Membership Rule PRA Supporting Statement--for NPR 2014-09-12

“MEMBERS OF THE BANKS”
OMB NUMBER 2590-0003
SUPPORTING STATEMENT

A.

JUSTIFICATION

1. Circumstances necessitating the collection of information
Section 4 of the Federal Home Loan Bank Act (Bank Act) establishes the eligibility requirements
an institution must meet in order to become a member of a Federal Home Loan Bank (Bank).1
The Federal Housing Finance Agency’s (FHFA’s) Bank membership regulation, located at 12
CFR part 1263, implements section 4 of the Bank Act by providing uniform requirements an
institution must meet to be approved for Bank membership and review criteria a Bank must
apply to determine if an institution satisfies the statutory and regulatory membership eligibility
requirements, and by specifying the information and materials an institution must submit as part
of its application.2 Although the membership regulation authorizes the Banks to approve or deny
applications for membership, it also provides institutions that have been denied membership in a
Bank the option of appealing the decision to FHFA.3 The membership regulation also addresses
the requirements for withdrawal from Bank membership and for the transfer of an institution’s
membership from one Bank to another.4
FHFA has issued a Notice of Proposed Rulemaking that would amend part 1263 to require any
applicants for Bank membership to hold at least one percent of their assets in long-term “home
mortgage loans” (a defined term) to be eligible for membership and to require Bank members to
maintain at least one percent of their assets in long-term “home mortgage loans” on an ongoing
basis to be eligible to remain Bank members. The proposed rule would also amend part 1263 to
require certain Bank members (primarily credit unions and larger banks and thrifts) to hold at
least 10 percent of their assets in “residential mortgage loans” (a defined term) in order to remain
eligible for Bank membership.5 The proposed rule would require each Bank to determine
annually whether each of its members is in compliance with those minimum asset ratio
requirements, as applicable, and to determine whether an applicant complies with the applicable
minimum asset ratios at the time it applies for Bank membership.

1

See 12 U.S.C. § 1424.
See 12 CFR part 1263.
3
See 12 CFR § 1263.5.
4
See 12 CFR §§ 1263.26; 1263.18(d), (e).
5
Existing part 1263 already requires such institutions (i.e., credit unions and larger banks and thrifts) to meet this
“10 percent” asset ratio requirement at the time of application in order to be eligible to become Bank members. See
12 CFR § 1263.10. In addition to the new asset ratio requirements, this existing requirement would be retained
under the proposed rule.
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“Members of the Banks”
OMB Number 2590-0003: Supporting Statement

Under the proposed rule, the Banks would in most cases acquire the data necessary to determine
compliance with the minimum asset ratio requirements from each institution’s year-end
regulatory financial reports (filed with its appropriate regulator) or audited financial statements.
In most cases where the data contained in an institution’s regulatory financial report or audited
financial statements is insufficient to demonstrate that it complies with the applicable asset ratio
requirements, the proposed rule would require the institution (if it wished to become or remain a
Bank member) to obtain from its external auditor and provide to the Bank a written certification
stating the actual amount of the relevant assets held by the institution on the appropriate dates.
Where the institution in question is a Community Development Financial Institution (CDFI) with
less than $100 million in assets, the proposed rule would permit it to provide a written
certification from an executive officer instead.
Under the proposed rule, this information collection could require five different types of
submissions by Bank members or by institutions wishing to become a Bank member: (I)
applications for membership and supporting materials; (II) notices of appeal to FHFA by
institutions that have been denied membership by a Bank; (III) requests to withdraw from Bank
membership; (IV) applications for transfer of membership to a different Bank and supporting
materials; and (V) certifications to prove compliance with the minimum asset ratio requirements.
The information collection is necessary to enable a Bank to determine whether prospective and
current Bank members, or transferring members of other Banks, satisfy the statutory and
regulatory requirements to be certified initially and maintain their status as members eligible to
obtain Bank advances. The collection is also necessary to inform a Bank of when to initiate the
withdrawal process where a member so desires. On appeals, FHFA uses the information
collection to determine whether to uphold or overrule a Bank's decision to deny Bank
membership to an applicant.

2. Use of data
The Banks use the information collection to: (i) determine whether an institution satisfies the
statutory and regulatory requirements for Bank membership; (ii) process member withdrawals;
and (iii) process member transfers to a different Bank district. When appropriate, FHFA uses the
information collection to determine whether an institution that has been denied membership by a
Bank should be permitted to become a member of that Bank.

3. Use of information technology
The information collection permits the use of automated, electronic, mechanical, or other
technological collection techniques or other forms of information technology. Respondents can
use these techniques or technologies, such as Thompson Media Group LLC (TMG), which
calculates performance ratios required in the membership application process, to reduce the
information collection burden

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OMB Number 2590-0003: Supporting Statement

4. Efforts to identify duplication
The information collection avoids duplication because it requires the submission of information
that already is available to, or compiled by, respondents for other purposes. For instance, a
respondent can submit information already required for the Federal Deposit Insurance
Corporation Report of Condition and Income, audited financial statements, or the public portion
of its Community Reinvestment Act examination.

5. Impact on small entities
The proposed rule includes an exception intended to reduce the reporting burden that submission
V under item #12 could impose upon certain small entities. Submission V is an optional
submission that generally would give a Bank member or an applicant for membership whose
compliance with the ongoing asset ratio requirements described under item #1 could not be
determined by reference to its regulatory financial report or audited financial statements the
opportunity to demonstrate such compliance by providing its Bank with a certification from its
external auditor. As an exception to the general requirement, the proposed rule would permit
small non-credit union CDFIs (i.e., those with average assets of less than $100 million over the
preceding three years) to use a written certification prepared by an executive officer of the CDFI,
in lieu of a certification from the external auditor. As provided under the Regulatory Flexibility
Act,6 FHFA has certified that the proposed rule, including the associated information collections,
would not have a significant economic impact on a substantial number of small entities.
6. Consequences of less frequent collection and obstacles to burden reduction
If the information is not collected at the times specified in the regulation, the Banks could not
determine whether: (i) an institution satisfies the statutory and regulatory requirements for Bank
membership; (ii) a member may withdraw; or (iii) a member may transfer to a different Bank
district.

7. Circumstances requiring special information collection
There are no special circumstances requiring FHFA to conduct the information collection in a
manner inconsistent with the guidelines provided in Question 7.

6

See 15 U.S.C. § 605(b).

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OMB Number 2590-0003: Supporting Statement

8. Solicitation of comments on information collection
In accordance with the requirements of 5 CFR §§ 1320.8(d) and 1320.11(a), FHFA will be
publishing in the Federal Register on September 12, 2014 a notice of proposed rulemaking
which includes a request for public comments regarding this information collection. The 60-day
comment period will close on November 12, 2014. A copy of the proposed rule is included with
this Supporting Statement.

9. Provision of payments or gifts to respondents
No payment or gift will be provided to any respondent.

10. Assurance of confidentiality
The Banks and FHFA maintain the confidentiality of information obtained from respondents as
required by applicable statute, regulation or agency policy.

11. Questions of a sensitive nature
There are no questions of a sensitive nature in the information collection.

12. Estimates of the hour burden of the information collection
FHFA has analyzed the cost and hour burden for the five facets of this information collection: (I)
membership applications; (II) appeals of membership denials; (III) withdrawals from
membership; (IV) transfers of membership to another Bank district; and (V) certifications
regarding compliance with asset ratio requirements.
The aggregate total annual cost to members and applicants is $244,548. The estimated total
annual hour burden is 3,335 hours. The estimated total annual number of respondents is 764.
The method FHFA used to determine the annual cost and hour burden for each facet of the
information collection is explained in detail below.
I.

Membership Applications

FHFA based the calculations upon an annual average of 157 applications for membership
processed by the Banks.
The estimated annualized cost to applicants is $135,365. The estimated annualized hour burden
is 1,837 hours. These estimates are based on the following calculations:

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“Members of the Banks”
OMB Number 2590-0003: Supporting Statement

Applicant Staff Analyst prepares the membership application.
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Processing time: 5.3 hours
Total applications: 157
Total hours: 832
Hourly rate: $54 (includes salary, benefits, and overhead)
Total cost: $44,933

Outside attorney reviews application to ensure compliance with statutory and regulatory
requirements.
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Review time: 1.4 hours
Total applications: 157
Total hours: 220 hours
Hourly rate: $140 (includes salary, benefits, and overhead)
Total cost: $30,772

Management reviews and then presents the application to the board of directors for approval.
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Review time: 4 hours
Total applications: 157
Total hours: 628 hours
Hourly rate: $95 (includes salary, benefits, and overhead)
Total cost: $59,660

Applicant’s board of directors discusses and approves membership application.
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Review time: 1 hours
Total applications: 157
Total hours: 157

There are no charges/expenses for board of director reviews for membership applications as the
review typically occurs at a regularly scheduled board of directors meeting.
II.

Appeals of Membership Denials

FHFA based the calculations upon an annual average of 1 appellate application processed by
FHFA. No membership applicant has yet submitted an appellate application to FHFA. The
estimated annualized cost to members is $950. The estimated annualized hour burden is 10
hours. These estimates are based on the following calculations:
Management of appealing institution prepares and submits an appellate application to FHFA.

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“Members of the Banks”
OMB Number 2590-0003: Supporting Statement
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Processing time: 10 hours
Total appellate applications: 1
Total hours: 10
Hourly rate: $95 (includes salary, benefits, and overhead)
Total cost: $950
III.

Withdrawals From Membership

FHFA based the calculations upon an annual average of 275 Bank members requesting
withdrawal, which includes members that must withdraw because they have been merged into
another institution or otherwise relinquished their charter. The estimated annualized cost to
Bank members is $39,188. The estimated annualized hour burden is 413 hours. These estimates
are based on the following calculations:
Management prepares and submits a notice of intent to withdraw from membership.
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Processing time: 1.5 hours
Total notices: 275
Total hours: 413
Hourly rate: $95 (includes salary, benefits, and overhead)
Total cost: $39,188
IV.

Transfer of Membership

The estimated annualized cost to members is $110. The estimated annualized hour burden is 1.5
hours. These estimates are based on the following calculations:
Management prepares request to transfer membership to another Bank district.
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Processing time: 1 hour
Total requests: 1
Total hours: 1
Hourly rate: $95 (includes salary, benefits, and overhead)
Total cost: $95

Administrative assistant prepares and submits to the Bank a request to transfer membership to
another Bank district.
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Processing time: 0.5 hours
Total requests: 1
Total hours: 0.5
Hourly rate: $30 (includes salary, benefits, and overhead)
Total cost: $15

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“Members of the Banks”
OMB Number 2590-0003: Supporting Statement

V.

Certifications Regarding Compliance With Asset Ratio Requirements

The estimated annualized cost to members is $68,935. The estimated annualized hour burden is
1,073 hours.
This is a proposed new submission under this information collection. FHFA estimates that about
330 Bank members and applicants for membership would decide to take steps to track the data
needed to prepare the asset ratio certifications over the next 3 years. Based on 2013 data, the
agency estimates that Banks will be unable to confirm compliance with the proposed asset ratio
requirements through reference to existing regulatory financial reports or audited financial
statements for about 165 member institutions in each of the next 3 years (most of which will be
the same institutions from year to year). These institutions would be required to obtain the
relevant data from their accounting information systems and to submit to their Banks auditor
certifications as to the actual asset ratios.
Other institutions for which compliance with the proposed “home mortgage loan” or “residential
mortgage loan” asset ratio requirements may be confirmed through reference to their existing
call reports or audited financial statements in a given year would not be required to submit an
auditor certification for that year. However, a small subset of those institutions—i.e., those that
appeared to have asset ratios only slightly above the minimum requirements—might nonetheless
choose to track the relevant asset data in their own accounting information systems in order to
have it readily available in the event that they might be required to submit an auditor certification
in a subsequent year. FHFA estimated the number of such institutions also to be 165 so that the
total number of institutions tracking the asset ratio data in any given year would be twice as
many as would likely be required to file an auditor certification in any given year (2 x 165 =
330).
Because this would be a new requirement, all 330 of those institutions would need to take initial
steps to modify their accounting information systems to track the relevant asset sub-categories.
Although FHFA believes it would take each institution an average of 4.5 hours to make those
one-time modifications, that estimate is expressed as an annual average of 1.5 hours per year
over 3 years in the first calculation below.
The estimates for the burden estimates are based on the following calculations:
Recordkeeping
Information technology or other appropriate employee modifies accounting information system
to add sub-accounts to track specific assets that qualify as either “home mortgage loans” or
“residential mortgage loans” under FHFA’s regulations.
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Time: 1.5 hours (a 4.5 hour one-time task averaged over 3 years)
Frequency: 1
Total institutions: 330

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“Members of the Banks”
OMB Number 2590-0003: Supporting Statement
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Total hours: 495
Hourly rate: $55 (includes salary, benefits and overhead)
Total cost: $27,225

Staff accountant substantiates balance sheet sub-accounts for “home mortgage loan” or
“residential mortgage loan” assets.
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Time: 1 hour
Frequency: 1
Total institutions: 330
Total hours: 330
Hourly rate: $55 (includes salary, benefits and overhead)
Total cost: $18,150

Management reviews year-end sub-account data for “home mortgage loan” or “residential
mortgage loan” assets.
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Time: .5 hours
Frequency: 1
Total institutions: 330
Total hours: 165
Hourly rate: $95 (includes salary, benefits and overhead)
Total cost: $15,675
Reporting:

If necessary, management communicates with external auditor regarding preparation of a
certification as to the amounts of “home mortgage loan” or “residential mortgage loan” assets
held by the institution as of the relevant year-end dates and submits the final certification to its
Bank.
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Time: .5 hours
Frequency: 1
Total institutions submitting asset ratio certifications: 165
Total hours: 83
Hourly rate: $95 (includes salary, benefits and overhead)
Total cost: $7,885

Note: As shown above, we estimate that, for this IC, 330 institutions may be subject to
recordkeeping burden annually, while only 165 may be subject to the reporting burden. In
ROCIS, we were unable to enter a different number of respondents for the reporting and
recordkeeping burdens associated with the same IC. Therefore, in ROCIS, we listed the total
number of respondents for this IC as 330 and entered .25 hours in the “burden per response”
box for the reporting burden (.25 hours x 330 respondents = 83 total hours) instead of the .5 that

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“Members of the Banks”
OMB Number 2590-0003: Supporting Statement

is listed above (.5 hours x 165 respondents = 83 total hours), which resulted in the correct
number of 83 total burden hours associated with the reporting aspect.

13. Estimated total annualized cost burden to respondents
For submissions I, II, III, and IV under item #12, FHFA has not identified any costs to
respondents other than the hourly personnel costs detailed under item #12.
FHFA estimates that the additional annual cost burden on Bank members or applicants for
membership associated with submission V under item #12 (certifications regarding compliance
with asset ratio requirements) will be $453,750, all of which would arise from additional fees
paid to their external auditors in connection with the preparation of the required asset ratio
certifications or the testing of the data underlying those certifications. This estimate assumes
that: (1) for each of the estimated 330 institutions that would track the relevant asset data, the
requirement would add 5 additional hours to the external auditor’s annual audit process (to test
the appropriate asset sub-accounts); (2) it would take an auditor 1 hour to prepare an asset ratio
certification for each of the estimated 165 institutions that would be required to submit a
certification in any given year; and (3) those institutions would be billed, on average, $250 per
hour by their auditors for this additional work. Thus, ($250 x 5 hours x 330 institutions =
$412,500) + ($250 x 1 hour x 165 institutions = $41,250) = $453,750.

14. Estimated cost to the federal government
The estimated annual cost burden to FHFA is $23,837 and 481 hours, calculated as follows:
I.

Membership Applications

The estimated annualized cost to FHFA is $23,079. The estimated annual hour burden is 471
hours. These estimates are based on the following calculations:
Financial analyst tracks all Bank membership applications and associated docket
number requests and performs general clerical functions.
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Processing time: 3 hours
Total applications: 157
Total hours: 471
Hourly rate: $49 (includes salary, benefits and overhead)
Total cost: $23,079

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“Members of the Banks”
OMB Number 2590-0003: Supporting Statement

II.

Appeals of Membership Denials

The estimated annualized cost to FHFA is $758. The estimated annual hour burden is 1 0
hours. These estimates are based on the following calculations:
Financial analyst reviews appellate application to ensure compliance with statutory and
regulatory membership eligibility requirements.
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Review time: 2 hours
Total applications: 1
Total hours: 2
Hourly rate: $49 (includes salary, benefits, and overhead)
Total cost: $98

Staff attorney reviews appellate application to confirm eligibility and to ensure the absence
of any special legal issues.
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Review time: 4 hours
Total applications: 1
Total hours: 4
Hourly rate: $70 (includes salary, benefits, and overhead)
Total cost: $280

Management reviews appellate application and Bank and FHFA staff recommendations
and makes a determination on the application.
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Review time: 4 hours
Total applications: 1
Total hours: 4
Hourly rate: $95 (includes salary, benefits, and overhead)
Total cost: $380
III.

Withdrawals from Membership

FHFA is not involved in membership withdrawals.
IV.

Transfer of Membership

FHFA is not involved in transfer of membership determinations.
V.

Certifications Regarding Compliance With Asset Ratio Requirements

FHFA does not review or approve asset ratio certifications.

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OMB Number 2590-0003: Supporting Statement

15. Reasons for change in burden
FHFA last requested review of this information collection on October 24, 2013, and OMB
granted a renewal of the control number on December 16, 2013 (with an expiration date of
December 31, 2016). The Supporting Statement submitted at that time showed 2,261 burden
hours, total hourly costs of $175,613, and no additional costs (under item #13) imposed upon
members/applicants by this collection. In comparison, this Supporting Statement shows 3,335
burden hours, total hourly costs of $244,548, and additional costs (under item #13) of $453,750
imposed upon members/applicants. These changes are entirely due to the proposed addition of
submission V under item #12 (certifications regarding compliance with asset ratio requirements)
to the information collection. The hour and cost estimates for submissions I, II, III, and IV
remain unchanged.

16. Plans for tabulation, statistical analysis and publication
FHFA will not publish the results of this information collection.

17. If seeking approval to not display the expiration date for OMB approval of the
information collection, explain the reasons why display would be inappropriate
FHFA plans to display the expiration date for OMB approval.

18. Explain each exception to the topics of the certification statement identified in
“certification for paperwork reduction act submission”
There are no exceptions to the certification statement identified in “Certification for Paperwork
Reduction Act Submissions.”

B. Collection of Information Employing Statistical Methods
The information collection does not employ statistical methods.

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