[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 1423 Introduced in Senate (IS)]







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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Federal Home Loan 
Bank System Modernization Act of 1997''.
    (b) Table of Contents.--The table of contents for 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.
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.

SEC. 2. DEFINITIONS.

    Section 2 of the Federal Home Loan Bank Act (12 U.S.C. 1422) is 
amended--
            (1) in paragraph (1), by striking ``term `Board' means'' 
        and inserting ``terms `Finance Board' and `Board' mean'';
            (2) by striking paragraph (3) and inserting the following:
            ``(3) State.--The term `State' in addition to the States of 
        the United States, includes the District of Columbia, Guam, 
        Puerto Rico, the United States Virgin Islands, American Samoa, 
        and the Commonwealth of the Northern Mariana Islands.''; and
            (3) by adding at the end the following new paragraph:
            ``(13) Community financial institution.--
                    ``(A) In general.--The term `community financial 
                institution' means a member--
                            ``(i) the deposits of which are insured 
                        under the Federal Deposit Insurance Act; and
                            ``(ii) that has, as of the date of the 
                        transaction at issue, less than $500,000,000 in 
                        average total assets, based on an average of 
                        total assets over the 3 years preceding that 
                        date.
                    ``(B) Adjustments.--The $500,000,000 limit referred 
                to in subparagraph (A)(ii) shall be adjusted annually 
                by the Finance Board, based on the annual percentage 
                increase, if any, in the Consumer Price Index for all 
                urban consumers, as published by the Department of 
                Labor.''.

SEC. 3. FEDERAL HOME LOAN BANKS.

    Section 3 of the Federal Home Loan Bank Act (12 U.S.C. 1423) is 
amended in the first sentence, by striking ``the continental United 
States'' and all that follows through ``eight'' and inserting ``the 
States into not fewer than 1''.

SEC. 4. SAVINGS ASSOCIATION MEMBERSHIP.

    Section 5(f) of the Home Owners' Loan Act (12 U.S.C. 1464(f)) is 
amended to read as follows:
    ``(f) Federal Home Loan Bank Membership.--On and after January 1, 
1999, a Federal savings association may become a member of the Federal 
Home Loan Bank System, and shall qualify for such membership in the 
manner provided by the Federal Home Loan Bank Act.''.

SEC. 5. ADVANCES TO MEMBERS; COLLATERAL.

    (a) In General.--Section 10(a) of the Federal Home Loan Bank Act 
(12 U.S.C. 1430(a)) is amended--
            (1) by redesignating paragraphs (1) through (4) as 
        subparagraphs (A) through (D), respectively, and indenting 
        appropriately;
            (2) by striking ``(a) Each'' and inserting the following:
    ``(a) In General.--
            ``(1) All advances.--Each'';
            (3) by striking the second sentence and inserting the 
        following:
            ``(2) Purposes of advances.--A long-term advance may only 
        be made for the purposes of--
                    ``(A) providing funds to any member for residential 
                housing finance; and
                    ``(B) providing funds to any community financial 
                institution for small businesses, agricultural, rural 
                development, or low-income community development 
                lending.'';
            (4) by striking ``A Bank'' and inserting the following:
            ``(3) Collateral.--A Bank'';
            (5) in paragraph (3) (as so designated by paragraph (4) of 
        this subsection)--
                    (A) in subparagraph (C) (as so redesignated by 
                paragraph (1) of this subsection) by striking 
                ``Deposits'' and inserting ``Cash or deposits'';
                    (B) in subparagraph (D) (as so redesignated by 
                paragraph (1) of this subsection), by striking the 
                second sentence; and
                    (C) by inserting after subparagraph (D) (as so 
                redesignated by paragraph (1) of this subsection) the 
                following new subparagraphs:
                    ``(E) Secured loans for small business, 
                agriculture, rural development, or low-income community 
                development, or securities representing a whole 
                interest in such secured loans, in the case of any 
                community financial institution.
                    ``(F) Mutual fund shares, if and to the extent that 
                such shares--
                            ``(i) represent interests in securities 
                        under subparagraph (A) or (B); and
                            ``(ii) have a readily ascertainable market 
                        value.'';
            (6) in paragraph (5)--
                    (A) by striking ``(5) Paragraphs (1) through (4)'' 
                and inserting the following:
            ``(4) Additional bank authority.--Subparagraphs (A) through 
        (F) of paragraph (3)'';
                    (B) in the second sentence, by striking ``and the 
                Board''; and
                    (C) in the third sentence, by striking ``Board'' 
                and inserting ``Federal home loan bank''; and
            (7) by adding at the end the following:
            ``(5) Definitions.--For purposes of this subsection, the 
        terms `small business', `agriculture', `rural development', and 
        `low-income community development' shall have the meanings 
        given those terms by rule or regulation of the Finance 
        Board.''.
    (b) Clerical Amendment.--The section heading for section 10 of the 
Federal Home Loan Bank Act (12 U.S.C. 1430) is amended to read as 
follows:

``SEC. 10. ADVANCES TO MEMBERS.''.

SEC. 6. ELIGIBILITY CRITERIA.

    Section 4(a) of the Federal Home Loan Bank Act (12 U.S.C. 1424(a)) 
is amended--
            (1) in paragraph (2)(A), by inserting, ``(other than a 
        community financial institution)'' after ``institution''; and
            (2) by adding at the end the following new paragraph:
            ``(3) Limited exemption for community financial 
        institutions.--A community financial institution that otherwise 
        meets the requirements of paragraph (2) may become a member 
        without regard to the percentage of its total assets that is 
        represented by residential mortgage loans, as described in 
        subparagraph (A) of paragraph (2).''.

SEC. 7. QUALIFIED THRIFT LENDER STATUS.

    (a) Federal Home Loan Bank Act.--Section 10 of the Federal Home 
Loan Bank Act (12 U.S.C. 1430) is amended by striking subsection (e), 
as added by section 105 of Public Law 100-86 and subsequently amended 
(relating to qualified thrift lender status).
    (b) Home Owners' Loan Act.--Section 10(m)(3)(B) of the Home Owners' 
Loan Act (12 U.S.C. 1467a(m)(3)(B)) is amended--
            (1) in clause (i), by striking subclause (III) and by 
        redesignating subclause (IV) as subclause (III); and
            (2) by amending clause (ii) to read as follows:
                            ``(ii) Additional restrictions effective 
                        after three years.--Beginning 3 years after the 
                        date on which a savings association should have 
                        become or ceases to be a qualified thrift 
                        lender, the savings association shall not 
                        retain any investment (including an investment 
                        in any subsidiary) or engage, directly or 
                        indirectly, in any activity unless that 
                        investment or activity would be permissible for 
                        the savings association if it were a national 
                        bank, and is also permissible for the savings 
                        association as a savings association.''.

SEC. 8. ESTABLISHMENT OF OFFICE OF FINANCE.

    The Federal Home Loan Bank Act (12 U.S.C. 1421 et seq.) is amended 
by inserting after section 4 the following new section:

``SEC. 5. THE OFFICE OF FINANCE.

    ``(a) Operation.--The Federal home loan banks shall operate jointly 
an Office of Finance (hereafter in this section referred to as the 
`Office') to issue the notes, bonds, and debentures of the Federal home 
loan banks in accordance with this Act.
    ``(b) Powers.--Subject to the other provisions of this Act and to 
such safety and soundness regulations as the Finance Board may 
prescribe, the Office shall be authorized by the Federal home loan 
banks to act as the agent of such banks to issue Federal home loan bank 
notes, bonds, and debentures pursuant to section 11 on behalf of the 
banks.
    ``(c) Central Board of Directors.--
            ``(1) Establishment.--The Federal home loan banks shall 
        establish a central board of directors of the Office to 
        administer the affairs of the Office in accordance with this 
        Act.
            ``(2) Composition of board.--Each Federal home loan bank 
        shall annually select 1 individual who, as of the time of the 
        election, is an officer or director of such bank to serve as a 
        member of the central board of directors of the Office.
    ``(d) Status.--Except to the extent otherwise expressly provided in 
this Act, the Office shall be treated as a Federal home loan bank for 
purposes of any law.''.

SEC. 9. MANAGEMENT OF BANKS.

    (a) Board of Directors.--Section 7 of the Federal Home Loan Bank 
Act (12 U.S.C. 1427) is amended--
            (1) in subsection (a)--
                    (A) by striking ``(a) The management'' and 
                inserting the following:
    ``(a) Board of Directors.--
            ``(1) Number and classes of directors.--The management''; 
        and
                    (B) by adding at the end the following:
            ``(2) Approval of alternative structure.--Subject to the 
        approval of the Finance Board, a Federal home loan bank may 
        include as part of its capital structure plan submitted under 
        section 6, or any modification thereto, provisions establishing 
        a structure for its elective and appointive directors other 
        than as provided for in this section.''; and
            (2) in subsection (d)--
                    (A) by striking ``(d) The term'' and inserting the 
                following:
    ``(d) Terms of Office.--The term''; and
                    (B) by striking ``shall be two years''.
    (b) Compensation.--Section 7(i) of the Federal Home Loan Bank Act 
(12 U.S.C. 1427(i)) is amended by striking ``, subject to the approval 
of the board''.
    (c) Obligations on Lawful Investments.--Section 15 of the Federal 
Home Loan Bank Act (12 U.S.C. 1435) is amended by striking ``with the 
approval of the Board''.

SEC. 10. POWERS AND DUTIES OF BANKS.

    (a) Bonds and Debentures.--Section 11(a) of the Federal Home Loan 
Bank Act (12 U.S.C. 1431(a)) is amended--
            (1) by inserting ``through the Office of Finance'' after 
        ``to issue''; and
            (2) by striking ``Board may approve'' and inserting ``board 
        of directors of the bank may approve''.
    (b) Issuance of Consolidated Bonds.--Section 11(b) of the Federal 
Home Loan Bank Act (12 U.S.C. 1431(b)) is amended to read as follows:
    ``(b) Issuance of Federal Home Loan Bank Consolidated Bonds.--
            ``(1) In general.-- The Office of Finance may issue 
        consolidated Federal home loan bank bonds and other 
        consolidated obligations on behalf of the banks.
            ``(2) Joint and several obligation; terms and conditions.--
        Consolidated obligations issued by the Office of Finance under 
        paragraph (1) shall--
                    ``(A) be the joint and several obligations of all 
                of the Federal home loan banks; and
                    ``(B) shall be issued upon such terms and 
                conditions as shall be established by the Office of 
                Finance, subject to such rules and regulations as the 
                Finance Board may prescribe.''.
    (c) Rediscounting of Notes.--Section 11(f) of the Federal Home Loan 
Bank Act (12 U.S.C. 1431(f)) is amended by striking ``permit, to 
require,'' and inserting ``permit or to require''.
    (d) Treasury Purchase of Bank Obligations.--Section 11(i) of the 
Federal Home Loan Bank Act (12 U.S.C. 1431(i)) is amended by striking 
the second undesignated paragraph.
    (e) Conforming Amendments.--Section 11 of the Federal Home Loan 
Bank Act (12 U.S.C. 1431) is amended--
            (1) by striking subsection (c); and
            (2) by redesignating subsections (d) through (k) as 
        subsections (c) through (j), respectively.

SEC. 11. MERGERS AND CONSOLIDATIONS OF FEDERAL HOME LOAN BANKS.

    Section 26 of the Federal Home Loan Bank Act (12 U.S.C. 1446) is 
amended to read as follows:

``SEC. 26. MERGERS AND CONSOLIDATIONS.

    ``(a) In General.--
            ``(1) Finance board authority.--Whenever the Finance Board 
        determines it to be necessary to the discharge of its 
        obligations under section 2A(a)(3)(A), and in accordance with 
        such rules, regulations, and orders as the Finance Board may 
        prescribe, the Finance Board may order that a Federal home loan 
        bank be liquidated or reorganized, and its stock paid off and 
        retired in whole or in part in connection therewith, after 
        paying or making provision for the payment of the liabilities 
        of the Federal home loan bank.
            ``(2) Acquisition by other banks.--In the case of a 
        liquidation or reorganization under paragraph (1), any other 
        Federal home loan bank may, with the approval of the Finance 
        Board, acquire the assets of any such liquidated or reorganized 
        bank, and assume the liabilities thereof, in whole or in part.
    ``(b) Voluntary Mergers.--Nothing in this section shall preclude 
voluntary mergers, combinations, or consolidation by or among the 
Federal home loan banks pursuant to such regulations as the Finance 
Board may prescribe.
    ``(c) Number of Elected Directors of Resulting Bank.--
            ``(1) In general.--Notwithstanding section 7, any bank 
        resulting from a merger, combination, or consolidation pursuant 
        to this section may have, with the approval of the Finance 
        Board, a number of elected directors equal to or less than the 
        total number of elected directors of all the banks that 
        participated in such transaction (as determined immediately 
        before such transaction).
            ``(2) Fulfillment of unexpired terms.--Consistent with 
        paragraph (1), a director of any bank involved in a transaction 
        referred to in paragraph (1) may continue to serve on the board 
        of directors of the resulting bank during the unexpired portion 
        of that director's current term, if such continuation of 
        service is provided for under the terms of the merger, 
        combination, or consolidation transaction, and whether or not 
        that director remains qualified after the transaction to fill a 
        directorship.
    ``(d) Number of Appointed Directors of Resulting Bank.--The number 
of appointed directors on the board of directors of a bank resulting 
from a merger, combination, or consolidation pursuant to this section 
shall not exceed three-fourths the number of elected directors on the 
board of directors of that bank.
    ``(e) Adjustment of District Boundaries.--Not later than 30 days 
after consummation of any merger, combination, or consolidation of 2 or 
more Federal home loan banks, the Finance Board shall adjust the 
districts established under section 3 to reflect such merger, 
combination, or consolidation.
    ``(f) Subsidiaries; Holding Companies.--
            ``(1) Authority to establish.--Any 1 or more Federal home 
        loan banks may establish and jointly own a subsidiary or 
        holding company, subject to the approval of the Finance Board.
            ``(2) Finance board supervision.--Any subsidiary or holding 
        company established under this subsection shall be subject to 
        supervision by the Finance Board, and the activities of any 
        such subsidiary or holding company shall be restricted to those 
        activities permitted for Federal home loan banks under this 
        Act.
            ``(3) Purposes of subsidiary.--A Federal home loan bank may 
        use a subsidiary to perform administrative and operational 
        functions.''.

SEC. 12. OTHER AMENDMENTS RELATING TO BANK OPERATION AND 
              ADMINISTRATION.

    (a) Repeal of Sections 22A and 27.--The Federal Home Loan Bank Act 
(12 U.S.C. 1421 et seq.) is amended by striking sections 22A (12 U.S.C. 
1442a) and 27 (12 U.S.C. 1447).
    (b) Section 12.--Section 12 of the Federal Home Loan Bank Act (12 
U.S.C. 1432) is amended--
            (1) in subsection (a)--
                    (A) by striking ``, but, except'' and all that 
                follows through ``ten years'';
                    (B) by striking ``, subject to the approval of the 
                Board'' each place that term appears;
                    (C) by striking ``and, by its Board of directors,'' 
                and all that follows through ``agent of such bank,'' 
                and inserting ``and, by the board of directors of the 
                bank, to prescribe, amend, and repeal by-laws governing 
                the manner in which its affairs may be administered, 
                consistent with applicable laws and regulations, as 
                administered by the Finance Board. No officer, 
                employee, attorney, or agent of a Federal home loan 
                bank''; and
                    (D) by striking ``Board of directors'' each place 
                that term appears and inserting ``board of directors''; 
                and
            (2) in subsection (b), by striking ``loans banks'' and 
        inserting ``loan banks''.
    (c) Powers and Duties of Federal Housing Finance Board.--
            (1) Issuance of notices of violations.--Section 2B(a) of 
        the Federal Home Loan Bank Act (12 U.S.C. 1422b(a)) is amended 
        by adding at the end the following new paragraph:
            ``(5) To issue and serve a notice of charges upon a Federal 
        home loan bank or upon any executive officer or director of a 
        Federal home loan bank if, in the determination of the Finance 
        Board, the bank, executive officer, or director is engaging or 
        has engaged in, or the Finance Board has reasonable cause to 
        believe that the bank, executive officer, or director is about 
        to engage in, any conduct that violates any provision of this 
        Act or any law, order, rule, or regulation or any condition 
        imposed in writing by the Finance Board in connection with the 
        granting of any application or other request by the bank, or 
        any written agreement entered into by the bank with the agency, 
        in accordance with the procedures provided in section 1371(c) 
        of the Federal Housing Enterprises Financial Safety and 
        Soundness Act of 1992. Such authority includes the same 
        authority to take affirmation action to correct conditions 
        resulting from violations or practices or to limit activities 
of a bank or any executive officer or director of a bank as appropriate 
Federal banking agencies have to take with respect to insured 
depository institutions under paragraphs (6) and (7) of section 8(b) of 
the Federal Deposit Insurance Act, and to have all other powers, 
rights, and duties to enforce this Act with respect to the Federal home 
loan banks and their senior officers and directors as the Office of 
Federal Housing Enterprise Oversight has to enforce the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992, the Federal 
National Mortgage Association Charter Act, or the Federal Home Loan 
Mortgage Corporation Act with respect to the Federal housing 
enterprises under the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992.''.
            (2) Staff.--Section 2B(b) of the Federal Home Loan Bank Act 
        (12 U.S.C. 1422b(b)) is amended--
                    (A) in paragraph (1)--
                            (i)bystriking``(1)Boardstaff.--'';
                            (ii) by striking ``function to any 
                        employee, administrative unit'' and inserting 
                        ``function to any employee or administrative 
                        unit''; and
                            (iii) by striking the second sentence; and
                    (B) by striking paragraph (2).
            (3) Technical amendment.--Section 111 of Public Law 93-495 
        (12 U.S.C. 250) is amended by inserting ``Federal Housing 
        Finance Board,'' after ``Director of the Office of Thrift 
        Supervision,''.
    (d) Eligibility To Secure Advances.--
            (1) Section 9.--Section 9 of the Federal Home Loan Bank Act 
        (12 U.S.C. 1429) is amended--
                    (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.--Section 10 of the Federal Home Loan Bank 
        Act (12 U.S.C. 1430) is amended--
                    (A) in subsection (c)--
                            (i) in the first sentence, by striking 
                        ``Board'' and inserting ``Federal home loan 
                        bank''; and
                            (ii) by striking the second sentence;
                    (B) in subsection (d)--
                            (i) in the first sentence, by striking 
                        ``and the approval of the Board''; and
                            (ii) by striking ``Subject to the approval 
                        of the Board, any'' and inserting ``Any''; and
                    (C) in subsection (j)--
                            (i) in paragraph (1)--
                                    (I) by striking ``to subsidize the 
                                interest rate on advances'' and 
                                inserting ``to provide subsidies, 
                                including subsidized interest rates on 
                                advances'';
                                    (II) by striking ``Pursuant'' and 
                                inserting the following:
                    ``(A) Establishment.--Pursuant''; and
                                    (III) by adding at the end the 
                                following new subparagraph:
                    ``(B) Nondelegation of approval authority.--Subject 
                to such regulations as the Finance Board may prescribe, 
                the board of directors of each Federal home loan bank 
                may approve or disapprove requests from members for 
                Affordable Housing Program subsidies, and may not 
                delegate such authority.'';
                            (ii) in each of paragraphs (1), (3), (4), 
                        (6), (9)(B), (9)(C), (11), and (12), by 
                        striking ``advances'' each place that term 
                        appears and inserting ``subsidies'';
                            (iii) in each of paragraphs (2), (5), 
                        (9)(A), and (9)(F), by striking ``subsidized 
                        advances'' each place that term appears and 
                        inserting ``subsidies, including subsidized 
                        advances,'';
                            (iv) in paragraph (9)(F), by striking 
                        ``such advances'' and inserting ``such 
                        subsidies'';
                            (v) in the paragraph heading for paragraph 
                        (3), by striking ``advances'' and inserting 
                        ``subsidies'';
                            (vi) in paragraph (2), by striking 
                        subparagraph (B) and inserting the following:
                    ``(B) finance the purchase, construction, or 
                rehabilitation of rental housing if, for a period of 
                not less than 15 years, either--
                            ``(i) 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; or
                            ``(ii) 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.'';
                            (vii) by striking paragraph (5) and 
                        inserting the following:
            ``(5) Contribution to program.--Each Federal home loan bank 
        shall annually contribute 10 percent of the net income of that 
        bank during the preceding year, or such prorated sums as may be 
        required to assure that the aggregate contribution of the banks 
        shall not be less than $100,000,000 for each such year, to 
        support subsidies, including subsidized advances, through the 
        Affordable Housing Program.'';
                            (viii) in paragraph (11)--
                                    (I) by striking ``Bank'' each place 
                                it appears and inserting ``Federal home 
                                loan bank'';
                                    (II) 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 
                                ``15 persons'';
                                    (III) by inserting ``a diverse 
                                range of'' before ``community and 
                                nonprofit organizations''; and
                                    (IV) by inserting after the first 
                                sentence, the following: 
                                ``Representatives of no one group shall 
                                constitute an undue proportion of the 
                                membership of the Advisory Council.''; 
                                and
                            (ix) in paragraph (13)--
                                    (I) by striking ``subsection--'' 
                                and inserting ``subsection, the 
                                following definitions shall apply:''; 
                                and
                                    (II) by striking subparagraph (D) 
                                and inserting the following:
                    ``(D) Affordable.--For purposes of paragraph 
                (2)(B), the term `affordable' means that the rent with 
                respect to a unit does not exceed 30 percent of the 
                income limitation under paragraph (2)(B) applicable to 
                occupants of such unit.''.
    (e) Section 16.--Section 16(a) of the Federal Home Loan Bank Act 
(12 U.S.C. 1436(a)) is amended in the third sentence--
            (1) by striking ``net earnings'' and inserting ``previously 
        retained earnings or current net earnings''; and
            (2) by striking ``, and then only with the approval of the 
        Federal Housing Finance Board''.
    (f) Section 18.--Section 18(b) of the Federal Home Loan Bank Act 
(12 U.S.C. 1438(b)) is amended by striking paragraph (4).

SEC. 13. RESOLUTION FUNDING CORPORATION.

    (a) In General.--Section 21B(f)(2)(C) of the Federal 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 that the amounts available pursuant to 
                subparagraphs (A) and (B) are insufficient to cover the 
                amount of interest payments, each Federal home loan 
                bank shall pay to the Funding Corporation in each 
                calendar year, 20.75 percent of the net earnings of 
                that bank (after deducting expenses relating to section 
                10(j) and operating expenses).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
become effective on January 1, 1999.

SEC. 14. CAPITAL STRUCTURE OF THE FEDERAL HOME LOAN BANKS.

    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.--
            ``(1) Approval of plans.--Not later than 270 days after the 
        date of enactment of the Federal Home Loan Bank System 
        Modernization Act of 1997, 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 shareholders of the bank;
                    ``(B) meets the requirements of subsection (b); and
                    ``(C) meets the minimum capital standards and 
                requirements established under subsection (c) and any 
                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 wishes to make to an approved 
capital structure plan.
    ``(b) Contents of Plan.--The capital structure plan of each Federal 
home loan bank shall contain provisions addressing each of the 
following:
            ``(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 investment in the stock of 
                the bank in an amount equal to the greater of--
                            ``(i) a minimum percentage of the total 
                        assets of the shareholder; or
                            ``(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 sufficient to meet the minimum 
                capital requirements for the bank established by the 
                Finance Board under subsection (c).
                    ``(C) Limitation on asset-based capital 
                requirement.--The asset-based capital requirement 
                applicable to any shareholder of a Federal home loan 
                bank in any year may not exceed 0.6 percent of the 
                total assets of the shareholder at the close of the 
                preceding year, and in no case shall an asset-based 
                capital requirement applicable to a shareholder of a 
                Federal home loan bank in any year exceed $300,000,000.
                    ``(D) Limitation on advance-based capital 
                requirement.--The advance-based capital requirement 
                applicable to any shareholder of a Federal home loan 
                bank may not exceed 5 percent of the total outstanding 
                advances from the bank to the shareholder.
                    ``(E) Minimum stock purchase requirement 
                authorized.--The 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 requirements.--The 
        capital structure plan shall impose a continuing 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 minimum 
        capital levels established by the Finance Board.
            ``(3) Transition rule for stock purchase requirements.--
                    ``(A) In general.--The capital structure plan may 
                allow shareholders who were members of a Federal home 
                loan bank on the date of enactment of the Federal Home 
                Loan Bank System Modernization Act of 1997 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 
                that date of enactment.
                    ``(B) Interim purchase requirements.--The capital 
                structure plan may establish interim asset-based stock 
                purchase requirements applicable to members referred to 
                in subparagraph (A) during a transition period 
                established under subparagraph (A).
            ``(4) Disposition of shares.--The capital structure plan 
        shall provide for the manner of disposition of any stock held 
        by a member that terminates or withdraws from membership for 
        any reason.
            ``(5) Classes of stock.--
                    ``(A) In general.--The capital structure plan 
                shall--
                            ``(i) afford each shareholder of a Federal 
                        home loan bank the option of meeting the stock 
                        purchase requirements of the shareholder 
                        through the purchase of any combination of 
                        Class A or Class B stock; and
                            ``(ii) provide for and prescribe the terms, 
                        rights, and preferences, including dividends, 
                        voting, and liquidation preferences, of stock 
                        issued by the Federal home loan bank.
                    ``(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 not later than 12 months 
                following the date of submission of a written notice by 
                a shareholder of the shareholder'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 not later than 5 years following the date 
of submission of a written notice by a shareholder of the shareholder'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 receive 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 requirements for class b 
                stock.--The capital structure plan may provide for 
                lower stock purchase requirements with respect to those 
                shareholders that elect to purchase Class B stock in a 
                manner that is consistent with meeting the minimum 
                capital requirements of the subject bank, as 
                established by the Finance Board.
                    ``(F) No other classes of stock permitted.--No 
                class of stock may be issued by a Federal home loan 
                bank, other than--
                            ``(i) the Class A and Class B stock 
                        described in subparagraphs (B) and (C); and
                            ``(ii) redeemable equity certificates 
                        described in paragraph (7)(C).
                    ``(G) Liquidation of claims.--The capital structure 
                plan shall provide for the liquidation in an orderly 
                manner, as determined by the Federal home loan 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.
            ``(6) Limited transferability of stock.--The capital 
        structure plan shall--
                    ``(A) provide that any equity securities issued by 
                the Federal home loan bank shall be available only to, 
                held only by, and tradable only among members of that 
                bank; and
                    ``(B) establish standards, criteria, and 
                requirements for the issuance, purchase, trading, 
                transfer, retirement, and redemption of stock issued by 
                that bank.
            ``(7) Treatment of retained earnings.--
                    ``(A) In general.--Each Federal home loan bank 
                shall have ownership in, and a private property right 
                in, the retained earnings of the bank.
                    ``(B) Exception.--Notwithstanding subparagraph (A) 
                and except as otherwise 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 shareholder shall 
                have no right to withdraw or otherwise receive 
                distribution of any portion of the bank's retained 
                earnings.
                    ``(C) Other distributions.--In addition to 
                distributions of retained earnings through dividends 
                and capital distributions as described in subparagraph 
                (B), each Federal home loan bank may provide its 
                shareholders with the right to receive a pro rata 
                distribution of all or a portion of the retained 
                earnings of the bank through the issuance of redeemable 
                equity certificates or other indicia of ownership 
                interests to its members.
                    ``(D) 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.
            ``(8) Bank review of plan.--Before filing the capital 
        structure plan with the Finance Board, each Federal home loan 
        bank shall conduct a review of the plan by--
                    ``(A) an independent public accountant, to ensure, 
                to the extent possible, that implementation of the plan 
                would not result in any write-down of its members' bank 
                stock investment; and
                    ``(B) not fewer than one major credit rating 
                agency, to determine, to the extent possible, whether 
                implementation of the plan would, in itself, create 
                significant risk to the credit ratings of the bank or 
                access by the bank to the global capital markets.
    ``(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 require each such bank to 
        meet the greater of--
                    ``(A) a leverage limit in accordance with paragraph 
                (2); or
                    ``(B) risk-based capital requirements, in 
                accordance with paragraph (3).
            ``(2) Minimum leverage limit.--The leverage limit 
        established by the Finance Board shall require each Federal 
home loan bank to maintain total capital in an amount equal to 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.--Regulations prescribed 
        by the Finance Board in accordance with paragraph (1)(B) shall 
        require each Federal home loan bank to maintain capital in an 
        amount that is sufficient to meet--
                    ``(A) the credit risk to which the Federal home 
                loan bank is subject, based on an amount equal to 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 Insurance Act 
                for a well capitalized insured depository institution; 
                and
                    ``(B) the interest rate risk to which the Federal 
                home loan bank is subject, based on an interest rate 
                stress test applied by the Finance Board that 
                rigorously tests for changes in interest rates, rate 
                volatility, and changes in the shape of the yield 
                curve.
    ``(d) Redemption of Capital.--
            ``(1) In general.--Except as provided in paragraph (5), a 
        shareholder of a Federal home loan bank shall have the right to 
        withdraw that 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 that 
        the shareholder holds, if the shareholder--
                    ``(A) has filed an appropriate written notice of an 
                intention to redeem all such shares; and
                    ``(B) has not canceled that notice prior to the 
                expiration of any requisite notice period.
            ``(2) Liquidation of claims.--If a member withdraws from 
        membership or terminates its membership for any reason, as 
        prescribed in the capital structure plan of a Federal home loan 
        bank--
                    ``(A) the indebtedness of the member to the bank 
                shall be liquidated in an orderly manner;
                    ``(B) the stock of the bank owned by the member 
                shall be surrendered and canceled;
                    ``(C) the member shall be entitled to the return of 
                its collateral; and
                    ``(D) the member shall receive payment for the 
                stock.
            ``(3) Divestiture.--The board of directors of any Federal 
        home loan bank may, after a hearing, order the divestiture by 
        any shareholder of all ownership interests of such shareholder 
        in the bank, if--
                    ``(A) in the opinion of the board of directors, 
                such shareholder has failed to comply with a provision 
                of this Act or any regulation prescribed under this 
                Act; or
                    ``(B) the shareholder has been determined to be 
                insolvent, or otherwise subject to the appointment of a 
                conservator, receiver, or other legal custodian, by a 
                State or Federal authority with regulatory and 
                supervisory responsibility for such shareholder.
            ``(4) Redemption of excess stock.--
                    ``(A) Shareholder rights.--Unless prohibited by the 
                Finance Board, or as determined by the board of 
                directors of a Federal home loan bank under paragraph 
                (5), as necessary to resolve an impairment in the 
                capital of the Federal home loan bank, any shareholder 
                may, upon application to and in the discretion of the 
                bank, receive from the Federal home loan bank payment 
                in cash equal to the par value of the stock in exchange 
                for the redemption of stock held by the shareholder in 
                excess of the minimum stock purchase requirements 
                applicable to the shareholder.
                    ``(B) Bank rights.--A Federal home loan bank may, 
                without notice to or request by a shareholder of the 
                bank redeem any shares of stock in the bank held by 
                that shareholder that are in excess of the minimum 
                stock purchase requirements applicable to that 
                shareholder.
                    ``(C) Priority.--A Federal home loan bank may not, 
                under subparagraph (A) or (B), redeem shares of Class B 
                stock held by a member before the end of the 5-year 
                term of that stock, unless there is no Class A stock 
                outstanding that could be redeemed as excess.
            ``(5) Impairment of capital.--If the Finance Board or the 
        board of directors of a Federal home 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 all 
or part of any redemption proceeds, as determined by the Finance Board 
to be necessary to prevent further impairment of the capital of the 
bank. In no case may a Federal home loan bank redeem any applicable 
capital stock if, following the redemption, the bank would fail to 
satisfy any minimum capital requirement.
            ``(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.
    ``(e) Rejoining After Divestiture of All Shares.--
            ``(1) In general.--Notwithstanding any other provision of 
        this Act, 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 Act.''.

SEC. 15. FEDERAL HOUSING FINANCE BOARD.

    Section 2A(b) of the Federal Home Loan Bank Act (12 U.S.C. 
1422a(b)) is amended--
            (1) in paragraph (1)--
                    (A) by redesignating subparagraphs (A) and (B) as 
                subparagraphs (B) and (C), respectively;
                    (B) by inserting before subparagraph (B) (as 
                redesignated by subparagraph (A) of this paragraph) the 
                following new subparagraph:
                    ``(A) The Chairperson of the Federal Deposit 
                Insurance Corporation (or the designee of the 
                Chairperson), who shall serve without additional 
                compensation.''; and
                    (C) in subparagraph (C) (as redesignated by 
                subparagraph (A) of this paragraph) by striking 
                ``Four'' and inserting ``Three''; and
            (2) in paragraph (2)(A), in the third sentence, by striking 
        ``Not more than 3 directors'' and inserting ``Not more than 2 
        appointed directors''.

SEC. 16. INVESTMENTS BY FEDERAL HOME LOAN BANKS.

    (a) In General.--Section 11(g) of the Federal Home Loan Bank Act 
(12 U.S.C. 1431(h) (as redesignated by section 10(e) of this Act)) is 
amended--
            (1) by striking ``(h) Such part'' and inserting the 
        following:
    ``(g) Investment of Assets.--
            ``(1) In general.--Such part''; and
            (2) by adding at the end the following:
            ``(2) Amount of investments.--Notwithstanding any other 
        provision of this Act, a Federal home loan bank may not 
        maintain investments in an amount in excess of the amount 
        necessary for liquidity purposes, for ensuring adequate 
        availability of credit for the members, for safe and sound 
        operation of the banks, for maintaining a stable capital base, 
        for supporting the Affordable Housing Program, or for housing 
        finance, as administered by the Finance Board.''.
    (b) Investment of Reserves.--Section 16(a) of the Federal Home Loan 
Bank Act (12 U.S.C. 1436(a)) is amended--
            (1) by striking ``(a) Each Federal'' and inserting the 
        following:
    ``(a) Reserve Accounts.--
            ``(1) In general.--Each Federal''; and
            (2) by striking ``The reserves'' and all that follows 
        through ``is located.'' and inserting the following:
            ``(2) Investment of reserves.--The reserves of each Federal 
        home loan bank shall be invested as provided in section 
        11(g).''.
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