[Federal Register Volume 65, Number 51 (Wednesday, March 15, 2000)]
[Rules and Regulations]
[Pages 13866-13871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-6200]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 925 and 950

[No. 2000-10]
RIN 3069-AA94


Amendment of Membership Regulation and Advances Regulation

AGENCY: Federal Housing Finance Board.

ACTION: Interim final rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is amending 
its Membership Regulation and Advances Regulation to conform certain 
provisions to the requirements of the Federal Home Loan Bank System 
Modernization Act of 1999 (Modernization Act), and is making certain 
technical revisions to the Membership Regulation that are not related 
to the Modernization Act, in order to clarify the treatment of de novo 
members that fail to meet the 10 percent residential mortgage loans 
requirement within the required one-year time frame.

DATES: This interim final rule shall be effective on March 15, 2000. 
The Finance Board will accept written comments on the interim final 
rule on or before April 14, 2000.

ADDRESSES: Send comments to: Elaine L. Baker, Secretary to the Board, 
by electronic mail at [email protected], or by regular mail at the 
Federal Housing Finance Board, 1777 F Street, N.W., Washington, D.C. 
20006. Comments will be available for inspection at this address.

FOR FURTHER INFORMATION CONTACT: James L. Bothwell, Director, (202) 
408-2821, Janet M. Fronckowiak, Acting Deputy Director, (202) 408-2575, 
Jennifer R. Salamon, Program Analyst, (202) 408-2974, or Patricia L. 
Sweeney, Program Analyst, (202) 408-2872, Office of Policy, Research 
and Analysis; or Sharon B. Like, Senior Attorney-Advisor, (202) 408-
2930, Office of General Counsel, Federal Housing Finance Board, 1777 F 
Street, N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    Under the Federal Home Loan Bank Act (Bank Act), the Finance Board 
is responsible for the supervision and regulation of the 12 Federal 
Home Loan Banks (Banks), which provide advances and other financial 
services to their member institutions. See 12 U.S.C. 1422a(a) (1994). 
Institutions, including those not meeting the Qualified Thrift Lender 
(QTL) test,\1\ may become members of a Bank if they meet certain 
membership eligibility and minimum stock purchase criteria set forth in 
the Bank Act and the Finance Board's implementing Membership Regulation 
See id. sections 1424, 1426, 1430(e)(3) (1994); 12 CFR part 925.\2\ 
Members may obtain advances from a Bank subject to certain statutory 
and regulatory requirements. See 12 U.S.C. 1430(a) (1994). Prior to 
recent amendments to the Bank Act, discussed further below, access to 
advances by non-QTL members was restricted in various ways. See id. 
section 1430(e).
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    \1\ See discussion QTL test in II.E. below.
    \2\ The Finance Board recently reorganized and redesignated all 
of its regulations. See 65 FR 8253 (Feb. 18, 2000). The Membership 
Regulation, which formerly was part 933 of the Finance Board's 
regulations, 12 CFR part 933 (1999), was redesignated as part 925. 
See 65 FR 8253, 8260 (to be codified at 12 CFR part 925).
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    The recently enacted Modernization Act \3\ amended certain 
membership eligibility provisions, and repealed certain stock purchase 
and non-QTL advances provisions, in the Bank Act. See Pub. L. 106-102, 
sections 602, 603, 604(c), (d)(1), 605, 608 (1999). Accordingly, the 
Finance Board is amending its regulations to conform them to the 
Modernization Act amendments. The Finance Board also is taking this 
opportunity to make certain technical revisions to the Membership 
Regulation that are not related to the Modernization Act, in order to 
clarify the treatment of de novo members that fail to meet the 10 
percent residential mortgage loans requirement within the required one-
year time frame.
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    \3\ The Modernization Act is Title VI of the Gramm-Leach-Bliley 
Act, Pub. L. 106-102, 113 Stat. 1338, enacted into law on November 
12, 1999.
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II. Analysis of the Interim Final Rule

A. Removal of the Automatic Membership Provision For Mandatory 
Members--Sec. 925.4(a)

    Section 5(f) of the Home Owners' Loan Act (HOLA) formerly provided 
that ``[e]ach Federal savings association, upon receiving its charter, 
shall become automatically a member'' of its district Bank. See 12 
U.S.C. 1424(f) (1994). Consistent with section 5(f), section 925.4(a) 
of the Finance Board's Membership Regulation provides that 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. 925.20(b)(1). See 12 CFR 925.4(a). The 
Modernization Act amended section 5(f) of the HOLA to provide that 
``[a]fter the end of the 6-month period beginning on [Nov. 12, 1999], a 
Federal savings association may become a member of the [Bank] System, 
and shall qualify for such membership in the manner provided in the 
[Bank Act] * * * with respect to other members.'' See Modernization 
Act, section 603. Staff of the Office of Thrift Supervision (OTS), the 
agency that charters federal savings associations and administers the 
HOLA, has interpreted this amended language to mean that, as of 
November 12, 1999, a federal savings association is eligible to become 
a member, but no longer automatically becomes a member, of the Bank 
System, and federal savings associations that were members of the Bank 
System prior to November 12, 1999 may not withdraw from the Bank System 
and redeem their Bank capital stock until the 6-month period has 
expired (May

[[Page 13867]]

12, 2000). As the HOLA is administered by the OTS and not the Finance 
Board, the Finance Board defers to the OTS for interpretations of the 
HOLA.
    In deference to and consistent with the OTS interpretation of the 
HOLA, the Finance Board is removing section 925.4(a) of the Finance 
Board's Membership Regulation, which provides for automatic Bank 
membership for federal savings associations. No change is required to 
the provision of section 925.26(a) of the Finance Board's Membership 
Regulation stating that any member ``that is eligible under applicable 
law'' to withdraw from Bank membership may do so after providing the 
Finance Board and its Bank at least six months written notice of the 
member's intention to withdraw from membership. See 12 CFR 925.26(a). 
The language ``that is eligible under applicable law'' requires that a 
federal savings association meet the amended HOLA requirement that it 
may not withdraw from Bank membership until after May 12, 2000. The 
interim final rule amends section 925.26 to provide that Federal 
savings association members may submit notices of intention to withdraw 
from Bank membership prior to May 13, 2000.

B. Removal of the 10 Percent Residential Mortgage Loans Requirement For 
Community Financial Institution Applicants For Membership--Sections 
925.6(b), 925.10, 925.14(a)(3)

    Section 4(a)(2(A) of the Bank Act formerly provided that an insured 
depository institution may become a member of a Bank only if it has at 
least 10 percent of its total assets in residential mortgage loans (10 
percent requirement). See 12 U.S.C. 1424(a)(2)(A) (1994). Section 
4(a)(2) also provided that an insured depository institution commencing 
business operations after January 1, 1989 (de novo institution), may 
become a member of a Bank if at least 10 percent of its total assets 
are in residential mortgage loans, within one year after the 
commencement of its operations. See id. section 1424(a)(2). Section 
4(a)(2) is implemented by sections 925.6(b), 925.10 and 925.14(a)(3) of 
the Finance Board's Membership Regulation. See 12 CFR 925.6(b), 925.10, 
925.14(a)(3).
    The Modernization Act amended section 4(a)(2) of the Bank Act to 
exempt from the 10 percent requirement any applicants, including de 
novo institutions, that qualify as ``community financial 
institutions.'' See Modernization Act, section 605 (to be codified at 
12 U.S.C. 1424(a)(2)(A)(4)). The Modernization Act defines a 
``community financial institution'' to mean, generally, an institution 
whose deposits are insured under the Federal Deposit Insurance Act 
(FDIA) and that has less than $500 million in average total assets, 
based on an average of total assets over the three preceding years. See 
id. section 602 (to be codified at 12 U.S.C. 1422(13)). Accordingly, 
the Finance Board is amending sections 925.6(b), 925.10 and 
925.14(a)(3) of its Membership Regulation to include an exemption from 
the 10 percent requirement for community financial institutions, and is 
adding a definition of ``community financial institution'' in new 
section 925.1(ff). A definition of ``community financial institution,'' 
which predates the Modernization Act, in section 925.1(n)(1)(iii), also 
is being removed. The Finance Board requests comments on what source of 
data should be used in calculating the average of total assets over the 
three preceding years.

C. Amendment of the Conditional Approval Provision For De Novo Insured 
Depository Institution Applicants Sections 925.14(a)(3), 925.29(a)(1)

    As discussed above, section 4(a)(2) of the Bank Act formerly 
provided that an insured depository institution commencing business 
operations after January 1, 1989, may become a member of a Bank if at 
least 10 percent of its total assets are in residential mortgage loans, 
within one year after the commencement of its operations. See id. 
section 1424(a)(2) (1994). The Modernization Act amended this provision 
to provide an exemption for de novo community financial institutions. 
See Modernization Act, section 605. Thus, a de novo institution's 
membership is conditioned on the timely satisfaction of the 10 percent 
requirement. If an institution fails to satisfy this condition within 
the one-year period, it would not have met one of the statutory 
criteria for membership and the conditional approval (as well as the 
institution's membership) would be deemed null and void by operation of 
law. Thus, although the Membership Regulation is silent as to the 
consequences of a de novo institution's failure to meet the 10 percent 
requirement, compliance is required by statute no later than one year 
after commencing operations.
    Notwithstanding the statutory conditional approval language, there 
has been some confusion at a number of Banks as to how they should deal 
with de novo members that would fail to satisfy the 10 percent 
requirement within the one-year time frame. To provide regulatory 
clarity, the Finance Board is amending section 925.14(a)(3) of the 
Membership Regulation to reinforce the conditional nature of the de 
novo membership application approval, as required by the statute. This 
regulatory amendment is consistent with the conditional approval 
requirements applicable to the home financing policy eligibility 
requirement in section 925.14(a)(4) of the Membership Regulation. See 
id. section 925.14(a)(4). The provisions of section 925.29(a)(1) of the 
Membership Regulation dealing with orderly liquidation of advances and 
redemption of stock in the event an institution ceases to be a member 
also are amended to include references to sections 925.14(a)(3) and 
(a)(4).

D. Amendment of the Provision on Reacquisition of Membership After 10 
Years-- Sec. 925.30

    Former section 6(h) of the Bank Act provided:

    Notwithstanding any other provision of this chapter, an 
institution which withdraws from membership may acquire membership 
in any Federal Home Loan Bank only after the expiration of a period 
of 10 years thereafter, except where such withdrawal is a 
consequence of a transfer of membership on a non-interrupted basis 
between banks or in connection with obtaining a charter as a Federal 
savings association * * *.

12 U.S.C. 1426(h) (1994). Former section 6(h) is implemented by section 
925.30 of the Finance Board's Membership Regulation in virtually 
identical form. See 12 CFR 925.30.
    The Modernization Act repealed section 6(h) of the Bank Act and 
replaced it with new section 6(g), which provides that:

    (1) IN GENERAL--Except as provided in paragraph (2), and 
notwithstanding any other provision of this Act, an institution that 
divests all shares of stock in a Federal home loan bank may not, 
after such divestiture, acquire shares of any Federal home loan bank 
before the end of the 5-year period beginning on the date of the 
completion of such divestiture, unless the divestiture is a 
consequence of a transfer of membership on an uninterrupted basis 
between banks.
    (2) EXCEPTION FOR WITHDRAWALS FROM MEMBERSHIP BEFORE 1998.--Any 
institution that withdrew from membership in any Federal home loan 
bank before December 31, 1997, may acquire shares of a Federal home 
loan bank at any time after that date, subject to the approval of 
the Finance Board and the requirements of this Act.

Public Law 106-102, section 608. This amendment, which took effect upon 
enactment, reduced the statutory period for readmission from 10 years 
to 5 years. The result of the amendment is that an institution that 
withdraws or withdrew from membership may reacquire

[[Page 13868]]

membership, i.e., purchase shares of Bank capital stock, after the 
expiration of a period of 5 years from the date of completion of 
divestiture of all shares of the institution's capital stock in the 
Bank. An institution that withdrew from membership before December 31, 
1997 that does not meet the 5-year requirement may reacquire membership 
in a Bank subject to Finance Board approval. Any applicant for 
membership in a Bank is still required, of course, to meet all of the 
applicable eligibility requirements in order to be approved for 
membership.
    The Finance Board is amending section 925.30 of its Membership 
Regulation to reflect the above-described statutory changes in the 
waiting period for readmission to membership.
    The Finance Board has not received any requests from former members 
seeking readmission under section 6(g)(2) and, thus, has not determined 
what factors it would consider in such a proceeding. The Finance Board 
does anticipate that any requests for readmission would be submitted 
pursuant to the Finance Board's Procedures in 12 CFR part 907.

E. Removal of the Additional Capital Stock Purchase Requirements and 
Restrictions on Advances Applicable to Non-QTL Members--Sections 
925.20, 925.22(c), 950.1, 950.13, 950.15

    Section 604(c) of the Modernization Act repealed section 10(e) of 
the Bank Act, which had imposed a number of restrictions on members 
that did not meet the QTL test.\4\ Section 10(e) limited the purposes 
for which a non-QTL member could obtain an advance, limited Bank 
System-wide advances to non-QTL members to 30 percent of total Bank 
System advances outstanding, and gave QTL members a priority over non-
QTL members in obtaining advances. See 12 U.S.C. 1430(e) (1), (2) 
(1994). Section 10(e) also limited the dollar amount of advances that a 
non-QTL member could obtain by progressively reducing its ability to 
leverage its investment in the capital stock of the Bank. In practice, 
a non-QTL member with a QTL ratio of 50 percent could obtain only half 
the amount of advances that a QTL member with the same amount of Bank 
capital stock could borrow. If the member's QTL ratio decreased 
further, its ability to borrow against its capital stock would be 
reduced further. See id. section 1430(e).
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    \4\ The ``Qualified Thrift Lender'' test is set forth in section 
10(m) of the Home Owners' Loan Act (HOLA), 12 U.S.C. 1467a(m), and 
applies directly only to savings associations. Originally enacted in 
1987, the QTL test was intended to ensure that savings associations 
remained committed to the business of providing housing-related 
loans. Failure to meet the test subjected both the savings 
association and its holding company to certain statutory penalties, 
including reduced access to Bank advances for the association. In 
1989, Congress revised the QTL test and the penalties for failing to 
meet it, including more severe restrictions on access to Bank 
advances for savings associations or commercial banks that did not 
meet the test.
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    Separately, section 10(e)(3) of the Bank Act established a 
statutory presumption that each member has at least 30 percent of its 
assets in home mortgage loans, which presumption was used in 
determining the minimum amount of Bank capital stock that a member must 
purchase pursuant to section 6(b) of the Bank Act. See id. section 
1430(e)(3). Section 6(b) requires all members to subscribe to a minimum 
amount of Bank capital stock, which must equal at least one percent of 
the member's aggregate unpaid loan principal (home mortgage loans, home 
purchase contracts and similar obligations). As a practical matter, 
this provision would have applied only to non-QTL members, as QTL 
members (which have at least 65 percent of their assets in housing-
related investments) likely would have had more than 30 percent of 
their assets in home mortgage loans.
    Section 10(e) was added to the Bank Act in 1987 by the Competitive 
Equality Banking Act of 1987, Public Law 100-86, section 105, 101 Stat. 
552 (Aug. 10, 1987) (CEBA), which also established the QTL test. 
Congress established the QTL test principally as a means of encouraging 
unitary savings and loan holding companies to ensure that their 
subsidiary savings associations maintained at least 60 percent of their 
assets in housing-related investments. If the savings association 
failed the QTL test, the business activities of the holding company 
would be sharply curtailed. Similarly, section 10(e) reduced the 
ability of the non-QTL savings association to obtain advances from its 
Bank; i.e., an association with a QTL ratio of 59 percent could obtain 
only 59 percent of the amount of advances that it could obtain were it 
to meet the QTL test.
    The Financial Institutions Reform, Recovery, and Enforcement Act of 
1989, Public Law 101-73, section 714(b), 103 Stat. 418 (Aug. 9, 1989) 
(FIRREA), amended section 10(e) by revising the sanctions imposed on 
non-QTL members, which were, with only minor exceptions, the same as 
those described earlier that the Modernization Act repealed. Congress 
described its amendments to section 10(e), referring to both the 
housing finance purposes restriction and the reduced leverage on Bank 
capital stock, as ``special eligibility requirements for advances to 
members that are not qualified thrift lenders.'' See FIRREA Conference 
Report, No. 101-222, at 428 (August 4, 1989). Congress did not describe 
any of FIRREA's QTL amendments to section 10(e) as amendments to the 
capital structure of the Banks. Indeed, Congress chose to locate the 
QTL provisions in section 10(e), which relates solely to Bank advances, 
rather than in section 6, which establishes the capital structure for 
the Banks.
    Section 604(c) of the Modernization Act repealed section 10(e) in 
its entirety. There is little legislative history for the amendment. 
The Managers' Statement accompanying the bill as reported by the 
Conference Committee refers specifically to each of the QTL provisions 
in section 10(e) and states simply that each such provision is 
``eliminated'' or ``removed.'' Because section 604(c) of the 
Modernization Act does not provide a separate effective date for the 
QTL repeal, the amendments are to take effect upon enactment, unless 
they are preserved by some other provision of the Modernization Act.
    The only provision in the Modernization Act that could even 
arguably be read to preserve the QTL provisions of section 10(e) would 
be the transition provision for the amendments to section 6 of the Bank 
Act, relating to the capital structure of the Banks. See Modernization 
Act, section 608 (to be codified at 12 U.S.C. 1426(a)(6)). That section 
provides that:

    Notwithstanding any other provisions of [the Modernization Act], 
the requirements relating to the purchase and retention of capital 
stock of a [Bank] by any member thereof in effect on [November 11, 
1999], shall continue in effect * * * until the [capital] 
regulations required by [the Modernization Act] have taken effect 
and the capital structure plan * * * has been approved by the 
Finance Board and implemented by such [B]ank.

    Although certain provisions of section 10(e) bear some relation to 
the capital stock of a Bank, such as the reduced leverage and the 30 
percent presumption of home mortgage loans, they do not appear to have 
been intended by Congress to function as capital provisions per se, nor 
do they appear to be so closely linked to the capital provisions in 
section 6 of the Bank Act that they must necessarily be preserved by 
the transition provisions in the Modernization Act.
    As originally enacted in CEBA, section 10(e) was simply a 
limitation on the amount of advances that a non-QTL member could 
obtain; it included no reference to Bank capital. Though

[[Page 13869]]

FIRREA reduced the borrowing leverage on Bank capital stock for non-QTL 
members and established the 30 percent presumption of home mortgage 
loans, the Congress did not refer to either provision as an amendment 
to the capital structure of the Bank System. Instead, Congress 
expressly described both of those provisions as ``special eligibility 
requirements for advances to'' non-QTL members. That characterization 
suggests an intent that section 10(e) continue to function primarily as 
a limitation on the ability of a non-QTL member to obtain advances, 
albeit using the provisions relating to capital as one of the means of 
implementing that limitation.
    The repeal of section 10(e) is one of several provisions of the 
Modernization Act that were intended to equalize access to the Bank 
System for all members. The explanation by the Conferees' Managers 
Statement that the QTL provisions are ``removed'' and ``eliminated'' by 
the Modernization Act suggests strongly that the Congress intended that 
those amendments would take effect upon enactment. To read the 
Modernization Act otherwise would require an inference that Congress 
intended the QTL provisions to remain in effect for another 3 to 5 
years, which is at odds with the language used in the Managers' 
Statement. Moreover, the history of the legislation, in which the 
amendments to section 6 (including the transition provision) were 
adopted at an earlier time than the repeal of section 10(e), would 
counsel against applying the transition provision so broadly as to 
preserve the QTL limitations.\5\ Given that history, the Finance Board 
believes that the transition provision in section 608 of the 
Modernization Act should not be read as applying to the QTL provisions 
in section 10(e) of the Bank Act, and that the QTL provisions are not 
preserved beyond the date of enactment.
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    \5\ As passed by the House of Representatives, H.R. 10 would 
have amended section 6 of the Bank Act, the capital structure 
provision, in its entirety, and would have included within the 
amended section 6 a transition provision preserving the existing 
capital structure until the new capital structures could be 
implemented. That transition provision is identical to the provision 
included in the so-called ``Chairmen's Mark'' that was considered by 
the Conference Committee and later was enacted in the Modernization 
Act. The repeal of section 10(e), however, was not included in the 
original Chairmen's Mark and had not been in either H.R. 10 or S. 
900, as those bills were passed by their respective houses. The 
language repealing section 10(e) was adopted later in the Conference 
and was included among the amendments made by section 604 of the 
Modernization Act, which related to advances, rather than those made 
by section 608 of the Modernization Act, which includes all of the 
amended capital provisions, including the transition provision.
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    Accordingly, the Finance Board is removing sections 925.20(a)(2), 
950.13 and 950.15(a)(2) of its regulations, which contain the 
additional capital stock purchase requirements and limitations on 
advances applicable to non-QTL members. Section 925.20(a)(1) is revised 
to set forth the new minimum stock purchase requirement for all members 
as the greater of:
    (i) $500;
    (ii) 1 percent of the member's aggregate unpaid loan principal; or
    (iii) 5 percent of the member's aggregate amount of outstanding 
advances.
    The Finance Board is aware that the repeal of the QTL limitations 
could result in excess capital stock positions for as much as 40 
percent of the members of the Banks and that this will necessitate 
serious, thoughtful and active management of capital and business 
operations by the Banks during the transition period until final 
capital regulations and Bank capital plans are in place, as required by 
the Modernization Act. See Modernization Act, section 608. This will 
also require the Finance Board to monitor the Banks closely during this 
period. Any safety and soundness concerns raised during this 
transitional period as a result of the repeal of the QTL limitations 
will be addressed by the Finance Board through the supervisory process.

III. Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required for this 
interim final rule, the provisions of the Regulatory Flexibility Act, 5 
U.S.C. 601 et seq., do not apply.

IV. Notice and Public Participation

    The Finance Board for good cause finds that the notice and public 
comment procedure required by the Administrative Procedure Act is 
impracticable, unnecessary or contrary to the public interest in this 
instance, because the changes made by this interim final rule implement 
recently enacted statutory amendments that rendered obsolete certain 
provisions of the Finance Board's regulations. See 5 U.S.C. 
553(b)(3)(B).

V. Paperwork Reduction Act

    For the reasons stated in IV. above, the Finance Board is adopting 
this interim final rule on an expedited basis to conform provisions of 
its regulations to the recently enacted statutory amendments to the 
Bank Act. Due to the expedited nature of this rulemaking, the Finance 
Board has not completed its analysis of the information collection 
requirements contained in the interim final rule. The amendments in the 
interim final rule may result in a reduction in the information 
collection burden for institutions that qualify as community financial 
institutions, and an increase in the number of respondents that apply 
for Bank membership. The Finance Board intends to submit to the Office 
of Management and Budget the information collection requirements 
contained in this interim final rule in accordance with the 
requirements of section 3507(d) of the Paperwork Reduction Act of 1995, 
44 U.S.C. 3507(d).

List of Subjects 12 CFR Parts 925 and 950

    Credit, Federal home loan banks, Reporting and recordkeeping 
requirements.
    Accordingly, the Finance Board hereby amends title 12, chapter IX, 
parts 925 and 950, Code of Federal Regulations, as follows:

PART 925--MEMBERS OF THE BANKS

    1. The authority citation for part 925 continues to read as 
follows:

    Authority: 12 U.S.C. 1422, 1422a, 1422b, 1423, 1424, 1426, 1430, 
1442.

    2. Amend section 925.1 by:
    a. In paragraph (n)(1)(iii), removing the second and third 
sentences; and
    b. Adding paragraphs (ff) and (gg) to read as follows:


Sec. 925.1  Definitions.

* * * * *
    (ff) Community financial institution means an institution--
    (1) The deposits of which are insured under the Federal Deposit 
Insurance Act; and
    (2) That has, as of the date of the transaction at issue, less than 
the community financial institution asset cap in average total assets, 
based on an average of total assets over the three years preceding that 
date.
    (gg) Community financial institution asset cap means, for 2000, 
$500 million. Beginning in 2001 and for subsequent years, the cap shall 
be adjusted annually by the Finance Board to reflect any percentage 
increase in the preceding year's Consumer Price Index (CPI) for all 
urban consumers, as published by the U.S. Department of Labor. Each 
year, as soon as practicable after the publication of the previous 
year's CPI, the Finance Board shall publish notice by Federal Register, 
distribution of a memorandum, or otherwise, of the CPI-adjusted cap.

[[Page 13870]]

Sec. 925.4  [Amended]

    3. Amend section 925.4 by:
    a. Removing paragraph (a); and
    b. Redesignating paragraphs (b), (c), and (d) as paragraphs (a), 
(b), and (c), respectively.
    4. Amend Sec. 925.6 by revising paragraph (b) to read as follows:


Sec. 925.6  General eligibility requirements.

* * * * *
    (b) Additional eligibility requirement for insured depository 
institutions other than community financial institutions. In order to 
be eligible to become a member of a Bank, an insured depository 
institution applicant other than a community financial institution also 
must have at least 10 percent of its total assets in residential 
mortgage loans.
* * * * *
    5. Revise Sec. 925.10 to read as follows:


Sec. 925.10  10 percent requirement for certain insured depository 
institution applicants.

    An insured depository institution applicant that is subject to the 
10 percent requirement of section 4(a)(2)(A) of the Act and section 
925.6(b) of this part, shall be deemed to be in compliance with such 
requirement if, based on the applicant's most recent regulatory 
financial report filed with its appropriate regulator, the applicant 
has at least 10 percent of its total assets in residential mortgage 
loans, except that any assets used to secure mortgage debt securities 
as described in Sec. 925.1(bb)(6) of this part shall not be used to 
meet this requirement.
    6. Amend section 925.14 by revising paragraph (a)(3) to read as 
follows:


Sec. 925.14  De novo insured depository institution applicants.

    (a) * * *
    (3) 10 percent requirement--(i) One-year requirement. An applicant 
that is subject to the 10 percent requirement of section 4(a)(2)(A) of 
the Act and section 925.6(b) of this part, shall have until one year 
after commencing its initial business operations to meet the 10 percent 
requirement of Sec. 925.10 of this part.
    (ii) Conditional approval. The applicant shall be conditionally 
deemed to be in compliance with the 10 percent requirement of section 
4(a)(2)(A) of the Act and section 925.6(b) of this part. An applicant 
that receives such conditional membership approval is subject to the 
stock purchase requirements of Sec. 925.20 of this part and the 
advances provisions of part 950 of this chapter.
    (iii) Approval. The applicant shall be deemed to be in compliance 
with the 10 percent requirement of section 4(a)(2)(A) of the Bank Act 
and section 925.6(b) of this part upon receipt by the Bank from the 
applicant, within one year after commencement of the applicant's 
initial business operations, of evidence acceptable to the Bank that 
the applicant satisfies the 10 percent requirement.
    (iv) Conditional approval deemed null and void. If the requirements 
of paragraph (a)(3)(iii) of this section are not satisfied, the 
applicant shall be deemed to be in noncompliance with the 10 percent 
requirement of section 4(a)(2)(A) of the Act and Sec. 925.6(b) of this 
part, and its conditional membership approval is deemed null and void.
    (v) Treatment of outstanding advances and Bank stock. If the 
applicant's conditional membership approval is deemed null and void 
pursuant to paragraph (a)(3)(iv) of this section, the liquidation of 
any outstanding indebtedness owed by the applicant to the Bank and 
redemption of stock of such Bank shall be carried out in accordance 
with Sec. 925.29 of this part.
* * * * *


Sec. 925.18  [Amended]

    7. Amend Sec. 925.18(e) by removing the phrase ``within 10 years''.
    8. Amend Sec. 925.20 by:
    a. Revising paragraph (a); and
    b. In paragraphs (b)(1) and (b)(2), removing ``Sec. 925.4(a) or 
(d)'' and adding ``Sec. 925.4(c)'' in its place, to read as follows:


Sec. 925.20  Stock purchase.

    (a) Minimum stock purchase. Each member shall purchase stock in the 
Bank in which it is a member in an amount equal to the greater of:
    (1) $500;
    (2) 1 percent of the member's aggregate unpaid loan principal; or
    (3) 5 percent of the member's aggregate amount of outstanding 
advances.
* * * * *
    9. Amend Sec. 925.26 by revising paragraph (a) to read as follows:


Sec. 925.26  Procedure for withdrawal.

    (a) Notice of withdrawal. (1) Any member that is eligible under 
applicable law to withdraw from Bank membership may do so after 
providing the Finance Board and its Bank at least six months written 
notice of the member's intention to withdraw from membership.
    (2) Federal savings association members may submit notices of 
intention to withdraw from Bank membership under paragraph (a)(1) of 
this section prior to May 13, 2000, but may not withdraw from 
membership prior to May 13, 2000.
* * * * *


Sec. 925.29  [Amended]

    10. Amend the first sentence of Sec. 925.29(a)(1) by adding 
``925.14(a)(3), 925.14(a)(4),'' before ``925.26''.
    11. Revise Sec. 925.30 to read as follows:


Sec. 925.30  Reacquisition of membership.

    An institution that withdraws or withdrew from membership pursuant 
to Sec. 925.26 of this part may acquire membership in a Bank only after 
the expiration of a period of 5 years from the date of completion of 
divestiture of all shares of the institution's capital stock in the 
Bank, except:
    (a) Such institution may acquire membership in a Bank if such 
divestiture is a consequence of a transfer of membership on a non-
interrupted basis between Banks pursuant to Sec. 925.18 of this part; 
and
    (b) An institution that withdrew from membership pursuant to 
Sec. 925.26 of this part before December 31, 1997 that does not meet 
the 5-year requirement in this section may acquire membership in a Bank 
subject to Finance Board approval.

PART 950--ADVANCES

    1. The authority citation for part 950 continues to read as 
follows:

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1426, 1429, 1430, 
1430b and 1431.


Sec. 950.13  [Removed]

    2. Remove Sec. 950.13.
    3. Amend Sec. 950.15 by:
    a. Redesignating paragraph (a)(1) as paragraph (a);
    b. Removing paragraph (a)(2); and
    c. Revising the first sentence of paragraph (b)(1) to read as 
follows:


Sec. 950.15  Capital stock requirements; unilateral redemption of 
excess stock.

* * * * *
    (b) Unilateral redemption of excess capital stock; fee in lieu 
prohibited. (1) A Bank, after providing 15 calendar days advance 
written notice to a member, may require the redemption of that amount 
of the member's Bank capital stock that exceeds the capital stock 
requirements set forth in paragraph (a) of this section, provided the 
minimum amount required in section 6(b)(1) of the Act is maintained. * 
* *
* * * * *

    Dated: February 23, 2000.


[[Page 13871]]


    By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.
[FR Doc. 00-6200 Filed 3-14-00; 8:45 am]
BILLING CODE 6725-01-P