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‘‘(A) establish the capital classifications 
specified under paragraph (2) for the Federal 
home loan banks; 
‘‘(B) establish criteria for each such cap-
ital classification based on the amount and 
types of capital held by a bank and the risk-
based, minimum, and critical capital levels for 
the banks and taking due consideration of the 
capital classifications established under sub-
section (a) for the enterprises, with such modi-
fications as the Director determines to be ap-
propriate to reflect the difference in operations 
between the banks and the enterprises; and 
‘‘(C) shall classify the Federal home loan 
banks according to such capital classifications. 
‘‘(2) CLASSIFICATIONS.—The capital classifica-
tions specified under this paragraph are—
‘‘(A) adequately capitalized; 
‘‘(B) undercapitalized; 
‘‘(C) significantly undercapitalized; and 
‘‘(D) critically undercapitalized. 
‘‘(c) DISCRETIONARY CLASSIFICATION.—
‘‘(1) GROUNDS
FOR
RECLASSIFICATION.—The 
Director may reclassify a regulated entity under 
paragraph (2) if—
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‘‘(A) at any time, the Director determines 
in writing that the regulated entity is engaging 
in conduct that could result in a rapid depletion 
of core or total capital or, in the case of an en-
terprise, that the value of the property subject 
to mortgages held or securitized by the enter-
prise has decreased significantly; 
‘‘(B) after notice and an opportunity for 
hearing, the Director determines that the regu-
lated entity is in an unsafe or unsound condi-
tion; or 
‘‘(C) pursuant to section 1371(b), the Di-
rector deems the regulated entity to be engag-
ing in an unsafe or unsound practice. 
‘‘(2) RECLASSIFICATION.—In addition to any 
other action authorized under this title, including 
the reclassification of a regulated entity for any rea-
son not specified in this subsection, if the Director 
takes any action described in paragraph (1) the Di-
rector may classify a regulated entity—
‘‘(A) as undercapitalized, if the regulated 
entity is otherwise classified as adequately cap-
italized;
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‘‘(B) as significantly undercapitalized, if 
the regulated entity is otherwise classified as 
undercapitalized; and 
‘‘(C) as critically undercapitalized, if the 
regulated entity is otherwise classified as sig-
nificantly undercapitalized.’’; and 
(5) by inserting after subsection (d) (as so re-
designated by paragraph (3) of this subsection), the 
following new subsection: 
‘‘(e) RESTRICTION ON CAPITAL DISTRIBUTIONS.—
‘‘(1) IN
GENERAL.—A regulated entity shall 
make no capital distribution if, after making the dis-
tribution, the regulated entity would be under-
capitalized. 
‘‘(2) EXCEPTION.—Notwithstanding paragraph 
(1), the Director may permit a regulated entity, to 
the extent appropriate or applicable, to repurchase, 
redeem, retire, or otherwise acquire shares or owner-
ship interests if the repurchase, redemption, retire-
ment, or other acquisition—
‘‘(A) is made in connection with the 
issuance of additional shares or obligations of 
the regulated entity in at least an equivalent 
amount; and
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‘‘(B) will reduce the financial obligations of 
the regulated entity or otherwise improve the fi-
nancial condition of the entity.’’. 
(b) REGULATIONS.—Not later than the expiration of 
the 180-day period beginning on the effective date under 
section 185, the Director of the Federal Housing Finance 
Agency shall issue regulations to carry out section 1364(b) 
of the Housing and Community Development Act of 1992 
(as added by paragraph (4) of this subsection), relating 
to capital classifications for the Federal home loan banks. 
SEC. 142. SUPERVISORY ACTIONS APPLICABLE TO UNDER-
CAPITALIZED REGULATED ENTITIES. 
Section 1365 of the Housing and Community Devel-
opment Act of 1992 (12 U.S.C. 4615) is amended—
(1) in the section heading, by striking ‘‘ENTER-
PRISES’’ and inserting ‘‘REGULATED ENTITIES’’; 
(2) in subsection (a)—
(A) by redesignating paragraphs (1) and 
(2) as paragraphs (2) and (3), respectively; 
(B) by inserting before paragraph (2) the 
following paragraph: 
‘‘(1) REQUIRED
MONITORING.—The Director 
shall—
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‘‘(A) closely monitor the condition of any 
regulated entity that is classified as under-
capitalized; 
‘‘(B) closely monitor compliance with the 
capital restoration plan, restrictions, and re-
quirements imposed under this section; and 
‘‘(C) periodically review the plan, restric-
tions, and requirements applicable to the under-
capitalized regulated entity to determine wheth-
er the plan, restrictions, and requirements are 
achieving the purpose of this section.’’; and 
(C) by inserting at the end the following 
new paragraphs: 
‘‘(4) RESTRICTION OF ASSET GROWTH.—A reg-
ulated entity that is classified as undercapitalized 
shall not permit its average total assets (as such 
term is defined in section 1316(b) during any cal-
endar quarter to exceed its average total assets dur-
ing the preceding calendar quarter unless—
‘‘(A) the Director has accepted the capital 
restoration plan of the regulated entity; 
‘‘(B) any increase in total assets is con-
sistent with the plan; and 
‘‘(C) the ratio of total capital to assets for 
the regulated entity increases during the cal-