The statutory eligibility requirements for membership in the Federal Home Loan Bank System are:
1. Duly Organized:
The institution is duly organized under federal or state
laws.
2. Subject to Inspection
and Regulation:
The institution is subject to
inspection and regulation under banking or similar laws
of a state or federal regulatory agency.
3. Makes Long-Term
Home Mortgage Loans:
The institution either purchases or originates long-term home mortgage loans. Long-term home mortgage loans are defined as home mortgage loans with a maturity of five years or more. (An institution may also qualify by purchasing and holding mortgage-backed securities or through a mortgage banking operation.)
4. 10% Requirement:
The institution has at least 10% of its total assets in residential mortgage loans. Residential mortgage loans may include: first- and junior-lien home mortgage loans, multifamily mortgage loans, manufactured housing loans, home equity loans, mortgage-backed securities, residential construction loans, dormitory, retirement home, nursing home, and single-room occupancy loans. Insurance companies and Community Financial Institutions (CFIs), are exempt from this requirement. A CFI is defined as an institution whose deposits are insured under the Federal Deposit Insurance Act (FDIA) and has less than $587 million in average total assets over the three preceding years.
5. Financial Condition:
The institution's financial condition is such that advances
may be safely made.
6. Character of
Management and Home Financing Policy:
The character of the institution's management and its home financing policy is consistent with sound and economical home financing.
Underwriting
Review Standards
The underwriting review standards that will be used to evaluate each applicant are described below.
1. Regulatory Examinations:
The institution has a composite CAMELS rating of 1 or
2 within the last two years. (Institutions with a CAMELS
3 rating with compensating factors are also likely candidates
for membership.)
2. Community Reinvestment
Act Performance Evaluations:
The institution
has a CRA rating of Outstanding or Satisfactory. Insurance
companies and credit unions do not receive CRA ratings
and are therefore exempt from this standard.
3. Capital:
The institution meets or exceeds all current regulatory
capital requirements.
4. Earnings:
The institution has been profitable in at least four
of the last six quarters.
5. Enforcement
Actions:
Neither the institution nor its management
is subject to any enforcement action. (If an enforcement
action exists, the institution should call the Chicago
FHLB to discuss the status of the action and the progress
made to date in complying with the terms of the action.
An enforcement action may not prevent an institution
from becoming a member if proper documentation is available.)
6. Audit Opinion:
The institution has received an unqualified opinion,
an agreed upon procedures audit, a holding company audit,
internal audit, or a published financial statement relating
to their most recent financial statements.
7. Performance
Trends:
The institution has not experienced significant
deterioration in its financial condition since its last
regulatory examination.
8. Character of
Management:
Neither the institution nor any of its directors or senior officers have been the subject of any relevant criminal, civil, or administrative proceedings reflecting on credit-worthiness, business judgment, or moral turpitude since the last regulatory examination. In addition, there are no known potential monetary liabilities, material pending lawsuits, or unsatisfied judgments against the institution.
Please note that de novos and institutions that recently merged or are about to merge are subject to special review criteria. Call the New Member Coordinator at (312) 565-5375 for further information.
Initial Stock Purchase
Once an institution has been approved for membership, it must, within 60 calendar days, purchase capital stock in the Chicago FHLB equal to the greater of:
• 1% of its residential mortgage loans, or
• $500
The Bank has registered its capital stock with the Securities and Exchange Commission, but the capital stock is not publicly traded.
Stock Purchase to Support
Borrowing from the FHLB Chicago
The amount an institution may borrow depends on that institution's financial condition and on the amount and type of collateral pledged. In addition, by statute, all borrowings from the FHLB Chicago must be supported by capital stock holdings not less than 5% of borrowings.
A member's ability to redeem capital stock is subject to certain limitations, including the terms of the consensual cease and desist order dated October 10, 2007, between the Bank and its regulator, the Federal Housing Finance Board. Under the consensual order, the Bank is prohibited from repurchasing or redeeming capital stock, including upon membership withdrawal or termination, unless the Bank has received the approval of the Director of the Office of Supervision of the Finance Board (OS Director). In addition, members may only request redemption of voluntary capital stock (stock in excess of their required membership amount) during redemption windows announced by the Bank for
specified amounts of capital stock from time to time as may be approved by the OS Director. Capital stock repurchases and redemptions remain subject to the Bank maintaining its minimum regulatory capital and leverage requirements.
Annual Review
In the first quarter of each year, the FHLB Chicago is required by statute to recalculate the members' stock requirement based on each member's December 31 data. Members are notified of the new minimum stock requirement.
In addition to capital stock requirements, two other factors determine how much a member can borrow from the FHLB Chicago: the member's financial condition and the amount of collateral pledged. To maintain access to the FHLB Chicago's long-term funds (defined for this purpose as greater than one year), the member must also submit a Community Support Statement.
The extension of all member credit is made on the security of collateral. Upon receiving the application for membership and other financial information, including the most recent regulatory examination report, the FHLB Chicago staff performs a credit review and determines the potential new member's borrowing capacity.
Borrower capacity is based upon a comprehensive review of all elements of a member's financial performance including, capital adequacy, liquidity, trends in operating ratios, future earnings prospects, interest rate risk, non-performing assets, valuation reserves, asset composition, and management. Please call your Relationship Manager for further information.
Community Support Statements
To further the FHLB System's mission of promoting affordable and accessible housing finance, FHLB Chicago members are required to submit a "Community Support Statement" once every two years. Institutions submit a form that indicates their latest CRA performance evaluation and details information on assistance to first time homebuyers.
The FHLB Chicago is eager to work in partnership with members to help fulfill this statutory requirement. The FHLB Chicago's Community Investment Group provides technical assistance to all interested members. In addition, the Affordable Housing Program and Community Investment Program may be of interest to members that want to expand their involvement in providing affordable home finance and community development loans in the communities they serve.
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