[co-author: Matt Cossu]*
On September 26, 2025, Governor Kathy Hochul of New York signed into law AB 5600 (the Bill), which amends N.Y. Ins. Law §7425 to address the treatment of voidable transfers involving Federal Home Loan Banks (FHLBs), as well as the conduct of parties to delinquency proceedings against New York domiciled insurer-members of an FHLB. FHLBs are government-sponsored entities that lend to members on a fully secured basis at a low interest rate. According to the legislative findings accompanying the Bill (the Legislative Findings), FHLBs were created during the Great Depression to provide easy liquidity for banks and insurance companies and to provide a stabilizing mechanism in times of economic uncertainty.[1] Insurance companies and depository institutions must apply for membership, subject to approval by the Federal Housing Finance Agency, and purchase a certain amount of stock in the FHLB to avail themselves of member benefits.[2]
Legal Distinctions Between Banks and Insurers in Voidable Transfer Proceedings
Article 74 of the New York Insurance Code governs the rehabilitation, liquidation, conservation, and dissolution of insurers. N.Y. Ins. Law §7425 governs the circumstances under which a transfer of property or the creation of a lien by an insurer may be voidable if occurring within twelve months prior to an Article 74 order to show cause.[3] An Article 74 order to show cause initiates a proceeding to rehabilitate, conserve, liquidate, or dissolve an insurer for insolvency or failure to comply with New York Insurance Law (Article 74 Proceeding). In its pre-amendment form, N.Y. Ins. Law §7425 made it such that FHLB collateral transfer, valid under the FHLB’s security agreement, could be challenged in receivership just like any other creditor transaction that potentially fell within the statutory parameters for a voidable transaction.
According to the Legislative Findings, N.Y. Ins. Law §7425 in its previous form created a rift in the legal treatment of insurer-members during Article 74 Proceedings and the treatment of bank or credit-union-members during similar proceedings.[4] For this reason, and due to the growing rate at which insurers are becoming FHLB members, the National Association of Insurance Commissioners (NAIC) amended its model voidable transfer statute to have “FHLB collateral relating to loans made to its insurer-members treated the same in receivership as FHLB collateral relating to loans made to its FDIC-insured member banks is treated in a federal bankruptcy.”[5] As of the date of this publication, thirty-two other states, Puerto Rico, and the U.S. Virgin Islands, have adopted the NAIC amendment guidelines. The Legislative Findings assert that the Bill makes it such that an Article 74 proceeding no longer operates as a “stay, injunction, or prohibition of exercise by a FHLB of its rights regarding collateral pledged by that insurer-member.”[6] Additionally, the Legislative Findings assert that because of this effect, the Bill has ensured that FHLBs will be able to offer healthy New York insurer-members loans with favorable collateral terms at the same rate that they do members from other states.
Bringing Banking and Insurance Back Together
The Bill introduces substantive amendments to N.Y. Ins. Law §7425, codified in new subsection (e)(1)-(5), which brings New York’s insurance law in concert with NAIC guidelines and similar banking law.
Court-appointed receivers are now precluded from voiding transfers of money or property pursuant to an FHLB security agreement executed prior to the initiation of formal proceedings, except where such transfers were made with the intent to hinder, delay, or defraud the insurer-member, the receiver, or future creditors.
Additionally, a receiver is prohibited from voiding a redemption or repurchase of any stock or equities that received prior approval of the receiver or was made by the FHLB within four months of the formal commencement of delinquency proceedings.
Further, upon the receiver’s request, the FHLB has five days from the time of request to provide for the: (i) release of collateral exceeding the lending value necessary to secure outstanding obligations post-repayment; (ii) release of residual collateral following full repayment of secured obligations; (iii) payment of fees and management of deposits and accounts; and (iv) redemption or repurchase of FHLB stock or excess stock in accordance with federal law, the FHLB’s capital plan, and prevailing capital stock practices at the FHLB.
Although not subject to the five-day requirement, upon request of the receiver, the FHLB must also provide all available options for the insurer-member to restructure or renew an advance to defer the associated prepayment fees.
Lastly, prior to and during a proceeding against an insurer-member, the New York Department of Financial Services (NYDFS), the insurer-member, and the receiver may make reasonable requests of the FHLB and the FHLB must support those requests to the fullest extent of the law. This includes, among other things, providing the NYDFS with information concerning its credit opinions regarding insurer-members.
Conclusion
By signing the Bill into law on September 26, 2025, Governor Hochul made a significant amendment to N.Y. Ins. Law §7425 governing voidable transfers. The Bill has amended the scope of transactions permitted by an FHLB’s Security Agreement that a receiver may void and prescribes rights and obligations of both receivers and FHLBs in the case of an Article 74 Proceeding. New York law is now in line with NAIC guidelines, 32 states, Puerto Rico, and the U.S. Virgin Islands regarding voidable transfers.
[1] Bill Search and Legislative Information | New York State Assembly
[2] Insurance – Federal Home Loan Bank of New York
[3] NYS Open Legislation | NYSenate.gov
[4] Bill Search and Legislative Information | New York State Assembly
[5] https://content.naic.org/sites/default/files/inline-files/Receivership%20FHLB%20Legislation%20by%20State%20071724%20%281%29.pdf
[6] Bill Search and Legislative Information | New York State Assembly
*contributed to this article. He is not licensed to practice law in any jurisdiction; bar admission pending.
