Comment Detail

Comment

December 23, 2014

Alfred M. Pollard, Esq., General Counsel
Attention: Comments/RIN 2590-AA39
Federal Housing Finance Agency
400 Seventh Street SW, Eighth Floor
Washington, D.C. 20024

Re: Notice of Rulemaking and Request for Comments – Members of Federal Home Loan Banks (RIN 2590-AA39)

Dear Mr. Pollard:

First Carolina Corporate Credit Union (FCCCU) appreciates the opportunity to comment on the Federal Housing Finance Agency’s proposed rule RIN 2590-AA39 Members of the Federal Home Loan Banks (FHLB). FCCCU is a $1.4 billion full-service corporate credit union serving credit unions primarily located in North and South Carolina. As a corporate credit union member of the FHLBank Atlanta, we appreciate your desire to ensure the FHLBanks remain focused on the housing portion of their mission. However, we believe the proposed rule does not appropriately recognize the many actions of Congress to expand the FHLBanks’ membership and mission as well as the access to its critical funding resources. As drafted the proposed rule will actually inhibit the FHLBanks’ ability to execute their mission. Furthermore, by imposing ongoing asset-based tests on our institution to maintain FHLBank membership, the proposed rule will limit our ability to serve the liquidity needs of our credit union members.

The proposed rule would significantly increase FHLBank membership requirements for existing and prospective members and reduce the availability and reliability of liquidity on which we depend. The proposed rule would make it more difficult for corporate credit unions like ourselves to deliver important funding and financial services to our credit union members and would discourage potential members from joining.

As a correspondent financial institution, FCCCU provides financial and liquidity services to natural person (retail) credit unions to support their mortgage and other lending programs. We can only meet the proposed ongoing mortgage asset tests through investments in mortgage-backed securities (MBS). Our borrowings are limited to short-term maturities so we are essentially restricted to investing in shorter-term MBS. Because of the limited flexibility that corporate credit unions have in managing their balance sheets and seasonal liquidity demands of our member credit unions, there may be times where we will be unable to meet the 10 percent mortgage asset test, fall out of compliance with the proposed regulation, and potentially have our FHLBank memberships terminated, significantly altering our liquidity profile. The FHLBank Atlanta is our primary liquidity resource and we would not be able to replace the reliability of their liquidity services in today’s marketplace.

Since the financial crisis, liquidity options for many financial institutions, especially corporate credit unions, have been extremely limited. The liquidity in the financial markets is still not back to normal and many larger correspondent banks offer limited liquidity options to clients as they are under their own strict liquidity requirements as a result of the new Basel rules. Membership in an FHLBank provides corporate credit unions with critical access to liquidity that enables us to continue to serve the funding and other financial services needs of our credit union members who need funding to support their mortgage and overall loan portfolios. Loss of membership in an FHLBank will make it more difficult for corporate credit unions to serve the needs of our members and potentially reduce our financial strength and stability. To remain a strong corporate credit union that is able to serve our members, we must be able to manage our balance sheet and liquidity to respond to changing market conditions and demand from our members.

FHLBank members serve the housing needs of their communities in a variety of ways. Some, like us, hold assets on our balance sheets that reflect a role in the residential housing market; others originate home mortgages and sell them into the secondary market; others may have a greater focus on community and economic development lending; and some may play a key role in small business lending. All of these activities help create the economic foundation for housing opportunities. These various roles that FHLBank members play in local economies strengthen the FHLBank system and should be embraced.

Ongoing compliance with membership requirements of the proposed rule would impose additional regulatory burdens on FHLBank members and add uncertainty to FHLBank membership. We believe the proposed rule will place a particularly onerous burden on corporate credit unions. Corporate credit unions support smaller natural-person credit unions that deliver financial services to their communities and use FHLBank advances to assist those efforts.

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 expanded FHLBank membership to credit unions and commercial banks. Over the last 25 years, Congress has enacted other legislation to broaden access to FHLBank funding and liquidity. While Congress has stipulated that most members must meet certain asset-related eligibility requirements to join an FHLBank, Congress has never sought to require continuous testing of such requirements or a percentage of assets to demonstrate a commitment to housing finance. We believe the proposed rule amends current law rather than establishing safety and soundness regulations to support the statute and FHLBank mission. We also believe that any changes to the statutorily established FHLBank membership, in particular changes that would narrow the FHLBanks’ mission as the proposed rule appears to do, should come from Congress first.

Under the membership structure established by Congress, the FHLBanks have proven to be a safe and sound business model that reliably supplies liquidity, through all market cycles, to a broad range of cooperative members for a variety of uses. Our membership in FHLBank Atlanta and the reliable access to liquidity it provides has helped us better serve our credit union members.

The proposed rule would fundamentally change a vital part of the U.S. housing finance system that has and continues to perform well. It will restrict a corporate credit unions’ ability to serve its members, result in the termination of membership for some corporate credit unions in good standing, and ultimately reduce housing and economic development credit available to families, small businesses, and communities.

For these reasons, we request that the proposed rule be withdrawn and that the FHFA instead engage in a series of public hearings, workshops, and roundtables to solicit a variety of viewpoints from diverse stakeholders that may be impacted by this wide-ranging proposal.

Thank you for the opportunity to submit a comment.

Sincerely,

David Brehmer
President/CEO