The Federal Housing Finance Board has approved a final rule giving Community Financial Institutions the ability to use new classes of collateral when applying for advances from the Federal Home Loan Bank System.
Under the rule, which was a provision of the Gramm-Leach-Bliley Act, the FHLBanks will accept small business loans, agriculture loans and securities backed by these types of loans as collateral from CFIs - Federal Deposit Insurance Corp.-insured institutions with less than $500 million in assets.
"There are a number of CFIs that are already members of the Federal Home Loan Bank System," said Bill Glavin, spokesman for the FHFB. "It will enable a number of them to do a lot more borrowing from the Federal Home Loan Banks that they weren't able to do before, and apparently there are a number of them out there that have not joined the system but now have a much greater incentive to join the system."
The adopted rule is more lenient than the proposed rule, in that it does not set dollar limits on the loans. However, the rule does state that in order for the new types of loans to be eligible to be used as collateral, they must fall within the limits of CFI loans-to-one-borrower. This was done to restrict size without setting a dollar amount on the loans.
"This rule is critical to the funding needs of many community banks that are members or potential members of the FHLBank System," said FHFB Chairman Bruce Morrison in a press release. "Since more community banks will be joining the System and existing members will be able to borrow more, we hope to see a significant increase in lending in underserved areas."
Among supporters of the new rule, which will take effect 30 days after being published in the Federal Register, is America's Community Bankers. Diane Casey, ACB president, applauds the FHFB for not imposing the dollar-amount restrictions seen in the proposed rule.
"The FHFB's decision ... will allow the Banks to serve the needs of community banks and their home lending programs, as well as being able to continue fully funding the Banks' Affordable Housing Program," she said. "This flexibility is critical as the FHLBanks create new capital plans. Similarly, the flexibility of the final rule implementing expanded collateral requirements for advances will be extremely important to smaller institutions in meeting local community development needs."