I

106TH CONGRESS

1ST SESSION H. R. 822

To modernize and improve the Federal Home Loan Bank System, and for

other purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 24, 1999

Mr. BAKER (for himself and Mr. KANJORSKI) introduced the following bill;

which was referred to the Committee on Banking and Financial Services

A BILL

To modernize and improve the Federal Home Loan Bank

System, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Federal Home Loan Bank System Modernization Act of

6 1999’’.

7 (b) TABLE OF CONTENTS.—The table of contents for

8 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Definitions.

Sec. 3. Federal Home Loan Banks.

Sec. 4. Savings association membership.

Sec. 5. Advances to members; collateral.
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Sec. 6. Eligibility criteria.

Sec. 7. Qualified thrift lender status.

Sec. 8. Federal Home Loan Bank Finance Corporation.

Sec. 9. Management of Banks.

Sec. 10. Powers and duties of Banks.

Sec. 11. Mergers and consolidations of Federal Home Loan Banks.

Sec. 12. Other amendments relating to Bank operation and administration.

Sec. 13. Resolution Funding Corporation.

Sec. 14. Capital structure of Federal Home Loan Banks.

1 SEC. 2. DEFINITIONS.

2 Section 2 of the Federal Home Loan Bank Act (12

3 U.S.C. 1422) is amended—

4 (1) in paragraph (1), by striking ‘‘term ‘Board’

5 means’’ and inserting ‘‘terms ‘Finance Board’ and

6 ‘Board’ mean’’;

7 (2) by striking paragraph (3) and inserting the

8 following:

9 ‘‘(3) STATE.—The term ‘State’, in addition to

10 the States of the United States, includes the District

11 of Columbia, Guam, Puerto Rico, the United States

12 Virgin Islands, American Samoa, and the Common13 wealth of the Northern Mariana Islands.’’; and

14 (3) by adding at the end the following new

15 paragraph:

16 ‘‘(13) COMMUNITY FINANCIAL INSTITUTION.—

17 ‘‘(A) IN GENERAL.—The term ‘community

18 financial institution’ means a member—

19 ‘‘(i) the deposits of which are insured

20 under the Federal Deposit Insurance Act;

21 and
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1 ‘‘(ii) that has, as of the date of the

2 transaction at issue, less than

3 $500,000,000 in average total assets,

4 based on an average of total assets over

5 the 3 years preceding that date.

6 ‘‘(B) ADJUSTMENTS.—The $500,000,000

7 limit referred to in subparagraph (A)(ii) shall

8 be adjusted annually by the Finance Board,

9 based on the annual percentage increase, if any,

10 in the Consumer Price Index for all urban con11 sumers, as published by the Department of

12 Labor.’’.

13 SEC. 3. FEDERAL HOME LOAN BANKS.

14 Section 3 of the Federal Home Loan Bank Act (12

15 U.S.C. 1423) is amended in the first sentence, by striking

16 ‘‘the continental United States’’ and all that follows

17 through ‘‘eight’’ and inserting ‘‘the States into not fewer

18 than 1’’.

19 SEC. 4. SAVINGS ASSOCIATION MEMBERSHIP.

20 Section 5(f) of the Home Owners’ Loan Act (12

21 U.S.C. 1464(f)) is amended to read as follows:

22 ‘‘(f) FEDERAL HOME LOAN BANK MEMBERSHIP.—

23 On and after January 1, 2000, a Federal savings associa24 tion may become a member of the Federal Home Loan

25 Bank System, and shall qualify for such membership in
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1 the manner provided by the Federal Home Loan Bank

2 Act.’’.

3 SEC. 5. ADVANCES TO MEMBERS; COLLATERAL.

4 (a) IN GENERAL.—Section 10(a) of the Federal

5 Home Loan Bank Act (12 U.S.C. 1430(a)) is amended—

6 (1) by redesignating paragraphs (1) through

7 (4) as subparagraphs (A) through (D), respectively,

8 and indenting appropriately;

9 (2) by striking ‘‘(a) Each’’ and inserting the

10 following:

11 ‘‘(a) IN GENERAL.—

12 ‘‘(1) ALL ADVANCES.—Each’’;

13 (3) by striking the second sentence and insert14 ing the following:

15 ‘‘(2) PURPOSES OF ADVANCES.—A long-term

16 advance may only be made for the purposes of—

17 ‘‘(A) providing funds to any member for

18 residential housing finance; and

19 ‘‘(B) providing funds to any community fi20 nancial institution for small businesses, agricul21 tural, rural development, or low-income commu22 nity development lending.’’;

23 (4) by striking ‘‘A Bank’’ and inserting the fol24 lowing:

25 ‘‘(3) COLLATERAL.—A Bank’’;
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1 (5) in paragraph (3) (as so designated by para2 graph (4) of this subsection)—

3 (A) in subparagraph (C) (as so redesig4 nated by paragraph (1) of this subsection) by

5 striking ‘‘Deposits’’ and inserting ‘‘Cash or de6 posits’’;

7 (B) in subparagraph (D) (as so redesig8 nated by paragraph (1) of this subsection), by

9 striking the second sentence; and

10 (C) by inserting after subparagraph (D)

11 (as so redesignated by paragraph (1) of this

12 subsection) the following new subparagraph:

13 ‘‘(E) Secured loans for small business, ag14 riculture, rural development, or low-income

15 community development, or securities represent16 ing a whole interest in such secured loans, in

17 the case of any community financial institu18 tion.’’;

19 (6) in paragraph (5)—

20 (A) in the second sentence, by striking

21 ‘‘and the Board’’;

22 (B) in the third sentence, by striking

23 ‘‘Board’’ and inserting ‘‘Federal Home Loan

24 Bank’’; and
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1 (C) by striking ‘‘(5) Paragraphs (1)

2 through (4)’’ and inserting the following:

3 ‘‘(4) ADDITIONAL BANK AUTHORITY.—Subpara4 graphs (A) through (E) of paragraph (3)’’; and

5 (7) by adding at the end the following:

6 ‘‘(5) REVIEW OF CERTAIN COLLATERAL STAND7 ARDS.—The Board may review the collateral stand8 ards applicable to each Federal Home Loan Bank

9 for the classes of collateral described in paragraph

10 (3)(E), and may, if necessary for safety and sound11 ness purposes, require an increase in the collateral

12 standards for any or all of those classes of collateral.

13 ‘‘(6) DEFINITIONS.—For purposes of this

14 subsection—

15 ‘‘(A) the terms ‘small business’, ‘agri16 culture’, ‘rural development’, and ‘low-income

17 community development’ shall have the mean18 ings given those terms by rule or regulation of

19 the Finance Board; and

20 ‘‘(B) the term ‘loans for small business’

21 may include a loan guaranteed by the Small

22 Business Administration under section 7(a) of

23 the Small Business Act.’’.
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1 (b) CLERICAL AMENDMENT.—The section heading

2 for section 10 of the Federal Home Loan Bank Act (12

3 U.S.C. 1430) is amended to read as follows:

4 ‘‘SEC. 10. ADVANCES TO MEMBERS.’’.

5 SEC. 6. ELIGIBILITY CRITERIA.

6 Section 4(a) of the Federal Home Loan Bank Act

7 (12 U.S.C. 1424(a)) is amended—

8 (1) in paragraph (2)(A), by inserting, ‘‘(other

9 than a community financial institution)’’ after ‘‘in10 stitution’’; and

11 (2) by adding at the end the following new

12 paragraph:

13 ‘‘(3) LIMITED EXEMPTION FOR COMMUNITY FI14 NANCIAL INSTITUTIONS.—A community financial in15 stitution that otherwise meets the requirements of

16 paragraph (2) may become a member without regard

17 to the percentage of its total assets that is rep18 resented by residential mortgage loans, as described

19 in subparagraph (A) of paragraph (2).’’.

20 SEC. 7. QUALIFIED THRIFT LENDER STATUS.

21 (a) FEDERAL HOME LOAN BANK ACT.—Section

22 10(e) of the Federal Home Loan Bank Act (12 U.S.C.

23 1430(e)), as added by section 105 of Public Law 100–

24 86 and subsequently amended (relating to qualified thrift

25 lender status) is amended—
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1 (1) by striking paragraphs (1) and (3);

2 (2) in paragraph (2), by striking the first sen3 tence;

4 (3) in paragraph (4), by striking ‘‘Paragraphs

5 (1) and (2) of this subsection do not’’ and inserting

6 ‘‘Paragraph (1) does not’’;

7 (4) in paragraph (5), by striking subparagraph

8 (C); and

9 (5) by redesignating paragraphs (2), (4), and

10 (5) as paragraphs (1), (2), and (3), respectively.

11 (b) HOME OWNERS’ LOAN ACT.—Section

12 10(m)(3)(B) of the Home Owners’ Loan Act (12 U.S.C.

13 1467a(m)(3)(B)) is amended—

14 (1) in clause (i), by striking subclause (III) and

15 by redesignating subclause (IV) as subclause (III);

16 and

17 (2) by amending clause (ii) to read as follows:

18 ‘‘(ii) ADDITIONAL RESTRICTIONS EF19 FECTIVE AFTER THREE YEARS.—Begin20 ning 3 years after the date on which a sav21 ings association should have become or

22 ceases to be a qualified thrift lender, the

23 savings association shall not retain any in24 vestment (including an investment in any

25 subsidiary) or engage, directly or indi-
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1 rectly, in any activity unless that invest2 ment or activity would be permissible for

3 the savings association if it were a national

4 bank, and is also permissible for the sav5 ings association as a savings association.’’.

6 SEC. 8. FEDERAL HOME LOAN BANK FINANCE CORPORA7 TION.

8 (a) ESTABLISHMENT OF FINANCE CORPORATION.—

9 The Federal Home Loan Bank Act (12 U.S.C. 1421 et

10 seq.) is amended by inserting after section 4 the following

11 new section:

12 ‘‘SEC. 5. THE FEDERAL HOME LOAN BANK FINANCE COR13 PORATION.

14 ‘‘(a) ESTABLISHMENT.—

15 ‘‘(1) IN GENERAL.—There is established the

16 Federal Home Loan Bank Finance Corporation

17 (hereafter in this section referred to as the ‘Corpora18 tion’), which shall be a federally chartered instru19 mentality of the United States.

20 ‘‘(2) PURPOSES.—The purposes of the Corpora21 tion shall be—

22 ‘‘(A) to issue and service the notes, bonds,

23 debentures, and other debt obligations of the

24 Federal Home Loan Banks in accordance with

25 this Act; and
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1 ‘‘(B) to perform or cause to be performed

2 all other necessary and proper functions in rela3 tion to the issuance and servicing of obligations

4 referred to in subparagraph (A), as fiscal agent

5 on behalf of the Federal Home Loan Banks,

6 and any functions performed by the Office of

7 Finance on behalf of the Financing Corporation

8 (established pursuant to section 21) and the

9 Resolution Funding Corporation (established

10 pursuant to section 21B) before the date of en11 actment of the Federal Home Loan Bank Sys12 tem Modernization Act of 1999.

13 ‘‘(b) POWERS.—Subject to the other provisions of

14 this Act and to such regulations as the Board may pre15 scribe, the Corporation shall have the power—

16 ‘‘(1) to issue voting capital stock to the Federal

17 Home Loan Banks;

18 ‘‘(2) to issue and service Federal Home Loan

19 Bank notes, bonds, debentures, and other obligations

20 pursuant to section 11 on behalf of the Federal

21 Home Loan Banks;

22 ‘‘(3) to determine the amount, maturities, rate

23 of interest, terms, and other conditions of Federal

24 Home Loan Bank notes, bonds, debentures, and

25 other obligations;
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1 ‘‘(4) to adopt, alter, and use a corporate seal;

2 ‘‘(5) to make contracts;

3 ‘‘(6) to sue and be sued, by and through its

4 own attorneys, in the corporate capacity of the Cor5 poration, and to complain and defend in any action

6 brought by or against the Corporation in any court

7 of competent jurisdiction;

8 ‘‘(7) to determine the terms and conditions

9 under which the Corporation shall indemnify its di10 rectors, officers, employees, and agents; and

11 ‘‘(8) to exercise such incidental powers not in12 consistent with the provisions of this Act as are nec13 essary or advisable to carry out this Act.

14 ‘‘(c) BOARD OF DIRECTORS.—

15 ‘‘(1) ESTABLISHMENT.—The management of

16 the Corporation shall be vested in a board of direc17 tors composed of directors elected by the Federal

18 Home Loan Banks in accordance with paragraph

19 (2).

20 ‘‘(2) COMPOSITION OF BOARD.—Each Bank

21 shall annually elect 1 individual who, as of the time

22 of the election, is an officer or director of the Bank

23 to serve as a member of the board of directors of the

24 Corporation.
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1 ‘‘(3) DUTIES.—The board of directors shall ad2 minister the affairs of the Corporation in accordance

3 with this Act.

4 ‘‘(4) TERMS.—

5 ‘‘(A) IN GENERAL.—Each member of the

6 board of directors of the Corporation shall be

7 elected for a term of 1 year, and shall serve at

8 the pleasure of the board of directors of the

9 Federal Home Loan Bank that elected that

10 member.

11 ‘‘(B) INTERIM APPOINTMENTS.—Any di12 rector elected to fill a vacancy on the board of

13 directors of the Corporation occurring before

14 the expiration of the term for which the prede15 cessor of that director was elected shall be

16 elected only for the remainder of the unexpired

17 term.

18 ‘‘(C) CONTINUATION OF SERVICE.—Each

19 director may continue to serve after the expira20 tion of the term to which that director was

21 elected until a successor has been elected and

22 qualified.

23 ‘‘(5) POWERS.—The board of directors shall ex24 ercise such powers as may be necessary and appro-
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1 priate to carry out this section, including the

2 power—

3 ‘‘(A) to review, adopt, and monitor the an4 nual budget of the Corporation;

5 ‘‘(B) to set policies for the Corporation;

6 ‘‘(C) to impose assessments on the Federal

7 Home Loan Banks to fund the expenditures of

8 the Corporation; and

9 ‘‘(D) to appoint, establish the duties of,

10 and compensate the employees of the Corpora11 tion, and to dismiss at will the employees of the

12 Corporation.

13 ‘‘(6) PAY.—The members of the board of direc14 tors shall serve without additional compensation, but

15 shall be reimbursed for reasonable expenses of trav16 el, lodging, and subsistence incurred in performing

17 the business of the Corporation.

18 ‘‘(7) QUORUM REQUIREMENT.—No business

19 may be conducted by the board of directors unless

20 a quorum of the members of the board of directors

21 is present in person or by telephone, or through ac22 tion taken by unanimous written consent executed

23 by the members of the board of directors.
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1 ‘‘(8) APPOINTMENT OF OFFICERS AND ADOP2 TIONS OF RULES OF PROCEDURE.—The board of di3 rectors shall—

4 ‘‘(A) select, from among the members of

5 the board, a Chairperson and a Vice Chair6 person; and

7 ‘‘(B) adopt bylaws and other rules of pro8 cedure for actions before the board of directors,

9 including the establishment of 1 or more com10 mittees to take action on behalf of the board of

11 directors and the delegation of powers of the

12 board of directors to any such committee or of13 ficer of the Corporation.

14 ‘‘(d) STOCK.—

15 ‘‘(1) ISSUANCE OF EQUAL AMOUNT TO EACH

16 BANK.—The Corporation shall issue to each Bank

17 100 shares of voting capital stock, with a par value

18 of $100 per share.

19 ‘‘(2) RESTRICTED TRANSFERABILITY.—Stock

20 issued under paragraph (1) may be owned and held

21 only by the Federal Home Loan Banks.

22 ‘‘(3) MERGER.—Stock issued under paragraph

23 (1) shall be redeemable or transferable at par in the

24 event of a merger or consolidation pursuant to sec25 tion 26.
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1 ‘‘(4) PAYMENT UPON ISSUANCE.—Upon

2 issuance of any share of stock under this subsection

3 to any Federal Home Loan Bank, the Bank shall

4 pay to the Corporation the total amount due for

5 such stock.

6 ‘‘(5) DISTRIBUTION REQUIREMENT.—The total

7 amount of outstanding stock of the Corporation

8 shall, at all times, be distributed equally among all

9 of the Federal Home Loan Banks, and the board of

10 directors of the Corporation shall adopt procedures

11 from time to time to implement this paragraph.

12 ‘‘(e) STATUS.—Except to the extent that it would

13 conflict with any provision of this section, or that the con14 text of this Act otherwise requires, the Corporation shall

15 be treated as a Federal Home Loan Bank for purposes

16 of any law.

17 ‘‘(f) JURISDICTION; REMOVAL POWER.—

18 ‘‘(1) IN GENERAL.—Notwithstanding any other

19 provision of law, any civil action or proceeding to

20 which the Corporation is a party shall be deemed to

21 arise under the laws of the United States.

22 ‘‘(2) VENUE.—The United States District

23 Court for the District of Columbia shall have exclu24 sive jurisdiction over any action to which the Cor25 poration is a party.
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1 ‘‘(3) REMOVAL.—The Corporation may, without

2 bond or security, remove any action or proceeding to

3 which the Corporation is or becomes a party from a

4 State court to the United States District Court for

5 the District of Columbia.’’.

6 (b) TRANSFER OF FUNCTIONS.—The functions of the

7 Office of Finance of the Federal Home Loan Banks (here8 after in this section referred to as the ‘‘Office of Finance’’)

9 shall be transferred to the Federal Home Loan Bank Fi10 nance Corporation established under section 5 of the Fed11 eral Home Loan Bank Act, as added by this section, (here12 after in this section referred to as the ‘‘Corporation’’) be13 fore the end of the 6-month period beginning on the date

14 of enactment of this Act.

15 (c) SAVINGS PROVISION.—The transfer of functions

16 from the Office of Finance to the Corporation in accord17 ance with this section shall not affect the validity of any

18 right, duty, contract, or obligation of the Office of Finance

19 (with respect to any person or entity) that existed on the

20 day before the effective date of the transfer of functions.

21 (d) TECHNICAL AMENDMENTS.—The Federal Home

22 Loan Bank Act (12 U.S.C. 1421 et seq.) is amended—

23 (1) in section 2B(a)(2), by striking ‘‘or joint of24 fice’’ each place that term appears;

25 (2) in section 2B(b)(1)—
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1 (A) in paragraph (1), by striking ‘‘em2 ployee,’’ and all that follows through ‘‘11(b)’’

3 and inserting ‘‘employee or administrative unit

4 of any Bank of the Federal Home Loan Bank

5 System.’’;

6 (B) by striking paragraph (2); and

7 (C) by striking ‘‘(1) BOARD STAFF.—’’;

8 (3) in section 21(b)(1), by striking subpara9 graph (A) and inserting the following:

10 ‘‘(A) The Chairperson of the Federal

11 Home Loan Bank Finance Corporation estab12 lished under section 5.’’; and

13 (4) in section 21B(c)(1), by striking subpara14 graph (A) and inserting the following:

15 ‘‘(A) The Chairperson of the Federal

16 Home Loan Bank Finance Corporation estab17 lished under section 5.’’.

18 SEC. 9. MANAGEMENT OF BANKS.

19 (a) BOARD OF DIRECTORS.—Section 7 of the Federal

20 Home Loan Bank Act (12 U.S.C. 1427) is amended—

21 (1) in subsection (a)—

22 (A) by striking ‘‘(a) The management’’

23 and inserting the following:

24 ‘‘(a) BOARD OF DIRECTORS.—
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1 ‘‘(1) NUMBER AND CLASSES OF DIRECTORS.—

2 The management’’; and

3 (B) by adding at the end the following:

4 ‘‘(2) APPROVAL OF ALTERNATIVE STRUC5 TURE.—Subject to the approval of the Finance

6 Board, a Federal Home Loan Bank may include as

7 part of its capital structure plan submitted under

8 section 6, or any modification thereto, provisions es9 tablishing a structure for its elective and appointive

10 directors other than as provided for in this section.’’;

11 and

12 (2) in subsection (d)—

13 (A) by striking ‘‘(d) The term’’ and insert14 ing the following:

15 ‘‘(d) TERMS OF OFFICE.—The term’’; and

16 (B) by striking ‘‘shall be two years’’.

17 (b) COMPENSATION.—Section 7(i) of the Federal

18 Home Loan Bank Act (12 U.S.C. 1427(i)) is amended by

19 striking ‘‘, subject to the approval of the board’’.

20 (c) OBLIGATIONS AS LAWFUL INVESTMENTS.—Sec21 tion 15 of the Federal Home Loan Bank Act (12 U.S.C.

22 1435) is amended by striking ‘‘with the approval of the

23 Board’’.
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1 SEC. 10. POWERS AND DUTIES OF BANKS.

2 (a) BONDS AND DEBENTURES.—Section 11(a) of the

3 Federal Home Loan Bank Act (12 U.S.C. 1431(a)) is

4 amended—

5 (1) by inserting ‘‘through the Federal Home

6 Loan Bank Finance Corporation’’ after ‘‘to issue’’;

7 and

8 (2) by striking ‘‘Board may approve’’ and in9 serting ‘‘board of directors of the Bank may ap10 prove’’.

11 (b) ISSUANCE OF CONSOLIDATED OBLIGATIONS.—

12 Section 11(b) of the Federal Home Loan Bank Act (12

13 U.S.C. 1431(b)) is amended to read as follows:

14 ‘‘(b) ISSUANCE OF FEDERAL HOME LOAN BANK

15 CONSOLIDATED OBLIGATIONS.—

16 ‘‘(1) IN GENERAL.—The Federal Home Loan

17 Bank Finance Corporation may issue consolidated

18 Federal Home Loan Bank bonds and other consoli19 dated obligations on behalf of the Banks.

20 ‘‘(2) JOINT AND SEVERAL OBLIGATION; TERMS

21 AND CONDITIONS.—Consolidated obligations issued

22 by the Federal Home Loan Bank Finance Corpora23 tion under paragraph (1) shall—

24 ‘‘(A) be the joint and several obligations of

25 all of the Federal Home Loan Banks; and
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1 ‘‘(B) shall be issued upon such terms and

2 conditions as shall be established by the Federal

3 Home Loan Bank Finance Corporation, subject

4 to such rules and regulations as the Finance

5 Board may prescribe.’’.

6 (c) REDISCOUNTING OF NOTES.—Section 11(f) of the

7 Federal Home Loan Bank Act (12 U.S.C. 1431(f)) is

8 amended by striking ‘‘permit, to require,’’ and inserting

9 ‘‘permit or to require’’.

10 (d) TREASURY PURCHASE OF BANK OBLIGATIONS.—

11 Section 11(i) of the Federal Home Loan Bank Act (12

12 U.S.C. 1431(i)) is amended by striking the second undes13 ignated paragraph.

14 (e) CONFORMING AMENDMENTS.—Section 11 of the

15 Federal Home Loan Bank Act (12 U.S.C. 1431) is

16 amended—

17 (1) by striking subsection (c); and

18 (2) by redesignating subsections (d) through (k)

19 as subsections (c) through (j), respectively.

20 SEC. 11. MERGERS AND CONSOLIDATIONS OF FEDERAL

21 HOME LOAN BANKS.

22 Section 26 of the Federal Home Loan Bank Act (12

23 U.S.C. 1446) is amended to read as follows:

24 ‘‘SEC. 26. MERGERS AND CONSOLIDATIONS.

25 ‘‘(a) IN GENERAL.—
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1 ‘‘(1) FINANCE BOARD AUTHORITY.—Whenever

2 the Finance Board determines it to be necessary to

3 the discharge of its obligations under section

4 2A(a)(3)(A), and in accordance with such rules, reg5 ulations, and orders as the Finance Board may pre6 scribe, the Finance Board may order that a Federal

7 Home Loan Bank be liquidated or reorganized, and

8 its stock paid off and retired in whole or in part in

9 connection therewith, after paying or making provi10 sion for the payment of the liabilities of the Federal

11 Home Loan Bank.

12 ‘‘(2) ACQUISITION BY OTHER BANKS.—In the

13 case of a liquidation or reorganization under para14 graph (1), any other Federal Home Loan Bank may,

15 with the approval of the Finance Board, acquire the

16 assets of any such liquidated or reorganized Bank,

17 and assume the liabilities thereof, in whole or in

18 part.

19 ‘‘(b) VOLUNTARY MERGERS.—Nothing in this section

20 shall preclude voluntary mergers, combinations, or consoli21 dation by or among the Federal Home Loan Banks pursu22 ant to such regulations as the Finance Board may pre23 scribe.

24 ‘‘(c) NUMBERS OF DIRECTORS OF RESULTING

25 BANK.—
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1 ‘‘(1) IN GENERAL.—Notwithstanding section 7,

2 any Bank resulting from a merger, combination, or

3 consolidation pursuant to this section may have,

4 with the approval of the Finance Board, elected and

5 appointed directors in a number that is equal to or

6 less than the total number of the directors of all of

7 the Banks that participated in the transaction (as

8 determined immediately before the transaction).

9 ‘‘(2) FULFILLMENT OF UNEXPIRED TERMS.—

10 Consistent with paragraph (1), a director of any

11 Bank involved in a transaction referred to in para12 graph (1) may continue to serve on the board of di13 rectors of the resulting Bank during the unexpired

14 portion of that director’s current term, if such con15 tinuation of service is provided for under the terms

16 of the merger, combination, or consolidation trans17 action, and whether or not that director remains

18 qualified after the transaction to fill a directorship.

19 ‘‘(d) NUMBER OF APPOINTED DIRECTORS OF RE20 SULTING BANK.—The number of appointed directors on

21 the board of directors of a Bank resulting from a merger,

22 combination, or consolidation pursuant to this section

23 shall not exceed three-fourths the number of elected direc24 tors on the board of directors of that Bank.
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1 ‘‘(e) ADJUSTMENT OF DISTRICT BOUNDARIES.—Not

2 later than 30 days after consummation of any merger,

3 combination, or consolidation of 2 or more Federal Home

4 Loan Banks, the Finance Board shall adjust the districts

5 established under section 3 to reflect such merger, com6 bination, or consolidation.

7 ‘‘(f) SUBSIDIARIES; HOLDING COMPANIES.—

8 ‘‘(1) AUTHORITY TO ESTABLISH.—Any 1 or

9 more Federal Home Loan Banks may establish a

10 subsidiary or holding company, subject to the ap11 proval of the Finance Board.

12 ‘‘(2) LIMITATIONS.—Any subsidiary or holding

13 company established under this subsection—

14 ‘‘(A) shall be subject to supervision by the

15 Finance Board;

16 ‘‘(B) shall be restricted to engaging only in

17 those activities permitted for Federal Home

18 Loan Banks under this Act; and

19 ‘‘(C) may only transact business with

20 members of the Federal Home Loan Banks

21 that established the subsidiary or holding com22 pany.

23 ‘‘(3) PURPOSES.—A Federal Home Loan Bank

24 may use a subsidiary or holding company established
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1 under this subsection to perform administrative and

2 operational functions.’’.

3 SEC. 12. OTHER AMENDMENTS RELATING TO BANK OPER4 ATION AND ADMINISTRATION.

5 (a) REPEAL OF SECTIONS 22A AND 27.—The Fed6 eral Home Loan Bank Act (12 U.S.C. 1421 et seq.) is

7 amended by striking sections 22A (12 U.S.C. 1442a) and

8 27 (12 U.S.C. 1447).

9 (b) SECTION 12.—Section 12 of the Federal Home

10 Loan Bank Act (12 U.S.C. 1432) is amended—

11 (1) in subsection (a)—

12 (A) by striking ‘‘, but, except’’ and all that

13 follows through ‘‘ten years’’;

14 (B) by striking ‘‘, subject to the approval

15 of the Board’’ each place that term appears;

16 (C) by striking ‘‘and, by its Board of direc17 tors,’’ and all that follows through ‘‘agent of

18 such bank,’’ and inserting ‘‘and, by the board

19 of directors of the Bank, to prescribe, amend,

20 and repeal by-laws governing the manner in

21 which its affairs may be administered, consist22 ent with applicable laws and regulations, as ad23 ministered by the Finance Board. No officer,

24 employee, attorney, or agent of a Federal Home

25 Loan Bank’’; and
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1 (D) by striking ‘‘Board of directors’’ each

2 place that term appears and inserting ‘‘board of

3 directors’’; and

4 (2) in subsection (b), by striking ‘‘loans banks’’

5 and inserting ‘‘loan banks’’.

6 (c) POWERS AND DUTIES OF FEDERAL HOUSING FI7 NANCE BOARD.—

8 (1) ISSUANCE OF NOTICES OF VIOLATIONS.—

9 Section 2B(a) of the Federal Home Loan Bank Act

10 (12 U.S.C. 1422b(a)) is amended by adding at the

11 end the following new paragraph:

12 ‘‘(5) To issue and serve a notice of charges

13 upon a Federal Home Loan Bank or upon any exec14 utive officer or director of a Federal Home Loan

15 Bank if, in the determination of the Finance Board,

16 the Bank, executive officer, or director is engaging

17 or has engaged in, or the Finance Board has reason18 able cause to believe that the Bank, executive officer,

19 or director is about to engage in, any conduct that

20 violates any provision of this Act or any law, order,

21 rule, or regulation or any condition imposed in writ22 ing by the Finance Board in connection with the

23 granting of any application or other request by the

24 Bank, or any written agreement entered into by the

25 Bank with the agency, in accordance with the proce-
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1 dures provided in section 1371(c) of the Federal

2 Housing Enterprises Financial Safety and Sound3 ness Act of 1992. Such authority includes the same

4 authority to take affirmative action to correct condi5 tions resulting from violations or practices or to

6 limit activities of a Bank or any executive officer or

7 director of a Bank as appropriate Federal banking

8 agencies have to take with respect to insured deposi9 tory institutions under paragraphs (6) and (7) of

10 section 8(b) of the Federal Deposit Insurance Act,

11 and to have all other powers, rights, and duties to

12 enforce this Act with respect to the Federal Home

13 Loan Banks and their executive officers and direc14 tors as the Office of Federal Housing Enterprise

15 Oversight has to enforce the Federal Housing Enter16 prises Financial Safety and Soundness Act of 1992,

17 the Federal National Mortgage Association Charter

18 Act, or the Federal Home Loan Mortgage Corpora19 tion Act with respect to the Federal housing enter20 prises under the Federal Housing Enterprises Fi21 nancial Safety and Soundness Act of 1992.

22 ‘‘(6) To sue and be sued, by and through its

23 own attorneys.’’.

24 (2) TECHNICAL AMENDMENT.—Section 111 of

25 Public Law 93–495 (12 U.S.C. 250) is amended by
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1 inserting ‘‘Federal Housing Finance Board,’’ after

2 ‘‘Director of the Office of Thrift Supervision,’’.

3 (d) ELIGIBILITY TO SECURE ADVANCES.—

4 (1) SECTION 9.—Section 9 of the Federal

5 Home Loan Bank Act (12 U.S.C. 1429) is

6 amended—

7 (A) in the second sentence, by striking

8 ‘‘with the approval of the Board’’; and

9 (B) in the third sentence, by striking ‘‘,

10 subject to the approval of the Board,’’.

11 (2) SECTION 10.—Section 10 of the Federal

12 Home Loan Bank Act (12 U.S.C. 1430) is

13 amended—

14 (A) in subsection (c)—

15 (i) in the first sentence, by striking

16 ‘‘Board’’ and inserting ‘‘Federal Home

17 Loan Bank’’; and

18 (ii) by striking the second sentence;

19 (B) in subsection (d)—

20 (i) in the first sentence, by striking

21 ‘‘and the approval of the Board’’; and

22 (ii) by striking ‘‘Subject to the ap23 proval of the Board, any’’ and inserting

24 ‘‘Any’’; and

25 (C) in subsection (j)—
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1 (i) in paragraph (1)—

2 (I) by striking ‘‘to subsidize the

3 interest rate on advances’’ and insert4 ing ‘‘to provide subsidies, including

5 subsidized interest rates on ad6 vances’’;

7 (II) by striking ‘‘Pursuant’’ and

8 inserting the following:

9 ‘‘(A) ESTABLISHMENT.—Pursuant’’; and

10 (III) by adding at the end the

11 following new subparagraph:

12 ‘‘(B) NONDELEGATION OF APPROVAL AU13 THORITY.—Subject to such regulations as the

14 Finance Board may prescribe, the board of di15 rectors of each Federal Home Loan Bank may

16 approve or disapprove requests from members

17 for Affordable Housing Program subsidies, and

18 may not delegate such authority.’’;

19 (ii) in each of paragraphs (3), (4),

20 (9)(B), (9)(C), (11), and (12), by striking

21 ‘‘advances’’ each place that term appears

22 and inserting ‘‘subsidies’’;

23 (iii) in each of paragraphs (2), (5),

24 (9)(A), and (9)(F), by striking ‘‘subsidized

25 advances’’ each place that term appears
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1 and inserting ‘‘subsidies, including sub2 sidized advances,’’;

3 (iv) in paragraph (9)(F), by striking

4 ‘‘such advances’’ and inserting ‘‘such sub5 sidies’’;

6 (v) in the paragraph heading for para7 graph (3), by striking ‘‘ADVANCES’’ and in8 serting ‘‘SUBSIDIES’’;

9 (vi) in paragraph (2), by striking sub10 paragraph (B) and inserting the following:

11 ‘‘(B) finance the purchase, construction, or

12 rehabilitation of rental housing if, for a period

13 of not less than 15 years, either—

14 ‘‘(i) 20 percent or more of the units

15 in such housing are occupied by and af16 fordable for households whose income is 50

17 percent or less of area median income; or

18 ‘‘(ii) 40 percent or more of the units

19 in such housing are occupied by and af20 fordable for households whose income is 60

21 percent or less of area median income.’’;

22 (vii) by striking paragraph (5) and in23 serting the following:

24 ‘‘(5) CONTRIBUTION TO PROGRAM.—Each Fed25 eral Home Loan Bank shall annually contribute 10
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1 percent of the net income of that Bank during the

2 preceding year, or such prorated sums as may be re3 quired to assure that the aggregate contribution of

4 the Banks shall not be less than $100,000,000 for

5 each such year, to support subsidies, including sub6 sidized advances, through the Affordable Housing

7 Program.’’;

8 (viii) in paragraph (11)—

9 (I) by inserting ‘‘agencies and’’

10 after ‘‘15 persons drawn from’’; and

11 (I) by inserting after the first

12 sentence, the following: ‘‘Representa13 tives of no one group shall constitute

14 an undue proportion of the member15 ship of the Advisory Council.’’; and

16 (ix) in paragraph (13)—

17 (I) by striking ‘‘subsection—’’

18 and inserting ‘‘subsection, the follow19 ing definitions shall apply:’’; and

20 (II) by striking subparagraph

21 (D) and inserting the following:

22 ‘‘(D) AFFORDABLE.—For purposes of

23 paragraph (2)(B), the term ‘affordable’ means

24 that the rent with respect to a unit does not ex25 ceed 30 percent of the income limitation under
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1 paragraph (2)(B) applicable to occupants of

2 such unit.’’.

3 (e) SECTION 16.—Section 16(a) of the Federal Home

4 Loan Bank Act (12 U.S.C. 1436(a)) is amended—

5 (1) in the third sentence—

6 (A) by striking ‘‘net earnings’’ and insert7 ing ‘‘previously retained earnings or current net

8 earnings’’; and

9 (B) by striking ‘‘, and then only with the

10 approval of the Federal Housing Finance

11 Board’’; and

12 (2) by striking the fourth sentence.

13 (f) SECTION 18.—Section 18(b) of the Federal Home

14 Loan Bank Act (12 U.S.C. 1438(b)) is amended by strik15 ing paragraph (4).

16 SEC. 13. RESOLUTION FUNDING CORPORATION.

17 (a) IN GENERAL.—Section 21B(f)(2)(C) of the Fed18 eral Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is

19 amended to read as follows:

20 ‘‘(C) PAYMENTS BY FEDERAL HOME LOAN

21 BANKS.—

22 ‘‘(i) IN GENERAL.—To the extent that

23 the amounts available pursuant to sub24 paragraphs (A) and (B) are insufficient to

25 cover the amount of interest payments,
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•HR 822 IH

1 each Federal Home Loan Bank shall pay

2 to the Funding Corporation in each cal3 endar year, 20.75 percent of the net earn4 ings of that Bank (after deducting ex5 penses relating to section 10(j) and operat6 ing expenses).

7 ‘‘(ii) ANNUAL DETERMINATION.—The

8 Board annually shall determine the extent

9 to which the value of the aggregate

10 amounts paid by the Federal Home Loan

11 Banks exceeds or falls short of the value of

12 an annuity of $300,000,000 per year that

13 commences on the issuance date and ends

14 on the final scheduled maturity date of the

15 obligations, and shall select appropriate

16 present value factors for making such de17 terminations.

18 ‘‘(iii) PAYMENT TERM ALTER19 ATIONS.—The Board shall extend or short20 en the term of the payment obligations of

21 a Federal Home Loan Bank under this

22 subparagraph as necessary to ensure that

23 the value of all payments made by the

24 Banks is equivalent to the value of an an25 nuity referred to in clause (ii).
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1 ‘‘(iv) TERM BEYOND MATURITY.—If

2 the Board extends the term of payments

3 beyond the final scheduled maturity date

4 for the obligations, each Federal Home

5 Loan Bank shall continue to pay 20.75

6 percent of its net earnings (after deducting

7 expenses relating to section 10(j) and oper8 ating expenses) to the Treasury of the

9 United States until the value of all such

10 payments by the Federal Home Loan

11 Banks is equivalent to the value of an an12 nuity referred to in clause (ii). In the final

13 year in which the Federal Home Loan

14 Banks are required to make any payment

15 to the Treasury under this subparagraph,

16 if the dollar amount represented by 20.75

17 percent of the net earnings of the Federal

18 Home Loan Banks exceeds the remaining

19 obligation of the Banks to the Treasury,

20 the Finance Board shall reduce the per21 centage pro rata to a level sufficient to pay

22 the remaining obligation.’’.

23 (b) EFFECTIVE DATE.—The amendment made by

24 subsection (a) shall become effective on January 1, 2000.

25 Payments made by a Federal Home Loan Bank before
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1 that effective date shall be counted toward the total obliga2 tion of that Bank under section 21B(f)(2)(C) of the Fed3 eral Home Loan Bank Act, as amended by this section.

4 SEC. 14. CAPITAL STRUCTURE OF FEDERAL HOME LOAN

5 BANKS.

6 Section 6 of the Federal Home Loan Bank Act (12

7 U.S.C. 1426) is amended to read as follows:

8 ‘‘SEC. 6. CAPITAL STRUCTURE OF FEDERAL HOME LOAN

9 BANKS.

10 ‘‘(a) REGULATIONS.—

11 ‘‘(1) CAPITAL STANDARDS.—Not later than 1

12 year after the date of enactment of the Federal

13 Home Loan Bank System Modernization Act of

14 1999, the Finance Board shall issue regulations pre15 scribing uniform capital standards applicable to each

16 Federal Home Loan Bank, which shall require each

17 such Bank to meet—

18 ‘‘(A) the leverage limitation requirement

19 specified in paragraph (2); and

20 ‘‘(B) the risk-based capital requirements,

21 in accordance with paragraph (3).

22 ‘‘(2) MINIMUM LEVERAGE LIMITATION RE23 QUIREMENT.—Each Federal Home Loan Bank shall

24 maintain total capital in an amount equal to not less

25 than 2.5 percent of the total assets of that Bank.
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1 ‘‘(3) RISK-BASED CAPITAL STANDARDS.—

2 ‘‘(A) IN GENERAL.—Each Federal Home

3 Loan Bank shall maintain permanent capital in

4 an amount that is sufficient, as determined in

5 accordance with the regulations of the Finance

6 Board, to meet—

7 ‘‘(i) the credit risk to which the Fed8 eral Home Loan Bank is subject; and

9 ‘‘(ii) the market risk, including inter10 est rate risk, to which the Federal Home

11 Loan Bank is subject, based on a stress

12 test established by the Finance Board that

13 rigorously tests for changes in market vari14 ables, including changes in interest rates,

15 rate volatility, and changes in the shape of

16 the yield curve.

17 ‘‘(B) TREATMENT OF CERTAIN OBLIGA18 TIONS.—For purposes of subparagraph (A), ob19 ligations issued or guaranteed by the United

20 States, obligations issued by any agency or in21 strumentality of the United States and for

22 which the timely repayment of principal and in23 terest is explicitly guaranteed by the full faith

24 and credit of the United States, and advances

25 made pursuant to section 10 or 10b that are se-
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1 cured by eligible collateral having a market

2 value (in accordance with the regulations adopt3 ed by the Finance Board) in excess of the bal4 ance due on such advances shall be deemed to

5 present no credit risk.

6 ‘‘(C) CONSIDERATION OF OTHER RISK7 BASED STANDARDS.—In establishing the risk8 based standard under subparagraph (A)(ii), the

9 Finance Board shall take due consideration of

10 any risk-based capital test established pursuant

11 to section 1361 of the Federal Housing Enter12 prises Financial Safety and Soundness Act of

13 1992 (12 U.S.C. 4611) for the enterprises (as

14 defined in that Act), with such modifications as

15 the Finance Board determines to be appro16 priate to reflect differences in operations be17 tween the Federal Home Loan Banks and those

18 enterprises.

19 ‘‘(4) OTHER REGULATORY REQUIREMENTS.—

20 The regulations issued by the Finance Board under

21 paragraph (1) shall—

22 ‘‘(A) permit each Federal Home Loan

23 Bank to issue, with such rights, terms, and

24 preferences, not inconsistent with this Act and

25 the regulations issued hereunder, as the board
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1 of directors of that Bank may approve, any 1

2 or more of—

3 ‘‘(i) Class A stock, which shall be re4 deemable in cash and at par 6 months fol5 lowing submission by a member of a writ6 ten notice of its intent to redeem such

7 shares;

8 ‘‘(ii) Class B stock, which shall be re9 deemable in cash and at par 5 years fol10 lowing submission by a member of a writ11 ten notice of its intent to redeem such

12 shares;

13 ‘‘(iii) Class C stock, which shall be

14 nonredeemable; and

15 ‘‘(iv) any other class of stock author16 ized by the board of directors of the Fed17 eral Home Loan Bank and approved by

18 the Finance Board, through such proce19 dures as the Finance Board may prescribe,

20 which, if nonredeemable, may be des21 ignated as permanent capital;

22 ‘‘(B) provide that the stock of a Federal

23 Home Loan Bank may be issued to and held by

24 only members of the Bank, and that a Bank
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1 may not issue any stock other than as provided

2 in this section;

3 ‘‘(C) prescribe the manner in which stock

4 of a Federal Home Loan Bank may be sold,

5 transferred, redeemed, or repurchased; and

6 ‘‘(D) provide the manner of disposition of

7 outstanding stock held by, and the liquidation

8 of any claims of the Federal Home Loan Bank

9 against, an institution that ceases to be a mem10 ber of the Bank, through merger or otherwise,

11 or that provides notice of intention to withdraw

12 from membership in the Bank.

13 ‘‘(5) DEFINITIONS OF CAPITAL.—For purposes

14 of determining compliance with the capital standards

15 established under this subsection—

16 ‘‘(A) permanent capital of a Federal Home

17 Loan Bank shall include (as determined in ac18 cordance with generally accepted accounting

19 principles)—

20 ‘‘(i) the amounts paid for the Class C

21 stock and any other nonredeemable stock

22 approved by the Finance Board;

23 ‘‘(ii) the amounts paid for the Class B

24 stock, in an amount not to exceed 1 per25 cent of the total assets of the Bank; and
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1 ‘‘(iii) the retained earnings of the

2 Bank; and

3 ‘‘(B) total capital of a Federal Home Loan

4 Bank shall include—

5 ‘‘(i) permanent capital;

6 ‘‘(ii) the amounts paid for the Class A

7 stock, Class B stock (excluding any

8 amount treated as permanent capital

9 under subparagraph (5)(A)(ii)), or any

10 other class of redeemable stock approved

11 by the Finance Board;

12 ‘‘(iii) consistent with generally accept13 ed accounting principles, and subject to the

14 regulation of the Finance Board, a general

15 allowance for losses, which may not include

16 any reserves or allowances made or held

17 against specific assets; and

18 ‘‘(iv) any other amounts from sources

19 available to absorb losses incurred by the

20 Bank that the Finance Board determines

21 by regulation to be appropriate to include

22 in determining total capital.

23 ‘‘(6) TRANSITION PERIOD.—Notwithstand24 ing any other provisions of this Act, the re25 quirements relating to purchase and retention
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1 of capital stock of a Federal Home Loan Bank

2 by any member thereof in effect on the day be3 fore the date of enactment of the Federal Home

4 Loan Bank System Modernization Act of 1999,

5 shall continue in effect with respect to each

6 Federal Home Loan Bank until the regulations

7 required by this subsection have taken effect

8 and the capital structure plan required by sub9 section (b) has been approved by the Finance

10 Board and implemented by such Bank.

11 ‘‘(b) CAPITAL STRUCTURE PLAN.—

12 ‘‘(1) APPROVAL OF PLANS.—Not later than 270

13 days after the date of publication by the Finance

14 Board of final regulations in accordance with sub15 section (a), the board of directors of each Federal

16 Home Loan Bank shall submit for Finance Board

17 approval a plan establishing and implementing a

18 capital structure for such Bank that—

19 ‘‘(A) the board of directors determines is

20 best suited for the condition and operation of

21 the Bank and the interests of the members of

22 the Bank;

23 ‘‘(B) meets the requirements of subsection

24 (c); and
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1 ‘‘(C) meets the minimum capital standards

2 and requirements established under subsection

3 (a) and other regulations prescribed by the Fi4 nance Board.

5 ‘‘(2) APPROVAL OF MODIFICATIONS.—The

6 board of directors of a Federal Home Loan Bank

7 shall submit to the Finance Board for approval any

8 modifications that the Bank proposes to make to an

9 approved capital structure plan.

10 ‘‘(c) CONTENTS OF PLAN.—The capital structure

11 plan of each Federal Home Loan Bank shall contain pro12 visions addressing each of the following:

13 ‘‘(1) MINIMUM INVESTMENT.—

14 ‘‘(A) IN GENERAL.—Each capital structure

15 plan of a Federal Home Loan Bank shall re16 quire each member of the Bank to maintain a

17 minimum investment in the stock of the Bank,

18 the amount of which shall be determined in a

19 manner to be prescribed by the board of direc20 tors of each Bank and to be included as part

21 of the plan.

22 ‘‘(B) INVESTMENT ALTERNATIVES.—

23 ‘‘(i) IN GENERAL.—In establishing the

24 minimum investment required for each

25 member under subparagraph (A), a Fed-
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1 eral Home Loan Bank may, in its discre2 tion, include any 1 or more of the require3 ments referred to in clause (ii), or any

4 other provisions approved by the Finance

5 Board.

6 ‘‘(ii) AUTHORIZED REQUIREMENTS.—

7 A requirement is referred to in this clause

8 if it is a requirement for—

9 ‘‘(I) a stock purchase based on a

10 percentage of the total assets of a

11 member (not to exceed the lesser of

12 0.3 percent of the total assets of the

13 member or $300,000,000); or

14 ‘‘(II) a stock purchase based on a

15 percentage of the outstanding ad16 vances from the Bank to the member

17 (not to exceed 5 percent of the total

18 outstanding advances of the member).

19 ‘‘(C) MINIMUM AMOUNT.—Each capital

20 structure plan of a Federal Home Loan Bank

21 shall require that the minimum stock invest22 ment established for members shall be set at a

23 level that is sufficient for the Bank to meet the

24 minimum capital requirements established by

25 the Finance Board under subsection (a).
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1 ‘‘(D) ADJUSTMENTS TO MINIMUM RE2 QUIRED INVESTMENT.—The capital structure

3 plan of each Federal Home Loan Bank shall

4 impose a continuing obligation on the board of

5 directors of the Bank to review and adjust the

6 minimum investment required of each member

7 of that Bank, as necessary to ensure that the

8 Bank remains in compliance with applicable

9 minimum capital levels established by the Fi10 nance Board, and shall require each member to

11 comply promptly with any adjustments to the

12 required minimum investment.

13 ‘‘(2) TRANSITION RULE.—

14 ‘‘(A) IN GENERAL.—The capital structure

15 plan of each Federal Home Loan Bank shall

16 specify the date on which it shall take effect,

17 and may provide for a transition period of not

18 longer than 3 years to allow the Bank to come

19 into compliance with the capital requirements

20 prescribed under subsection (a), and to allow

21 any institution that was a member of the Bank

22 on the date of enactment of the Federal Home

23 Loan Bank System Modernization Act of 1999,

24 to come into compliance with the minimum in25 vestment required pursuant to the plan.
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1 ‘‘(B) INTERIM PURCHASE REQUIRE2 MENTS.—The capital structure plan of a Fed3 eral Home Loan Bank may allow any member

4 referred to in subparagraph (A) that would be

5 required by the terms of the capital structure

6 plan to increase its investment in the stock of

7 the Bank to do so in periodic installments dur8 ing the transition period.

9 ‘‘(3) DISPOSITION OF SHARES.—The capital

10 structure plan of a Federal Home Loan Bank shall

11 provide for the manner of disposition of any stock

12 held by a member of that Bank that terminates its

13 membership or that provides notice of its intention

14 to withdraw from membership in that Bank.

15 ‘‘(4) CLASSES OF STOCK.—

16 ‘‘(A) IN GENERAL.—The capital structure

17 plan of a Federal Home Loan Bank shall afford

18 each member of that Bank the option of main19 taining its required investment in the Bank

20 through the purchase of any combination of

21 classes of stock authorized by the board of di22 rectors of the Bank and approved by the Fi23 nance Board in accordance with its regulations.

24 ‘‘(B) RIGHTS REQUIREMENT.—A Federal

25 Home Loan Bank shall include in its capital
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1 structure plan provisions establishing terms,

2 rights, and preferences, including minimum in3 vestment, dividends, voting, and liquidation

4 preferences of each class of stock issued by the

5 Bank, consistent with Finance Board regula6 tions and market requirements.

7 ‘‘(C) REDUCED MINIMUM INVESTMENT.—

8 The capital structure plan of a Federal Home

9 Loan Bank may provide for a reduced mini10 mum stock investment for any member of that

11 Bank that elects to purchase Class B, Class C,

12 or any other class of nonredeemable stock, in a

13 manner that is consistent with meeting the min14 imum capital requirements of the Bank, as es15 tablished by the Finance Board.

16 ‘‘(D) LIQUIDATION OF CLAIMS.—The cap17 ital structure plan of a Federal Home Loan

18 Bank shall provide for the liquidation in an or19 derly manner, as determined by the Bank, of

20 any claim of that Bank against a member, in21 cluding claims for any applicable prepayment

22 fees or penalties resulting from prepayment of

23 advances prior to stated maturity.
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1 ‘‘(5) LIMITED TRANSFERABILITY OF STOCK.—

2 The capital structure plan of a Federal Home Loan

3 Bank shall—

4 ‘‘(A) provide that—

5 ‘‘(i) any stock issued by that Bank

6 shall be available only to, held only by, and

7 tradable only among members of that

8 Bank and between that Bank and its mem9 bers; and

10 ‘‘(ii) a Bank has no obligation to re11 purchase its outstanding Class C stock but

12 may do so, provided it is consistent with

13 Finance Board regulations and is at a

14 price that is mutually agreeable to the

15 Bank and the member; and

16 ‘‘(B) establish standards, criteria, and re17 quirements for the issuance, purchase, transfer,

18 retirement, and redemption of stock issued by

19 that Bank.

20 ‘‘(6) BANK REVIEW OF PLAN.—Before filing a

21 capital structure plan with the Finance Board, each

22 Federal Home Loan Bank shall conduct a review of

23 the plan by—

24 ‘‘(A) an independent certified public ac25 countant, to ensure, to the extent possible, that
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1 implementation of the plan would not result in

2 any write-down of the redeemable Bank stock

3 investment of its members; and

4 ‘‘(B) at least 1 major credit rating agency,

5 to determine, to the extent possible, whether

6 implementation of the plan would have any ma7 terial effect on the credit ratings of the Bank.

8 ‘‘(d) TERMINATION OF MEMBERSHIP.—

9 ‘‘(1) VOLUNTARY WITHDRAWAL.—Any member

10 may withdraw from a Federal Home Loan Bank by

11 providing written notice to the Bank of its intent to

12 do so. The applicable stock redemption notice peri13 ods shall commence upon receipt of the notice by the

14 Bank. Upon the expiration of the applicable notice

15 period for each class of redeemable stock, the mem16 ber may surrender such stock to the Bank, and shall

17 be entitled to receive in cash the par value of the

18 stock. During the applicable notice periods, the

19 member shall be entitled to dividends and other

20 membership rights commensurate with continuing

21 stock ownership.

22 ‘‘(2) INVOLUNTARY WITHDRAWAL.—

23 ‘‘(A) IN GENERAL.—The board of directors

24 of a Federal Home Loan Bank may terminate

25 the membership of any institution if, subject to
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1 Finance Board regulations, it determines

2 that—

3 ‘‘(i) the member has failed to comply

4 with a provision of this Act or any regula5 tion prescribed under this Act; or

6 ‘‘(ii) the member has been determined

7 to be insolvent, or otherwise subject to the

8 appointment of a conservator, receiver, or

9 other legal custodian, by a State or Fed10 eral authority with regulatory and super11 visory responsibility for the member.

12 ‘‘(B) STOCK DISPOSITION.—An institution,

13 the membership of which is terminated in ac14 cordance with subparagraph (A)—

15 ‘‘(i) shall surrender redeemable stock

16 to the Federal Home Loan Bank, and shall

17 receive in cash the par value of the stock,

18 upon the expiration of the applicable notice

19 period under subsection (a)(4)(A);

20 ‘‘(ii) shall receive any dividends de21 clared on its redeemable stock, during the

22 applicable notice period under subsection

23 (a)(4)(A); and
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1 ‘‘(iii) shall not be entitled to any other

2 rights or privileges accorded to members

3 after the date of the termination.

4 ‘‘(C) COMMENCEMENT OF NOTICE PE5 RIOD.—With respect to an institution, the

6 membership of which is terminated in accord7 ance with subparagraph (A), the applicable no8 tice period under subsection (a)(4) for each

9 class of redeemable stock shall commence on

10 the earlier of—

11 ‘‘(i) the date of such termination; or

12 ‘‘(ii) the date on which the member

13 has provided notice of its intent to redeem

14 such stock.

15 ‘‘(3) LIQUIDATION OF INDEBTEDNESS.—Upon

16 the termination of the membership of an institution

17 for any reason, the outstanding indebtedness of the

18 member to the Bank shall be liquidated in an or19 derly manner, as determined by the Bank and, upon

20 the extinguishment of all such indebtedness, the

21 Bank shall return to the member all collateral

22 pledged to secure the indebtedness.

23 ‘‘(e) REDEMPTION OF EXCESS STOCK.—

24 ‘‘(1) IN GENERAL.—A Federal Home Loan

25 Bank, in its sole discretion, may redeem or repur-
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1 chase, as appropriate, any shares of Class A or

2 Class B stock issued by the Bank and held by a

3 member that are in excess of the minimum stock in4 vestment required of that member.

5 ‘‘(2) EXCESS STOCK.—Shares of stock held by

6 a member shall not be deemed to be ‘excess stock’

7 for purposes of this subsection by virtue of a mem8 ber’s submission of a notice of intent to withdraw

9 from membership or termination of its membership

10 in any other manner.

11 ‘‘(3) PRIORITY.—A Federal Home Loan Bank

12 may not redeem any excess Class B stock prior to

13 the end of the 5-year notice period, unless the mem14 ber has no Class A stock outstanding that could be

15 redeemed as excess.

16 ‘‘(f) IMPAIRMENT OF CAPITAL.—If the Finance

17 Board or the board of directors of a Federal Home Loan

18 Bank determines that the Bank has incurred or is likely

19 to incur losses that result in or are expected to result in

20 charges against the capital of the Bank, the Bank shall

21 not redeem or repurchase any stock of the Bank without

22 the prior approval of the Finance Board while such

23 charges are continuing or are expected to continue. In no

24 case may a Bank redeem or repurchase any applicable
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1 capital stock if, following the redemption, the Bank would

2 fail to satisfy any minimum capital requirement.

3 ‘‘(g) REJOINING AFTER DIVESTITURE OF ALL

4 SHARES.—

5 ‘‘(1) IN GENERAL.—Except as provided in para6 graph (2), and notwithstanding any other provision

7 of this Act, an institution that divests all shares of

8 stock in a Federal Home Loan Bank may not, after

9 such divestiture, acquire shares of any Federal

10 Home Loan Bank before the end of the 5-year pe11 riod beginning on the date of the completion of such

12 divestiture, unless the divestiture is a consequence of

13 a transfer of membership on an uninterrupted basis

14 between Banks.

15 ‘‘(2) EXCEPTION FOR WITHDRAWALS FROM

16 MEMBERSHIP BEFORE 1998.—Any institution that

17 withdrew from membership in any Federal Home

18 Loan Bank before December 31, 1997, may acquire

19 shares of a Federal Home Loan Bank at any time

20 after that date, subject to the approval of the Fi21 nance Board and the requirements of this Act.

22 ‘‘(h) TREATMENT OF RETAINED EARNINGS.—

23 ‘‘(1) IN GENERAL.—The holders of the Class C

24 stock of a Federal Home Loan Bank, and any other

25 classes of nonredeemable stock approved by the Fi-
52

•HR 822 IH

1 nance Board (to the extent provided in the terms

2 thereof), shall own the retained earnings, surplus,

3 undivided profits, and equity reserves, if any, of the

4 Bank.

5 ‘‘(2) NO NONREDEEMABLE CLASSES OF

6 STOCK.—If a Federal Home Loan Bank has no out7 standing Class C or other such nonredeemable stock,

8 then the holders of any other classes of stock of the

9 Bank then outstanding shall have ownership in, and

10 a private property right in, the retained earnings,

11 surplus, undivided profits, and equity reserves, if

12 any, of the Bank.

13 ‘‘(3) EXCEPTION.—Except as specifically pro14 vided in this section or through the declaration of a

15 dividend or a capital distribution by a Federal Home

16 Loan Bank, or in the event of liquidation of the

17 Bank, a member shall have no right to withdraw or

18 otherwise receive distribution of any portion of the

19 retained earnings of the Bank.

20 ‘‘(4) LIMITATION.—A Federal Home Loan

21 Bank may not make any distribution of its retained

22 earnings unless, following such distribution, the

23 Bank would continue to meet all applicable capital

24 requirements.’’.

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