CUNA Regulatory Comment Call

September 29, 2006

Federal Housing Finance Board Proposal on Exam Rating System for Federal Home Loan Banks


Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at and to Senior Assistant General Counsel Jeff Bloch at; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you have questions or would like a copy of the proposed rule. You may also access a copy of the proposed rule at the following address:


The Banks are privately capitalized, government-sponsored enterprises that provide wholesale credit to their members for use in mortgage lending and related activities. This is accomplished be providing long-term, flexible financing for their member financial institutions, including nearly 900 credit unions.

The primary duty of the Board is to ensure that the Banks operate in a financially safe and sound manner. The Board monitors the performance, condition, and risk profile of each Bank through on-site examinations and other supervisory activities. In an effort to identify and address current and emerging risks to the Banks, the Board plans to implement the Rating System beginning in 2007.


The Rating System will be a risk-based system under which each Bank will be assigned a composite rating based on an evaluation of various aspects of their operations. The composite rating of each Bank will be based on an evaluation and rating of five key components, which will be corporate governance, market risk, credit risk, operational risk, and financial condition and performance. The ratings for the individual Banks will not be made public or released to the other Banks.

Each Bank’s affordable housing and community investment activities will be taken into account in assigning ratings for the corporate governance and operational risk components. After gaining experience with the Rating System, the Board may at a later time consider a separate rating system or separate rating component to evaluate the affordable housing and community investment programs at each Bank.

The Rating System is intended to serve the following purposes:

Under the rating system, each of the five components will receive a numeric rating on a scale from 1 to 4, with a 1 indicating the lowest level of supervisory concern and 5 indicating the highest level of supervisory concern. The composite, or overall, rating for each Bank will also be on a scale from 1 to 4 and will be based on the ratings of the five underlying components. The overall rating will not be a simple average. The relative weight accorded to each component for purposes of the composite rating will be determined on a case-by-case basis.

The corporate governance component will be rated based on the following factors:

The market risk component will be rated based on the following factors:

The credit risk component will be rated based on the following factors:

The operational risk component will be rated based on the following factors:

The condition and performance component will be rated based on the following factors:


(The Board has specifically requested comments on these issues.)

  1. Does the Rating System capture the essential components of an institution’s performance and condition that are relevant to assigning a composite rating to the Bank? What additional or different components should be considered?

  2. Do the factors to be considered under each of the five components address the factors that should be considered in assessing each of the components? What additional or different factors should be considered?

  3. Other comments?

Eric Richard • EVP &General Counsel • (202) 508-6742 •
Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 •
Jeffrey Bloch • Senior Assistant General Counsel • (202) 508-6732 •
Lilly Thomas • Assistant General Counsel • (202) 508-6733 •
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 •