§ 1426. — Capital structure of Federal home loan banks.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 12USC1426]
TITLE 12--BANKS AND BANKING
CHAPTER 11--FEDERAL HOME LOAN BANKS
Sec. 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.
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\1\ So in original. Probably should be ``Class B stock''.
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(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.
(July 22, 1932, ch. 522, Sec. 6, 47 Stat. 727; June 27, 1934, ch. 847,
Sec. 509, 48 Stat. 1264; May 28, 1935, ch. 150, Sec. 2, 49 Stat. 293;
June 27, 1950, ch. 369, Sec. 2, 64 Stat. 257; Aug. 11, 1955, ch. 783,
title I, Sec. 109(a)(1), 69 Stat. 640; Pub. L. 87-210, Secs. 1, 2, Sept.
8, 1961, 75 Stat. 482, 483; Pub. L. 96-153, title III, Sec. 327, Dec.
21, 1979, 93 Stat. 1121; Pub. L. 97-320, title III, Secs. 353, 355, Oct.
15, 1982, 96 Stat. 1507, 1508; Pub. L. 97-457, Sec. 16, Jan. 12, 1983,
96 Stat. 2509; Pub. L. 101-73, title VII, Secs. 701(b)(1), (3)(A), 706,
710(b)(2), (3), 715, Aug. 9, 1989, 103 Stat. 412, 416, 418, 421; Pub. L.
106-102, title VI, Sec. 608, Nov. 12, 1999, 113 Stat. 1456; Pub. L. 106-
569, title XII, Sec. 1224, Dec. 27, 2000, 114 Stat. 3036.)
References in Text
The Federal Housing Enterprises Financial Safety and Soundness Act
of 1992, referred to in subsec. (a)(3)(B), is title XIII of Pub. L. 102-
550, Oct. 28, 1992, 106 Stat. 3941, which is classified principally to
chapter 46 (Sec. 4501 et seq.) of this title. For complete
classification of this Act to the Code, see Short Title note under
section 4501 of this title and Tables.
Amendments
2000--Subsec. (a)(1). Pub. L. 106-569 substituted ``18 months'' for
``1 year'' in introductory provisions.
1999--Pub. L. 106-102 amended section generally, substituting
present provisions for provisions authorizing banks to issue capital
stock and providing for minimum subscriptions, retirement of
oversubscriptions, cancellation of oversubscriptions, aggregate unpaid
loan principal, reports and information, payments for stock, transfer or
hypothecation of stock, withdrawal or removal of members, surrender and
cancellation of stock, prepayment penalties, disposal of stock,
dividends, and acquisition of membership after expiration of period of
withdrawal.
1989--Subsec. (a). Pub. L. 101-73, Secs. 701(b)(1), (3)(A), 706(1),
redesignated subsec. (b) as (a), substituted ``Board'' for ``board'',
and struck out former subsec. (a) which related to minimum amount of
capital stock and subscription books.
Subsec. (b). Pub. L. 101-73, Secs. 701(b)(1), (3)(A), 706(1),
redesignated subsec. (c) as (b) and substituted ``Board may'' for
``Federal Home Loan Bank Board may'' in par. (1), and ``The Board'' for
``The Federal Home Loan Bank Board'' in par. (5). Former subsec. (b)
redesignated (a).
Subsecs. (c), (d). Pub. L. 101-73, Sec. 706(1), redesignated
subsecs. (d) and (h) as (c) and (d), respectively. Former subsec. (c)
redesignated (b).
Subsec. (e). Pub. L. 101-73, Sec. 710(b)(3), which directed
amendment of subsec. (e) by striking out ``or deprive any nonmember
borrower of the privilege of further advances,'' after ``remove any
member from membership,'' was executed by striking ``or deprive any
nonmember borrower of the privilege of obtaining further advances,'' as
the probable intent of Congress.
Pub. L. 101-73, Sec. 710(b)(2), struck out ``or nonmember borrower''
after ``such member'' wherever appearing.
Pub. L. 101-73, Sec. 706(2), substituted ``If any member's
membership in a Federal Home Loan Bank is terminated, the indebtedness
of such member to the Federal Home Loan Bank shall be liquidated in an
orderly manner (as determined by the Federal Home Loan Bank), and upon
completion of such liquidation, the capital stock in the Federal Home
Loan Bank owned by such member shall be surrendered and canceled. Any
such liquidation shall be deemed a prepayment of any such indebtedness,
and shall be subject to any penalties or other fees applicable to such
prepayment.'' for ``In any such case, the indebtedness of such member or
nonmember borrower to the Federal Home Loan Bank shall be liquidated,
and the capital stock in the Federal Home Loan Bank owned by such member
shall be surrendered and canceled, except that in the case of a
voluntary withdrawal, such liquidation shall be deemed a prepayment of
any such indebtedness, and shall be subject to any penalties applicable
to such prepayment.''
Pub. L. 101-73, Secs. 701(b)(1), (3)(A), 706(1), redesignated
subsec. (i) as (e), substituted ``Board'' for ``board'' wherever
appearing, and struck out former subsec. (e) which related to loans to
institutions not authorized to subscribe to stock.
Subsec. (f). Pub. L. 101-73, Secs. 701(b)(1), (3)(A), 706(1),
redesignated subsec. (j) as (f), substituted ``Board'' for ``board'',
and struck out former subsec. (f) which related to subscription by
United States, maximum amounts, and payments.
Subsec. (g). Pub. L. 101-73, Sec. 706(1), redesignated subsec. (k)
as (g) and struck out former subsec. (g) which related to retirement of
stock of United States.
Subsec. (h). Pub. L. 101-73, Sec. 715, substituted ``10'' for
``five''.
Pub. L. 101-73, Sec. 706(3), substituted ``charter as a Federal
savings association (as defined in section 1813 of this title)'' for
``charter from the Federal Home Loan Bank Board''.
Pub. L. 101-73, Sec. 706(1), redesignated subsec. (m) as (h). Former
subsec. (h) redesignated (d).
Subsecs. (i) to (k). Pub. L. 101-73, Sec. 706(1), redesignated
former subsecs. (i) to (k) as (e) to (g), respectively.
Subsec. (m). Pub. L. 101-73, Sec. 706(1), redesignated former
subsec. (m) as (h).
1983--Subsec. (m). Pub. L. 97-457 substituted ``banks or in
connection with obtaining a charter from the Federal Home Loan Bank
Board'' for ``Banks'' after ``between''.
1982--Subsec. (c)(2). Pub. L. 97-320, Sec. 353, struck out cl. (i)
limitations which had prohibited members from reducing stock to less
than the amount held on Sept. 8, 1961, except for a reduction at any
time to not less than 2 percent of its aggregate unpaid loan principal
as of the beginning of the calendar year in which reduction was made,
but not less than $500, or if reduced to less than 2 percent, such
reduction to be in the discretion of the Board; and reenacted cl. (ii)
limitations as par. (2), substituting ``the Board defining such term''
for ``said Board defining said term''.
Subsec. (i). Pub. L. 97-320, Sec. 355(a), provided for treatment of
a liquidation of indebtedness, in the case of a voluntary withdrawal of
an institution from membership, as a prepayment of the indebtedness,
subject to applicable prepayment penalties.
Subsec. (m). Pub. L. 97-320, Sec. 355(b), added subsec. (m).
1979--Subsec. (c)(2)(ii). Pub. L. 96-153 substituted ``twenty'' for
``twelve''.
1961--Subsec. (c). Pub. L. 87-210, Sec. 1, amended subsection
generally, and among other changes, authorized the bank to adjust at the
end of each calendar year, under Board regulations, the stock held by
each member, to retire stock of members in excess of required amounts,
prohibited members to reduce stock to less than the amount held on Sept.
8, 1961, except for a reduction at any time to not less than 2 percent
of its aggregate unpaid loan principal as of the beginning of the
calendar year in which reduction is made, but not less than $500, or if
reduced to less than 2 percent, such reduction to be in the discretion
of the Board, provided that no bank shall act so as to cause the
aggregate outstanding advances, within the meaning of regulations of the
Board defining said term, to exceed 12 times the amounts paid in by
members for outstanding capital stock held by such members, defined term
``aggregate unpaid loan principal'' and authorized the board to require
members to submit reports and information for purposes of this
subsection.
Subsec. (l). Pub. L. 87-210, Sec. 2, repealed subsec. (l) which
required members to acquire, hold and maintain their stock holding in an
amount equal to at least 2 per centum of the aggregate of the unpaid
principal of such member's home mortgage loans, home-purchase contracts,
and similar obligations, but not less than $500, and provided for the
retirement of Government-owned stock.
1955--Subsec. (i). Act Aug. 11, 1955, provided that a Federal
savings and loan association may not withdraw voluntarily, inserted
proviso clause in item (ii), and inserted provisions authorizing removal
of a member institution which has a management or home-financing policy
of a character inconsistent with sound and economical home financing or
with the purposes of this chapter.
1950--Subsec. (l). Act June 27, 1950, added subsec. (l).
1935--Subsec. (k). Act May 28, 1935, omitted exception clause
relating to stock held by the United States.
1934--Subsecs. (c), (e). Act June 27, 1934, substituted ``$500'' for
``$1,500''.
Effective Date of 1961 Amendment
Section 7 of Pub. L. 87-210 provided that: ``This Act [amending this
section and section 1727 of this title and enacting provisions set out
as a note under section 1727 of this title] shall become effective on
January 1 next following the date of its enactment [Sept. 8, 1961].''
