II

106TH CONGRESS

1ST SESSION S. 458

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

other purposes.

IN THE SENATE OF THE UNITED STATES

FEBRUARY 24, 1999

Mr. HAGEL (for himself, Mr. BAYH, Mr. LOTT, Mr. BENNETT, Mr. GRAMS,

Mr. KERREY, Mr. JOHNSON, Mr. DEWINE, Mr. CONRAD, Mr. INHOFE,

Mr. MURKOWSKI, Mr. BROWNBACK, Mr. BRYAN, Mr. ROBERTS, and Mr.

BURNS) introduced the following bill; which was read twice and referred

to the Committee on Banking, Housing, and Urban Affairs

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.
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Sec. 3. Federal Home Loan Banks.

Sec. 4. Savings association membership.

Sec. 5. Advances to members; collateral.

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—
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1 ‘‘(i) the deposits of which are insured

2 under the Federal Deposit Insurance Act;

3 and

4 ‘‘(ii) that has, as of the date of the

5 transaction at issue, less than

6 $500,000,000 in average total assets,

7 based on an average of total assets over

8 the 3 years preceding that date.

9 ‘‘(B) ADJUSTMENTS.—The $500,000,000

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

11 be adjusted annually by the Finance Board,

12 based on the annual percentage increase, if any,

13 in the Consumer Price Index for all urban con14 sumers, as published by the Department of

15 Labor.’’.

16 SEC. 3. FEDERAL HOME LOAN BANKS.

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

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

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

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

21 than 1’’.

22 SEC. 4. SAVINGS ASSOCIATION MEMBERSHIP.

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

24 U.S.C. 1464(f)) is amended to read as follows:
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1 ‘‘(f) FEDERAL HOME LOAN BANK MEMBERSHIP.—

2 On and after January 1, 2000, a Federal savings associa3 tion may become a member of the Federal Home Loan

4 Bank System, and shall qualify for such membership in

5 the manner provided by the Federal Home Loan Bank

6 Act.’’.

7 SEC. 5. ADVANCES TO MEMBERS; COLLATERAL.

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

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

10 (1) by redesignating paragraphs (1) through

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

12 and indenting appropriately;

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

14 following:

15 ‘‘(a) IN GENERAL.—

16 ‘‘(1) ALL ADVANCES.—Each’’;

17 (3) by striking the second sentence and insert18 ing the following:

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

20 advance may only be made for the purposes of—

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

22 residential housing finance; and

23 ‘‘(B) providing funds to any community fi24 nancial institution for small businesses, agricul-
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1 tural, rural development, or low-income commu2 nity development lending.’’;

3 (4) by striking ‘‘A Bank’’ and inserting the fol4 lowing:

5 ‘‘(3) COLLATERAL.—A Bank’’;

6 (5) in paragraph (3) (as so designated by para7 graph (4) of this subsection)—

8 (A) in subparagraph (C) (as so redesig9 nated by paragraph (1) of this subsection) by

10 striking ‘‘Deposits’’ and inserting ‘‘Cash or de11 posits’’;

12 (B) in subparagraph (D) (as so redesig13 nated by paragraph (1) of this subsection), by

14 striking the second sentence; and

15 (C) by inserting after subparagraph (D)

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

17 subsection) the following new subparagraph:

18 ‘‘(E) Secured loans for small business, ag19 riculture, rural development, or low-income

20 community development, or securities represent21 ing a whole interest in such secured loans, in

22 the case of any community financial institu23 tion.’’;

24 (6) in paragraph (5)—
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1 (A) in the second sentence, by striking

2 ‘‘and the Board’’;

3 (B) in the third sentence, by striking

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

5 Bank’’; and

6 (C) by striking ‘‘(5) Paragraphs (1)

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

8 ‘‘(4) ADDITIONAL BANK AUTHORITY.—Subpara9 graphs (A) through (E) of paragraph (3)’’; and

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

11 ‘‘(5) REVIEW OF CERTAIN COLLATERAL STAND12 ARDS.—The Board may review the collateral stand13 ards applicable to each Federal Home Loan Bank

14 for the classes of collateral described in paragraph

15 (3)(E), and may, if necessary for safety and sound16 ness purposes, require an increase in the collateral

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

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

19 subsection—

20 ‘‘(A) the terms ‘small business’, ‘agri21 culture’, ‘rural development’, and ‘low-income

22 community development’ shall have the mean23 ings given those terms by rule or regulation of

24 the Finance Board; and
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1 ‘‘(B) the term ‘loans for small business’

2 may include a loan guaranteed by the Small

3 Business Administration under section 7(a) of

4 the Small Business Act.’’.

5 (b) CLERICAL AMENDMENT.—The section heading

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

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

8 ‘‘SEC. 10. ADVANCES TO MEMBERS.’’.

9 SEC. 6. ELIGIBILITY CRITERIA.

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

11 (12 U.S.C. 1424(a)) is amended—

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

13 than a community financial institution)’’ after ‘‘in14 stitution’’; and

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

16 paragraph:

17 ‘‘(3) LIMITED EXEMPTION FOR COMMUNITY FI18 NANCIAL INSTITUTIONS.—A community financial in19 stitution that otherwise meets the requirements of

20 paragraph (2) may become a member without regard

21 to the percentage of its total assets that is rep22 resented by residential mortgage loans, as described

23 in subparagraph (A) of paragraph (2).’’.
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1 SEC. 7. QUALIFIED THRIFT LENDER STATUS.

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

3 10(e) of the Federal Home Loan Bank Act (12 U.S.C.

4 1430(e)), as added by section 105 of Public Law 100–

5 86 and subsequently amended (relating to qualified thrift

6 lender status) is amended—

7 (1) by striking paragraphs (1) and (3);

8 (2) in paragraph (2), by striking the first sen9 tence;

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

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

12 ‘‘Paragraph (1) does not’’;

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

14 (C); and

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

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

17 (b) HOME OWNERS’ LOAN ACT.—Section

18 10(m)(3)(B) of the Home Owners’ Loan Act (12 U.S.C.

19 1467a(m)(3)(B)) is amended—

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

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

22 and

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

24 ‘‘(ii) ADDITIONAL RESTRICTIONS EF25 FECTIVE AFTER THREE YEARS.—Begin26 ning 3 years after the date on which a sav-
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1 ings association should have become or

2 ceases to be a qualified thrift lender, the

3 savings association shall not retain any in4 vestment (including an investment in any

5 subsidiary) or engage, directly or indi6 rectly, in any activity unless that invest7 ment or activity would be permissible for

8 the savings association if it were a national

9 bank, and is also permissible for the sav10 ings association as a savings association.’’.

11 SEC. 8. FEDERAL HOME LOAN BANK FINANCE CORPORA12 TION.

13 (a) ESTABLISHMENT OF FINANCE CORPORATION.—

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

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

16 new section:

17 ‘‘SEC. 5. THE FEDERAL HOME LOAN BANK FINANCE COR18 PORATION.

19 ‘‘(a) ESTABLISHMENT.—

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

21 Federal Home Loan Bank Finance Corporation

22 (hereafter in this section referred to as the ‘Corpora23 tion’), which shall be a federally chartered instru24 mentality of the United States.
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1 ‘‘(2) PURPOSES.—The purposes of the Corpora2 tion shall be—

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

4 debentures, and other debt obligations of the

5 Federal Home Loan Banks in accordance with

6 this Act; and

7 ‘‘(B) to perform or cause to be performed

8 all other necessary and proper functions in rela9 tion to the issuance and servicing of obligations

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

11 on behalf of the Federal Home Loan Banks,

12 and any functions performed by the Office of

13 Finance on behalf of the Financing Corporation

14 (established pursuant to section 21) and the

15 Resolution Funding Corporation (established

16 pursuant to section 21B) before the date of en17 actment of the Federal Home Loan Bank Sys18 tem Modernization Act of 1999.

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

20 this Act and to such regulations as the Board may pre21 scribe, the Corporation shall have the power—

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

23 Home Loan Banks;

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

25 Bank notes, bonds, debentures, and other obligations
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1 pursuant to section 11 on behalf of the Federal

2 Home Loan Banks;

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

4 of interest, terms, and other conditions of Federal

5 Home Loan Bank notes, bonds, debentures, and

6 other obligations;

7 ‘‘(4) to adopt, alter, and use a corporate seal;

8 ‘‘(5) to make contracts;

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

10 own attorneys, in the corporate capacity of the Cor11 poration, and to complain and defend in any action

12 brought by or against the Corporation in any court

13 of competent jurisdiction;

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

15 under which the Corporation shall indemnify its di16 rectors, officers, employees, and agents; and

17 ‘‘(8) to exercise such incidental powers not in18 consistent with the provisions of this Act as are nec19 essary or advisable to carry out this Act.

20 ‘‘(c) BOARD OF DIRECTORS.—

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

22 the Corporation shall be vested in a board of direc23 tors composed of directors elected by the Federal

24 Home Loan Banks in accordance with paragraph

25 (2).
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1 ‘‘(2) COMPOSITION OF BOARD.—Each Bank

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

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

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

5 Corporation.

6 ‘‘(3) DUTIES.—The board of directors shall ad7 minister the affairs of the Corporation in accordance

8 with this Act.

9 ‘‘(4) TERMS.—

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

11 board of directors of the Corporation shall be

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

13 the pleasure of the board of directors of the

14 Federal Home Loan Bank that elected that

15 member.

16 ‘‘(B) INTERIM APPOINTMENTS.—Any di17 rector elected to fill a vacancy on the board of

18 directors of the Corporation occurring before

19 the expiration of the term for which the prede20 cessor of that director was elected shall be

21 elected only for the remainder of the unexpired

22 term.

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

24 director may continue to serve after the expira25 tion of the term to which that director was
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1 elected until a successor has been elected and

2 qualified.

3 ‘‘(5) POWERS.—The board of directors shall ex4 ercise such powers as may be necessary and appro5 priate to carry out this section, including the

6 power—

7 ‘‘(A) to review, adopt, and monitor the an8 nual budget of the Corporation;

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

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

11 Home Loan Banks to fund the expenditures of

12 the Corporation; and

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

14 and compensate the employees of the Corpora15 tion, and to dismiss at will the employees of the

16 Corporation.

17 ‘‘(6) PAY.—The members of the board of direc18 tors shall serve without additional compensation, but

19 shall be reimbursed for reasonable expenses of trav20 el, lodging, and subsistence incurred in performing

21 the business of the Corporation.

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

23 may be conducted by the board of directors unless

24 a quorum of the members of the board of directors

25 is present in person or by telephone, or through ac-
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1 tion taken by unanimous written consent executed

2 by the members of the board of directors.

3 ‘‘(8) APPOINTMENT OF OFFICERS AND ADOP4 TIONS OF RULES OF PROCEDURE.—The board of di5 rectors shall—

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

7 the board, a Chairperson and a Vice Chair8 person; and

9 ‘‘(B) adopt bylaws and other rules of pro10 cedure for actions before the board of directors,

11 including the establishment of 1 or more com12 mittees to take action on behalf of the board of

13 directors and the delegation of powers of the

14 board of directors to any such committee or of15 ficer of the Corporation.

16 ‘‘(d) STOCK.—

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

18 BANK.—The Corporation shall issue to each Bank

19 100 shares of voting capital stock, with a par value

20 of $100 per share.

21 ‘‘(2) RESTRICTED TRANSFERABILITY.—Stock

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

23 only by the Federal Home Loan Banks.

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

25 (1) shall be redeemable or transferable at par in the
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1 event of a merger or consolidation pursuant to sec2 tion 26.

3 ‘‘(4) PAYMENT UPON ISSUANCE.—Upon

4 issuance of any share of stock under this subsection

5 to any Federal Home Loan Bank, the Bank shall

6 pay to the Corporation the total amount due for

7 such stock.

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

9 amount of outstanding stock of the Corporation

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

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

12 directors of the Corporation shall adopt procedures

13 from time to time to implement this paragraph.

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

15 conflict with any provision of this section, or that the con16 text of this Act otherwise requires, the Corporation shall

17 be treated as a Federal Home Loan Bank for purposes

18 of any law.

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

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

21 provision of law, any civil action or proceeding to

22 which the Corporation is a party shall be deemed to

23 arise under the laws of the United States.

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

25 Court for the District of Columbia shall have exclu-
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1 sive jurisdiction over any action to which the Cor2 poration is a party.

3 ‘‘(3) REMOVAL.—The Corporation may, without

4 bond or security, remove any action or proceeding to

5 which the Corporation is or becomes a party from a

6 State court to the United States District Court for

7 the District of Columbia.’’.

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

9 Office of Finance of the Federal Home Loan Banks (here10 after in this section referred to as the ‘‘Office of Finance’’)

11 shall be transferred to the Federal Home Loan Bank Fi12 nance Corporation established under section 5 of the Fed13 eral Home Loan Bank Act, as added by this section, (here14 after in this section referred to as the ‘‘Corporation’’) be15 fore the end of the 6-month period beginning on the date

16 of enactment of this Act.

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

18 from the Office of Finance to the Corporation in accord19 ance with this section shall not affect the validity of any

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

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

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

23 (d) TECHNICAL AMENDMENTS.—The Federal Home

24 Loan Bank Act (12 U.S.C. 1421 et seq.) is amended—
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1 (1) in section 2B(a)(2), by striking ‘‘or joint of2 fice’’ each place that term appears;

3 (2) in section 2B(b)(1)—

4 (A) in paragraph (1), by striking ‘‘em5 ployee,’’ and all that follows through ‘‘11(b)’’

6 and inserting ‘‘employee or administrative unit

7 of any Bank of the Federal Home Loan Bank

8 System.’’;

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

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

11 (3) in section 21(b)(1), by striking subpara12 graph (A) and inserting the following:

13 ‘‘(A) The Chairperson of the Federal

14 Home Loan Bank Finance Corporation estab15 lished under section 5.’’; and

16 (4) in section 21B(c)(1), by striking subpara17 graph (A) and inserting the following:

18 ‘‘(A) The Chairperson of the Federal

19 Home Loan Bank Finance Corporation estab20 lished under section 5.’’.

21 SEC. 9. MANAGEMENT OF BANKS.

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

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

24 (1) in subsection (a)—
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1 (A) by striking ‘‘(a) The management’’

2 and inserting the following:

3 ‘‘(a) BOARD OF DIRECTORS.—

4 ‘‘(1) NUMBER AND CLASSES OF DIRECTORS.—

5 The management’’; and

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

7 ‘‘(2) APPROVAL OF ALTERNATIVE STRUC8 TURE.—Subject to the approval of the Finance

9 Board, a Federal Home Loan Bank may include as

10 part of its capital structure plan submitted under

11 section 6, or any modification thereto, provisions es12 tablishing a structure for its elective and appointive

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

14 and

15 (2) in subsection (d)—

16 (A) by striking ‘‘(d) The term’’ and insert17 ing the following:

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

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

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

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

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

23 (c) OBLIGATIONS AS LAWFUL INVESTMENTS.—Sec24 tion 15 of the Federal Home Loan Bank Act (12 U.S.C.
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1 1435) is amended by striking ‘‘with the approval of the

2 Board’’.

3 SEC. 10. POWERS AND DUTIES OF BANKS.

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

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

6 amended—

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

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

9 and

10 (2) by striking ‘‘Board may approve’’ and in11 serting ‘‘board of directors of the Bank may ap12 prove’’.

13 (b) ISSUANCE OF CONSOLIDATED OBLIGATIONS.—

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

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

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

17 CONSOLIDATED OBLIGATIONS.—

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

19 Bank Finance Corporation may issue consolidated

20 Federal Home Loan Bank bonds and other consoli21 dated obligations on behalf of the Banks.

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

23 AND CONDITIONS.—Consolidated obligations issued

24 by the Federal Home Loan Bank Finance Corpora25 tion under paragraph (1) shall—
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1 ‘‘(A) be the joint and several obligations of

2 all of the Federal Home Loan Banks; and

3 ‘‘(B) shall be issued upon such terms and

4 conditions as shall be established by the Federal

5 Home Loan Bank Finance Corporation, subject

6 to such rules and regulations as the Finance

7 Board may prescribe.’’.

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

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

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

11 ‘‘permit or to require’’.

12 (d) TREASURY PURCHASE OF BANK OBLIGATIONS.—

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

14 U.S.C. 1431(i)) is amended by striking the second undes15 ignated paragraph.

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

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

18 amended—

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

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

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

22 SEC. 11. MERGERS AND CONSOLIDATIONS OF FEDERAL

23 HOME LOAN BANKS.

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

25 U.S.C. 1446) is amended to read as follows:
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1 ‘‘SEC. 26. MERGERS AND CONSOLIDATIONS.

2 ‘‘(a) IN GENERAL.—

3 ‘‘(1) FINANCE BOARD AUTHORITY.—Whenever

4 the Finance Board determines it to be necessary to

5 the discharge of its obligations under section

6 2A(a)(3)(A), and in accordance with such rules, reg7 ulations, and orders as the Finance Board may pre8 scribe, the Finance Board may order that a Federal

9 Home Loan Bank be liquidated or reorganized, and

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

11 connection therewith, after paying or making provi12 sion for the payment of the liabilities of the Federal

13 Home Loan Bank.

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

15 case of a liquidation or reorganization under para16 graph (1), any other Federal Home Loan Bank may,

17 with the approval of the Finance Board, acquire the

18 assets of any such liquidated or reorganized Bank,

19 and assume the liabilities thereof, in whole or in

20 part.

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

22 shall preclude voluntary mergers, combinations, or consoli23 dation by or among the Federal Home Loan Banks pursu24 ant to such regulations as the Finance Board may pre25 scribe.
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1 ‘‘(c) NUMBERS OF DIRECTORS OF RESULTING

2 BANK.—

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

4 any Bank resulting from a merger, combination, or

5 consolidation pursuant to this section may have,

6 with the approval of the Finance Board, elected and

7 appointed directors in a number that is equal to or

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

9 the Banks that participated in the transaction (as

10 determined immediately before the transaction).

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

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

13 Bank involved in a transaction referred to in para14 graph (1) may continue to serve on the board of di15 rectors of the resulting Bank during the unexpired

16 portion of that director’s current term, if such con17 tinuation of service is provided for under the terms

18 of the merger, combination, or consolidation trans19 action, and whether or not that director remains

20 qualified after the transaction to fill a directorship.

21 ‘‘(d) NUMBER OF APPOINTED DIRECTORS OF RE22 SULTING BANK.—The number of appointed directors on

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

24 combination, or consolidation pursuant to this section
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1 shall not exceed three-fourths the number of elected direc2 tors on the board of directors of that Bank.

3 ‘‘(e) ADJUSTMENT OF DISTRICT BOUNDARIES.—Not

4 later than 30 days after consummation of any merger,

5 combination, or consolidation of 2 or more Federal Home

6 Loan Banks, the Finance Board shall adjust the districts

7 established under section 3 to reflect such merger, com8 bination, or consolidation.

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

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

11 more Federal Home Loan Banks may establish a

12 subsidiary or holding company, subject to the ap13 proval of the Finance Board.

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

15 company established under this subsection—

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

17 Finance Board;

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

19 those activities permitted for Federal Home

20 Loan Banks under this Act; and

21 ‘‘(C) may only transact business with

22 members of the Federal Home Loan Banks

23 that established the subsidiary or holding com24 pany.
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1 ‘‘(3) PURPOSES.—A Federal Home Loan Bank

2 may use a subsidiary or holding company established

3 under this subsection to perform administrative and

4 operational functions.’’.

5 SEC. 12. OTHER AMENDMENTS RELATING TO BANK OPER6 ATION AND ADMINISTRATION.

7 (a) REPEAL OF SECTIONS 22A AND 27.—The Fed8 eral Home Loan Bank Act (12 U.S.C. 1421 et seq.) is

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

10 27 (12 U.S.C. 1447).

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

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

13 (1) in subsection (a)—

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

15 follows through ‘‘ten years’’;

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

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

18 (C) by striking ‘‘and, by its Board of direc19 tors,’’ and all that follows through ‘‘agent of

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

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

22 and repeal by-laws governing the manner in

23 which its affairs may be administered, consist24 ent with applicable laws and regulations, as ad25 ministered by the Finance Board. No officer,
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1 employee, attorney, or agent of a Federal Home

2 Loan Bank’’; and

3 (D) by striking ‘‘Board of directors’’ each

4 place that term appears and inserting ‘‘board of

5 directors’’; and

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

7 and inserting ‘‘loan banks’’.

8 (c) POWERS AND DUTIES OF FEDERAL HOUSING FI9 NANCE BOARD.—

10 (1) ISSUANCE OF NOTICES OF VIOLATIONS.—

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

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

13 end the following new paragraph:

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

15 upon a Federal Home Loan Bank or upon any exec16 utive officer or director of a Federal Home Loan

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

18 the Bank, executive officer, or director is engaging

19 or has engaged in, or the Finance Board has reason20 able cause to believe that the Bank, executive officer,

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

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

23 rule, or regulation or any condition imposed in writ24 ing by the Finance Board in connection with the

25 granting of any application or other request by the
26

•S 458 IS

1 Bank, or any written agreement entered into by the

2 Bank with the agency, in accordance with the proce3 dures provided in section 1371(c) of the Federal

4 Housing Enterprises Financial Safety and Sound5 ness Act of 1992. Such authority includes the same

6 authority to take affirmative action to correct condi7 tions resulting from violations or practices or to

8 limit activities of a Bank or any executive officer or

9 director of a Bank as appropriate Federal banking

10 agencies have to take with respect to insured deposi11 tory institutions under paragraphs (6) and (7) of

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

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

14 enforce this Act with respect to the Federal Home

15 Loan Banks and their executive officers and direc16 tors as the Office of Federal Housing Enterprise

17 Oversight has to enforce the Federal Housing Enter18 prises Financial Safety and Soundness Act of 1992,

19 the Federal National Mortgage Association Charter

20 Act, or the Federal Home Loan Mortgage Corpora21 tion Act with respect to the Federal housing enter22 prises under the Federal Housing Enterprises Fi23 nancial Safety and Soundness Act of 1992.

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

25 own attorneys.’’.
27

•S 458 IS

1 (2) TECHNICAL AMENDMENT.—Section 111 of

2 Public Law 93–495 (12 U.S.C. 250) is amended by

3 inserting ‘‘Federal Housing Finance Board,’’ after

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

5 (d) ELIGIBILITY TO SECURE ADVANCES.—

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

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

8 amended—

9 (A) in the second sentence, by striking

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

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

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

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

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

15 amended—

16 (A) in subsection (c)—

17 (i) in the first sentence, by striking

18 ‘‘Board’’ and inserting ‘‘Federal Home

19 Loan Bank’’; and

20 (ii) by striking the second sentence;

21 (B) in subsection (d)—

22 (i) in the first sentence, by striking

23 ‘‘and the approval of the Board’’; and
28

•S 458 IS

1 (ii) by striking ‘‘Subject to the ap2 proval of the Board, any’’ and inserting

3 ‘‘Any’’; and

4 (C) in subsection (j)—

5 (i) in paragraph (1)—

6 (I) by striking ‘‘to subsidize the

7 interest rate on advances’’ and insert8 ing ‘‘to provide subsidies, including

9 subsidized interest rates on ad10 vances’’;

11 (II) by striking ‘‘Pursuant’’ and

12 inserting the following:

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

14 (III) by adding at the end the

15 following new subparagraph:

16 ‘‘(B) NONDELEGATION OF APPROVAL AU17 THORITY.—Subject to such regulations as the

18 Finance Board may prescribe, the board of di19 rectors of each Federal Home Loan Bank may

20 approve or disapprove requests from members

21 for Affordable Housing Program subsidies, and

22 may not delegate such authority.’’;

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

24 (9)(B), (9)(C), (11), and (12), by striking
29

•S 458 IS

1 ‘‘advances’’ each place that term appears

2 and inserting ‘‘subsidies’’;

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

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

5 advances’’ each place that term appears

6 and inserting ‘‘subsidies, including sub7 sidized advances,’’;

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

9 ‘‘such advances’’ and inserting ‘‘such sub10 sidies’’;

11 (v) in the paragraph heading for para12 graph (3), by striking ‘‘ADVANCES’’ and in13 serting ‘‘SUBSIDIES’’;

14 (vi) in paragraph (2), by striking sub15 paragraph (B) and inserting the following:

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

17 rehabilitation of rental housing if, for a period

18 of not less than 15 years, either—

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

20 in such housing are occupied by and af21 fordable for households whose income is 50

22 percent or less of area median income; or

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

24 in such housing are occupied by and af-
30

•S 458 IS

1 fordable for households whose income is 60

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

3 (vii) by striking paragraph (5) and in4 serting the following:

5 ‘‘(5) CONTRIBUTION TO PROGRAM.—Each Fed6 eral Home Loan Bank shall annually contribute 10

7 percent of the net income of that Bank during the

8 preceding year, or such prorated sums as may be

9 required to assure that the aggregate contribution

10 of the Banks shall not be less than $100,000,000

11 for each such year, to support subsidies, including

12 subsidized advances, through the Affordable Hous13 ing Program.’’;

14 (viii) in paragraph (11)—

15 (I) by inserting ‘‘agencies and’’

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

17 (I) by inserting after the first

18 sentence, the following: ‘‘Representa19 tives of no one group shall constitute

20 an undue proportion of the member21 ship of the Advisory Council.’’; and

22 (ix) in paragraph (13)—

23 (I) by striking ‘‘subsection—’’

24 and inserting ‘‘subsection, the follow25 ing definitions shall apply:’’; and
31

•S 458 IS

1 (II) by striking subparagraph

2 (D) and inserting the following:

3 ‘‘(D) AFFORDABLE.—For purposes of

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

5 that the rent with respect to a unit does not ex6 ceed 30 percent of the income limitation under

7 paragraph (2)(B) applicable to occupants of

8 such unit.’’.

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

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

11 (1) in the third sentence—

12 (A) by striking ‘‘net earnings’’ and insert13 ing ‘‘previously retained earnings or current net

14 earnings’’; and

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

16 approval of the Federal Housing Finance

17 Board’’; and

18 (2) by striking the fourth sentence.

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

20 Loan Bank Act (12 U.S.C. 1438(b)) is amended by strik21 ing paragraph (4).

22 SEC. 13. RESOLUTION FUNDING CORPORATION.

23 (a) IN GENERAL.—Section 21B(f)(2)(C) of the Fed24 eral Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is

25 amended to read as follows:
32

•S 458 IS

1 ‘‘(C) PAYMENTS BY FEDERAL HOME LOAN

2 BANKS.—

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

4 the amounts available pursuant to sub5 paragraphs (A) and (B) are insufficient to

6 cover the amount of interest payments,

7 each Federal Home Loan Bank shall pay

8 to the Funding Corporation in each cal9 endar year, 20.75 percent of the net earn10 ings of that Bank (after deducting ex11 penses relating to section 10(j) and operat12 ing expenses).

13 ‘‘(ii) ANNUAL DETERMINATION.—The

14 Board annually shall determine the extent

15 to which the value of the aggregate

16 amounts paid by the Federal Home Loan

17 Banks exceeds or falls short of the value of

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

19 commences on the issuance date and ends

20 on the final scheduled maturity date of the

21 obligations, and shall select appropriate

22 present value factors for making such de23 terminations.

24 ‘‘(iii) PAYMENT TERM ALTER25 ATIONS.—The Board shall extend or short-
33

•S 458 IS

1 en the term of the payment obligations of

2 a Federal Home Loan Bank under this

3 subparagraph as necessary to ensure that

4 the value of all payments made by the

5 Banks is equivalent to the value of an an6 nuity referred to in clause (ii).

7 ‘‘(iv) TERM BEYOND MATURITY.—If

8 the Board extends the term of payments

9 beyond the final scheduled maturity date

10 for the obligations, each Federal Home

11 Loan Bank shall continue to pay 20.75

12 percent of its net earnings (after deducting

13 expenses relating to section 10(j) and oper14 ating expenses) to the Treasury of the

15 United States until the value of all such

16 payments by the Federal Home Loan

17 Banks is equivalent to the value of an an18 nuity referred to in clause (ii). In the final

19 year in which the Federal Home Loan

20 Banks are required to make any payment

21 to the Treasury under this subparagraph,

22 if the dollar amount represented by 20.75

23 percent of the net earnings of the Federal

24 Home Loan Banks exceeds the remaining

25 obligation of the Banks to the Treasury,
34

•S 458 IS

1 the Finance Board shall reduce the per2 centage pro rata to a level sufficient to pay

3 the remaining obligation.’’.

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

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

6 Payments made by a Federal Home Loan Bank before

7 that effective date shall be counted toward the total obliga8 tion of that Bank under section 21B(f)(2)(C) of the Fed9 eral Home Loan Bank Act, as amended by this section.

10 SEC. 14. CAPITAL STRUCTURE OF FEDERAL HOME LOAN

11 BANKS.

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

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

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

15 BANKS.

16 ‘‘(a) REGULATIONS.—

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

18 year after the date of enactment of the Federal

19 Home Loan Bank System Modernization Act of

20 1999, the Finance Board shall issue regulations pre21 scribing uniform capital standards applicable to each

22 Federal Home Loan Bank, which shall require each

23 such Bank to meet—

24 ‘‘(A) the leverage limitation requirement

25 specified in paragraph (2); and
35

•S 458 IS

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

2 in accordance with paragraph (3).

3 ‘‘(2) MINIMUM LEVERAGE LIMITATION RE4 QUIREMENT.—Each Federal Home Loan Bank shall

5 maintain total capital in an amount equal to not less

6 than 2.5 percent of the total assets of that Bank.

7 ‘‘(3) RISK-BASED CAPITAL STANDARDS.—

8 ‘‘(A) IN GENERAL.—Each Federal Home

9 Loan Bank shall maintain permanent capital in

10 an amount that is sufficient, as determined in

11 accordance with the regulations of the Finance

12 Board, to meet—

13 ‘‘(i) the credit risk to which the Fed14 eral Home Loan Bank is subject; and

15 ‘‘(ii) the market risk, including inter16 est rate risk, to which the Federal Home

17 Loan Bank is subject, based on a stress

18 test established by the Finance Board that

19 rigorously tests for changes in market vari20 ables, including changes in interest rates,

21 rate volatility, and changes in the shape of

22 the yield curve.

23 ‘‘(B) TREATMENT OF CERTAIN OBLIGA24 TIONS.—For purposes of subparagraph (A), ob25 ligations issued or guaranteed by the United
36

•S 458 IS

1 States, obligations issued by any agency or in2 strumentality of the United States and for

3 which the timely repayment of principal and in4 terest is explicitly guaranteed by the full faith

5 and credit of the United States, and advances

6 made pursuant to section 10 or 10b that are se7 cured by eligible collateral having a market

8 value (in accordance with the regulations adopt9 ed by the Finance Board) in excess of the bal10 ance due on such advances shall be deemed to

11 present no credit risk.

12 ‘‘(C) CONSIDERATION OF OTHER RISK13 BASED STANDARDS.—In establishing the risk14 based standard under subparagraph (A)(ii), the

15 Finance Board shall take due consideration of

16 any risk-based capital test established pursuant

17 to section 1361 of the Federal Housing Enter18 prises Financial Safety and Soundness Act of

19 1992 (12 U.S.C. 4611) for the enterprises (as

20 defined in that Act), with such modifications as

21 the Finance Board determines to be appro22 priate to reflect differences in operations be23 tween the Federal Home Loan Banks and those

24 enterprises.
37

•S 458 IS

1 ‘‘(4) OTHER REGULATORY REQUIREMENTS.—

2 The regulations issued by the Finance Board under

3 paragraph (1) shall—

4 ‘‘(A) permit each Federal Home Loan

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

6 preferences, not inconsistent with this Act and

7 the regulations issued hereunder, as the board

8 of directors of that Bank may approve, any 1

9 or more of—

10 ‘‘(i) Class A stock, which shall be re11 deemable in cash and at par 6 months fol12 lowing submission by a member of a writ13 ten notice of its intent to redeem such

14 shares;

15 ‘‘(ii) Class B stock, which shall be re16 deemable in cash and at par 5 years fol17 lowing submission by a member of a writ18 ten notice of its intent to redeem such

19 shares;

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

21 nonredeemable; and

22 ‘‘(iv) any other class of stock author23 ized by the board of directors of the Fed24 eral Home Loan Bank and approved by

25 the Finance Board, through such proce-
38

•S 458 IS

1 dures as the Finance Board may prescribe,

2 which, if nonredeemable, may be des3 ignated as permanent capital;

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

5 Home Loan Bank may be issued to and held by

6 only members of the Bank, and that a Bank

7 may not issue any stock other than as provided

8 in this section;

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

10 of a Federal Home Loan Bank may be sold,

11 transferred, redeemed, or repurchased; and

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

13 outstanding stock held by, and the liquidation

14 of any claims of the Federal Home Loan Bank

15 against, an institution that ceases to be a mem16 ber of the Bank, through merger or otherwise,

17 or that provides notice of intention to withdraw

18 from membership in the Bank.

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

20 of determining compliance with the capital standards

21 established under this subsection—

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

23 Loan Bank shall include (as determined in ac24 cordance with generally accepted accounting

25 principles)—
39

•S 458 IS

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

2 stock and any other nonredeemable stock

3 approved by the Finance Board;

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

5 stock, in an amount not to exceed 1 per6 cent of the total assets of the Bank; and

7 ‘‘(iii) the retained earnings of the

8 Bank; and

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

10 Bank shall include—

11 ‘‘(i) permanent capital;

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

13 stock, Class B stock (excluding any

14 amount treated as permanent capital

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

16 other class of redeemable stock approved

17 by the Finance Board;

18 ‘‘(iii) consistent with generally accept19 ed accounting principles, and subject to the

20 regulation of the Finance Board, a general

21 allowance for losses, which may not include

22 any reserves or allowances made or held

23 against specific assets; and

24 ‘‘(iv) any other amounts from sources

25 available to absorb losses incurred by the
40

•S 458 IS

1 Bank that the Finance Board determines

2 by regulation to be appropriate to include

3 in determining total capital.

4 ‘‘(6) TRANSITION PERIOD.—Notwithstand5 ing any other provisions of this Act, the re6 quirements relating to purchase and retention

7 of capital stock of a Federal Home Loan Bank

8 by any member thereof in effect on the day be9 fore the date of enactment of the Federal Home

10 Loan Bank System Modernization Act of 1999,

11 shall continue in effect with respect to each

12 Federal Home Loan Bank until the regulations

13 required by this subsection have taken effect

14 and the capital structure plan required by sub15 section (b) has been approved by the Finance

16 Board and implemented by such Bank.

17 ‘‘(b) CAPITAL STRUCTURE PLAN.—

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

19 days after the date of publication by the Finance

20 Board of final regulations in accordance with sub21 section (a), the board of directors of each Federal

22 Home Loan Bank shall submit for Finance Board

23 approval a plan establishing and implementing a

24 capital structure for such Bank that—
41

•S 458 IS

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

2 best suited for the condition and operation of

3 the Bank and the interests of the members of

4 the Bank;

5 ‘‘(B) meets the requirements of subsection

6 (c); and

7 ‘‘(C) meets the minimum capital standards

8 and requirements established under subsection

9 (a) and other regulations prescribed by the Fi10 nance Board.

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

12 board of directors of a Federal Home Loan Bank

13 shall submit to the Finance Board for approval any

14 modifications that the Bank proposes to make to an

15 approved capital structure plan.

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

17 plan of each Federal Home Loan Bank shall contain pro18 visions addressing each of the following:

19 ‘‘(1) MINIMUM INVESTMENT.—

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

21 plan of a Federal Home Loan Bank shall re22 quire each member of the Bank to maintain a

23 minimum investment in the stock of the Bank,

24 the amount of which shall be determined in a

25 manner to be prescribed by the board of direc-
42

•S 458 IS

1 tors of each Bank and to be included as part

2 of the plan.

3 ‘‘(B) INVESTMENT ALTERNATIVES.—

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

5 minimum investment required for each

6 member under subparagraph (A), a Fed7 eral Home Loan Bank may, in its discre8 tion, include any 1 or more of the require9 ments referred to in clause (ii), or any

10 other provisions approved by the Finance

11 Board.

12 ‘‘(ii) AUTHORIZED REQUIREMENTS.—

13 A requirement is referred to in this clause

14 if it is a requirement for—

15 ‘‘(I) a stock purchase based on a

16 percentage of the total assets of a

17 member (not to exceed the lesser of

18 0.3 percent of the total assets of the

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

20 ‘‘(II) a stock purchase based on a

21 percentage of the outstanding ad22 vances from the Bank to the member

23 (not to exceed 5 percent of the total

24 outstanding advances of the member).
43

•S 458 IS

1 ‘‘(C) MINIMUM AMOUNT.—Each capital

2 structure plan of a Federal Home Loan Bank

3 shall require that the minimum stock invest4 ment established for members shall be set at a

5 level that is sufficient for the Bank to meet the

6 minimum capital requirements established by

7 the Finance Board under subsection (a).

8 ‘‘(D) ADJUSTMENTS TO MINIMUM RE9 QUIRED INVESTMENT.—The capital structure

10 plan of each Federal Home Loan Bank shall

11 impose a continuing obligation on the board of

12 directors of the Bank to review and adjust the

13 minimum investment required of each member

14 of that Bank, as necessary to ensure that the

15 Bank remains in compliance with applicable

16 minimum capital levels established by the Fi17 nance Board, and shall require each member to

18 comply promptly with any adjustments to the

19 required minimum investment.

20 ‘‘(2) TRANSITION RULE.—

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

22 plan of each Federal Home Loan Bank shall

23 specify the date on which it shall take effect,

24 and may provide for a transition period of not

25 longer than 3 years to allow the Bank to come
44

•S 458 IS

1 into compliance with the capital requirements

2 prescribed under subsection (a), and to allow

3 any institution that was a member of the Bank

4 on the date of enactment of the Federal Home

5 Loan Bank System Modernization Act of 1999,

6 to come into compliance with the minimum in7 vestment required pursuant to the plan.

8 ‘‘(B) INTERIM PURCHASE REQUIRE9 MENTS.—The capital structure plan of a Fed10 eral Home Loan Bank may allow any member

11 referred to in subparagraph (A) that would be

12 required by the terms of the capital structure

13 plan to increase its investment in the stock of

14 the Bank to do so in periodic installments dur15 ing the transition period.

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

17 structure plan of a Federal Home Loan Bank shall

18 provide for the manner of disposition of any stock

19 held by a member of that Bank that terminates its

20 membership or that provides notice of its intention

21 to withdraw from membership in that Bank.

22 ‘‘(4) CLASSES OF STOCK.—

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

24 plan of a Federal Home Loan Bank shall afford

25 each member of that Bank the option of main-
45

•S 458 IS

1 taining its required investment in the Bank

2 through the purchase of any combination of

3 classes of stock authorized by the board of di4 rectors of the Bank and approved by the Fi5 nance Board in accordance with its regulations.

6 ‘‘(B) RIGHTS REQUIREMENT.—A Federal

7 Home Loan Bank shall include in its capital

8 structure plan provisions establishing terms,

9 rights, and preferences, including minimum in10 vestment, dividends, voting, and liquidation

11 preferences of each class of stock issued by the

12 Bank, consistent with Finance Board regula13 tions and market requirements.

14 ‘‘(C) REDUCED MINIMUM INVESTMENT.—

15 The capital structure plan of a Federal Home

16 Loan Bank may provide for a reduced mini17 mum stock investment for any member of that

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

19 or any other class of nonredeemable stock, in a

20 manner that is consistent with meeting the min21 imum capital requirements of the Bank, as es22 tablished by the Finance Board.

23 ‘‘(D) LIQUIDATION OF CLAIMS.—The cap24 ital structure plan of a Federal Home Loan

25 Bank shall provide for the liquidation in an or-
46

•S 458 IS

1 derly manner, as determined by the Bank, of

2 any claim of that Bank against a member, in3 cluding claims for any applicable prepayment

4 fees or penalties resulting from prepayment of

5 advances prior to stated maturity.

6 ‘‘(5) LIMITED TRANSFERABILITY OF STOCK.—

7 The capital structure plan of a Federal Home Loan

8 Bank shall—

9 ‘‘(A) provide that—

10 ‘‘(i) any stock issued by that Bank

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

12 tradable only among members of that

13 Bank and between that Bank and its mem14 bers; and

15 ‘‘(ii) a Bank has no obligation to re16 purchase its outstanding Class C stock but

17 may do so, provided it is consistent with

18 Finance Board regulations and is at a

19 price that is mutually agreeable to the

20 Bank and the member; and

21 ‘‘(B) establish standards, criteria, and re22 quirements for the issuance, purchase, transfer,

23 retirement, and redemption of stock issued by

24 that Bank.
47

•S 458 IS

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

2 capital structure plan with the Finance Board, each

3 Federal Home Loan Bank shall conduct a review of

4 the plan by—

5 ‘‘(A) an independent certified public ac6 countant, to ensure, to the extent possible, that

7 implementation of the plan would not result in

8 any write-down of the redeemable Bank stock

9 investment of its members; and

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

11 to determine, to the extent possible, whether

12 implementation of the plan would have any ma13 terial effect on the credit ratings of the Bank.

14 ‘‘(d) TERMINATION OF MEMBERSHIP.—

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

16 may withdraw from a Federal Home Loan Bank by

17 providing written notice to the Bank of its intent to

18 do so. The applicable stock redemption notice peri19 ods shall commence upon receipt of the notice by the

20 Bank. Upon the expiration of the applicable notice

21 period for each class of redeemable stock, the mem22 ber may surrender such stock to the Bank, and shall

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

24 stock. During the applicable notice periods, the

25 member shall be entitled to dividends and other
48

•S 458 IS

1 membership rights commensurate with continuing

2 stock ownership.

3 ‘‘(2) INVOLUNTARY WITHDRAWAL.—

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

5 of a Federal Home Loan Bank may terminate

6 the membership of any institution if, subject to

7 Finance Board regulations, it determines

8 that—

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

10 with a provision of this Act or any regula11 tion prescribed under this Act; or

12 ‘‘(ii) the member has been determined

13 to be insolvent, or otherwise subject to the

14 appointment of a conservator, receiver, or

15 other legal custodian, by a State or Fed16 eral authority with regulatory and super17 visory responsibility for the member.

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

19 the membership of which is terminated in ac20 cordance with subparagraph (A)—

21 ‘‘(i) shall surrender redeemable stock

22 to the Federal Home Loan Bank, and shall

23 receive in cash the par value of the stock,

24 upon the expiration of the applicable notice

25 period under subsection (a)(4)(A);
49

•S 458 IS

1 ‘‘(ii) shall receive any dividends de2 clared on its redeemable stock, during the

3 applicable notice period under subsection

4 (a)(4)(A); and

5 ‘‘(iii) shall not be entitled to any other

6 rights or privileges accorded to members

7 after the date of the termination.

8 ‘‘(C) COMMENCEMENT OF NOTICE PE9 RIOD.—With respect to an institution, the

10 membership of which is terminated in accord11 ance with subparagraph (A), the applicable no12 tice period under subsection (a)(4) for each

13 class of redeemable stock shall commence on

14 the earlier of—

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

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

17 has provided notice of its intent to redeem

18 such stock.

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

20 the termination of the membership of an institution

21 for any reason, the outstanding indebtedness of the

22 member to the Bank shall be liquidated in an or23 derly manner, as determined by the Bank and, upon

24 the extinguishment of all such indebtedness, the
50

•S 458 IS

1 Bank shall return to the member all collateral

2 pledged to secure the indebtedness.

3 ‘‘(e) REDEMPTION OF EXCESS STOCK.—

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

5 Bank, in its sole discretion, may redeem or repur6 chase, as appropriate, any shares of Class A or

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

8 member that are in excess of the minimum stock in9 vestment required of that member.

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

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

12 for purposes of this subsection by virtue of a mem13 ber’s submission of a notice of intent to withdraw

14 from membership or termination of its membership

15 in any other manner.

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

17 may not redeem any excess Class B stock prior to

18 the end of the 5-year notice period, unless the mem19 ber has no Class A stock outstanding that could be

20 redeemed as excess.

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

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

23 Bank determines that the Bank has incurred or is likely

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

25 charges against the capital of the Bank, the Bank shall
51

•S 458 IS

1 not redeem or repurchase any stock of the Bank without

2 the prior approval of the Finance Board while such

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

4 case may a Bank redeem or repurchase any applicable

5 capital stock if, following the redemption, the Bank would

6 fail to satisfy any minimum capital requirement.

7 ‘‘(g) REJOINING AFTER DIVESTITURE OF ALL

8 SHARES.—

9 ‘‘(1) IN GENERAL.—Except as provided in para10 graph (2), and notwithstanding any other provision

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

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

13 such divestiture, acquire shares of any Federal

14 Home Loan Bank before the end of the 5-year pe15 riod beginning on the date of the completion of such

16 divestiture, unless the divestiture is a consequence of

17 a transfer of membership on an uninterrupted basis

18 between Banks.

19 ‘‘(2) EXCEPTION FOR WITHDRAWALS FROM

20 MEMBERSHIP BEFORE 1998.—Any institution that

21 withdrew from membership in any Federal Home

22 Loan Bank before December 31, 1997, may acquire

23 shares of a Federal Home Loan Bank at any time

24 after that date, subject to the approval of the Fi25 nance Board and the requirements of this Act.
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•S 458 IS

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

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

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

4 classes of nonredeemable stock approved by the Fi5 nance Board (to the extent provided in the terms

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

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

8 Bank.

9 ‘‘(2) NO NONREDEEMABLE CLASSES OF

10 STOCK.—If a Federal Home Loan Bank has no out11 standing Class C or other such nonredeemable stock,

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

13 Bank then outstanding shall have ownership in, and

14 a private property right in, the retained earnings,

15 surplus, undivided profits, and equity reserves, if

16 any, of the Bank.

17 ‘‘(3) EXCEPTION.—Except as specifically pro18 vided in this section or through the declaration of a

19 dividend or a capital distribution by a Federal Home

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

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

22 otherwise receive distribution of any portion of the

23 retained earnings of the Bank.

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

25 Bank may not make any distribution of its retained
53

•S 458 IS

1 earnings unless, following such distribution, the

2 Bank would continue to meet all applicable capital

3 requirements.’’.

Æ