The Federal Housing Finance Board has approved a new rule that will enable additional banks to become members of the Federal Home Loan Bank System and treat all members on an equal basis.

This is an "interim final" rule, which immediately puts into effect provisions of the Gramm-Leech-Bliley financial overhaul bill related to the FHFB, as that bill has not taken effect yet. "Because we haven't published anything on it before, we have to call it an interim final rule, and we have to invite public comment," said Bill Glavin, spokesman for the FHFB. "But it is going to take effect as soon as it's published in the Federal Register." The rule is expected to be published in early March.

As part of the rule, membership requirements for smaller banks will be eased. Community financial institutions, those with assets less than $500 million, will no longer be required to have at least 10% of residential mortgages as part of their total assets.

"There will now be an increased number of community banks in the FHLBank system," said Bruce Morrison, FHFB chairman in a press release. "Since many of the smaller banks have limited residential lending programs, they have not had sufficient amounts of mortgage loans to qualify for membership. These community banks will now to be able to utilize their FHLBank as their central bank' for their liquidity needs."

Furthermore, the rule has removed membership restrictions for banks that are not qualified thrift lenders, which will provide equal access to FHLBank system advances regardless of their status. Members no longer are limited in how much they can borrow, nor are they required to have a higher advances-based stock purchase requirement.

A third component of the new rule eliminates mandatory membership for federal savings associations. Membership to the FHLBank system is now voluntary. Any institution who withdraws from the system must wait five years to be readmitted; previously members had to wait 10 years before doing so.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.