II

105TH CONGRESS

1ST SESSION S. 1423

To modernize and improve the Federal Home Loan Bank System.

IN THE SENATE OF THE UNITED STATES

NOVEMBER 7, 1997

Mr. HAGEL (for himself, Mr. BENNETT, Mr. KERREY, and Mr. GRAMS) 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.

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 1997’’.

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.
2

•S 1423 IS

Sec. 6. Eligibility criteria.

Sec. 7. Qualified thrift lender status.

Sec. 8. Establishment of Office of Finance.

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 the Federal home loan banks.

Sec. 15. Federal Housing Finance Board.

Sec. 16. Limitation on investments.

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—
3

•S 1423 IS

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:
4

•S 1423 IS

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

2 On and after January 1, 1999, 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-
5

•S 1423 IS

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 subparagraphs:

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 institution.

23 ‘‘(F) Mutual fund shares, if and to the ex24 tent that such shares—
6

•S 1423 IS

1 ‘‘(i) represent interests in securities

2 under subparagraph (A) or (B); and

3 ‘‘(ii) have a readily ascertainable mar4 ket value.’’;

5 (6) in paragraph (5)—

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

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

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

10 (B) in the second sentence, by striking

11 ‘‘and the Board’’; and

12 (C) in the third sentence, by striking

13 ‘‘Board’’ and inserting ‘‘Federal home loan

14 bank’’; and

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

16 ‘‘(5) DEFINITIONS.—For purposes of this sub17 section, the terms ‘small business’, ‘agriculture’,

18 ‘rural development’, and ‘low-income community de19 velopment’ shall have the meanings given those

20 terms by rule or regulation of the Finance Board.’’.

21 (b) CLERICAL AMENDMENT.—The section heading

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

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

•S 1423 IS

1 ‘‘SEC. 10. ADVANCES TO MEMBERS.’’.

2 SEC. 6. ELIGIBILITY CRITERIA.

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

4 (12 U.S.C. 1424(a)) is amended—

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

6 than a community financial institution)’’ after ‘‘in7 stitution’’; and

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

9 paragraph:

10 ‘‘(3) LIMITED EXEMPTION FOR COMMUNITY FI11 NANCIAL INSTITUTIONS.—A community financial in12 stitution that otherwise meets the requirements of

13 paragraph (2) may become a member without regard

14 to the percentage of its total assets that is rep15 resented by residential mortgage loans, as described

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

17 SEC. 7. QUALIFIED THRIFT LENDER STATUS.

18 (a) FEDERAL HOME LOAN BANK ACT.—Section 10

19 of the Federal Home Loan Bank Act (12 U.S.C. 1430)

20 is amended by striking subsection (e), as added by section

21 105 of Public Law 100–86 and subsequently amended (re22 lating to qualified thrift lender status).

23 (b) HOME OWNERS’ LOAN ACT.—Section

24 10(m)(3)(B) of the Home Owners’ Loan Act (12 U.S.C.

25 1467a(m)(3)(B)) is amended—
8

•S 1423 IS

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

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

3 and

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

5 ‘‘(ii) ADDITIONAL RESTRICTIONS EF6 FECTIVE AFTER THREE YEARS.—Begin7 ning 3 years after the date on which a sav8 ings association should have become or

9 ceases to be a qualified thrift lender, the

10 savings association shall not retain any in11 vestment (including an investment in any

12 subsidiary) or engage, directly or indi13 rectly, in any activity unless that invest14 ment or activity would be permissible for

15 the savings association if it were a national

16 bank, and is also permissible for the sav17 ings association as a savings association.’’.

18 SEC. 8. ESTABLISHMENT OF OFFICE OF FINANCE.

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

20 et seq.) is amended by inserting after section 4 the follow21 ing new section:

22 ‘‘SEC. 5. THE OFFICE OF FINANCE.

23 ‘‘(a) OPERATION.—The Federal home loan banks

24 shall operate jointly an Office of Finance (hereafter in this

25 section referred to as the ‘Office’) to issue the notes,
9

•S 1423 IS

1 bonds, and debentures of the Federal home loan banks

2 in accordance with this Act.

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

4 this Act and to such safety and soundness regulations as

5 the Finance Board may prescribe, the Office shall be au6 thorized by the Federal home loan banks to act as the

7 agent of such banks to issue Federal home loan bank

8 notes, bonds, and debentures pursuant to section 11 on

9 behalf of the banks.

10 ‘‘(c) CENTRAL BOARD OF DIRECTORS.—

11 ‘‘(1) ESTABLISHMENT.—The Federal home

12 loan banks shall establish a central board of direc13 tors of the Office to administer the affairs of the Of14 fice in accordance with this Act.

15 ‘‘(2) COMPOSITION OF BOARD.—Each Federal

16 home loan bank shall annually select 1 individual

17 who, as of the time of the election, is an officer or

18 director of such bank to serve as a member of the

19 central board of directors of the Office.

20 ‘‘(d) STATUS.—Except to the extent otherwise ex21 pressly provided in this Act, the Office shall be treated

22 as a Federal home loan bank for purposes of any law.’’.

23 SEC. 9. MANAGEMENT OF BANKS.

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

25 Home Loan Bank Act (12 U.S.C. 1427) is amended—
10

•S 1423 IS

1 (1) in subsection (a)—

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

3 and inserting the following:

4 ‘‘(a) BOARD OF DIRECTORS.—

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

6 The management’’; and

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

8 ‘‘(2) APPROVAL OF ALTERNATIVE STRUC9 TURE.—Subject to the approval of the Finance

10 Board, a Federal home loan bank may include as

11 part of its capital structure plan submitted under

12 section 6, or any modification thereto, provisions es13 tablishing a structure for its elective and appointive

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

15 and

16 (2) in subsection (d)—

17 (A) by striking ‘‘(d) The term’’ and insert18 ing the following:

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

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

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

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

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

24 (c) OBLIGATIONS ON LAWFUL INVESTMENTS.—Sec25 tion 15 of the Federal Home Loan Bank Act (12 U.S.C.
11

•S 1423 IS

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 Office of Fi8 nance’’ after ‘‘to issue’’; and

9 (2) by striking ‘‘Board may approve’’ and in10 serting ‘‘board of directors of the bank may ap11 prove’’.

12 (b) ISSUANCE OF CONSOLIDATED BONDS.—Section

13 11(b) of the Federal Home Loan Bank Act (12 U.S.C.

14 1431(b)) is amended to read as follows:

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

16 CONSOLIDATED BONDS.—

17 ‘‘(1) IN GENERAL.— The Office of Finance may

18 issue consolidated Federal home loan bank bonds

19 and other consolidated obligations on behalf of the

20 banks.

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

22 AND CONDITIONS.—Consolidated obligations issued

23 by the Office of Finance under paragraph (1)

24 shall—
12

•S 1423 IS

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 Office

5 of Finance, subject to such rules and regula6 tions as the Finance Board may prescribe.’’.

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

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

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

10 ‘‘permit or to require’’.

11 (d) TREASURY PURCHASE OF BANK OBLIGATIONS.—

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

13 U.S.C. 1431(i)) is amended by striking the second undes14 ignated paragraph.

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

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

17 amended—

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

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

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

21 SEC. 11. MERGERS AND CONSOLIDATIONS OF FEDERAL

22 HOME LOAN BANKS.

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

24 U.S.C. 1446) is amended to read as follows:
13

•S 1423 IS

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 its

10 stock paid off and retired in whole or in part in con11 nection therewith, after paying or making provision

12 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 pursuant

24 to such regulations as the Finance Board may prescribe.

25 ‘‘(c) NUMBER OF ELECTED DIRECTORS OF RESULT26 ING BANK.—
14

•S 1423 IS

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, a number

5 of elected directors equal to or less than the total

6 number of elected directors of all the banks that

7 participated in such transaction (as determined im8 mediately before such 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.
15

•S 1423 IS

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 and

10 jointly own a subsidiary or holding company, subject

11 to the approval of the Finance Board.

12 ‘‘(2) FINANCE BOARD SUPERVISION.—Any sub13 sidiary or holding company established under this

14 subsection shall be subject to supervision by the Fi15 nance Board, and the activities of any such subsidi16 ary or holding company shall be restricted to those

17 activities permitted for Federal home loan banks

18 under this Act.

19 ‘‘(3) PURPOSES OF SUBSIDIARY.—A Federal

20 home loan bank may use a subsidiary to perform ad21 ministrative and operational functions.’’.

22 SEC. 12. OTHER AMENDMENTS RELATING TO BANK OPER23 ATION AND ADMINISTRATION.

24 (a) REPEAL OF SECTIONS 22A AND 27.—The Fed25 eral Home Loan Bank Act (12 U.S.C. 1421 et seq.) is
16

•S 1423 IS

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

2 27 (12 U.S.C. 1447).

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

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

5 (1) in subsection (a)—

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

7 follows through ‘‘ten years’’;

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

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

10 (C) by striking ‘‘and, by its Board of direc11 tors,’’ and all that follows through ‘‘agent of

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

13 of directors of the bank, to prescribe, amend,

14 and repeal by-laws governing the manner in

15 which its affairs may be administered, consist16 ent with applicable laws and regulations, as ad17 ministered by the Finance Board. No officer,

18 employee, attorney, or agent of a Federal home

19 loan bank’’; and

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

21 place that term appears and inserting ‘‘board of

22 directors’’; and

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

24 and inserting ‘‘loan banks’’.
17

•S 1423 IS

1 (c) POWERS AND DUTIES OF FEDERAL HOUSING FI2 NANCE BOARD.—

3 (1) ISSUANCE OF NOTICES OF VIOLATIONS.—

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

5 (12 U.S.C. 1422b(a)) is amended by adding at the

6 end the following new paragraph:

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

8 upon a Federal home loan bank or upon any execu9 tive officer or director of a Federal home loan bank

10 if, in the determination of the Finance Board, the

11 bank, executive officer, or director is engaging or

12 has engaged in, or the Finance Board has reason13 able cause to believe that the bank, executive officer,

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

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

16 rule, or regulation or any condition imposed in writ17 ing by the Finance Board in connection with the

18 granting of any application or other request by the

19 bank, or any written agreement entered into by the

20 bank with the agency, in accordance with the proce21 dures provided in section 1371(c) of the Federal

22 Housing Enterprises Financial Safety and Sound23 ness Act of 1992. Such authority includes the same

24 authority to take affirmation action to correct condi25 tions resulting from violations or practices or to
18

•S 1423 IS

1 limit activities of a bank or any executive officer or

2 director of a bank as appropriate Federal banking

3 agencies have to take with respect to insured deposi4 tory institutions under paragraphs (6) and (7) of

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

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

7 enforce this Act with respect to the Federal home

8 loan banks and their senior officers and directors as

9 the Office of Federal Housing Enterprise Oversight

10 has to enforce the Federal Housing Enterprises Fi11 nancial Safety and Soundness Act of 1992, the Fed12 eral National Mortgage Association Charter Act, or

13 the Federal Home Loan Mortgage Corporation Act

14 with respect to the Federal housing enterprises

15 under the Federal Housing Enterprises Financial

16 Safety and Soundness Act of 1992.’’.

17 (2) STAFF.—Section 2B(b) of the Federal

18 Home Loan Bank Act (12 U.S.C. 1422b(b)) is

19 amended—

20 (A) in paragraph (1)—

21 (i) by striking ‘‘(1) BOARD STAFF.—’’;

22 (ii) by striking ‘‘function to any em23 ployee, administrative unit’’ and inserting

24 ‘‘function to any employee or administra25 tive unit’’; and
19

•S 1423 IS

1 (iii) by striking the second sentence;

2 and

3 (B) by striking paragraph (2).

4 (3) TECHNICAL AMENDMENT.—Section 111 of

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

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

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

8 (d) ELIGIBILITY TO SECURE ADVANCES.—

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

10 Home Loan Bank Act (12 U.S.C. 1429) is amend11 ed—

12 (A) in the second sentence, by striking

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

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

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

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

17 Home Loan Bank Act (12 U.S.C. 1430) is amend18 ed—

19 (A) in subsection (c)—

20 (i) in the first sentence, by striking

21 ‘‘Board’’ and inserting ‘‘Federal home loan

22 bank’’; and

23 (ii) by striking the second sentence;

24 (B) in subsection (d)—
20

•S 1423 IS

1 (i) in the first sentence, by striking

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

3 (ii) by striking ‘‘Subject to the ap4 proval of the Board, any’’ and inserting

5 ‘‘Any’’; and

6 (C) in subsection (j)—

7 (i) in paragraph (1)—

8 (I) by striking ‘‘to subsidize the

9 interest rate on advances’’ and insert10 ing ‘‘to provide subsidies, including

11 subsidized interest rates on ad12 vances’’;

13 (II) by striking ‘‘Pursuant’’ and

14 inserting the following:

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

16 (III) by adding at the end the

17 following new subparagraph:

18 ‘‘(B) NONDELEGATION OF APPROVAL AU19 THORITY.—Subject to such regulations as the

20 Finance Board may prescribe, the board of di21 rectors of each Federal home loan bank may

22 approve or disapprove requests from members

23 for Affordable Housing Program subsidies, and

24 may not delegate such authority.’’;
21

•S 1423 IS

1 (ii) in each of paragraphs (1), (3),

2 (4), (6), (9)(B), (9)(C), (11), and (12), by

3 striking ‘‘advances’’ each place that term

4 appears and inserting ‘‘subsidies’’;

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

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

7 advances’’ each place that term appears

8 and inserting ‘‘subsidies, including sub9 sidized advances,’’;

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

11 ‘‘such advances’’ and inserting ‘‘such sub12 sidies’’;

13 (v) in the paragraph heading for para14 graph (3), by striking ‘‘ADVANCES’’ and in15 serting ‘‘SUBSIDIES’’;

16 (vi) in paragraph (2), by striking sub17 paragraph (B) and inserting the following:

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

19 rehabilitation of rental housing if, for a period

20 of not less than 15 years, either—

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

22 in such housing are occupied by and af23 fordable for households whose income is 50

24 percent or less of area median income; or
22

•S 1423 IS

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

2 in such housing are occupied by and af3 fordable for households whose income is 60

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

5 (vii) by striking paragraph (5) and in6 serting the following:

7 ‘‘(5) CONTRIBUTION TO PROGRAM.—Each Fed8 eral home loan bank shall annually contribute 10

9 percent of the net income of that bank during the

10 preceding year, or such prorated sums as may be re11 quired to assure that the aggregate contribution of

12 the banks shall not be less than $100,000,000 for

13 each such year, to support subsidies, including sub14 sidized advances, through the Affordable Housing

15 Program.’’;

16 (viii) in paragraph (11)—

17 (I) by striking ‘‘Bank’’ each

18 place it appears and inserting ‘‘Fed19 eral home loan bank’’;

20 (II) by inserting ‘‘, pursuant to a

21 nomination process that is as broad

22 and as participatory as possible, and

23 giving consideration to the size of the

24 district and the diversity of low- and

25 moderate-income housing needs and
23

•S 1423 IS

1 activities within the district,’’ after

2 ‘‘15 persons’’;

3 (III) by inserting ‘‘a diverse

4 range of’’ before ‘‘community and

5 nonprofit organizations’’; and

6 (IV) by inserting after the first

7 sentence, the following: ‘‘Representa8 tives of no one group shall constitute

9 an undue proportion of the member10 ship of the Advisory Council.’’; and

11 (ix) in paragraph (13)—

12 (I) by striking ‘‘subsection—’’

13 and inserting ‘‘subsection, the follow14 ing definitions shall apply:’’; and

15 (II) by striking subparagraph

16 (D) and inserting the following:

17 ‘‘(D) AFFORDABLE.—For purposes of

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

19 that the rent with respect to a unit does not ex20 ceed 30 percent of the income limitation under

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

22 such unit.’’.

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

24 Loan Bank Act (12 U.S.C. 1436(a)) is amended in the

25 third sentence—
24

•S 1423 IS

1 (1) by striking ‘‘net earnings’’ and inserting

2 ‘‘previously retained earnings or current net earn3 ings’’; and

4 (2) by striking ‘‘, and then only with the ap5 proval of the Federal Housing Finance Board’’.

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

7 Loan Bank Act (12 U.S.C. 1438(b)) is amended by strik8 ing paragraph (4).

9 SEC. 13. RESOLUTION FUNDING CORPORATION.

10 (a) IN GENERAL.—Section 21B(f)(2)(C) of the Fed11 eral Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is

12 amended to read as follows:

13 ‘‘(C) PAYMENTS BY FEDERAL HOME LOAN

14 BANKS.—To the extent that the amounts avail15 able pursuant to subparagraphs (A) and (B)

16 are insufficient to cover the amount of interest

17 payments, each Federal home loan bank shall

18 pay to the Funding Corporation in each cal19 endar year, 20.75 percent of the net earnings of

20 that bank (after deducting expenses relating to

21 section 10(j) and operating expenses).’’.

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

23 subsection (a) shall become effective on January 1, 1999.
25

•S 1423 IS

1 SEC. 14. CAPITAL STRUCTURE OF THE FEDERAL HOME

2 LOAN BANKS.

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

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

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

6 BANKS.

7 ‘‘(a) CAPITAL STRUCTURE PLAN.—

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

9 days after the date of enactment of the Federal

10 Home Loan Bank System Modernization Act of

11 1997, the board of directors of each Federal home

12 loan bank shall submit for Finance Board approval

13 a plan establishing and implementing a capital

14 structure for such bank that—

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

16 best suited for the condition and operation of

17 the bank and the interests of the shareholders

18 of the bank;

19 ‘‘(B) meets the requirements of subsection

20 (b); and

21 ‘‘(C) meets the minimum capital standards

22 and requirements established under subsection

23 (c) and any regulations prescribed by the Fi24 nance Board.

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

26 board of directors of a Federal home loan bank shall
26

•S 1423 IS

1 submit to the Finance Board for approval any modi2 fications that the bank wishes to make to an ap3 proved capital structure plan.

4 ‘‘(b) CONTENTS OF PLAN.—The capital structure

5 plan of each Federal home loan bank shall contain provi6 sions addressing each of the following:

7 ‘‘(1) STOCK PURCHASE REQUIREMENTS.—

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

9 plan of a Federal home loan bank shall require

10 the shareholders of the bank to maintain an in11 vestment in the stock of the bank in an amount

12 equal to the greater of—

13 ‘‘(i) a minimum percentage of the

14 total assets of the shareholder; or

15 ‘‘(ii) a minimum percentage of the

16 outstanding advances from the bank to the

17 shareholder.

18 ‘‘(B) MINIMUM PERCENTAGE LEVELS.—

19 The minimum percentages established pursuant

20 to subparagraph (A) shall be set at levels suffi21 cient to meet the minimum capital requirements

22 for the bank established by the Finance Board

23 under subsection (c).

24 ‘‘(C) LIMITATION ON ASSET-BASED CAP25 ITAL REQUIREMENT.—The asset-based capital
27

•S 1423 IS

1 requirement applicable to any shareholder of a

2 Federal home loan bank in any year may not

3 exceed 0.6 percent of the total assets of the

4 shareholder at the close of the preceding year,

5 and in no case shall an asset-based capital re6 quirement applicable to a shareholder of a Fed7 eral home loan bank in any year exceed

8 $300,000,000.

9 ‘‘(D) LIMITATION ON ADVANCE-BASED

10 CAPITAL REQUIREMENT.—The advance-based

11 capital requirement applicable to any share12 holder of a Federal home loan bank may not

13 exceed 5 percent of the total outstanding ad14 vances from the bank to the shareholder.

15 ‘‘(E) MINIMUM STOCK PURCHASE RE16 QUIREMENT AUTHORIZED.—The capital struc17 ture plan may establish a minimum dollar

18 amount of stock of a Federal home loan bank

19 in which a shareholder shall be required to in20 vest.

21 ‘‘(2) ADJUSTMENTS TO STOCK PURCHASE RE22 QUIREMENTS.—The capital structure plan shall im23 pose a continuing obligation on the board of direc24 tors of the bank to review and adjust as necessary

25 member stock purchase requirements in order to en-
28

•S 1423 IS

1 sure that the bank remains in compliance with appli2 cable minimum capital levels established by the Fi3 nance Board.

4 ‘‘(3) TRANSITION RULE FOR STOCK PURCHASE

5 REQUIREMENTS.—

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

7 plan may allow shareholders who were members

8 of a Federal home loan bank on the date of en9 actment of the Federal Home Loan Bank Sys10 tem Modernization Act of 1997 to come into

11 compliance with the asset-based stock purchase

12 requirement established under paragraph (1)

13 during a transition period established under the

14 plan of not more than 3 years, if such require15 ment exceeds the asset-based stock purchase re16 quirement in effect on that date of enactment.

17 ‘‘(B) INTERIM PURCHASE REQUIRE18 MENTS.—The capital structure plan may estab19 lish interim asset-based stock purchase require20 ments applicable to members referred to in sub21 paragraph (A) during a transition period estab22 lished under subparagraph (A).

23 ‘‘(4) DISPOSITION OF SHARES.—The capital

24 structure plan shall provide for the manner of dis-
29

•S 1423 IS

1 position of any stock held by a member that termi2 nates or withdraws from membership for any reason.

3 ‘‘(5) CLASSES OF STOCK.—

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

5 plan shall—

6 ‘‘(i) afford each shareholder of a Fed7 eral home loan bank the option of meeting

8 the stock purchase requirements of the

9 shareholder through the purchase of any

10 combination of Class A or Class B stock;

11 and

12 ‘‘(ii) provide for and prescribe the

13 terms, rights, and preferences, including

14 dividends, voting, and liquidation pref15 erences, of stock issued by the Federal

16 home loan bank.

17 ‘‘(B) CLASS A STOCK.—Class A stock shall

18 be stock of a Federal home loan bank that shall

19 be redeemed in cash and at par by the bank not

20 later than 12 months following the date of sub21 mission of a written notice by a shareholder of

22 the shareholder’s intention to divest all shares

23 of stock in the bank.

24 ‘‘(C) CLASS B STOCK.—Class B stock shall

25 be stock of a Federal home loan bank that shall
30

•S 1423 IS

1 be redeemed in cash and at par by the bank

2 not later than 5 years following the date of sub3 mission of a written notice by a shareholder of

4 the shareholder’s intention to divest all shares

5 of stock in the bank.

6 ‘‘(D) RIGHTS REQUIREMENT.—The Class

7 B stock of a Federal home loan bank may re8 ceive a dividend premium over that paid on

9 Class A stock, and may have preferential voting

10 rights in the election of Federal home loan bank

11 directors.

12 ‘‘(E) LOWER STOCK PURCHASE REQUIRE13 MENTS FOR CLASS B STOCK.—The capital

14 structure plan may provide for lower stock pur15 chase requirements with respect to those share16 holders that elect to purchase Class B stock in

17 a manner that is consistent with meeting the

18 minimum capital requirements of the subject

19 bank, as established by the Finance Board.

20 ‘‘(F) NO OTHER CLASSES OF STOCK PER21 MITTED.—No class of stock may be issued by

22 a Federal home loan bank, other than—

23 ‘‘(i) the Class A and Class B stock de24 scribed in subparagraphs (B) and (C); and
31

•S 1423 IS

1 ‘‘(ii) redeemable equity certificates de2 scribed in paragraph (7)(C).

3 ‘‘(G) LIQUIDATION OF CLAIMS.—The cap4 ital structure plan shall provide for the liquida5 tion in an orderly manner, as determined by the

6 Federal home loan bank, of any claim of that

7 bank against a member, including claims for

8 any applicable prepayment fees or penalties re9 sulting from prepayment of advances prior to

10 stated maturity.

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

12 The capital structure plan shall—

13 ‘‘(A) provide that any equity securities is14 sued by the Federal home loan bank shall be

15 available only to, held only by, and tradable

16 only among members of that bank; and

17 ‘‘(B) establish standards, criteria, and re18 quirements for the issuance, purchase, trading,

19 transfer, retirement, and redemption of stock

20 issued by that bank.

21 ‘‘(7) TREATMENT OF RETAINED EARNINGS.—

22 ‘‘(A) IN GENERAL.—Each Federal home

23 loan bank shall have ownership in, and a pri24 vate property right in, the retained earnings of

25 the bank.
32

•S 1423 IS

1 ‘‘(B) EXCEPTION.—Notwithstanding sub2 paragraph (A) and except as otherwise provided

3 in this section or through the declaration of a

4 dividend or a capital distribution by a Federal

5 home loan bank, or in the event of liquidation

6 of the bank, a shareholder shall have no right

7 to withdraw or otherwise receive distribution of

8 any portion of the bank’s retained earnings.

9 ‘‘(C) OTHER DISTRIBUTIONS.—In addition

10 to distributions of retained earnings through

11 dividends and capital distributions as described

12 in subparagraph (B), each Federal home loan

13 bank may provide its shareholders with the

14 right to receive a pro rata distribution of all or

15 a portion of the retained earnings of the bank

16 through the issuance of redeemable equity cer17 tificates or other indicia of ownership interests

18 to its members.

19 ‘‘(D) LIMITATION.—A Federal home loan

20 bank may not make any distribution of its re21 tained earnings unless, following such distribu22 tion, the bank would continue to meet all appli23 cable capital requirements.

24 ‘‘(8) BANK REVIEW OF PLAN.—Before filing the

25 capital structure plan with the Finance Board, each
33

•S 1423 IS

1 Federal home loan bank shall conduct a review of

2 the plan by—

3 ‘‘(A) an independent public accountant, to

4 ensure, to the extent possible, that implementa5 tion of the plan would not result in any write6 down of its members’ bank stock investment;

7 and

8 ‘‘(B) not fewer than one major credit rat9 ing agency, to determine, to the extent possible,

10 whether implementation of the plan would, in

11 itself, create significant risk to the credit rat12 ings of the bank or access by the bank to the

13 global capital markets.

14 ‘‘(c) CAPITAL STANDARDS.—

15 ‘‘(1) IN GENERAL.—The Finance Board shall

16 prescribe, by regulation, uniform capital standards

17 applicable to each Federal home loan bank, which

18 shall require each such bank to meet the greater

19 of—

20 ‘‘(A) a leverage limit in accordance with

21 paragraph (2); or

22 ‘‘(B) risk-based capital requirements, in

23 accordance with paragraph (3).

24 ‘‘(2) MINIMUM LEVERAGE LIMIT.—The leverage

25 limit established by the Finance Board shall require
34

•S 1423 IS

1 each Federal home loan bank to maintain total cap2 ital in an amount equal to not less than 5 percent

3 of the total assets of the bank. In determining com4 pliance with the minimum leverage ratio, the amount

5 of retained earnings and the paid-in value of Class

6 B stock, if any, shall be multiplied by 1.5, and such

7 higher amount shall be deemed to be capital for pur8 poses of meeting the 5 percent minimum leverage

9 ratio.

10 ‘‘(3) RISK-BASED CAPITAL STANDARD.—Regu11 lations prescribed by the Finance Board in accord12 ance with paragraph (1)(B) shall require each Fed13 eral home loan bank to maintain capital in an

14 amount that is sufficient to meet—

15 ‘‘(A) the credit risk to which the Federal

16 home loan bank is subject, based on an amount

17 equal to not less than the amount of tier 1,

18 risk-based capital required by regulations pre19 scribed or guidelines issued under section 38 of

20 the Federal Deposit Insurance Act for a well

21 capitalized insured depository institution; and

22 ‘‘(B) the interest rate risk to which the

23 Federal home loan bank is subject, based on an

24 interest rate stress test applied by the Finance

25 Board that rigorously tests for changes in inter-
35

•S 1423 IS

1 est rates, rate volatility, and changes in the

2 shape of the yield curve.

3 ‘‘(d) REDEMPTION OF CAPITAL.—

4 ‘‘(1) IN GENERAL.—Except as provided in para5 graph (5), a shareholder of a Federal home loan

6 bank shall have the right to withdraw that share7 holder’s membership from a Federal home loan bank

8 and to redeem the shareholder’s stock in accordance

9 with the redemption rights associated with the class

10 of stock that the shareholder holds, if the share11 holder—

12 ‘‘(A) has filed an appropriate written no13 tice of an intention to redeem all such shares;

14 and

15 ‘‘(B) has not canceled that notice prior to

16 the expiration of any requisite notice period.

17 ‘‘(2) LIQUIDATION OF CLAIMS.—If a member

18 withdraws from membership or terminates its mem19 bership for any reason, as prescribed in the capital

20 structure plan of a Federal home loan bank—

21 ‘‘(A) the indebtedness of the member to

22 the bank shall be liquidated in an orderly man23 ner;

24 ‘‘(B) the stock of the bank owned by the

25 member shall be surrendered and canceled;
36

•S 1423 IS

1 ‘‘(C) the member shall be entitled to the

2 return of its collateral; and

3 ‘‘(D) the member shall receive payment for

4 the stock.

5 ‘‘(3) DIVESTITURE.—The board of directors of

6 any Federal home loan bank may, after a hearing,

7 order the divestiture by any shareholder of all own8 ership interests of such shareholder in the bank, if—

9 ‘‘(A) in the opinion of the board of direc10 tors, such shareholder has failed to comply with

11 a provision of this Act or any regulation pre12 scribed under this Act; or

13 ‘‘(B) the shareholder has been determined

14 to be insolvent, or otherwise subject to the ap15 pointment of a conservator, receiver, or other

16 legal custodian, by a State or Federal authority

17 with regulatory and supervisory responsibility

18 for such shareholder.

19 ‘‘(4) REDEMPTION OF EXCESS STOCK.—

20 ‘‘(A) SHAREHOLDER RIGHTS.—Unless pro21 hibited by the Finance Board, or as determined

22 by the board of directors of a Federal home

23 loan bank under paragraph (5), as necessary to

24 resolve an impairment in the capital of the Fed25 eral home loan bank, any shareholder may,
37

•S 1423 IS

1 upon application to and in the discretion of the

2 bank, receive from the Federal home loan bank

3 payment in cash equal to the par value of the

4 stock in exchange for the redemption of stock

5 held by the shareholder in excess of the mini6 mum stock purchase requirements applicable to

7 the shareholder.

8 ‘‘(B) BANK RIGHTS.—A Federal home loan

9 bank may, without notice to or request by a

10 shareholder of the bank redeem any shares of

11 stock in the bank held by that shareholder that

12 are in excess of the minimum stock purchase

13 requirements applicable to that shareholder.

14 ‘‘(C) PRIORITY.—A Federal home loan

15 bank may not, under subparagraph (A) or (B),

16 redeem shares of Class B stock held by a mem17 ber before the end of the 5-year term of that

18 stock, unless there is no Class A stock out19 standing that could be redeemed as excess.

20 ‘‘(5) IMPAIRMENT OF CAPITAL.—If the Finance

21 Board or the board of directors of a Federal home

22 loan bank determines that the paid-in capital of the

23 bank is, or is likely to be, impaired as a result of

24 losses in or depreciation of the assets of the bank,

25 the Federal home loan bank shall withhold all or
38

•S 1423 IS

1 part of any redemption proceeds, as determined by

2 the Finance Board to be necessary to prevent fur3 ther impairment of the capital of the bank. In no

4 case may a Federal home loan bank redeem any ap5 plicable capital stock if, following the redemption,

6 the bank would fail to satisfy any minimum capital

7 requirement.

8 ‘‘(6) POLICIES.—Subject to the requirements of

9 this section, the board of directors of each Federal

10 home loan bank shall promptly establish policies,

11 consistent with this Act, governing the capital stock

12 of such bank and other provisions of this section.

13 ‘‘(e) REJOINING AFTER DIVESTITURE OF ALL

14 SHARES.—

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

16 provision of this Act, an institution that divests all

17 shares of stock in a Federal home loan bank may

18 not, after such divestiture, acquire shares of any

19 Federal home loan bank before the end of the 5-year

20 period beginning on the date of the completion of

21 such divestiture, unless the divestiture is a con22 sequence of a transfer of membership on an uninter23 rupted basis between banks.

24 ‘‘(2) EXCEPTION FOR WITHDRAWALS FROM

25 MEMBERSHIP BEFORE 1998.—Any institution that
39

•S 1423 IS

1 withdrew from membership in any Federal home

2 loan bank before December 31, 1997, may acquire

3 shares of a Federal home loan bank at any time

4 after that date, subject to the approval of the Fi5 nance Board and the requirements of this Act.’’.

6 SEC. 15. FEDERAL HOUSING FINANCE BOARD.

7 Section 2A(b) of the Federal Home Loan Bank Act

8 (12 U.S.C. 1422a(b)) is amended—

9 (1) in paragraph (1)—

10 (A) by redesignating subparagraphs (A)

11 and (B) as subparagraphs (B) and (C), respec12 tively;

13 (B) by inserting before subparagraph (B)

14 (as redesignated by subparagraph (A) of this

15 paragraph) the following new subparagraph:

16 ‘‘(A) The Chairperson of the Federal De17 posit Insurance Corporation (or the designee of

18 the Chairperson), who shall serve without addi19 tional compensation.’’; and

20 (C) in subparagraph (C) (as redesignated

21 by subparagraph (A) of this paragraph) by

22 striking ‘‘Four’’ and inserting ‘‘Three’’; and

23 (2) in paragraph (2)(A), in the third sentence,

24 by striking ‘‘Not more than 3 directors’’ and insert25 ing ‘‘Not more than 2 appointed directors’’.
40

•S 1423 IS

1 SEC. 16. INVESTMENTS BY FEDERAL HOME LOAN BANKS.

2 (a) IN GENERAL.—Section 11(g) of the Federal

3 Home Loan Bank Act (12 U.S.C. 1431(h) (as redesig4 nated by section 10(e) of this Act)) is amended—

5 (1) by striking ‘‘(h) Such part’’ and inserting

6 the following:

7 ‘‘(g) INVESTMENT OF ASSETS.—

8 ‘‘(1) IN GENERAL.—Such part’’; and

9 (2) by adding at the end the following:

10 ‘‘(2) AMOUNT OF INVESTMENTS.—Notwith11 standing any other provision of this Act, a Federal

12 home loan bank may not maintain investments in an

13 amount in excess of the amount necessary for liquid14 ity purposes, for ensuring adequate availability of

15 credit for the members, for safe and sound operation

16 of the banks, for maintaining a stable capital base,

17 for supporting the Affordable Housing Program, or

18 for housing finance, as administered by the Finance

19 Board.’’.

20 (b) INVESTMENT OF RESERVES.—Section 16(a) of

21 the Federal Home Loan Bank Act (12 U.S.C. 1436(a))

22 is amended—

23 (1) by striking ‘‘(a) Each Federal’’ and insert24 ing the following:

25 ‘‘(a) RESERVE ACCOUNTS.—

26 ‘‘(1) IN GENERAL.—Each Federal’’; and
41

•S 1423 IS

1 (2) by striking ‘‘The reserves’’ and all that fol2 lows through ‘‘is located.’’ and inserting the follow3 ing:

4 ‘‘(2) INVESTMENT OF RESERVES.—The reserves

5 of each Federal home loan bank shall be invested as

6 provided in section 11(g).’’.

Æ