Membership Approval

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 933

[No. 98-05]

RIN 3069-AA67

Membership Approval

AGENCY: Federal Housing Finance Board.

ACTION: Proposed rule.

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

to amend its regulation on membership in the Federal Home Loan Banks

(Banks) (Membership Regulation) to make certain technical and

substantive revisions to the regulation that would improve the

operation of the membership application process, as well as further

streamline application processing for certain types of applicants for

Bank membership.

DATES: Comments on this proposed rule must be received in writing on or

before March 23, 1998.

ADDRESSES: Comments should be mailed to: Elaine L. Baker, Secretary to

the Board, Federal Housing Finance Board, 1777 F Street, N.W.,

Washington, D.C. 20006. Comments will be available for public

inspection at this address.

FOR FURTHER INFORMATION CONTACT: Richard Tucker, Deputy Director,

Compliance Assistance Division, Office of Policy, (202) 408-2848, or

Sharon B. Like, Senior Attorney-Adviser, Office of General Counsel,

(202) 408-2930, Federal Housing Finance Board, 1777 F Street, N.W.,

Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

Under the Federal Home Loan Bank Act (Act), the Finance Board is

responsible for the supervision and regulation of the 12 Banks, which

provide advances and other financial services to their member

institutions. See 12 U.S.C. 1422a(a). Institutions may become members

of a Bank if they meet certain membership eligibility and minimum stock

purchase criteria set forth in the Act and the Finance Board's

implementing Membership Regulation. See id. sections 1424, 1426,

1430(e)(3); 12 CFR part 933.

On August 16, 1996, the Finance Board published a final rule

amending the Membership Regulation to authorize the 12 Banks, rather

than the Finance Board, to approve or deny all applications for Bank

membership, subject to certain criteria for determining compliance with

the statutory eligibility requirements for Bank membership formerly

contained in policy guidelines used by the Finance Board in approving

membership applications. See 61 FR 42531 (Aug. 16, 1996) (codified at

12 CFR part 933); Federal Home Loan Bank System Membership Application

Guidelines, Finance Board Res. No. 93-88 (Nov. 17, 1993) (Guidelines).

The final rule also provided for streamlined application processing for

certain types of membership applications. See 12 CFR part 933.

In the course of processing and approving membership applications

under the Membership Regulation, the Banks have raised a number of

technical and substantive issues with the Regulation whose resolution

would improve operation of the membership application process and

streamline membership application processing for certain types of

institutions. These issues and proposed amendments for addressing these

issues are discussed below in the Analysis of Proposed Rule section.

The Finance Board requests comment on all aspects of the proposed

amendments.

[[Page 8365]]

II. Analysis of Proposed Rule

A. Definitions Section 933.1

1. Definition of ``Primary Regulator''--Section 933.1(y)

Section 933.1(y) of the current Membership Regulation defines the

term ``primary regulator'' as the chartering authority for federally-

chartered applicants, the insuring authority for federally-insured

applicants that are not federally-chartered, or the appropriate state

regulator for all other applicants. See id. Sec. 933.1(y). This

definition does not include the Federal Reserve Board (FRB) for state-

chartered applicants that are members of the Federal Reserve System

(FRS). Under Sec. 933.11(a)(3), a Bank is required to obtain as part of

the membership application the applicant's most recent available

regulatory examination report prepared by its primary regulator or

appropriate state regulator. See id. Sec. 933.11(a)(3). Section

933.11(b)(1) provides that an applicant must have received a composite

regulatory examination rating from its primary regulator or appropriate

state regulator within two years preceding the date the Bank receives

the application for membership. See id. Sec. 933.11(b)(1).

One Bank has identified a potential problem with meeting these

financial condition requirements where the FRB and a state financial

institution regulator alternate examinations of a state-chartered

applicant that is an FRS member. When the state financial institution

regulator performs the examination, it provides a copy of the

regulatory examination report to the FRB. According to the Bank,

certain state financial institution regulators in its district cannot

or will not release to the Bank copies of the regulatory examination

reports they have prepared, nor will the FRB release to the Bank copies

of the state regulatory examination reports. Thus, regulatory

examination reports prepared under such circumstances are not available

in order for the Bank to obtain a regulatory examination rating for the

applicant. Nor may the Bank obtain and rely on a copy of the regulatory

examination report and rating of the FRB when the FRB has examined the

applicant, because the definition of ``primary regulator'' in

Sec. 933.1(y) does not include the FRB. Thus, in such situations, the

Bank may not be able to obtain any examination report and rating for

the applicant and, therefore, the applicant cannot be deemed to satisfy

the financial condition requirements of Sec. Sec. 933.11(a)(3) and

(b)(1). The presumption of noncompliance with the financial condition

requirements would have to be rebutted under Sec. 933.17(d)(1) by

preparing a written justification providing substantial evidence

acceptable to the Bank that the applicant is in the financial condition

required by Sec. 933.6(a)(4), notwithstanding the lack of a regulatory

examination rating. See id. Sec. 933.17(d)(1).

The exclusion of the FRB from the definition of ``primary

regulator'' in Sec. 933.1(y) was an oversight. The Banks should be able

to rely on regulatory examination reports and examination ratings from

the FRB to determine an applicant's financial condition under

Sec. 933.11. An applicant should not have to go through the additional

burden of establishing its satisfactory financial condition through the

rebuttal process if an FRB regulatory examination report and rating are

available. Accordingly, the proposed rule revises the definition of

``primary regulator'' in Sec. 933.1(y), as further described below, to

include the FRB.

Another limitation of the current definition of primary regulator

in Sec. 933.1(y) is that it requires a Bank to obtain the regulatory

examination report and rating only from the ``primary'' regulator

listed, even though a regulatory examination report and rating from an

alternate regulator also may be available. For example, many potential

members are examined by more than one regulator. However, under the

regulation, the Bank is required to obtain the regulatory examination

report and rating prepared by the Federal Deposit Insurance Corporation

(FDIC) for a state-chartered, FDIC-insured institution, even though

there may be a more recent state regulatory examination report and

rating available for such institution. A Bank should not be limited to

using only the ``primary'' regulator's regulatory examination report

and rating when more current information is available.

Accordingly, the proposed rule amends Sec. 933.1(y) by changing the

term ``primary regulator'' to the broader term ``appropriate

regulator,'' and defining it to mean a regulatory entity listed in

Sec. 933.8, as applicable. The regulatory entities listed in Sec. 933.8

are: for depository institution applicants, the FDIC, FRB, National

Credit Union Administration, Office of the Comptroller of the Currency

(OCC), Office of Thrift Supervision (OTS), or other appropriate state

regulator; and for insurance company applicants, an appropriate state

regulator accredited by the National Association of Insurance

Commissioners. See id. Sec. 933.8. The proposed rule replaces the terms

``primary regulator'' and ``primary regulator or appropriate state

regulator'' wherever they appear throughout the Membership Regulation

with the term ``appropriate regulator.''

2. Nonperforming Assets Performance Trend Criterion; Definitions of

``Nonperforming Loans, Leases and Securities;'' ``Performing Loans,

Leases and Securities''--Sections 933.11(b)(3)(i)(B); 933.1 (u), (x).

Section 933.11(b)(3)(i)(B) of the current Membership Regulation

provides that if an applicant's most recent composite regulatory

examination rating within the past two years was ``2'' or ``3,'' the

applicant's nonperforming loans, leases and securities plus foreclosed

and repossessed real estate may not have exceeded 10 percent of its

performing loans, leases and securities plus foreclosed and repossessed

real estate, in the most recent calendar quarter. See id.

Sec. 933.11(b)(3)(i)(B). This nonperforming assets performance trend

criterion was intended to be the same criterion as that required in the

former Finance Board Guidelines, but was described incorrectly in the

Membership Regulation.

The proposed rule revises Sec. 933.11(b)(3)(i)(B) to state the

criterion correctly, as follows: the applicant's nonperforming loans

and leases plus other real estate owned, did not exceed 10 percent of

its total loans and leases plus other real estate owned, in the most

recent calendar quarter. The proposed rule makes a conforming change to

the definition of ``nonperforming loans, leases and securities'' in

Sec. 933.1(u) by deleting the references to securities. The proposed

rule also makes a conforming change to Sec. 933.1(x) by replacing the

definition of ``performing loans, leases and securities'' with a new

definition of ``other real estate owned.''

3. Definition of ``Consolidation''--Section 933.1(ee)

Sections 933.24 and 933.25 of the current Membership Regulation set

forth certain requirements and procedures in the event of the

``consolidation'' of members with other members or members with

nonmembers. See id. Secs. 933.24, 933.25. Questions have been raised as

to whether the term ``consolidation'' applies only to transactions

falling within the narrow meaning of the term, i.e., combinations where

a new company is formed to acquire the net assets of the combining

companies. The term ``consolidation'' was not intended to apply solely

to such combinations of entities. Accordingly, the proposed rule

clarifies this issue by

[[Page 8366]]

adding a new definition of ``consolidation'' in Sec. 933.1(ee) to

include a consolidation, a merger, or a purchase of all of the assets

and assumption of all of the liabilities of an entity by another

entity.

B. Action on Applications--Section 933.3(c)

Section 933.3(c) of the current Membership Regulation requires a

Bank to notify an applicant when its application is deemed by the Bank

to be complete. See id. Sec. 933.3(c). Section 933.3(c) also requires a

Bank to notify an applicant if the 60-day period for acting on a

membership application is stopped, and when the period for acting on

the application is resumed. See id. The proposed rule requires the Bank

to provide such notices to the applicant in writing. This will ensure

that there is a written record of the Banks' actions during the

application processing period, which may be relevant in the event of an

appeal of a Bank's denial of an application for membership.

C. Automatic Membership for Certain Consolidations--Section 933.4(d)

Sections 933.4 (a) and (b) of the current Membership Regulation

provide for automatic Bank membership only for institutions required by

law to become Bank members, and for institutions that have undergone

certain charter conversions, respectively. See id. Sec. Sec. 933.4 (a),

(b). Several Banks have suggested that the regulation also should allow

for automatic Bank membership where a member consolidates with a

nonmember, the nonmember is the surviving entity, and a significant

percentage of the surviving entity's total assets are derived from the

assets of the disappearing member. Where the surviving entity has

substantially the same assets as the disappearing member, the surviving

entity arguably should not have to go through the membership

application process. The Finance Board believes this argument has merit

where 90 percent or more of the total assets of the surviving entity

are derived from the assets of the disappearing member, and where the

surviving entity provides written notice to the Bank that it desires to

be a member of the Bank. These proposed requirements are set forth in

proposed new Sec. 933.4(d).

The Finance Board specifically requests comment on the arguments

for or against this proposal, including whether the 90 percent

calculation or some other number or approach is an appropriate method

for determining the similarity of the disappearing and surviving

entities. One Bank has suggested that the chief executive officer (CEO)

of the surviving entity should be required to submit a letter stating

that the surviving entity continues to meet the membership eligibility

requirements. The Finance Board specifically requests comment on

whether such a letter, or a certification from the CEO, should be

required.

D. Allowance for Loan and Lease Losses Performance Trend Criterion--

Section 933.11(b)(3)(i)(C)

Section 933.11(b)(3)(i)(C) of the current Membership Regulation

provides that if an applicant's most recent composite regulatory

examination rating within the past two years was ``2'' or ``3,'' the

applicant's ratio of its allowance for loan and lease losses to

nonperforming loans, leases and securities must have been 60 percent or

greater during 4 of the 6 most recent calendar quarters. This allowance

for loan and lease losses performance trend criterion was intended to

be the same criterion as that required in the former Finance Board

Guidelines, but was described incorrectly in the Membership Regulation.

The proposed rule revises this section to state the criterion

correctly, as follows: The applicant's ratio of its allowance for loan

and lease losses plus the allocated transfer risk reserve to

nonperforming loans and leases was 60 percent or greater during 4 of

the 6 most recent calendar quarters.

E. De Novo Insured Depository Institution Applicants--Section 933.14

Section 933.14 of the current Membership Regulation sets forth the

requirements for processing and approving membership applications from

de novo insured depository institution applicants. See id. Sec. 933.14.

Section 933.14(a) provides for streamlined processing for newly-

chartered applicants that have not yet commenced operations, which are

deemed to meet the duly organized, inspection and regulation, financial

condition, and character of management eligibility requirements. See

id. Sec. 933.14(a)(1). Section 933.14(b) requires newly-chartered

applicants that have commenced operations to meet all of the

eligibility requirements, subject to certain exceptions provided in

paragraph (b). In particular, if such applicants have not yet filed

regulatory financial reports for the last six calendar quarters

preceding the date the Bank receives the membership application, the

applicant need not meet the performance trend criteria in

Sec. 933.11(b)(3)(i) (A) through (C) if the applicant has filed

regulatory financial reports for at least three calendar quarters of

operation. See id. Sec. 933.14(b)(2)(iii)(A).

A number of Banks have stated that the requirement for having filed

three calendar quarters of regulatory financial reports should not be

necessary for institutions that have recently commenced operations. The

financial condition and character of management of such institutions

already will have been recently reviewed and approved by their

chartering and insuring regulators (see, e.g., 12 U.S.C. 1816, 12 CFR

303.7(d)(ii) (FDIC); 12 U.S.C. 26, 12 CFR 5.20 (OCC)), will have been

based on a forward looking business plan, and should not have changed

significantly since the commencement of operations. The Banks should

not have to duplicate the review performed by the prospective member's

appropriate regulator. Further, de novo insured depository institution

applicants should be treated similarly to mandatory de novo thrift

institutions, which do not have to satisfy any specific Bank membership

eligibility requirements since they are required by law to be Bank

members.

The Finance Board believes there is merit in these arguments.

Accordingly, proposed Sec. 933.14(a)(1) extends the streamlined

application processing currently applicable to newly-chartered insured

depository institutions that have not yet commenced operations to

newly-chartered insured depository institutions that have commenced

operations. Such applicants would be deemed to meet the duly organized,

inspection and regulation, financial condition, and character of

management eligibility requirements. In order to be considered newly-

chartered and subject to the streamlined application processing

procedures of Sec. 933.14(a)(1), applicants would have to have been

chartered within three years prior to the date the Bank receives the

application for membership. Three years is consistent with the time

period for de novo treatment applied by other financial institution

regulators. See, e.g., 12 CFR 543.3(a) (OTS).

The Finance Board specifically requests comment on the arguments

for or against this proposal.

F. Recent Merger or Acquisition Applicants--Section 933.15

Sections 933.9 and 933.10 of the current Membership Regulation

require applicants to show satisfaction of the ``makes long-term home

mortgage loans'' and ``10 percent residential mortgage loans''

requirements, respectively, based on the applicant's most recent

regulatory financial report. See id. Secs. 933.9, 933.10. An applicant

[[Page 8367]]

that recently has merged with or acquired another institution prior to

applying for Bank membership must show satisfaction of these

eligibility requirements based on the most recent regulatory financial

report filed by the consolidated entity. See id. However, a newly

consolidated entity may not be able to show compliance with these

requirements as it may be several months before the next quarterly

regulatory financial report is due to be filed with the appropriate

regulator.

One Bank has suggested that in order to allow the applicant to be

approved for membership immediately, the applicant should be allowed to

provide the most recent regulatory financial report filed prior to the

merger or acquisition by each of the institutions that entered into the

merger or acquisition. The Bank then would consolidate the relevant

data from both reports for purposes of determining compliance with

Secs. 933.9 and 933.10. The Finance Board believes this suggestion has

merit, provided that in the case of showing satisfaction of the 10

percent residential mortgage loans requirement, the Bank obtains a

certification from the applicant that there has been no material

decrease in the ratio of consolidated residential mortgage loans to

consolidated total assets derived from the reports since the reports

were filed with the appropriate regulator. These proposed requirements

are set forth in proposed new Secs. 933.15 (a) and (b).

III. Regulatory Flexibility Act

The proposed rule implements statutory requirements binding on all

Banks and on all applicants for Bank membership, regardless of their

size. The Finance Board is not at liberty to make adjustments to those

requirements to accommodate small entities. The proposed rule does not

impose any additional regulatory requirements that will have a

disproportionate impact on small entities. Therefore, in accordance

with section 605(b) of the Regulatory Flexibility Act, see 5 U.S.C.

605(b), the Finance Board hereby certifies that this proposed rule, if

promulgated as a final rule, will not have a significant economic

impact on a substantial number of small entities.

IV. Paperwork Reduction Act

The current information collection has been approved by the Office

of Management and Budget (OMB) and assigned OMB control number 3069-

0004. The Finance Board has submitted to the OMB an analysis of the

proposed changes to the collection of information contained in

Secs. 933.15 (a) and (b) of the proposed rule, described more fully in

part II. of the SUPPLEMENTARY INFORMATION. The Banks and, where

appropriate, the Finance Board, will use the proposed changes to the

information collection to determine whether a recent merger or

acquisition applicant meets certain membership eligibility

requirements. See 12 U.S.C. 1424(a)(1)(C), (a)(2)(A); 12 CFR 933.9,

933.10. Only applicants meeting such requirements may become Bank

members. See id.; id. Responses are required to obtain or retain a

benefit. See 12 U.S.C. 1424. The Finance Board and the Banks will

maintain the confidentiality of information obtained from respondents

pursuant to the proposed changes to the collection of information as

required by applicable statute, regulation, and agency policy. Books or

records relating to this proposed collection of information must be

retained as provided in the regulation.

Likely respondents and/or recordkeepers will be the Finance Board,

Banks, and financial institutions that have recently undergone a merger

or acquisition and are eligible to become Bank members under the Act,

see id. section 1424(a)(1), including any building and loan

association, savings and loan association, cooperative bank, homestead

association, insurance company, savings bank, or insured depository

institution. Potential respondents are not required to respond to the

proposed changes to the collection of information unless the regulation

collecting the information displays a currently valid control number

assigned by the OMB. See 44 U.S.C. 3512(a).

The proposed changes to the information collection will not impose

any additional costs on the Finance Board or the Banks. The estimated

annual reporting and recordkeeping hour burden on respondents is:

a. Number of respondents--15.

b. Total annual responses--15; Percentage of these responses

collected electronically--0%.

c. Total annual hours requested--60.

d. Current OMB inventory--59,152.

e. Difference--(59,092).

The estimated annual reporting and recordkeeping cost burden on

respondents is:

a. Total annualized capital/startup costs--$0.

b. Total annual costs (O&M)--$0.

c. Total annualized cost requested--$1,800.

d. Current OMB inventory--$1,684,000.

e. Difference--($1,682,200).

Comments concerning the accuracy of the burden estimates and

suggestions for reducing the burden may be submitted to the Finance

Board in writing at the address listed above.

The Finance Board has submitted the proposed collection of

information to the OMB for review in accordance with the Paperwork

Reduction Act of 1995. See id. section 3501 et seq. Comments regarding

the proposed changes to the collection of information may be submitted

in writing to the Office of Information and Regulatory Affairs of the

Office of Management and Budget, Attention: Desk Officer for Federal

Housing Finance Board, Washington, D.C. 20503, by April 20, 1998.

List of Subjects in 12 CFR Part 933

Credit, Federal home loan banks, Reporting and recordkeeping

requirements.

Accordingly, the Finance Board hereby proposes to amend title 12,

chapter IX, part 933, Code of Federal Regulations, as follows:

PART 933--MEMBERS OF THE BANKS

1. The authority citation for part 933 continues to read as

follows:

Authority: 12 U.S.C. 1422, 1422a, 1422b, 1423, 1424, 1426, 1430,

1442.

2. Part 933 is amended by removing the term ``primary regulator or

appropriate state regulator'' wherever it appears and adding the term

``appropriate regulator'' in its place in the following locations:

a. Sec. 933.1(l);

b. Sec. 933.1(z);

c. Sec. 933.2(c)(2);

d. Sec. 933.11(a)(3);

e. Sec. 933.11(a)(4);

f. Sec. 933.11(b)(1);

g. Sec. 933.12(a);

h. Sec. 933.17(e)(1) introductory text;

i. Sec. 933.17(e)(1)(i);

j. Sec. 933.17(e)(2)(i); and

k. Sec. 933.17(e)(3)(i).

Sec. 933.11 [Amended]

3. Section 933.11(b)(3)(i) introductory text is amended by removing

the term ``primary regulatory or appropriate state regulator'' and

adding the term ``appropriate regulator'' in its place.

Secs. 933.11 and 933.17 [Amended]

4. Sections 933.11(a)(4) and 933.17(e)(1)(i) are amended by

removing the phrase ``, whichever is applicable,'' wherever it appears.

5. Part 933 is amended by removing the term ``primary regulator''

wherever it appears and adding the term ``appropriate regulator'' in

its place in the following locations:

[[Page 8368]]

a. Sec. 933.1(aa);

b. Sec. 933.9;

c. Sec. 933.10;

d. Sec. 933.11(a)(1);

e. Sec. 933.11(b)(2);

f. Sec. 933.11(b)(3)(i) introductory text;

g. Sec. 933.16; and

h. Sec. 933.17(f)(1).

6. Section 933.1 is amended by revising paragraphs (u), (x), and

(y), and adding paragraph (ee) to read as follows:

Sec. 933.1 Definitions.

* * * * *

(u) Nonperforming loans and leases means the sum of the following,

reported on a regulatory financial report: Loans and leases that have

been past due for 90 days (60 days in the case of credit union

applicants) or longer but are still accruing; loans and leases on a

nonaccrual basis; and restructured loans and leases (not already

reported as nonperforming).

* * * * *

(x) Other real estate owned means all other real estate owned

(i.e., foreclosed and repossessed real estate), reported on a

regulatory financial report, and does not include direct and indirect

investments in real estate ventures.

(y) Appropriate regulator means a regulatory entity listed in

Sec. 933.8, as applicable.

* * * * *

(ee) Consolidation includes a consolidation, a merger, or a

purchase of all of the assets and assumption of all of the liabilities

of an entity by another entity.

7. Section 933.3 is amended by revising the fourth and fifth

sentences of paragraph (c) to read as follows:

Sec. 933.3 Decision on application.

* * * * *

(c) * * * The Bank shall notify an applicant in writing when its

application is deemed by the Bank to be complete. The Bank also shall

notify an applicant in writing if the 60-day clock is stopped, and when

the clock is resumed. * * *

* * * * *

8. Section 933.4 is amended by adding paragraph (d) to read as

follows:

Sec. 933.4 Automatic membership.

* * * * *

(d) Automatic membership for certain consolidations. If a member

institution and nonmember institution are consolidated and the

consolidated institution will operate under the charter of the

nonmember institution, on the effective date of the consolidation, the

consolidated institution automatically shall become a member of the

Bank of which the disappearing institution was a member immediately

prior to the effective date of the consolidation, provided that:

(1) 90 percent or more of the total assets of the consolidated

institution are derived from the assets of the disappearing member

institution; and

(2) The consolidated institution provides written notice to such

Bank that it desires to be a member of the Bank.

9. Section 933.11 is amended by revising paragraphs (b)(3)(i)(B)

and (b)(3)(i)(C) to read as follows:

Sec. 933.11 Financial condition requirement for applicants other than

insurance companies.

* * * * *

(b) * * *

(3) * * *

(i) * * *

(B) Nonperforming assets. The applicant's nonperforming loans and

leases plus other real estate owned, did not exceed 10 percent of its

total loans and leases plus other real estate owned, in the most recent

calendar quarter; and

(C) Allowance for loan and lease losses. The applicant's ratio of

its allowance for loan and lease losses plus the allocated transfer

risk reserve to nonperforming loans and leases was 60 percent or

greater during 4 of the 6 most recent calendar quarters.

* * * * *

10. Section 933.14 is amended by removing the heading for paragraph

(a), revising paragraph (a)(1), and removing and reserving paragraph

(b), to read as follows:

Sec. 933.14 De novo insured depository institution applicants.

(a)(1) Duly organized, subject to inspection and regulation,

financial condition and character of management requirements. An

insured depository institution applicant that is chartered within three

years prior to the date the Bank receives the applicant's application

for membership in the Bank, is deemed to meet the requirements of

Secs. 933.7, 933.8, 933.11 and 933.12.

* * * * *

11. Section 933.15 is amended by redesignating paragraphs (a) and

(b) as paragraphs (c) and (d), respectively, further redesignating

newly designated paragraphs (c)(i) and (c)(ii) as paragraphs (c)(1) and

(c)(2), respectively, revising ``primary regulator'' to read

``appropriate regulator'' in newly designated paragraphs (c)(1) and

(c)(2), and adding new paragraphs (a) and (b), to read as follows:

Sec. 933.15 Recent merger or acquisition applicants.

* * * * *

(a) Makes long-term home mortgage loans requirement--Regulatory

financial reports. For purposes of Sec. 933.9, an applicant that, as a

result of a merger or acquisition preceding the date the Bank receives

its application for membership, has not yet filed a regulatory

financial report for the combined entity with its appropriate

regulator, shall provide the most recent regulatory financial report

filed with the appropriate regulator prior to the merger or acquisition

by each of the institutions that entered into the merger or

acquisition, and the Bank shall consolidate the long-term home mortgage

loans data in such reports for purposes of determining the applicant's

compliance with Sec. 933.9.

(b) 10 percent requirement for insured depository institution

applicants--Regulatory financial reports. For purposes of Sec. 933.10,

an applicant that, as a result of a merger or acquisition preceding the

date the Bank receives its application for membership, has not yet

filed a regulatory financial report for the combined entity with its

appropriate regulator, shall provide the most recent regulatory

financial report filed with the appropriate regulator prior to the

merger or acquisition by each of the institutions that entered into the

merger or acquisition, and the Bank shall consolidate the residential

mortgage loans and total assets data in such reports for purposes of

determining the applicant's compliance with Sec. 933.10, provided the

Bank obtains a certification from the applicant that there has been no

material decrease in the ratio of consolidated residential mortgage

loans to consolidated total assets derived from such reports since the

reports were filed with the appropriate regulator.

* * * * *

12. Section 933.25 is amended by revising paragraph (a) to read as

follows:

Sec. 933.25 Consolidations involving nonmembers.

(a) Termination of membership. Except as provided in Sec. 933.4(d),

if a member is consolidated into an institution that is not a member,

its membership in the Bank terminates upon cancellation of its charter.

* * * * *

Dated: February 12, 1998.

[[Page 8369]]

By the Board of Directors of the Federal Housing Finance Board.

Bruce A. Morrison,

Chairman.

[FR Doc. 98-4069 Filed 2-18-98; 8:45 am]

BILLING CODE 6725-01-P