WASHINGTON—Both NAFCU and CUNA have responded to a request for comment by the Federal Housing Finance Agency (FHFA) regarding the Federal Home Loan Bank system.
The FHFA is currently looking into whether the agency’s existing regulations ensure the FHLB system remains “safe and sound” as part of a review of FHLB membership.
NAFCU Response
“Any expansion of membership to the FHLB system should be limited to those entities which are subject to a regulatory scheme from a prudential regulator and capital requirements,” wrote Elizabeth LaBerge, NAFCU’s senior regulatory counsel in a letter to the FHFA after it solicited feedback. “This is the most significant financial factor in maintaining reasonable risk in the system and preserving its benefits for current membership. Further, the FHFA should prohibit the use of conduits as they inject significant serious risk to the system and cannot demonstrate a nexus to the FHLB’s public policy mission.”
On the prohibition of the use of conduits, LaBerge urged that a captive entity serving as a conduit for an ineligible entity “introduces risk into the system that may be difficult to accurately assess, monitor or mitigate, ultimately putting the benefits of FHLB members at risk for existing members.”
Additional Request
In addition, LaBerge called on the FHFA to support revisions to the FHLB Act to include credit unions in the definition of a community financial institution (CFI). NAFCU has previously called on Congress to expand the definition of CFIs in the FHLB Act and raise the asset threshold to $10 billion in any further coronavirus relief legislation.
“NAFCU would welcome the support of the FHFA in this effort to correct the exclusion of credit unions from this statutory definition and to raise the threshold,” wrote LaBerge “These changes will ensure that the benefits of the FHLB System are fairly and appropriately extended to as many members as possible.”
CUNA Response
In its response, CUNA wrote to the Federal Housing Finance Agency (FHFA) and said any new regulatory changes to FHLBank membership should not negatively impact credit unions’ ability to access liquidity or obtain FHLBank membership.
“America’s credit unions benefit from being a part of the FHLBank System. FHLB-member credit unions have $1.4 trillion in total assets, making up 88% of total credit union assets,” wrote Elizabeth A. Eurgubian, CUNA Deputy Chief Advocacy Officer & Senior Counsel. “The FHLBank partnerships are important for these credit unions, as FHLBanks provide credit union members with funding and liquidity to be effective lenders in their communities.”
Highlights of the CUNA letter include:
- The most important objective of the FHLBank System is that its safety and soundness be preserved to protect its members. FHLBanks should not place too much risk in its membership base, and members should be well-regulated with a regulatory infrastructure in place
- CUNA said it supports any necessary legislative and/or regulatory changes to expressly include all credit union service organizations (CUSO) for membership
- Any financial condition review requirements should be based on the risk the institutions may provide and should not be substantially similar for all applicants
- The FHFA should prohibit the use of “conduits,” or ways of circumventing membership eligibility requirements, to obtain FHLBank membership
- Maintaining an ongoing commitment to housing finance should be the top goal for FHLBank membership, but while CUNA understands there should be requirements for membership, it strongly believes any requirements must be flexible so credit unions are not unintentionally excluded
- CUNA supports standards that provide individual FHLBanks discretion, given that individual banks and their Boards of Directors have a more comprehensive understanding of the communities within their jurisdiction.