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U.S. Code as of:
01/19/04
Section 1426. Capital structure of Federal home loan banks
(a) Regulations
(1) Capital standards
Not later than 18 months after November 12, 1999, the Finance
Board shall issue regulations prescribing uniform capital
standards applicable to each Federal home loan bank, which shall
require each such bank to meet -
(A) the leverage requirement specified in paragraph (2); and
(B) the risk-based capital requirements, in accordance with
paragraph (3).
(2) Leverage requirement
(A) In general
The leverage requirement shall require each Federal home loan
bank to maintain a minimum amount of total capital based on the
total assets of the bank and shall be 5 percent.
(B) Treatment of stock and retained earnings
In determining compliance with the minimum leverage ratio
established under subparagraph (A), the paid-in value of the
outstanding Class B stock and the amount of retained earnings
shall be multiplied by 1.5, and such higher amounts shall be
deemed to be capital for purposes of meeting the 5 percent
minimum leverage ratio, except that a Federal home loan bank's
total capital (determined without taking into account any such
multiplier) shall not be less than 4 percent of the total
assets of the bank.
(3) Risk-based capital standards
(A) In general
Each Federal home loan bank shall maintain permanent capital
in an amount that is sufficient, as determined in accordance
with the regulations of the Finance Board, to meet -
(i) the credit risk to which the Federal home loan bank is
subject; and
(ii) the market risk, including interest rate risk, to
which the Federal home loan bank is subject, based on a
stress test established by the Finance Board that rigorously
tests for changes in market variables, including changes in
interest rates, rate volatility, and changes in the shape of
the yield curve.
(B) Consideration of other risk-based standards
In establishing the risk-based standard under subparagraph
(A)(ii), the Finance Board shall take due consideration of any
risk-based capital test established pursuant to section 1361 of
the Federal Housing Enterprises Financial Safety and Soundness
Act of 1992 (12 U.S.C. 4611) for the enterprises (as defined in
that Act [12 U.S.C. 4501 et seq.]), with such modifications as
the Finance Board determines to be appropriate to reflect
differences in operations between the Federal home loan banks
and those enterprises.
(4) Other regulatory requirements
The regulations issued by the Finance Board under paragraph (1)
shall -
(A) permit each Federal home loan bank to issue, with such
rights, terms, and preferences, not inconsistent with this
chapter and the regulations issued hereunder, as the board of
directors of that bank may approve, any 1 or more of -
(i) Class A stock, which shall be redeemable in cash and at
par 6 months following submission by a member of a written
notice of its intent to redeem such shares; and
(ii) Class B stock, which shall be redeemable in cash and
at par 5 years following submission by a member of a written
notice of its intent to redeem such shares;
(B) provide that the stock of a Federal home loan bank may be
issued to and held by only members of the bank, and that a bank
may not issue any stock other than as provided in this section;
(C) prescribe the manner in which stock of a Federal home
loan bank may be sold, transferred, redeemed, or repurchased;
and
(D) provide the manner of disposition of outstanding stock
held by, and the liquidation of any claims of the Federal home
loan bank against, an institution that ceases to be a member of
the bank, through merger or otherwise, or that provides notice
of intention to withdraw from membership in the bank.
(5) Definitions of capital
For purposes of determining compliance with the capital
standards established under this subsection -
(A) permanent capital of a Federal home loan bank shall
include -
(i) the amounts paid for the Class B stock; and
(ii) the retained earnings of the bank (as determined in
accordance with generally accepted accounting principles);
and
(B) total capital of a Federal home loan bank shall include -
(i) permanent capital;
(ii) the amounts paid for the Class A stock;
(iii) consistent with generally accepted accounting
principles, and subject to the regulation of the Finance
Board, a general allowance for losses, which may not include
any reserves or allowances made or held against specific
assets; and
(iv) any other amounts from sources available to absorb
losses incurred by the bank that the Finance Board determines
by regulation to be appropriate to include in determining
total capital.
(6) Transition period
Notwithstanding any other provision of this chapter, the
requirements relating to purchase and retention of capital stock
of a Federal home loan bank by any member thereof in effect on
the day before November 12, 1999, shall continue in effect with
respect to each Federal home loan bank until the regulations
required by this subsection have taken effect and the capital
structure plan required by subsection (b) of this section has
been approved by the Finance Board and implemented by such bank.
(b) Capital structure plan
(1) Approval of plans
Not later than 270 days after the date of publication by the
Finance Board of final regulations in accordance with subsection
(a) of this section, 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
that -
(A) the board of directors determines is best suited for the
condition and operation of the bank and the interests of the
members of the bank;
(B) meets the requirements of subsection (c) of this section;
and
(C) meets the minimum capital standards and requirements
established under subsection (a) of this section and other
regulations prescribed by the Finance Board.
(2) Approval of modifications
The board of directors of a Federal home loan bank shall submit
to the Finance Board for approval any modifications that the bank
proposes to make to an approved capital structure plan.
(c) Contents of plan
The capital structure plan of each Federal home loan bank shall
contain provisions addressing each of the following:
(1) Minimum investment
(A) In general
Each capital structure plan of a Federal home loan bank shall
require each member of the bank to maintain a minimum
investment in the stock of the bank, the amount of which shall
be determined in a manner to be prescribed by the board of
directors of each bank and to be included as part of the plan.
(B) Investment alternatives
(i) In general
In establishing the minimum investment required for each
member under subparagraph (A), a Federal home loan bank may,
in its discretion, include any 1 or more of the requirements
referred to in clause (ii), or any other provisions approved
by the Finance Board.
(ii) Authorized requirements
A requirement is referred to in this clause if it is a
requirement for -
(I) a stock purchase based on a percentage of the total
assets of a member; or
(II) a stock purchase based on a percentage of the
outstanding advances from the bank to the member.
(C) Minimum amount
Each capital structure plan of a Federal home loan bank shall
require that the minimum stock investment established for
members shall be set at a level that is sufficient for the bank
to meet the minimum capital requirements established by the
Finance Board under subsection (a) of this section.
(D) Adjustments to minimum required investment
The capital structure plan of each Federal home loan bank
shall impose a continuing obligation on the board of directors
of the bank to review and adjust the minimum investment
required of each member of that bank, as necessary to ensure
that the bank remains in compliance with applicable minimum
capital levels established by the Finance Board, and shall
require each member to comply promptly with any adjustments to
the required minimum investment.
(2) Transition rule
(A) In general
The capital structure plan of each Federal home loan bank
shall specify the date on which it shall take effect, and may
provide for a transition period of not longer than 3 years to
allow the bank to come into compliance with the capital
requirements prescribed under subsection (a) of this section,
and to allow any institution that was a member of the bank on
November 12, 1999, to come into compliance with the minimum
investment required pursuant to the plan.
(B) Interim purchase requirements
The capital structure plan of a Federal home loan bank may
allow any member referred to in subparagraph (A) that would be
required by the terms of the capital structure plan to increase
its investment in the stock of the bank to do so in periodic
installments during the transition period.
(3) Disposition of shares
The capital structure plan of a Federal home loan bank shall
provide for the manner of disposition of any stock held by a
member of that bank that terminates its membership or that
provides notice of its intention to withdraw from membership in
that bank.
(4) Classes of stock
(A) In general
The capital structure plan of a Federal home loan bank shall
afford each member of that bank the option of maintaining its
required investment in the bank through the purchase of any
combination of classes of stock authorized by the board of
directors of the bank and approved by the Finance Board in
accordance with its regulations.
(B) Rights requirement
A Federal home loan bank shall include in its capital
structure plan provisions establishing terms, rights, and
preferences, including minimum investment, dividends, voting,
and liquidation preferences of each class of stock issued by
the bank, consistent with Finance Board regulations and market
requirements.
(C) Reduced minimum investment
The capital structure plan of a Federal home loan bank may
provide for a reduced minimum stock investment for any member
of that bank that elects to purchase Class B (!1) in a manner
that is consistent with meeting the minimum capital
requirements of the bank, as established by the Finance Board.
(D) Liquidation of claims
The capital structure plan of a Federal home loan bank shall
provide for the liquidation in an orderly manner, as determined
by the bank, of any claim of that bank against a member,
including claims for any applicable prepayment fees or
penalties resulting from prepayment of advances prior to stated
maturity.
(5) Limited transferability of stock
The capital structure plan of a Federal home loan bank shall -
(A) provide that any stock issued by that bank shall be
available only to and held only by members of that bank and
tradable only between that bank and its members; and
(B) establish standards, criteria, and requirements for the
issuance, purchase, transfer, retirement, and redemption of
stock issued by that bank.
(6) Bank review of plan
Before filing a capital structure plan with the Finance Board,
each Federal home loan bank shall conduct a review of the plan by
-
(A) an independent certified public accountant, to ensure, to
the extent possible, that implementation of the plan would not
result in any write-down of the redeemable bank stock
investment of its members; and
(B) at least one major credit rating agency, to determine, to
the extent possible, whether implementation of the plan would
have any material effect on the credit ratings of the bank.
(d) Termination of membership
(1) Voluntary withdrawal
Any member may withdraw from a Federal home loan bank if the
member provides written notice to the bank of its intent to do so
and if, on the date of withdrawal, there is in effect a
certification by the Finance Board that the withdrawal will not
cause the Federal Home Loan Bank System to fail to meet its
obligation under section 1441b(f)(2)(C) of this title to
contribute to the debt service for the obligations issued by the
Resolution Funding Corporation. The applicable stock redemption
notice periods shall commence upon receipt of the notice by the
bank. Upon the expiration of the applicable notice period for
each class of redeemable stock, the member may surrender such
stock to the bank, and shall be entitled to receive in cash the
par value of the stock. During the applicable notice periods, the
member shall be entitled to dividends and other membership rights
commensurate with continuing stock ownership.
(2) Involuntary withdrawal
(A) In general
The board of directors of a Federal home loan bank may
terminate the membership of any institution if, subject to
Finance Board regulations, it determines that -
(i) the member has failed to comply with a provision of
this chapter or any regulation prescribed under this chapter;
or
(ii) the member has been determined to be insolvent, or
otherwise subject to the appointment of a conservator,
receiver, or other legal custodian, by a Federal or State
authority with regulatory and supervisory responsibility for
the member.
(B) Stock disposition
An institution, the membership of which is terminated in
accordance with subparagraph (A) -
(i) shall surrender redeemable stock to the Federal home
loan bank, and shall receive in cash the par value of the
stock, upon the expiration of the applicable notice period
under subsection (a)(4)(A) of this section;
(ii) shall receive any dividends declared on its redeemable
stock, during the applicable notice period under subsection
(a)(4)(A) of this section; and
(iii) shall not be entitled to any other rights or
privileges accorded to members after the date of the
termination.
(C) Commencement of notice period
With respect to an institution, the membership of which is
terminated in accordance with subparagraph (A), the applicable
notice period under subsection (a)(4) of this section for each
class of redeemable stock shall commence on the earlier of -
(i) the date of such termination; or
(ii) the date on which the member has provided notice of
its intent to redeem such stock.
(3) Liquidation of indebtedness
Upon the termination of the membership of an institution for
any reason, the outstanding indebtedness of the member to the
bank shall be liquidated in an orderly manner, as determined by
the bank and, upon the extinguishment of all such indebtedness,
the bank shall return to the member all collateral pledged to
secure the indebtedness.
(e) Redemption of excess stock
(1) In general
A Federal home loan bank, in its sole discretion, may redeem or
repurchase, as appropriate, any shares of Class A or Class B
stock issued by the bank and held by a member that are in excess
of the minimum stock investment required of that member.
(2) Excess stock
Shares of stock held by a member shall not be deemed to be
"excess stock" for purposes of this subsection by virtue of a
member's submission of a notice of intent to withdraw from
membership or termination of its membership in any other manner.
(3) Priority
A Federal home loan bank may not redeem any excess Class B
stock prior to the end of the 5-year notice period, unless the
member has no Class A stock outstanding that could be redeemed as
excess.
(f) Impairment of capital
If the Finance Board or the board of directors of a Federal home
loan bank determines that the bank has incurred or is likely to
incur losses that result in or are expected to result in charges
against the capital of the bank, the bank shall not redeem or
repurchase any stock of the bank without the prior approval of the
Finance Board while such charges are continuing or are expected to
continue. In no case may a bank redeem or repurchase any applicable
capital stock if, following the redemption, the bank would fail to
satisfy any minimum capital requirement.
(g) Rejoining after divestiture of all shares
(1) In general
Except as provided in paragraph (2), and notwithstanding any
other provision of this chapter, an institution that divests all
shares of stock in a Federal home loan bank may not, after such
divestiture, acquire shares of any Federal home loan bank before
the end of the 5-year period beginning on the date of the
completion of such divestiture, unless the divestiture is a
consequence of a transfer of membership on an uninterrupted basis
between banks.
(2) Exception for withdrawals from membership before 1998
Any institution that withdrew from membership in any Federal
home loan bank before December 31, 1997, may acquire shares of a
Federal home loan bank at any time after that date, subject to
the approval of the Finance Board and the requirements of this
chapter.
(h) Treatment of retained earnings
(1) In general
The holders of the Class B stock of a Federal home loan bank
shall own the retained earnings, surplus, undivided profits, and
equity reserves, if any, of the bank.
(2) Exception
Except as specifically provided in this section or through the
declaration of a dividend or a capital distribution by a Federal
home loan bank, or in the event of liquidation of the bank, a
member shall have no right to withdraw or otherwise receive
distribution of any portion of the retained earnings of the bank.
(3) Limitation
A Federal home loan bank may not make any distribution of its
retained earnings unless, following such distribution, the bank
would continue to meet all applicable capital requirements.
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