Advances to Capital Deficient Members, and Other Matters

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 935

[No. 93-97]

Advances to Capital Deficient Members, and Other Matters

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is amending

its regulations to incorporate requirements governing secured loans

(called advances) made by the Federal Home Loan Banks (Banks) to

capital deficient members. The final rule prohibits Bank lending to

tangibly insolvent members, except at the request of the appropriate

federal regulator or insurer, and restricts the Banks from lending to

other capital deficient members whose use of Bank advances has been

prohibited by the appropriate federal regulator or insurer.

In addition, the final rule provides that a Bank may allow a member

to assume advances held by a nonmember, as long as the advances had

previously been extended by the Bank to another of its members. The

final rule also changes the definition of nursing homes from

nonresidential to residential real property, which means that mortgage

loans backed by nursing homes are eligible collateral for advances.

EFFECTIVE DATE: February 22, 1994.

FOR FURTHER INFORMATION CONTACT: Christine M. Freidel, Financial

Analyst, (202) 408-2976; Thomas D. Sheehan, Assistant Director, (202)

408-2870, District Banks Directorate; James H. Gray Jr., Associate

General Counsel, Office of Legal and External Affairs, (202) 408-2552;

Federal Housing Finance Board, 1777 F Street, NW., Washington, DC

20006.

SUPPLEMENTARY INFORMATION:

I. Background

On September 23, 1993, the Finance Board published for 30-day

public comment a proposed rule governing advances to capital deficient

members and other matters. See 58 FR 49446. The provisions in the

proposed rule addressing Bank lending to capital deficient members

closely paralleled the Finance Board's current policy on lending to

capital deficient members.

The Finance Board received six comment letters on the proposed

rule. Comment letters were submitted by three Banks, two trade

associations, and a federal savings bank member. In general, the

comment letters concurred with the overall intent of the provisions in

the proposed rule addressing lending to capital deficient members,

although there were conflicting views on the point at which access to

advances should be restricted. None of the comment letters addressed

the transfer of advances, and one comment letter addressed the

treatment of nursing home loans as eligible collateral.

Based on the comment letters received, the Finance Board is

publishing the final rule on lending to capital deficient members as

proposed, except that the definition of tangible capital has been

changed to permit members to include purchased mortgage servicing

rights to the extent a member has included such assets in core or Tier

1 capital.

II. Analysis of Final Rule

A. Lending to Capital Deficient Members

1. Background

In April 1992, the Finance Board adopted policy guidelines

governing the extension of advances to capital deficient members. See

Finance Board Resolution No. 92-277.1. The policy precludes the Banks

from making new advances available to members without positive tangible

capital, unless a member's regulator requests that the Bank provide

such funding and the Bank determines it can safely make the advance.

The Banks may extend new advances to undercapitalized but solvent

members without regulatory approval, but must refrain from doing so at

the request of the appropriate federal banking agency or insurer. The

policy permits the Banks to renew existing advances to tangibly

insolvent members for terms of up to 30 days without regulatory

approval.

Prior to the adoption of these policy guidelines, there were no

Finance Board-mandated restrictions on a Bank's ability to lend to an

insolvent member. The Federal Home Loan Bank Act (Bank Act) does not

address lending to capital deficient members. Although the secured

nature of advances generally protects the Banks from credit risk, the

Finance Board was concerned that, by making advances available to

certain capital deficient members, a Bank could inadvertently

contravene the wishes of a member's federal regulator.

2. New Advances to Members Without Positive Tangible Capital

Section 935.5(b) of the final rule restricts a Bank from making a

new advance to a member that does not have positive tangible capital,

unless the appropriate federal banking agency or insurer requests in

writing that funding be made available to such member. Section 935.5(b)

of the final rule also requires each Bank to promptly provide the

Finance Board with a copy of any such written request. A Bank shall use

the most recently available Report of Condition and Income (Call

Report), Thrift Financial Report (TFR), or other regulatory report of

financial condition to determine whether a member has positive tangible

capital.

The comment letters provided conflicting views on the appropriate

point to require regulatory approval for member access to advances. One

Bank commenter believes the regulators already have adequate authority

and power to limit advance borrowings by capital deficient and

insolvent members. The Bank commented that it is not necessary for the

Banks to become part of the regulatory process by subjecting themselves

to the direction of the shareholders' regulators.

A trade association for community bankers recommended that the

final rule preclude the Banks from making advances to critically

undercapitalized members (i.e., members with tangible capital equal to

two percent or less of assets) without regulatory approval.

A thrift trade association commented that the Banks should be

permitted to lend to members without positive tangible capital unless

the appropriate federal regulator objects. The comment letter notes

that the decision to fund an advance should be an independent credit

decision made by a Bank and that the Banks are protected from default

by full collateralization. The trade association also recommended that

the final rule allow the Banks to lend to tangibly insolvent members

with approved capital restoration plans without regulatory approval.

While the Finance Board agrees that the federal banking regulators

have considerable authority to supervise member activities, the purpose

of this final rule is to ensure that the Banks do not inadvertently

contravene the supervisory objectives of a member's primary federal

regulator. The provisions in this final rule prohibiting Bank lending

to tangibly insolvent members have been in effect since April 1992 as

part of the Finance Board's policy on limiting Bank lending to capital

deficient members. Since these provisions have been quite effective,

the Finance Board does not see any reason to eliminate them.

The final rule uses tangible insolvency, rather than the definition

of critically undercapitalized, as the threshold level for requiring

regulatory approval of new advances. The Finance Board considers the

insolvency criterion to be appropriate because it limits access by

insolvent members while providing a measure of flexibility for capital

deficient members unless the appropriate federal banking agency or

insurer objects. The Finance Board believes it is more appropriate for

the federal banking agencies and insurer to determine whether a

critically undercapitalized member should have access to Bank advances,

than for the Finance Board to take unilateral action and prohibit the

Banks from providing advances to such members.

Regarding the comment that the Banks be permitted to lend to a

tangibly insolvent member unless the member's appropriate regulator

objects, the Finance Board believes that requiring regulatory approval

for Bank lending to insolvent members provides greater assurance that

the objective of the final rule will be met. Regarding the suggestion

that tangibly insolvent members operating under approved capital

restoration plans be permitted to borrow new advances without

regulatory approval, the Finance Board believes that tangible solvency

rather than approval of a capital restoration plan should be the

criterion for determining access to advances without regulatory

approval. The regulator may request that funding for a tangibly

insolvent member be continued.

The federal savings bank member commenter generally agreed with the

proposed rule but expressed concern about Bank lending to members

without positive tangible capital, even with regulatory approval. The

commenter recommended that provisions be included in the final rule to

ensure that a Bank's collateral position is secured should a member

borrower be placed in receivership. However, this is unnecessary since

section 10(a) of the Bank Act (12 U.S.C. 1430(a)) requires that

advances be fully secured and that each Bank, at the time an advance is

originated or renewed, obtain and maintain a security interest in

certain specified types of eligible collateral.

Therefore, Sec. 935.5(b) is being adopted in the final rule as

proposed.

3. Renewal of Advances to Members Without Positive Tangible Capital

Section 935.5(c)(1) of the final rule permits a Bank to renew an

outstanding advance to a member without positive tangible capital for

successive terms of up to 30 days each. This provision is intended to

allow a Bank to accommodate a tangibly insolvent member's need to find

alternative funding sources, while also limiting the Bank's exposure to

a weak institution. This section of the final rule also prohibits a

Bank from renewing advances to tangibly insolvent members if the

appropriate federal banking agency or insurer objects. Section

935.5(c)(2) of the final rule provides that a Bank may renew an advance

to a member without positive tangible capital for a term greater than

30 days at the written request of the appropriate federal banking

agency or insurer.

The thrift trade association commenter recommended that the Banks

be permitted to renew advances to a tangibly insolvent member for

periods of any length, unless the member's regulator requests that the

Bank not do so. The Finance Board does not consider this change to be

necessary since the final rule provides the Banks with the flexibility

to renew an advance for successive 30-day terms. This allows the Bank

to reassess the advisability of such renewals at regular intervals.

Furthermore, the Finance Board believes that the renewal of outstanding

advances to tangibly insolvent members should be a temporary measure

until the member finds alternative funding sources. Therefore,

Sec. 935.5(c) is being adopted as proposed.

4. Lending to Capital Deficient But Solvent Members

Section 935.5(d) of the final rule authorizes the Banks to make new

advances and renew outstanding advances to capital deficient members

(defined as members that fail to meet their minimum capital

requirements) that have positive tangible capital. However, the final

rule also directs the Banks not to make new advances or renew

outstanding advances to such capital deficient members upon receipt of

written notification from the appropriate federal regulator that the

member's access to advances has been prohibited.

The Finance Board wants to ensure that the Banks do not lend to

members whose access to advances has been restricted by the appropriate

federal banking agency or insurer. However, the Finance Board also

wants to ensure that the federal regulators, and not the Banks, have

the responsibility for determining whether a member's access to funding

should be restricted and for enforcing any directives that limit the

member's access to advances. The Finance Board therefore believes that

it is appropriate for a Bank to refrain from lending to a capital

deficient but tangibly solvent member after the appropriate federal

banking agency or insurer has established restrictions on the member's

access to Bank advances.

Accordingly, the final rule directs the Banks to refrain from

lending to a capital deficient but solvent member once the Bank

receives written notice from the appropriate federal regulator that the

member's use of Bank advances has been prohibited. The Bank may resume

lending to such a member once it receives a written statement from the

appropriate federal banking agency or insurer that re-establishes the

member's access to advances.

The community banker trade association recommended that members

that have been precluded from borrowing by their regulators be

permitted to petition the regulators for the resumption of funding. The

commenter believes that the proposed rule is unclear as to when the

regulator would be prompted to request the resumption of Bank funding

to an undercapitalized member.

The proposed rule provided that a Bank may resume funding to a

capital deficient but solvent member if it receives a written statement

from the appropriate federal banking agency or insurer which re-

establishes the member's ability to use advances. A member is always

entitled to petition its federal regulator or insurer. Therefore,

adding a provision to allow a member to petition its regulator is

unnecessary. In addition, since the Finance Board has no jurisdiction

in this area, such a provision would not be enforceable. Accordingly,

Sec. 935.5(d) is being adopted in the final rule as proposed.

5. Bank Determination That It Can Safely Make an Advance

Section 935.5(a)(3) reiterates the provision in the Bank Act that

all advances, including advances to tangibly insolvent members made at

the request of the appropriate federal banking agency or insurer, can

only be made if the Bank determines that it can safely make the advance

to the member. See 12 U.S.C. 1430(a).

6. Report of Outstanding Bank Advances

Section 935.5(e) of the final rule requires each Bank to provide

the Finance Board with a monthly report of outstanding Bank advances

and commitments to all members. Section 935.5(e) also directs the

Banks, upon written request from a member's appropriate federal banking

agency or insurer, to provide to such entity information on advances

and commitments outstanding to the member.

7. Capital Deficient Members That Are Not Federally Insured

Depositories

Section 935.5(f) of the final rule requires that, in the case of

members that are not federally insured depository institutions, the

relevant provisions in Sec. 935.5(b), (c), (d) and (e) apply to a

member's state regulator acting in a capacity similar to an appropriate

federal banking agency or insurer.

8. Advance Commitments

Section 935.5(g) of the final rule provides that the written

advances agreement required by Sec. 935.4(b)(2) of the Finance Board's

regulations, or the written advances application required by

Sec. 935.4(a) of the Finance Board's regulations, stipulate that a Bank

shall not fund commitments for advances, including Community Investment

Program and Affordable Housing Program advance commitments, previously

made to members whose access to advances was subsequently restricted

pursuant to Sec. 935.5. Consistent with Sec. 935.8 of the Finance

Board's advances regulation, a Bank may charge the member a fee for a

commitment cancellation resulting from the restrictions in Sec. 935.5.

Section 935.5(g) of the proposed rule provided that all commitments

entered into after August 25, 1993 were subject to the restrictions in

Sec. 935.5 to ensure that commitments entered into by the Banks from

the time the proposed rule was approved did not result in the Banks

inadvertently circumventing the wishes of the federal banking agencies

or insurer. The Finance Board reasoned that immediate application of

the restrictions on advance commitments was justifiable, given that the

Banks and their members have been aware of the Finance Board's views on

lending to capital deficient members since the adoption of the Finance

Board's capital deficient lending policy on April 22, 1992. The Finance

Board specifically requested comment on this issue.

Two comment letters addressed this issue. The community banker

trade association expressed support for this provision. The second

commenter, a Bank, opposed the provision. The Bank wrote that the final

rule should not affect commitments made before the Banks had received

notice of the proposed limitation and had an opportunity to assimilate

the requirement into their operations and applicable credit

documentation.

However, as stated earlier, the Banks have been subject to

limitations on lending to capital deficient members since April 1992.

The Finance Board believes this is adequate notice. Further, there is

good cause to make the limitation on commitments effective August 25,

1993, because using this date allowed the Banks to adjust their lending

policies to avoid making commitments to lend that would contravene the

requirements of the final rule. Therefore, Sec. 935.5(g) is being

adopted in the final rule as proposed.

Another Bank commented more generally on the commitment provisions

in Sec. 935.5(g). It opposes the provision precluding a Bank from

funding an outstanding commitment to a capital deficient member if the

appropriate federal regulator has restricted the member's access to

advances. The Bank believes this requirement could result in potential

asset/liability management complications and funding costs for the

Bank, and could have serious negative implications for the Bank's

membership and marketing efforts.

The Finance Board believes it is doubtful that a member would ask a

Bank to fund an outstanding commitment once the member has been

prohibited by its regulator from access to Bank advances, and does not

believe that a Bank should provide a member with funding that has been

explicitly prohibited by the member's regulator. A Bank's asset/

liability management costs should be minimized since a Bank may charge

a fee if it is required to cancel an outstanding commitment due to

regulatory action. Therefore, Sec. 935.5(g) is being adopted in the

final rule as proposed.

9. Definition of ``Tangible Capital''

The restrictions on access to Bank advances are triggered by a

member's level of tangible capital. Section 935.1 of the proposed rule

defined ``tangible capital'' as: (1) Capital, calculated according to

Generally Accepted Accounting Principles (GAAP), less ``intangible

assets'' as reported in the member's TFR for members whose primary

federal regulator is the Office of Thrift Supervision (OTS), or as

reported in the Call Report for members whose primary federal regulator

is the Federal Deposit Insurance Corporation (FDIC), the Office of the

Comptroller of the Currency (OCC) or the Board of Governors of the

Federal Reserve System (Federal Reserve Board); or (2) capital

calculated according to GAAP, less intangible assets, as defined by a

Bank for members which are not regulated by the OTS, the FDIC, the OCC,

or the Federal Reserve Board.

This definition of tangible capital is consistent with the

definition established by the FDIC in its final rulemaking on prompt

corrective action. See 57 FR 44886 (Sept. 29, 1992), 12 CFR part 325.

The prompt corrective action procedures provide a framework for

determining supervisory action for financial institutions. The FDIC has

implemented prompt corrective action procedures based on an

institution's level of core or Tier 1 capital. GAAP capital less

intangible assets results in a definition of tangible capital that is

similar to core or Tier 1 capital, as defined by the federal banking

agencies. See e.g., 12 CFR part 3, Appendix A, section 2(a) (OCC); 12

CFR part 208, Appendix A, II.A.1 (Federal Reserve Board); 12 CFR

325.2(m) (FDIC); 12 CFR 567.5(a) (OTS).

The comment letter from the thrift trade association recommended

that the final rule use the definition of ``tangible equity'' as

adopted by the OTS and the FDIC to determine whether a member is

tangibly solvent. The commenter noted that this definition permits

banks and savings associations to include qualifying purchased mortgage

servicing rights in the calculation of tangible capital and permits

savings associations to include qualifying supervisory goodwill.

The community banker trade association requested that the capital

definitions in the final rule be the same as those used in the prompt

corrective action regulations, and that the definition of tangible

capital include certain qualifying intangible assets such as purchased

mortgage servicing rights.

The proposed rule sought to incorporate definitions that the Banks

could easily verify using currently available regulatory reports.

Tangible equity is not reported on the Call Report filed by commercial

bank members, and capital measured according to the prompt corrective

action definitions is not reported on the Call Report or the TFR.

Therefore, if these definitions were used, the Banks or their members

would be required to perform a separate calculation to determine a

member's capital level. The Finance Board believes that this

requirement would place an unnecessary regulatory burden on the Banks

and their members.

However, the Finance Board agrees with the commenters that since

both commercial bank and thrift members may include a certain amount of

purchased mortgage servicing rights (PMSRs) in their calculation of

core or Tier 1 capital, it is appropriate that such assets also be

included in tangible capital for the purpose of determining access to

advances. Since PMSRs are a line item on the Call Report and TFR, this

should not place an undue reporting burden on the members. Therefore,

the Finance Board has decided to change the definition of tangible

capital in Sec. 935.1 of the final rule to include PMSRs, to the extent

such assets are included in the member's calculation of core or Tier 1

capital as reported in the member's TFR, Call Report, or other

regulatory report of financial condition. At the present time, thrifts

and commercial banks may include PMSRs in core or Tier 1 capital in an

amount up to 50 percent of core or Tier 1 capital. See e.g., 12 CFR

325.6(e)(3) (1993).

For members that are not federally insured depository institutions,

the Bank shall define intangible assets; provided that a Bank shall

include a member's PMSRs to the extent such assets are included for the

purpose of meeting regulatory capital requirements.

The community banker trade association also recommended that the

definition ``capital deficient member'' in the proposed rule be

replaced by the definition of undercapitalized in the banking agencies'

prompt corrective action regulations. However, the term ``capital

deficient member,'' which is defined as an institution that fails to

meet its minimum regulatory capital requirements, has been used since

the Finance Board adopted its policy in 1992. Given that the Banks and

their membership are familiar with this term, the Finance Board does

not see any reason to change it. Therefore, the definition of ``capital

deficient member'' is being adopted as proposed.

B. Transfer of Advances

The final rule amends Sec. 935.17 of the Finance Board's advances

regulation, which governs the transfer of advances. Section 935.17

provides that a Bank may allow one of its members to assume advances

previously extended by the Bank to another of its members. The final

rule amends this section to provide that a Bank may allow a member to

assume advances held by a nonmember, provided the advances were

originated by the Bank.

The Banks generally may not make advances to nonmembers, except in

the limited circumstances provided for in section 10b of the Bank Act,

12 U.S.C. 1430b. However, a nonmember, through acquisition of a member

institution, may assume outstanding Bank advances held by the acquired

member. Section 935.17, as amended, authorizes a Bank to allow the

transfer of advances from a nonmember to a member, provided the advance

was originated by the Bank, and provided the assumption complies with

the requirements governing the issuance of new advances. A Bank may

charge an appropriate fee for processing the transfer. No comments were

received on this provision and Sec. 935.17 of the final rule is being

adopted as proposed.

C. Treatment of Nursing Homes as Residential Property

In the Finance Board's final advances rule published on May 20,

1993, see 58 FR 29456, nursing homes were treated as nonresidential

property, thus making mortgages on nursing homes ineligible as

collateral for advances. The Finance Board has subsequently

reconsidered this issue and determined that mortgages on nursing homes

have a sufficiently residential character to be treated as residential

real property, thus making them eligible to be accepted as collateral

for advances. One comment letter addressed this provision. The

commenter, a Bank, believes this treatment of nursing homes will assist

the Banks in fulfilling their housing mission, without exposing them to

unnecessary risk. Therefore, as proposed, the final rule deletes

nursing homes from the definition of ``nonresidential real property''

and includes nursing homes in the definition of ``multifamily

property.'' Thus, mortgage loans backed by nursing homes are eligible

collateral for an advance.

III. Paperwork Reduction Act

Section 935.5(e) of the final rule will require the Banks to report

certain information to the Finance Board. However, Sec. 935.5(e) does

not involve a ``collection of information'' for purposes of the

Paperwork Reduction Act because Sec. 935.5(e) does not require the

Banks to collect any additional information from the public. The

Paperwork Reduction Act defines ``collection of information'' to

include the obtaining of facts or opinions from ten or more persons

``other than * * * instrumentalities * * * of the United States.'' 44

U.S.C. 3502(4)(A).

The Banks are considered to be instrumentalities of the United

States under statute and case law. See 12 U.S.C. 1431(e)(1); Fahey v.

O'Melveny & Myers, 200 F.2d 420, 446 (9th Cir. 1952) (``a Federal Home

Loan Bank is a federal instrumentality organized to carry out public

policy * * *'' Id.); Association of Data Processing Service

Organizations v. Fed. Home Loan Bank Board, 568 F.2d 478 (6th Cir.

1977) (court found Banks to be federal instrumentalities in action

preventing a Bank from providing on-line data processing services);

Osei-Bonsu v. Fed. Home Loan Bank of New York, 726 F. Supp. 95, 97-98

(S.D.N.Y. 1989) (Banks held to be federal instrumentalities in an

employment context).

Reporting requirements imposed upon the Banks are not

``collection[s] of information'' unless the collection is for general

statistical purposes. See 12 U.S.C. 3502(4)(B). The information that

the Banks are required to provide the Finance Board in Sec. 935.5(e) is

not for general statistical purposes and, therefore, is not an

information collection under the Paperwork Reduction Act. Accordingly,

this final rule does not require any reporting under the Paperwork

Reduction Act.

IV. Regulatory Flexibility Act

The final rule applies to all Bank members, regardless of their

size. The final rule does not contain any requirements that the Finance

Board believes will have a disproportionate impact on small entities.

Therefore, it is certified, pursuant to section 605(b) of the

Regulatory Flexibility Act, 5 U.S.C. 605(b), that this final rule, as

promulgated, will not have a significant economic impact on a

substantial number of small entities.

List of Subjects in 12 CFR Part 935

Advances, Credit, Federal home loan banks.

The Finance Board hereby amends chapter IX, title 12, Code of

Federal Regulations, as follows:

PART 935--ADVANCES

1. The authority citation for part 935 is revised to read as

follows:

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

Subpart A--Advances to Members

2. Section 935.1 is amended by revising the definitions of

``Insurer,'' ``Multifamily property,'' and ``Nonresidential real

property'' and by adding the following definitions in appropriate

alphabetical order to read as follows:

Sec. 935.1 Definitions.

* * * * *

Capital deficient member means a member that fails to meet its

minimum regulatory capital requirements as defined or otherwise

required by the member's appropriate federal banking agency, insurer

or, in the case of members that are not federally insured depository

institutions, state regulator.

* * * * *

Insurer means the Federal Deposit Insurance Corporation for

``insured depository institutions'' as defined in 12 U.S.C. 1813(c)(2)

and the National Credit Union Administration for federally insured

credit unions.

* * * * *

Multifamily property means, for purposes of this part:

(1)(i) Real property that is solely residential and which includes

five or more dwelling units; or

(ii) Real property which includes five or more dwelling units with

commercial units combined, provided the property is primarily

residential.

(2) Multifamily property as defined in this section includes

nursing homes, dormitories and homes for the elderly.

* * * * *

Nonresidential real property means, for purposes of this part, real

property not used for residential purposes, including business or

industrial property, hotels, motels, churches, hospitals, educational

and charitable institutions, clubs, lodges, association buildings, golf

courses, recreational facilities, farm property not containing a

dwelling unit, or similar types of property, except as otherwise

determined by the Board in its discretion.

* * * * *

State regulator means a state insurance commissioner or state

regulatory entity with primary responsibility for supervising a member

borrower that is not a federally insured depository institution.

Tangible capital means:

(1) Capital, calculated according to GAAP, less ``intangible

assets'' except for purchased mortgage servicing rights to the extent

such assets are included in a member's core or Tier 1 capital, as

reported in the member's Thrift Financial Report for members whose

primary federal regulator is the OTS, or as reported in the Report of

Condition and Income for members whose primary federal regulator is the

FDIC, the OCC, or the Board of Governors of the Federal Reserve System.

(2) Capital calculated according to GAAP, less intangible assets,

as defined by a Bank for members which are not regulated by the OTS,

the FDIC, the OCC, or the Board of Governors of the Federal Reserve

System; provided that a Bank shall include a member's purchased

mortgage servicing rights to the extent such assets are included for

the purpose of meeting regulatory capital requirements.

3. Section 935.5 is amended by removing the period at the end of

paragraph (a)(2) and adding in its place ``; and'' and adding

paragraphs (a)(3) and (b) through (g) to read as follows:

Sec. 935.5 Limitations on access to advances.

(a) * * *

(3) Make advances and renewals only if the Bank determines that it

may safely make such advance or renewal to the member, including

advances and renewals made pursuant to this section.

(b) New advances to members without positive tangible capital. (1)

A Bank shall not make a new advance to a member without positive

tangible capital unless the member's appropriate federal banking agency

or insurer requests in writing that the Bank make such advance. The

Bank shall promptly provide the Finance Board with a copy of any such

request.

(2) A Bank shall use the most recently available Thrift Financial

Report, Report of Condition, and Income or other regulatory report of

financial condition to determine whether a member has positive tangible

capital.

(c) Renewals of advances to members without positive tangible

capital. (1) Renewal for 30-day terms. A Bank may renew outstanding

advances, for successive terms of up to 30 days each, to a member

without positive tangible capital; provided, however, that a Bank shall

honor any written request of the appropriate federal banking agency or

insurer that the Bank not renew such advances.

(2) Renewal for longer than 30-day terms. A Bank may renew

outstanding advances to a member without positive tangible capital for

a term greater than 30 days at the written request of the appropriate

federal banking agency or insurer.

(d) Advances to capital deficient but solvent members. (1) Except

as provided in paragraph (d)(2)(i) of this section, a Bank may make a

new advance or renew an outstanding advance to a capital deficient

member that has positive tangible capital.

(2)(i) A Bank shall not lend to a capital deficient member that has

positive tangible capital if it receives written notice from the

appropriate federal banking agency or insurer that the member's use of

Bank advances has been prohibited. The Bank shall promptly provide the

Finance Board with a copy of any such notice.

(ii) A Bank may resume lending to such a capital deficient member

if the Bank receives a written statement from the appropriate federal

banking agency or insurer which re-establishes the member's ability to

use advances.

(e) Reporting. (1) Each Bank shall provide the Finance Board with a

monthly report of the advances and commitments outstanding to each of

its members.

(2) Such monthly report shall be in a format or on a form

prescribed by the Finance Board.

(3) Each Bank shall, upon written request from a member's

appropriate federal banking agency or insurer, provide to such entity

information on advances and commitments outstanding to the member.

(f) Members without federal regulators. In the case of members that

are not federally insured depository institutions, the references in

paragraphs (b), (c), (d) and (e) of this section to ``appropriate

federal banking agency or insurer'' shall mean the member's state

regulator acting in a capacity similar to an appropriate federal

banking agency or insurer.

(g) Advance commitments. (1) In the event that a member's access to

advances from a Bank is restricted pursuant to this section, the Bank

shall not fund outstanding commitments for advances not exercised prior

to the imposition of the restriction. This requirement shall apply to

all advance commitments made by a Bank after August 25, 1993.

(2) Each Bank shall include the stipulation contained in paragraph

(g)(1) of this section as a clause in either:

(i) The written advances agreement required by Sec. 935.4(b)(2) of

this part; or

(ii) The written advances application required by Sec. 935.4(a) of

this part.

4. Section 935.17 is revised to read as follows:

Sec. 935.17 Intradistrict transfer of advances.

(a) Advances held by members. A Bank may allow one of its members

to assume an advance extended by the Bank to another of its members,

provided the assumption complies with the requirements of this part

governing the issuance of new advances. A Bank may charge an

appropriate fee for processing the transfer.

(b) Advances held by nonmembers. A Bank may allow one of its

members to assume an advance held by a nonmember, provided the advance

was originated by the Bank and provided the assumption complies with

the requirements of this part governing the issuance of new advances. A

Bank may charge an appropriate fee for processing the transfer.

By the Federal Housing Finance Board.

December 15, 1993.

Philip L. Conover,

Managing Director.

[FR Doc. 94-1213 Filed 1-19-94; 8:45 am]

BILLING CODE 6725-01-P