FR 2025-00720

The document from the Federal Register reflects an official notice by the Federal Housing Finance Agency (FHFA) regarding a change in the criteria that define a "community financial institution" (CFI). Specifically, it discusses an adjustment to the cap on average total assets that determines whether a Federal Home Loan Bank member qualifies as a CFI. As of January 1, 2025, this cap is set at $1.5 billion. This change is based on a 2.7% increase in the Consumer Price Index for all urban consumers (CPI-U) between November 2023 and November 2024. The use of unadjusted CPI-U data, which is less frequently revised, enables a more stable measure for adjusting the asset cap.

Summary of the Document

This notice informs stakeholders of an important adjustment in financial regulations affecting Federal Home Loan Bank members. By raising the asset cap to $1.5 billion, more financial institutions might qualify as CFIs. Institutions with total average assets below this threshold can benefit from certain advantages under the Bank Act, such as enhanced access to long-term advances.

Significant Issues and Concerns

A few notable concerns arise from this document:

• Specialized Terminology: The use of terms like "CPI-U" and "CFI asset cap" without immediate explanation may bewilder readers who are not familiar with these terms. This could limit understanding and hinder effective communication.

• Use of Legal References: The document references specific laws and regulations, such as 12 U.S.C. 1424(a), without summarizing their content, which may not be accessible to those without legal expertise.

• Calculation Methodology: The preference for rounding the CFI asset cap to the nearest million lacks explicit justification, potentially raising questions about the precision and fairness of this method.

• Data Usage: The choice to use unadjusted CPI-U data is primarily justified by its stability, as it is subject to fewer revisions. However, there is no detailed explanation of why this approach is favored over seasonally adjusted data, which might take into account recurring seasonal variations.

• Impact Discussion: There is a lack of discussion regarding the potential impact of this adjustment on small financial institutions or the broader financial landscape, which may be relevant information for stakeholders.

• Feedback Mechanism: The document does not outline procedures for stakeholder feedback or challenge, leaving a gap in participatory processes for interested parties.

Broad Public Impact

For the general public, this notice may seem distant unless they are part of a financial institution or directly affected by changes in financial regulation. However, the adjustment of such caps has broader implications for the banking sector, potentially influencing the accessibility of credit and financial services in local communities.

Impact on Specific Stakeholders

Financial institutions, particularly those close to the previous asset cap, stand to benefit from the adjustment. They might now qualify as CFIs, gaining access to certain financial advantages and opportunities for growth. However, smaller banks that initially qualified under the lower asset cap might face increased competition from larger institutions newly considered as CFIs. For regulators and policymakers, these changes necessitate considerations regarding how these adjustments align with broader economic objectives and financial stability goals.

In summary, while the adjustment of the asset cap aims to align financial regulation with current economic indicators, the document could be more informative for non-expert readers and offer a clearer view of how these changes fit into the broader financial system.

The Federal Register document discusses a financial adjustment by the Federal Housing Finance Agency (FHFA) related to the definition of "community financial institution" (CFI). This adjustment is particularly important for members of the Federal Home Loan Bank (Bank) system as it influences eligibility for certain financial benefits and services.

Financial Adjustment of CFI Asset Cap

The FHFA has raised the cap on average total assets for members qualifying as a CFI to $1,500,000,000. This adjustment is effective from January 1, 2025, and reflects a 2.7% increase in the Consumer Price Index for All Urban Consumers (CPI-U) from November 2023 to November 2024. The purpose of this annual adjustment is to ensure that the asset cap remains relevant and reflective of broader economic conditions, as indicated by the CPI-U.

Methodology and Calculation

The methodology applied by the FHFA to determine this asset cap involves using data from the CPI-U, which is a measure of the average change over time in the prices paid by urban consumers for goods and services. Notably, the adjustment uses unadjusted CPI-U data, which is encouraged by the Department of Labor due to its general stability and limited revisions. The calculated increase is applied to the previous year's cap without adjusting for seasonal variations, and the resulting figure is rounded to the nearest million dollars. This method emphasizes consistency with other federal practices, although the reasoning behind this particular rounding method is not explicitly clarified in the document.

Implications and Issues

The adjustment in the asset cap has important implications for small financial institutions. It defines the threshold below which a bank can benefit from being classified as a CFI, which includes eligibility for certain types of bank membership benefits, such as long-term financial advances and favorable collateral arrangements.

However, the document does not address the potential impacts of these changes on the smaller financial institutions that may be affected by the new cap. Additionally, while the choice of using unadjusted CPI-U data is supported by DOL guidance, the document does not offer a detailed justification for this preference, which might be relevant for stakeholders concerned with data accuracy and its implications for financial calculations.

Furthermore, there appears to be a procedural gap in communicating how stakeholders can engage with or provide feedback about these changes. This lack of procedural transparency could be an area of concern for institutions affected by the adjustment, as it limits their opportunities to participate in or contest the decision-making process.