
Board believes that the Banks will have sufficient assurance that the
information on which they conduct their determinations is accurate,
which is the minimum effort required to ensure compliance with the Bank
Act.
The Finance Board does not intend to require the Banks to obtain a
CEO certification from every non-savings association member as a matter
of course. Such a certification is necessary only when a member wishes
the Bank to include in its annual ATIP calculation qualified thrift
investments or portfolio assets that do not appear in its published
financial reports. If a member has no such investments or assets, then
the Bank need not require a certification from the member. Similarly,
if a member has a portfolio of small business loans or education loans,
but the inclusion of those items in the calculation would not
materially change the member's ATIP, then a member could elect not to
provide a certification. If a member were to have a substantial
portfolio of education loans, for example, but only minor investment in
small business loans, the member could opt to certify the number of
education loans and omit, or indicate a zero balance, for the category
of small business loans. The Finance Board specifically requests public
comment on the certification process, as well as the content and format
for the certification.
III. Regulatory Flexibility Act
Under the Regulatory Flexibility Act (RFA), 5 U.S.C. 601, et seq.,
the Banks are not ``small entities.'' Id. 601(6). As the interim final
rule would apply only to the Banks, it does not impose any additional
regulatory requirements on small entities of the type contemplated by
the RFA. Thus, in accordance with the provisions of the RFA, the Board
of Directors of the Finance Board hereby certifies that this interim
final rule will not have a significant economic impact on a substantial
number of small entities. Id. 605(b).
IV. Paperwork Reduction Act
The Finance Board has submitted to the Office of Management and
Budget (OMB) an analysis of the collection of information contained in
Sec. 935.13 of the interim rule, described more fully in the
SUPPLEMENTARY INFORMATION. The Banks will use the information
collection to determine whether a non-savings association member
satisfies the statutory QTL requirement. Only Bank members that meet
the QTL standards may maintain unrestricted access to long-term Bank
advances. See 12 U.S.C. 1430(e). Responses are required to obtain or
retain a benefit. See id. The Finance Board will maintain the
confidentiality of information obtained from respondents pursuant to
the collection of information as required by applicable statute,
regulation, and agency policy.
Likely respondents and/or recordkeepers will be non-savings
association members of a Bank. Potential respondents are not required
to respond to the collection of information unless the regulation
collecting the information displays a currently valid control number
assigned by OMB. See 44 U.S.C. 3512(a).
The estimated annual reporting and recordkeeping hour
burden is:
a. Number of respondents................................. 4,272
b. Total annual responses................................ 4,272
Percentage of these responses collected electronically..... 0
c. Total annual hours requested.......................... 3,930
d. Current OMB inventory................................. 0
e. Difference............................................ 3,930
The estimated annual reporting and recordkeeping cost
burden is:
a. Total annualized capital/startup costs................ 0
b. Total annual costs (O&M).............................. 0
c. Total annualized cost requested....................... $126,660
d. Current OMB inventory................................. 0
e. Difference............................................ $126,000
The Finance Board has submitted the collection of information to
OMB for review in accordance with section 3507 of the Paperwork
Reduction Act of 1995. See 44 U.S.C. 3507. Comments regarding the
collection of information may be submitted in writing to the
[[Page 8871]]
Finance Board at the address above, and to the Office of Information
and Regulatory Affairs of OMB, Attention: Desk Officer for Federal
Housing Finance Board, Washington, DC 20503 by March 31, 1997.
V. Other Procedural Requirements
The interim final rule does not meet the criteria for a
``significant regulatory action'' under Executive Order 12866.
The Finance Board has determined that the notice and comment
procedure ordinarily required by the Administrative Procedure Act (APA)
is not required in this instance. The APA authorizes agencies to waive
the notice and comment procedures when the agency ``for good cause
finds . . . that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.'' 5 U.S.C.
553(b)(3)(B). The Finance Board has determined that compliance with the
APA procedure in this instance would be impracticable, unnecessary, and
contrary to the public interest because it effectively would deny the
Banks the opportunity to incorporate the newly authorized QTL
investments into their annual QTL calculations for the current year. As
described in the SUPPLEMENTARY INFORMATION, the Banks must calculate
the QTL ratio of each non-savings association member between January 1
and April 15 of each year. If the Finance Board were to observe the
notice and comment procedures, it is unlikely that the Finance Board
could promulgate a final rule sufficiently in advance of the April 15
deadline for the Banks to incorporate its provisions into their current
QTL calculations. Nonetheless, because the Finance Board believes that
public comments aid in effective rulemaking, it will accept written
comments on the interim rule until March 31, 1997.
The Finance Board also has determined that the 30-day delay of the
effectiveness provisions of the APA may be waived in these
circumstances. Section 553(d) of the APA permits waiver of the 30-day
delayed effective date requirement, among other things, where a
substantive rule relieves a restriction, or otherwise for good cause
found by the agency. As with the APA notice and comment procedures,
described above, the Finance Board finds that there is good cause for
making the interim rule effective on February 27, 1997, because it will
allow the Banks to take advantage of the EGRPRA's amendments in
calculating the QTL ratios for the current year. Moreover, the absence
of accurate call report information about the categories of newly
authorized QTL assets impairs the ability of the Banks to implement the
EGRPRA's amendments, which problem is remedied by the interim rule. By
eliminating a practical impediment to the implementation of the QTL
amendments the interim rule relieves a restriction that might otherwise
prevent the Banks from realizing the benefits intended by Congress.
List of Subjects in 12 CFR Part 935
Credit, Federal home loan banks.
Accordingly, the Board of Directors of the Federal Housing Finance
Board hereby amends title 12, chapter IX, part 935 of the Code of
Federal Regulations, as follows:
PART 935--ADVANCES
1. The authority citation for part 935 continues to read as
follows:
Authority: 12 U.S.C. 1422b(a)(1), 1426, 1429, 1430, 1430b, and
1431.
2. Section 935.1 is amended by republishing the introductory text
and revising the definitions for ``Actual thrift investment
percentage'', ``Qualified Thrift Lender'', and ``Qualified Thrift
Lender test'' to read as follows:
Sec. 935.1 Definitions
As used in this part:
* * * * *
Actual thrift investment percentage or ATIP has the same meaning as
used in section 10(m)(4) of the Home Owners' Loan Act (12 U.S.C.
1467a(m)(4)), except that the ATIP will be calculated and applied for
purposes of this part to all members of the Banks, whether or not they
are savings associations.
* * * * *
Qualified Thrift Lender or QTL means the term as defined in section
10(m)(1) of the Home Owners' Loan Act (12 U.S.C. 1467a(m)(1)). A non-
savings association member which meets the QTL test as applied by the
Banks will be treated as a QTL for purposes of this part.
Qualified Thrift Lender test or QTL test means the asset test
described in section 10(m) of the Home Owners' Loan Act (12 U.S.C.
1467a(m)), except that the QTL test will be applied for purposes of
this part to all members of the Banks, whether or not they are savings
associations.
* * * * *
3. In Sec. 935.13, paragraph (a)(3) is revised to read as follows:
Sec. 935.13 Restrictions on advances to members that are not qualified
thrift lenders
(a) Restrictions on advances to non-QTL members. * * *
(3)(i) A Bank shall calculate each non-savings association member's
ATIP at least annually, between January 1 and April 15, based upon
financial data as of December 31 of the prior calendar year. The Bank
may, in its discretion, calculate a member's ATIP more frequently than
annually.
(ii) In determining a non-savings association member's annual ATIP,
a Bank shall use the financial information from the member's December
31 call report as the primary source of information. A Bank making ATIP
determinations more frequently than annually shall use the member's
most recent call report. If any information necessary for determining
the member's ATIP is not separately identified on a member's call
report, the Bank may rely on a written certification provided by the
member as to the dollar amount and composition of those other assets
that meet the definitions of ``qualified thrift investments'' or
``portfolio assets.'' Notwithstanding the preceding two sentences, a
Bank may, at its option, accept a certification from a non-savings
association member as to the dollar amount and composition of all
assets that meet the definitions of ``qualified thrift investments'' or
``portfolio assets.'' In any case in which a Bank relies on a
certification from a non-savings association member as to its level of
``qualified thrift investments'' or ``portfolio assets,'' the
certification must be in writing and signed by the chief executive
officer of the member.
(iii) As used in this section, the term ``call report'' shall
include:
(A) With respect to a commercial bank, the annual or quarterly
``Report of Condition and Income'' submitted to its appropriate Federal
banking agency;
(B) With respect to a credit union, the quarterly or semi-annual
call report submitted to the National Credit Union Administration; and
(C) With respect to an insurance company, its National Association
of Insurance Commissioners annual regulatory filing.
* * * * *
Dated: February 6, 1997.
By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairperson.
[FR Doc. 97-4795 Filed 2-26-97; 8:45 am]
BILLING CODE 6725-01-U