130
governing the manner in which its affairs may
be administered, consistent with applicable stat-
ute and regulation, as administered by the Fi-
nance Board. No officer, employee, attorney, or
agent of a Federal home loan bank’’.
(2) Section 12 of the Federal Home Loan Bank
Act (12 U.S.C. 1432) is amended by inserting after
subsection (b) the following new subsection:
‘‘(c) PROHIBITION ON EXCESSIVE COMPENSATION.—
‘‘(1) IN GENERAL.—The Finance Board shall
prohibit the Federal home loan banks from provid-
ing compensation to any officer, director, or em-
ployee that is not reasonable and comparable with
the compensation for employment in other similar
businesses involving similar duties and responsibil-
ities. However, the Finance Board may not prescribe
or set a specific level or range of compensation for
any officer, director, or employee.
‘‘(2) REGULATIONS.—The Finance Board, by
regulation, may provide for the requirements of
paragraph (1) to be phased-in over a period not to
exceed 3 years.
‘‘(3) EXCEPTION FOR EXISTING CONTRACTS.—
Paragraph (1) shall not apply to any contract en-
tered into before June 1, 1997.’’.
131
(c) POWERS AND DUTIES OF FEDERAL HOUSING FI-
NANCE BOARD.—
(1) Subsection (a)(1) of section 2B of the Fed-
eral Home Loan Bank Act (12 U.S.C. 1422b(a)(1))
is amended by striking the period at the end of the
sentence and inserting ‘‘; and to have the same pow-
ers, rights, and duties to enforce this Act with re-
spect to the Federal home loan banks and the senior
officers and directors of such banks as the Office of
Federal Housing Enterprise Oversight has over the
Federal housing enterprises and the senior officers
and directors of such enterprises under the Federal
Housing Enterprises Financial Safety and Sound-
ness Act of 1992.’’.
(2) Subsection (b) of section 2B of the Federal
Home Loan Bank Act (12 U.S.C. 1422b(b)) is
amended—
(A) by striking ‘‘(1) BOARD STAFF.—’’;
(B) by striking ‘‘function to any employee,
administrative unit’’ and inserting ‘‘function to
any employee or administrative unit’’;
(C) by striking the second sentence in
paragraph (1); and
(D) by striking paragraph (2).
132
(3) Section 111 of Public Law 93–495 (12
U.S.C. 250) is amended by striking ‘‘Federal Home
Loan Bank Board’’ and inserting ‘‘Federal Housing
Finance Board’’.
(d) ELIGIBILITY TO SECURE ADVANCES.—
(1) SECTION
9.—Section 9 of the Federal
Home Loan Bank Act (12 U.S.C. 1429) is amend-
ed—
(A) in the second sentence, by striking
‘‘with the approval of the Board’’; and
(B) in the third sentence, by striking ‘‘,
subject to the approval of the Board,’’.
(2) SECTION 10.—
(A) Subsection (a) of section 10 of the
Federal Home Loan Bank Act (12 U.S.C.
1430(a)) is amended in paragraph (3), by strik-
ing ‘‘Deposits’’ and inserting ‘‘Cash or depos-
its’’.
(B) Subsection (c) of section 10 of the
Federal Home Loan Bank Act (12 U.S.C.
1430(c)) is amended—
(i) in the first sentence by striking
‘‘Board’’ and inserting ‘‘Federal home loan
bank’’; and
(ii) by striking the second sentence.
133
(C) Subsection (d) of section 10 of the
Federal Home Loan Bank Act (12 U.S.C.
1430(d)) is amended—
(i) in the first sentence, by striking
‘‘and the approval of the Board’’; and
(ii) in the last sentence, by striking
‘‘Subject to the approval of the Board,
any’’ and inserting ‘‘Any’’.
(D) Section 10(j) of the Federal Home
Loan Bank Act (12 U.S.C. 1430(j)) is amend-
ed—
(i) in the first sentence of paragraph
(1) by striking ‘‘to subsidize the interest
rate on advances’’ and inserting ‘‘to pro-
vide subsidies, including subsidized interest
rates on advances’’;
(ii) in paragraphs (2), (3), (4), (5),
(9), (11), and (12) by striking ‘‘advances’’
and ‘‘subsidized advances’’ each place such
terms appear and inserting ‘‘subsidies, in-
cluding subsidized advances’’;
(iii) in paragraph (1), by inserting
‘‘(A)’’ before the first sentence, and insert-
ing the following at the end of the para-
graph:
134
‘‘(B) Subject to such regulations as the Fi-
nance Board may prescribe, the board of direc-
tors of each Federal home loan bank may ap-
prove or disapprove requests from members for
Affordable Housing Program subsidies, and
may not delegate such authority.’’;
(iv) in paragraph (2), by striking sub-
paragraph (B) and inserting the following
new subparagraph:
‘‘(B) finance the purchase, construction or
rehabilitation of rental housing if, for a period
of at least 15 years, either 20 percent or more
of the units in such housing are occupied by
and affordable for households whose income is
50 percent or less of area median income (as
determined by the Secretary of Housing and
Urban Development, and as adjusted for family
size); or 40 percent or more of the units in such
housing are occupied by and affordable for
households whose income is 60 percent or less
of area median income (as determined by the
Secretary of Housing and Urban Development,
and as adjusted for family size).’’;
(v) in paragraph (5)—
135
(I) by striking the colon after
‘‘Affordable Housing Program’’;
(II) by striking subparagraphs
(A) and (B); and
(III) by striking ‘‘(C) In 1995,
and subsequent years,’’;
(vi) in paragraph (11)—
(I) by inserting ‘‘, pursuant to a
nomination process that is as broad
and as participatory as possible, and
giving consideration to the size of the
District and the diversity of low- and
moderate-income housing needs and
activities within the District,’’ after
‘‘Advisory Council of 7 to 15 per-
sons’’;
(II) by inserting ‘‘a diverse range
of’’ before ‘‘community and nonprofit
organizations’’; and
(III) by inserting after the first
sentence, the following new sentence:
‘‘Representatives of no one group
shall constitute an undue proportion
of the membership of the Advisory
Council.’’; and
136
(vii) in paragraph (13), by striking
subparagraph (D) and inserting the follow-
ing new subparagraph:
‘‘(D) 
AFFORDABLE.—For 
purposes 
of
paragraph (2)(B), the term ‘‘affordable’’ means
that the rent with respect to a unit shall not ex-
ceed 30 percent of the income limitation under
paragraph (2)(B) applicable to occupants of
such unit.’’.
(e) SECTION 16.—Subsection (a) of section 16 of the
Federal Home Loan Bank Act (12 U.S.C. 1436) is
amended in the third sentence by striking ‘‘net earnings’’
and inserting ‘‘previously retained earnings or current net
earnings’’; by striking ‘‘, and then only with the approval
of the Federal Housing Finance Board’’; and by striking
the fourth sentence.
(f) SECTION 18.—Subsection (b) of section 18 of the
Federal Home Loan Bank Act (12 U.S.C. 1438) is
amended by striking paragraph (4).
(g) SECTION 11.—Section 11 of the Federal Home
Loan Bank Act (12 U.S.C. 1431) is amended by inserting
after subsection (j) (as so redesignated by section 166(e)
of this subtitle) the following subsection:
‘‘(k) PROHIBITION ON OTHER ACTIVITIES.—
137
‘‘(1) A Federal home loan bank may not engage
in any activity other than the activities authorized
under this Act and activities incidental to such au-
thorized activities.
‘‘(2) All activities specified in paragraph (1) are
subject to Finance Board approval.’’.
SEC. 169. DEFINITIONS.
Paragraph (3) of section 2 of the Federal Home Loan
Bank Act (12 U.S.C. 1422(3)) is amended to read as fol-
lows:
‘‘(3) The term ‘‘State’’ in addition to the states
of the United States, includes the District of Colum-
bia, Guam, Puerto Rico, the United States Virgin
Islands, American Samoa, and the Commonwealth of
the Northern Mariana Islands.’’.
SEC. 170. RESOLUTION FUNDING CORPORATION.
(a) IN GENERAL.—Section 21B(f)(2)(C) of the Fed-
eral Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is
amended to read as follows:
‘‘(C) PAYMENTS BY FEDERAL HOME LOAN
BANKS.—To the extent the amounts available
pursuant to subparagraphs (A) and (B) are in-
sufficient to cover the amount of interest pay-
ments, each Federal home loan bank shall pay
to the Funding Corporation each calendar year
138
20.75 percent of the net earnings of such bank
(after deducting expenses relating to subsection
(j) of section 10 and operating expenses).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on January 1, 1999.
SEC. 171. CAPITAL STRUCTURE OF THE FEDERAL HOME
LOAN BANKS.
(a) IN GENERAL.—Section 6 of the Federal Home
Loan Bank Act (12 U.S.C. 1426) is amended to read as
follows:
‘‘SEC. 6. CAPITAL STRUCTURE OF FEDERAL HOME LOAN
BANKS.
‘‘(a) CAPITAL STRUCTURE PLAN.—On or before Jan-
uary 1, 1999, the board of directors of each Federal home
loan bank shall submit for Finance Board approval a plan
establishing and implementing a capital structure for such
bank which—
‘‘(1) the board of directors determines is the
best suited for the condition and operation of the
bank and the interests of the shareholders of the
bank;
‘‘(2) meets the requirements of subsection (b);
and
‘‘(3) meets the minimum capital standards and
requirements established under subsection (c) and
139
any regulations prescribed by the Finance Board
pursuant to such subsection.
‘‘(b) CONTENTS OF PLAN.—The capital structure
plan of each Federal home loan bank shall meet the follow-
ing requirements:
‘‘(1) STOCK PURCHASE REQUIREMENTS.—
‘‘(A) IN GENERAL.—Each capital structure
plan of a Federal home loan bank shall require
the shareholders of the bank to maintain an in-
vestment in the stock of the bank in amount
not less than—
‘‘(i) a minimum percentage of the
total assets of the shareholder; and
‘‘(ii) a minimum percentage of the
outstanding advances from the bank to the
shareholder.
‘‘(B) MINIMUM
PERCENTAGE
LEVELS.—
The minimum percentages established pursuant
to subparagraph (A) shall be set at levels suffi-
cient to meet the bank’s minimum capital re-
quirements established by the Finance Board
under subsection (c).
‘‘(C) MAXIMUM ASSET BASED CAPITAL RE-
QUIREMENT.—The asset-based capital require-
ment applicable to any shareholder of a Federal
140
home loan bank in any year shall not exceed the
lesser of—
‘‘(i) 0.6 percent of a shareholder’s
total assets at the close of the preceding
year; or
‘‘(ii) $300,000,000.
‘‘(D) MAXIMUM ADVANCE-BASED REQUIRE-
MENT.—The advance-based capital requirement
applicable to any shareholder of a Federal home
loan bank shall not exceed 6 percent of the
total outstanding advances from the bank to the
shareholder.
‘‘(E) MINIMUM
STOCK
PURCHASE
RE-
QUIREMENT AUTHORIZED.—A capital structure
plan may establish a minimum dollar amount of
stock of a Federal home loan bank in which a
shareholder shall be required to invest.
‘‘(2) ADJUSTMENTS TO STOCK PURCHASE RE-
QUIREMENTS.—The capital structure plan adopted
by each Federal home loan bank shall impose a con-
tinuing obligation on the board of directors of the
bank to review and adjust as necessary member
stock purchase requirements in order to ensure that
the bank remains in compliance with applicable min-
141
imum capital levels established by the Finance
Board.
‘‘(3) TRANSITION RULE FOR STOCK PURCHASE
REQUIREMENTS.—
‘‘(A) IN
GENERAL.—A capital structure
plan may allow shareholders who were members
of a Federal home loan bank on the date of the
enactment of the Financial Services Act of
1998 to come into compliance with the asset-
based stock purchase requirement established
under paragraph (1) during a transition period
established under the plan of not more than 3
years, if such requirement exceeds the asset-
based stock purchase requirement in effect on
such date of enactment.
‘‘(B) 
INTERIM
PURCHASE
REQUIRE-
MENTS.—A capital structure plan may establish
interim asset-based stock purchase require-
ments applicable to members referred to in sub-
paragraph (A) during a transition period estab-
lished under subparagraph (A).
‘‘(4) CLASSES OF STOCK.—
‘‘(A) IN GENERAL.—Each capital structure
plan shall afford each shareholder of a Federal
home loan bank the option of meeting the
142
shareholder’s 
stock 
purchase 
requirements
through the purchase of any combination of
Class A or Class B stock.
‘‘(B) CLASS A STOCK.—Class A stock shall
be stock of a Federal home loan bank that shall
be redeemed in cash and at par by the bank no
later than 12 months following submission of a
written notice by a shareholder of the share-
holder’s intention to divest all shares of stock in
the bank.
‘‘(C) CLASS B STOCK.—Class B stock shall
be stock of a Federal home loan bank that shall
be redeemed in cash and at par by the bank no
later than 5 years following submission of a
written notice by a shareholder of the share-
holder’s intention to divest all shares of stock in
the bank.
‘‘(D) RIGHTS REQUIREMENT.—The Class
B stock of a Federal home loan bank may re-
ceive a dividend premium over that paid on
Class A stock, and may have preferential voting
rights in the election of Federal home loan bank
directors.
‘‘(E) LOWER STOCK PURCHASE REQUIRE-
MENTS FOR CLASS B STOCK.—A capital struc-
143
ture plan may provide for lower stock purchase
requirements with respect to those sharehold-
er’s that elect to purchase Class B stock in a
manner that is consistent with meeting the
bank’s own minimum capital requirements as
established by the Finance Board.
‘‘(F) NO OTHER CLASSES OF STOCK PER-
MITTED.—No class of stock other than the
Class A and Class B stock described in sub-
paragraphs (B) and (C) may be issued by a
Federal home loan bank.
‘‘(5) LIMITED TRANSFERABILITY OF STOCK.—
Each capital structure plan shall provide that any
equity securities issued by the bank shall be avail-
able only to, held only by, and tradable only among
shareholders of the bank.
‘‘(c) CAPITAL STANDARDS.—
‘‘(1) IN GENERAL.—The Finance Board shall
prescribe, by regulation, uniform capital standards
applicable to each Federal home loan bank which
shall include—
‘‘(A) a leverage limit in accordance with
paragraph (2); and
‘‘(B) a risk-based capital requirement in
accordance with paragraph (3).
144
‘‘(2) MINIMUM LEVERAGE LIMIT.—The leverage
limit established by the Finance Board shall require
each Federal home loan bank to maintain total cap-
ital in an amount not less than 5 percent of the total
assets of the bank. In determining compliance with
the minimum leverage ratio, the amount of retained
earnings and the paid-in value of Class B stock, if
any, shall be multiplied by 1.5 and such higher
amount shall be deemed to be capital for purposes
of meeting the 5 percent minimum leverage ratio.
‘‘(3) RISK-BASED
CAPITAL
STANDARD.—The
risk-based capital requirement shall be composed of
the following components:
‘‘(A) Capital sufficient to meet the credit
risk to which a Federal home loan bank is sub-
ject, based on an amount which is not less than
the amount of tier 1, risk-based capital required
by regulations prescribed, or guidelines issued
under section 38 of the Federal Deposit Insur-
ance Act for a well capitalized insured deposi-
tory institution.
‘‘(B) Capital sufficient to meet the interest
rate risk to which a Federal home loan bank is
subject, based on an interest rate stress test ap-
plied by the Finance Board that rigorously tests
145
for changes in interest rates, rate volatility, and
changes in the shape of the yield curve.
‘‘(d) REDEMPTION OF CAPITAL.—
‘‘(1) IN GENERAL.—Any shareholder of a Fed-
eral home loan bank shall have the right to withdraw
the shareholder’s membership from a Federal home
loan bank and to redeem the shareholder’s stock in
accordance with the redemption rights associated
with the class of stock the shareholder holds, if—
‘‘(A) such shareholder has filed a written
notice of an intention to redeem all such shares;
and
‘‘(B) the shareholder has no outstanding
advances from any Federal home loan bank at
the time of such redemption.
‘‘(2) PARTIAL
REDEMPTION.—A shareholder
who files notice of intention to redeem all shares of
stock in a Federal home loan bank may redeem not
more than 1/2 of all such shares, in cash and at par,
6 months before the date by which the bank is re-
quired to redeem such stock pursuant to subpara-
graph (B) or (C) of subsection (b)(4).
‘‘(3) DIVESTITURE.—The board of directors of
any Federal home loan bank may, after a hearing,
146
order the divestiture by any shareholder of all own-
ership interests of such shareholder in the bank, if—
‘‘(A) in the opinion of the board of direc-
tors, such shareholder has failed to comply with
a provision of this Act or any regulation pre-
scribed under this Act; or
‘‘(B) the shareholder has been determined
to be insolvent, or otherwise subject to the ap-
pointment of a conservator, receiver, or other
legal custodian, by a State or Federal authority
with regulatory and supervisory responsibility
for such shareholder.
‘‘(4) RETIREMENT
OF
EXCESS
STOCK.—Any
shareholder may—
‘‘(A) retire shares of Class A stock or, at
the option of the shareholder, shares of Class B
stock, or any combination of Class A and Class
B stock, that are excess to the minimum stock
purchase requirements applicable to the share-
holder; and
‘‘(B) receive from the Federal home loan
bank a prompt payment in cash equal to the
par value of such stock.
‘‘(5) IMPAIRMENT OF CAPITAL.—If the Finance
Board or the board of directors of a Federal home
147
loan bank determines that the paid-in capital of the
bank is, or is likely to be, impaired as a result of
losses in or depreciation of the assets of the bank,
the Federal home loan bank shall withhold that por-
tion of the amount due any shareholder with respect
to any redemption or retirement of any class of
stock which bears the same ratio to the total of such
amount as the amount of the impaired capital bears
to the total amount of capital allocable to such class
of stock.
‘‘(6) POLICIES.—Subject to the requirements of
this section, the board of directors of each Federal
home loan bank shall promptly establish policies,
consistent with this Act, governing the capital stock
of such bank and other provisions of this section.’’.
SEC. 172. INVESTMENTS.
Subsection (j) of section 11 of the Federal Home
Loan Bank Act (12 U.S.C. 1431) (as so redesignated by
section 166(e) of this subtitle) is amended to read as fol-
lows:
‘‘(j) INVESTMENTS.—Each bank shall reduce its in-
vestments to those necessary for liquidity purposes, for
safe and sound operation of the banks, or for housing fi-
nance, as administered by the Finance Board.’’.
148
SEC. 173. FEDERAL HOUSING FINANCE BOARD.
Section 2A(b)(1) of the Federal Home Loan Bank
Act (12 U.S.C. 1422(b)(1)) is amended—
(1) by redesignating subparagraphs (A) and
(B) as subparagraphs (B) and (C), respectively;
(2) by inserting before subparagraph (B) (as so
redesignated by paragraph (1) of this section) the
following new subparagraph:
‘‘(A) The Secretary of the Treasury (or the
Secretary of the Treasury’s designee), who shall
serve without additional compensation.’’; and
(3) in subparagraph (C) (as so redesignated by
paragraph (1) of this section) by striking ‘‘Four’’
and inserting ‘‘3’’.
Subtitle H—Direct Activities of
Banks
SEC. 181. AUTHORITY OF NATIONAL BANKS TO UNDER-
WRITE CERTAIN MUNICIPAL BONDS.
The paragraph designated the Seventh of section
5136 of the Revised Statutes of the United States (12
U.S.C. 24(7)) is amended by adding at the end the follow-
ing new sentence: ‘‘In addition to the provisions in this
paragraph for dealing in, underwriting or purchasing secu-
rities, the limitations and restrictions contained in this
paragraph as to dealing in, underwriting, and purchasing
investment securities for the national bank’s own account
149
shall not apply to obligations (including limited obligation
bonds, revenue bonds, and obligations that satisfy the re-
quirements of section 142(b)(1) of the Internal Revenue
Code of 1986) issued by or on behalf of any state or politi-
cal subdivision of a state, including any municipal cor-
porate instrumentality of 1 or more states, or any public
agency or authority of any state or political subdivision
of a state, if the national banking association is well cap-
italized (as defined in section 38 of the Federal Deposit
Insurance Act).’’.
Subtitle I—Deposit Insurance
Funds
SEC. 186. STUDY OF SAFETY AND SOUNDNESS OF FUNDS.
(a) STUDY REQUIRED.—The Board of Directors of
the Federal Deposit Insurance Corporation shall conduct
a study of the following issues with regard to the Bank
Insurance Fund and the Savings Association Insurance
Fund:
(1) The safety and soundness of the funds and
the adequacy of the reserve requirements applicable
to the funds in light of—
(A) the size of the insured depository insti-
tutions which are resulting from mergers and
consolidations since the effective date of the
150
Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994; and
(B) the affiliation of insured depository in-
stitutions with other financial institutions pur-
suant to this Act and the amendments made by
this Act.
(2) The concentration levels of the funds, tak-
ing into account the number of members of each
fund and the geographic distribution of such mem-
bers, and the extent to which either fund is exposed
to higher risks due to a regional concentration of
members or an insufficient membership base relative
to the size of member institutions.
(3) Issues relating to the planned merger of the
funds, including the cost of merging the funds and
the manner in which such costs will be distributed
among the members of the respective funds.
(b) REPORT REQUIRED.—
(1) IN GENERAL.—Before the end of the 9-
month period beginning on the date of the enact-
ment of this Act, the Board of Directors of the Fed-
eral Deposit Insurance Corporation shall submit a
report to the Congress on the study conducted pur-
suant to subsection (a).
151
(2) CONTENTS OF REPORT.—The report shall
include—
(A) detailed findings of the Board of Di-
rectors with regard to the issues described in
subsection (a);
(B) a description of the plans developed by
the Board of Directors for merging the Bank
Insurance Fund and the Savings Association
Insurance Fund, including an estimate of the
amount of the cost of such merger which would
be borne by Savings Association Insurance
Fund members; and
(C) such recommendations for legislative
and administrative action as the Board of Di-
rectors determines to be necessary or appro-
priate to preserve the safety and soundness of
the deposit insurance funds, reduce the risks to
such funds, provide for an efficient merger of
such funds, and for other purposes.
(c) DEFINITIONS.—For purposes of this section, the
following definitions shall apply:
(1) INSURED DEPOSITORY INSTITUTION.—The
term ‘‘insured depository institution’’ has the mean-
ing given to such term in section 3(c) of the Federal
Deposit Insurance Act.