8 February 2018Analysis

Legislation introduced to US Senate to overturn FHLB ban on captives

A bipartisan bill has been introduced to the US Senate to allow captives that were members of the Federal Home Loan Bank (FHLB) to continue or restore their membership after it was rescinded on January 19, 2016.

The Federal Home Loan Banks are a system of regional banks from which local lending institutions everywhere in America borrow funds to finance housing, economic development, infrastructure and jobs.

In 2016 the legislation surrounding FHLBs was revised, aimed at eliminating the perceived abuse in recent registrations to the FHLB of companies that are not banks, credit unions or 'traditional' insurance companies. The legislation changed the definition of insurance company to exclude captives.

Senator Tammy Duckworth introduced the new bill so captives are once again treated as insurance companies and can continue or restore the same benefits of membership in the FHLB that covered captives had before January 19, 2016.

"The participation of larger financial institution members in the FHLBs enhances the value to members of all sizes, particularly smaller member banks and thrifts which often have limited or no direct access to the capital markets other than through their FHLB,” said David, Schroeder, senior vice president of Federal Government Relations of the Community Bankers Association of Illinois.