WASHINGTON — The attempt by the Federal Housing Finance Agency to tighten Federal Home Loan Bank membership requirements would be thwarted in the regulatory relief bill coming before a Senate committee vote on Thursday.

The legislation drafted by Banking Committee Chairman Richard Shelby, R-Ala., which includes various proposed reforms to ease banks' post-crisis regulatory load, would require the FHFA to withdraw its proposal to restrict FHLB membership rules 30 days from the bill's enactment.

The FHLB proposal has drawn strong opposition from a wide array of banking and financial services groups as well as lawmakers. The tighter requirements would effectively lock captive insurance companies out of the FHLB system and force current members to comply with an ongoing mortgage asset test.

The ultimate outcome of the legislative process to move regulatory relief provisions in the Senate is still an open question, and what would be included in a final bill is even more unclear. But if the Banking Committee is able to pass it and send it to the full Senate floor, that could raise the pressure on the FHFA to abandon the membership proposal.

In December, 29 senators urged FHFA Director Mel Watt to weigh the impact the proposal could have on community financial institutions' ability to get liquidity through the FHLB system. The senators called on Watt to "reconsider this proposal and consult with Congress where these important decisions should be made."

But Watt has countered that the FHFA's aim simply is to ensure members' eligibility is consistent with rules originally stipulated by Congress. He has emphasized that there are substantial benefits to being a FHLB member. Still, an overwhelming majority of those submitting public comments to the agency objected to the proposal.

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