CUNA Regulatory Comment Call

October 19, 2001

Federal Housing Finance Board Solicits Comments on Multiple Federal Home Loan Bank Memberships



Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at or to Assistant General Counsel Jeffrey Bloch at; or mail them to Mary or Jeff in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building - 6th Floor, Washington, DC 20004. Please contact us if you need more information. You may also contact us if you would like a copy of the proposal or you may access it on the Internet at the following address:


The Federal Home Loan Bank System was created in 1932 by the Bank Act. This resulted in the creation of twelve FHLBanks, which are central credit facilities for financial institutions and are available to credit unions. Each FHLBank is located in a separate geographic district and serves the financial institutions within that district that are members. The FHLBank system is designed to be a cooperative in that only members may borrow from the FHLBank. All FHLBank profits are distributed back to the members in the form of lower loan rates or through dividends on the FHLBank shares that are required to be purchased by the financial institution as a condition for membership.

Financial institutions are generally members of the district in which the institution’s principal place of business is located. The Bank Act does permit an institution to become a member of the adjoining district “if demanded by convenience and then only with the approval of the [Finance] Board.” It has been the subject of interpretation as to whether this permits an institution to join more than one FHLBank at the same time or whether this only permits the alternative of joining the FHLBank in an adjoining district.

Currently, each member financial institution is a member of the FHLBank in the district in which the member maintains its principal place of business. No financial institution is a member of more than one district, although certain holding companies do own separate subsidiaries that are members of different FHLBanks.

The recent consolidation in the banking industry has affected the FHLBank system. Most FHLBanks have one or two members that are disproportionately large. It is possible that these members may be able to achieve price or other concessions from their FHLBank. However, the cooperative structure of the system, in which concessions lowers the profits that are shared by all the members, and the FHLBank directors’ duty to treat all members fairly are factors that mitigate against this possibility.

Another concern regarding these large members is the additional credit risk that is posed by large members that account for a significant portion of the activities at a FHLBank. This subjects the FHLBank to significant losses if one of these members experiences financial difficulties. Again, this risk is mitigated because advances from FHLBs are secured by collateral and because the liabilities of a FHLBank are backed by the capital of the entire FHLBank system.

The concessions and concerns described above may also raise safety and soundness concerns regarding the financial condition of the FHLBank. The FHFB enforces these safety and soundness requirements through annual on-site examination and off-site monitoring.


The FHFB’s solicitation for comments regarding multiple FHLBank memberships is a result of petitions from three FHLBanks requesting that the FHFB allow a financial institution to join more than one FHLBank. This would interpret the Bank Act, which allows financial institutions to join the FHLBank of an adjoining district, in a manner such that the institution may be allowed to join more than one FHLBank concurrently, as opposed to having to choose which FHLBank to join. As required by the Bank Act, the additional membership would have to be approved by the FHFB and the financial institution would also have to demonstrate that this additional membership is “demanded by convenience.”

Allowing additional memberships is likely to increase competition among the FHLBanks. Allowing multiple memberships may also provide more stability for FHLBanks by alleviating the current concentration of risk that arises when one or two financial institutions become disproportionately large members of a single FHLBank. For small institutions such as credit unions, the increased competition may yield better terms and rates and other benefits for the large institutions that may not be available for credit unions, although there are safeguards, as described above, that may mitigate this problem. However, all members of a FHLBank, including credit unions, may benefit by the alleviation of the concentration risk because this may improve the financial condition of the FHLBanks.

The number of additional FHLBanks that a financial institution may join would depend on how many districts border the one that includes the institution’s primary place of business. This disparity may place some financial institutions and FHLBanks at a relative disadvantage to others. The FHFB is considering limiting the number of FHLBank memberships as a means to address this possible disparity.

Here are other issues that would need to be addressed if multiple memberships are permitted:


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