CUNA Comment Letter

April 14, 2000

Ms. Elaine L. Baker
Secretary to the Board
Federal Housing Finance Board
1777 F Street, N.W.
Washington, D.C. 20006

Dear Ms. Baker:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on an interim rule proposed by the Federal Housing Finance Board that amends its regulations to obtain membership in and advances from the Federal Home Loan Banks (FHLBanks). The notice appeared in the Federal Register on March 15 and requested comments on the amendments to its regulations that were required by the Federal Home Loan Bank System Modernization Act of 1999. CUNA represents more than 90 percent of the nation's state and federal credit unions and has solicited the opinion of credit unions on this matter.

CUNA commends the amendments that would make membership in a FHL Bank less burdensome for financial institutions that did not meet the qualified thrift lender test (QTL). 12 U.S.C. 1467a(m). To satisfy the QTL test, a financial institution must have 65 percent of its portfolio assets in primarily real estate, educational or small business loans. As a result of the amendments, financial institutions that are not QTLs can avoid the following restrictions: a cap that limits their advances to 30 percent of the total for all advances made by FHLBanks; a lower priority than QTLs have when they seek an advance; and disadvantageous stock purchase requirements. Under the new amendments, all FHLBank members are required to purchase a minimum amount of capital stock from a FHLBank, which must be the greater of $500 or 5 percent of a member's aggregate amount of outstanding advances.

By loosening these restrictions on advances, the Federal Home Loan Bank System allows its credit union members greater access to products that help the community. The FHLBanks provide advances (secured loans) and other financial services to members at rates that may not otherwise be available to their members. These advances are made to support affordable housing lending and community lending. In particular, FHLBanks are required to offer two programs, the Affordable Housing Program and the Community Investment Program, to provide subsidized or at-cost advances in support of unmet housing needs or targeted economic development credit needs. Based on these facts, inability to obtain membership in the Federal Home Loan Bank system limits the opportunities of credit unions to help their communities.

As a result, CUNA would like to work with the Federal Housing Finance Board, at the appropriate time, to find a mutually beneficial solution that would include credit unions under the community financial institution exemption. This exemption allows savings associations and banks that have less than $500 million in average total assets over three years to become members of a FHLBank without meeting the requirement that they have 10 percent of their assets in residential mortgages. FHLBanks would benefit by expanding the community financial exemption to include credit unions because repeal of the QTL limitations could result in 40 percent of FHLBank members having excessive capital stock in FHLBanks. This change could lead to a flight of capital which may affect the safety and soundness of the FHLBanks. In order to offset a potentially significant reduction in capital stock, the FHLBanks can attempt to raise capital by adding members, and more members will be available if credit unions qualify for the exemption.

All the reasons mentioned above justify supporting expansion of the community financial institution exemption so that it includes credit unions. Please feel free to contact me, if you have any questions or comments at (202) 682-4200.


Michelle Q. Profit
Assistant General Counsel