Transparency in Federal Home Loan Bank Membership Act of 2020

I 116TH CONGRESS 2D SESSION H. R. 8872 To amend the Federal Home Loan Bank Act to enable captive insurance companies to apply for membership in the Federal Home Loan Bank System, to add additional membership criteria for captive insurance companies, to require a study on Federal Home Loan Bank membership, and for other purposes. IN THE HOUSE OF REPRESENTATIVES DECEMBER 4, 2020 Mr. HOLLINGSWORTH (for himself and Mr. HECK) introduced the following bill; which was referred to the Committee on Financial Services A BILL To amend the Federal Home Loan Bank Act to enable captive insurance companies to apply for membership in the Federal Home Loan Bank System, to add addi- tional membership criteria for captive insurance compa- nies, to require a study on Federal Home Loan Bank membership, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Transparency in Fed- 4 eral Home Loan Bank Membership Act of 2020’’. 5 VerDate Sep 11 2014 20:23 Dec 15, 2020 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H8872.IH H8872 pamtmann on DSKBC07HB2PROD with BILLS 2 •HR 8872 IH SEC. 2. DEFINITIONS. 1 Section 2 of the Federal Home Loan Bank Act (12 2 U.S.C. 1422) is amended by adding at the end the fol- 3 lowing: 4 ‘‘(13) CAPTIVE INSURANCE COMPANY.—The 5 term ‘captive insurance company’ means an insur- 6 ance company whose primary business is the insur- 7 ance of its affiliates. 8 ‘‘(14) INSURANCE COMPANY.—The term‘ insur- 9 ance company’ means an entity that holds an insur- 10 ance license or charter under the laws of a State. 11 ‘‘(15) PARENT COMPANY.—The term ‘parent 12 company’ means the ultimate parent company.’’. 13 SEC. 3. CAPTIVE INSURANCE COMPANY ELIGIBILITY FOR 14 MEMBERSHIP. 15 (a) IN GENERAL.—Section 4(a) of the Federal Home 16 Loan Bank Act (12 U.S.C. 1424(a)) is amended by adding 17 at the end the following: 18 ‘‘(6) ELIGIBLE CAPTIVE INSURANCE COMPA- 19 NIES.— 20 ‘‘(A) IN GENERAL.—A captive insurance 21 company shall be eligible to become a member 22 of a Federal Home Loan Bank only if the par- 23 ent company of the captive insurance company 24 meets the following requirements: 25 VerDate Sep 11 2014 20:23 Dec 15, 2020 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H8872.IH H8872 pamtmann on DSKBC07HB2PROD with BILLS 3 •HR 8872 IH ‘‘(i) MISSION ALIGNMENT STAND- 1 ARDS.— 2 ‘‘(I) HOUSING INVESTMENT.—At 3 least 51 percent of the total assets of 4 the parent company are invested in 5 residential mortgage loans. 6 ‘‘(II) FORM OF INVESTMENTS.— 7 At least 60 percent of the total assets 8 of the parent company are held in real 9 estate assets, cash and cash equiva- 10 lents, and government securities (as 11 such terms are used under section 12 856(c)(4)(A) of the Internal Revenue 13 Code of 1986). 14 ‘‘(ii) CAPITAL STANDARDS.—Such 15 capital standards as the Director deter- 16 mines appropriate, by rule, which shall be 17 as close as practicable to those capital 18 standards applicable to insured depository 19 institutions (as defined under section 3 of 20 the Federal Deposit Insurance Act). 21 ‘‘(B) ONGOING MEMBERSHIP.— 22 ‘‘(i) REPORTING REQUIREMENT.— 23 Every 5 years after becoming a member of 24 a Federal Home Loan Bank, a captive in- 25 VerDate Sep 11 2014 20:23 Dec 15, 2020 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H8872.IH H8872 pamtmann on DSKBC07HB2PROD with BILLS 4 •HR 8872 IH surance company shall submit a report, 1 prepared by a third-party auditor, to the 2 Director containing information on compli- 3 ance by the parent company with the re- 4 quirements described under subparagraph 5 (A). 6 ‘‘(ii) PARENT COMPANY REQUIRE- 7 MENTS.—A parent company of a captive 8 insurance company that is a member of a 9 Federal Home Loan Bank shall— 10 ‘‘(I) maintain the mission align- 11 ment standards described under sub- 12 paragraph (A)(i); 13 ‘‘(II) maintain the capital stand- 14 ards described under subparagraph 15 (A)(ii); 16 ‘‘(III) be deemed a ‘regulated en- 17 tity’ under section 1314 of the Fed- 18 eral Housing Enterprises Financial 19 Safety and Soundness Act of 1992 20 (12 U.S.C. 4514); and 21 ‘‘(IV) be subject to such addi- 22 tional reporting requirements as the 23 Director determines appropriate, by 24 rule. 25 VerDate Sep 11 2014 20:23 Dec 15, 2020 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H8872.IH H8872 pamtmann on DSKBC07HB2PROD with BILLS 5 •HR 8872 IH ‘‘(iii) FAILURE TO MEET MISSION 1 ALIGNMENT STANDARDS REQUIREMENT.— 2 If the Director determines that a parent 3 company no longer meets the mission 4 alignment standards described under sub- 5 paragraph (A)(i), the Director shall require 6 the parent company to file quarterly re- 7 ports with the Director for a 1-year period, 8 showing how the parent company is seek- 9 ing to comply with such mission alignment 10 standards. 11 ‘‘(iv) REPORT ON PARENT COMPANY 12 COMPLIANCE WITH CAPITAL STANDARDS.— 13 ‘‘(I) IN GENERAL.—Each captive 14 insurance company that is a member 15 of a Federal Home Loan Bank shall 16 issue a quarterly report to the Bank 17 containing information on the compli- 18 ance, by the parent company of the 19 captive insurance company, with the 20 capital standards described under sub- 21 paragraph (A)(ii). 22 ‘‘(II) REPORT ON NON-COMPLI- 23 ANCE.—If a Federal Home Loan 24 Bank receiving reports described 25 VerDate Sep 11 2014 20:23 Dec 15, 2020 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H8872.IH H8872 pamtmann on DSKBC07HB2PROD with BILLS 6 •HR 8872 IH under subclause (I) determines that a 1 parent company has failed to meet the 2 capital standards described under sub- 3 paragraph (A)(ii) for 2 consecutive 4 quarters, the Bank shall notify the 5 Director of such failure. 6 ‘‘(v) FAILURE TO MEET CAPITAL 7 STANDARDS REQUIREMENT.—If the Direc- 8 tor determines that a parent company no 9 longer meets the capital standards de- 10 scribed under subparagraph (A)(ii), the 11 Director shall require the parent company 12 to file a capital restoration plan with the 13 Director and the Federal Home Loan 14 Bank with respect to which the parent 15 company’s captive insurance company is a 16 member. 17 ‘‘(vi) TERMINATION OF MEMBER- 18 SHIP.—A captive insurance company’s 19 membership of a Federal Home Loan 20 Bank shall be terminated, in accordance 21 with section 6(d)(2) of the Federal Home 22 Loan Bank Act (12 U.S.C. 1426(d)(2)), 23 if— 24 VerDate Sep 11 2014 20:23 Dec 15, 2020 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H8872.IH H8872 pamtmann on DSKBC07HB2PROD with BILLS 7 •HR 8872 IH ‘‘(I) the parent company of the 1 captive insurance company does not 2 submit a capital restoration plan re- 3 quired under clause (v) that is sub- 4 stantially in compliance with section 5 1369C of the Federal Housing Enter- 6 prises Financial Safety and Sound- 7 ness Act of 1992 (12 U.S.C. 4622) 8 within the applicable period; 9 ‘‘(II) the Director does not ap- 10 prove such a capital restoration plan 11 required under clause (v); 12 ‘‘(III) the Director determines 13 that the parent company has failed to 14 comply with such a capital restoration 15 plan; or 16 ‘‘(IV) with respect to a parent 17 company that the Director has deter- 18 mined no longer meets the mission 19 alignment standards described under 20 subparagraph (A)(i), the parent com- 21 pany has not returned to compliance 22 with such standards before the end of 23 the 1-year period described under 24 clause (iii). 25 VerDate Sep 11 2014 20:23 Dec 15, 2020 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H8872.IH H8872 pamtmann on DSKBC07HB2PROD with BILLS 8 •HR 8872 IH ‘‘(vii) REAPPLICATION.—A captive in- 1 surance company whose membership in a 2 Federal Home Loan Bank is terminated 3 under clause (vi) may not reapply for 4 membership in a Federal Home Loan 5 Bank until the end of the 5-year period be- 6 ginning on the date of such termination. 7 ‘‘(C) PARENT COMPANY SUPPORT.— 8 ‘‘(i) IN GENERAL.—The Director shall 9 require the parent company of the captive 10 insurance company, in the event that the 11 captive insurance company defaults on any 12 amounts owed to a Federal Home Loan 13 Bank, to pay the Bank the amount of any 14 such default. 15 ‘‘(ii) ENFORCEMENT POWERS.—For 16 purposes of enforcing this subparagraph, a 17 parent company shall be deemed a regu- 18 lated entity under sections 1371, 1372, 19 and 1376 of the Federal Housing Enter- 20 prises Financial Safety and Soundness Act 21 of 1992 (12 U.S.C. 4631, 4632, and 22 4636). 23 ‘‘(D) CLARIFICATION OF PRIORITY OF SE- 24 CURED INTERESTS.—Any security interest 25 VerDate Sep 11 2014 20:23 Dec 15, 2020 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H8872.IH H8872 pamtmann on DSKBC07HB2PROD with BILLS 9 •HR 8872 IH granted to a Federal Home Loan Bank by any 1 captive insurance company, or by its parent 2 company or any affiliate company on its behalf, 3 shall be entitled to priority over the claims and 4 rights of any party (including any receiver, con- 5 servator, trustee, or similar party having rights 6 of a lien creditor) other than claims and rights 7 that— 8 ‘‘(i) would be entitled to priority 9 under otherwise applicable law; and 10 ‘‘(ii) are held by actual bona fide pur- 11 chasers for value or by actual secured par- 12 ties that are secured by actual perfected 13 security interests.’’. 14 (b) RULEMAKING.—Not later than the end of the 1- 15 year period beginning on the date of enactment of this 16 Act, the Director of the Federal Housing Finance Agency 17 shall issue the capital standards and reporting require- 18 ments rules described under subparagraphs (A)(ii) and 19 (B)(ii)(IV) of section 4(a)(6) of the Federal Home Loan 20 Bank Act. 21 (c) APPLICABILITY.—Section 4(a)(6) of the Federal 22 Home Loan Bank Act, as added by subsection (a), shall 23 take effect with respect to a captive insurance company 24 VerDate Sep 11 2014 20:23 Dec 15, 2020 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H8872.IH H8872 pamtmann on DSKBC07HB2PROD with BILLS 10 •HR 8872 IH on the effective date of the rules required under subsection 1 (b). 2 (d) CAPTIVE INSURANCE COMPANY ELIGIBILITY 3 TRANSITION PERIOD.—A captive insurance company that 4 has, or will have, the company’s membership in a Federal 5 Home Loan Bank terminated due solely to the change in 6 the treatment of captive insurance companies under the 7 final rule of the Federal Housing Finance Agency titled 8 ‘‘Members of Federal Home Loan Banks’’ (81 Fed. Reg. 9 3246; published January 20, 2016) may continue mem- 10 bership or have membership restored, as applicable, in the 11 same Federal Home Loan Bank during the period begin- 12 ning on the date of enactment of this Act and ending on 13 the day the Director issues the rules required under sub- 14 section (b), if— 15 (1) the Federal Home Loan Bank determines, 16 including based on information submitted by the 17 captive insurance company, that— 18 (A) the affiliate insured by the captive in- 19 surance company makes, owns, or acquires resi- 20 dential mortgage loans; and 21 (B) the captive insurance company will 22 comply with the membership eligibility require- 23 ments described in paragraphs (a), (b), and (c) 24 VerDate Sep 11 2014 20:23 Dec 15, 2020 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H8872.IH H8872 pamtmann on DSKBC07HB2PROD with BILLS 11 •HR 8872 IH of section 1263.6 of title 12, Code of Federal 1 Regulations, during such period; and 2 (2) the captive insurance company continues to 3 be owned, or upon restoration of membership is 4 owned and continues to be owned, including direct 5 ownership by a controlling entity or indirect owner- 6 ship through one or more holding companies, by the 7 same entity that owned the captive insurance com- 8 pany on the date of enactment of this subsection. 9 SEC. 4. STUDY ON IMPACT OF EXPANSION OF MEMBER- 10 SHIP. 11 (a) STUDY.—The Director of the Federal Housing 12 Finance Agency shall conduct a study on the impact of 13 the expansion of the Federal Home Loan Bank System 14 to additional types of entities involved in the housing fi- 15 nance system. The study shall consider— 16 (1) how liquidity provided through the Federal 17 Home Loan Bank System could be increased in a 18 manner that is consistent with its mission; 19 (2) what initial and ongoing capital and report- 20 ing requirements for membership could be used to 21 minimize risk to the Federal Home Loan Bank Sys- 22 tem; 23 (3) how the Federal Housing Finance Agency 24 could use its oversight and authority to ensure that 25 VerDate Sep 11 2014 20:23 Dec 15, 2020 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H8872.IH H8872 pamtmann on DSKBC07HB2PROD with BILLS 12 •HR 8872 IH expanded membership would not pose excessive risk 1 to the Federal Home Loan Bank System; 2 (4) mitigants and transaction structures to ad- 3 dress risk of an insolvency proceeding affecting the 4 parent of a captive insurance company member; and 5 (5) other topics relevant to developing a frame- 6 work for membership that promotes the mission of 7 the Federal Home Loan Bank System. 8 (b) REPORT.—Not later than one year after the date 9 of enactment of this Act, the Director shall submit to the 10 Committee on Banking, Housing, and Urban Affairs of 11 the Senate and the Committee on Financial Services of 12 the House of Representatives a report on the study re- 13 quired under subsection (a), including all findings and de- 14 terminations made in carrying out the study. 15 Æ VerDate Sep 11 2014 20:23 Dec 15, 2020 Jkt 019200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6301 E:\BILLS\H8872.IH H8872 pamtmann on DSKBC07HB2PROD with BILLS