[Federal Register Volume 79, Number 195 (Wednesday, October 8, 2014)]
[Proposed Rules]
[Pages 60783-60789]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-23799]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 931 and 933

FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1277

RIN 2590-AA71


Federal Home Loan Bank Capital Stock and Capital Plans

AGENCY: Federal Housing Finance Board, Federal Housing Finance Agency.

ACTION: Proposed rule.

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SUMMARY: The proposed rule would transfer existing parts 931 and 933 of 
the Federal Housing Finance Board (Finance Board) regulations, which 
address requirements for Federal Home Loan Bank (Bank) capital stock 
and capital plans, to new Part 1277 of the Federal Housing Finance 
Agency (FHFA) regulations. The proposed rule would not make any 
substantive changes to these requirements, but would delete certain 
provisions that applied only to the one-time conversion of Bank stock 
to the new capital structure required by the Gramm-Leach-Bliley Act 
(GLB Act). It would also make certain clarifying changes so that the 
rules would more precisely reflect long-standing practices and 
requirements with regard to transactions in Bank stock. Most 
significantly, the proposed rule would add appropriate references to 
``former members'' to clarify when former Bank members can be required 
to maintain investment in Bank capital stock after withdrawal from the 
Bank.

DATES: Comments must be received on or before December 8, 2014.

ADDRESSES: You may submit your comments on the proposed rule, 
identified by regulatory information number (RIN) 2590-AA71 by any of 
the following methods:
     Agency Web site: www.fhfa.gov/open-for-comment-or-input.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comments to the Federal eRulemaking Portal, please also send it by 
email to FHFA at [email protected] to ensure timely receipt by the 
agency. Please include ``RIN 2590-AA71'' in the subject line of the 
message.
     Hand Delivery/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA71, 
Federal Housing Finance Agency, Constitution Center, (OGC) Eighth 
Floor, 400 Seventh Street SW., Washington, DC 20024. The package should 
be delivered to the Seventh Street entrance Guard Desk, First Floor, on 
business days between 9 a.m. and 5 p.m.
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel, Attention: Comments/RIN 2590-AA71, Federal 
Housing Finance Agency, Constitution Center, (OGC) Eighth Floor, 400 
Seventh Street SW., Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Julie Paller, Senior Financial 
Analyst, [email protected], 202-649-3201 (this is not a toll-free 
number), Division of Federal Home Loan Bank Regulation; or Thomas E. 
Joseph, Associate General Counsel, [email protected], 202-649-3076 
(this is not a toll-free number), Office of General Counsel (OGC), 
Federal Housing Finance Agency, Constitution Center, 400 Seventh Street 
SW., Washington, DC 20024. The telephone number for the 
Telecommunications Device for the Hearing Impaired is 800-877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Comments

    Section 553 of the Administrative Procedure Act generally requires 
an

[[Page 60784]]

agency to publish a proposed rule in the Federal Register and provide 
the public an opportunity to comment on it.\1\ Such notice and public 
comment, however, may be dispensed with if they are unnecessary.\2\ In 
this case, FHFA believes that notice and comment would be unnecessary 
because the proposed rule would transfer existing regulation without 
substantive change, deleting provisions that clearly have no continuing 
applicability. Nonetheless, FHFA desires the benefit of public comment 
and has therefore decided to publish this proposed rule with a 60-day 
comment period and invites comments on all aspects of the proposal. 
After considering the comments, FHFA will develop a final regulation.
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    \1\ 5 U.S.C. 553(b).
    \2\ Id. at 553(b)(B).
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    Copies of all comments received by the deadline will be posted 
without change on the FHFA Web site at http://www.fhfa.gov, and will 
include any personal information you provide, such as your name, 
address, email address and telephone number. Copies of all comments 
timely received will be available for public inspection and copying on 
government-business days between the hours of 10 a.m. and 3 p.m. at the 
Federal Housing Finance Agency, Constitution Center, 400 7th Street 
SW., Washington, DC 20024. To make an appointment to inspect comments 
please call the Office of General Counsel at (202) 649-3804.

B. Creation of the Federal Housing Finance Agency

    Effective July 30, 2008, the Housing and Economic Recovery Act of 
2008 (HERA) \3\ created FHFA as a new independent agency of the Federal 
Government, and transferred to FHFA the supervisory and oversight 
responsibilities of the Office of Federal Housing Enterprise Oversight 
(OFHEO) over the Federal National Mortgage Association, and the Federal 
Home Loan Mortgage Corporation (collectively, the Enterprises), the 
oversight responsibilities of the Finance Board over the Banks and the 
Office of Finance (OF) (which acts as the Banks' fiscal agent) and 
certain functions of the Department of Housing and Urban 
Development.\4\ Under the legislation, the Enterprises, the Banks, and 
the OF continue to operate under regulations promulgated by OFHEO and 
the Finance Board until such regulations are superseded by regulations 
issued by FHFA.\5\ While FHFA has amended and/or re-adopted and 
transferred most of the former Finance Board regulations, certain 
Finance Board regulations, including those which address Bank capital, 
have not yet been transferred by FHFA, although they continue to apply 
to the Banks.
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    \3\ Pub. Law 110-289, 122 Stat. 2654.
    \4\ See 12 U.S.C. 4511.
    \5\ See 12 U.S.C. 4511, note.
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C. Bank Capital Stock and Capital Plans

    The twelve Banks are instrumentalities of the United States 
organized under the Federal Home Loan Bank Act (Bank Act).\6\ The Banks 
are cooperatives; only members of a Bank may purchase the capital stock 
of a Bank, and only members or certain eligible housing associates 
(such as state housing finance agencies) may obtain access to secured 
loans, known as advances, or other products provided by a Bank.\7\ Each 
Bank is managed by its own board of directors and serves the public 
interest by enhancing the availability of residential mortgage and 
community lending credit through its member institutions.\8\
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    \6\ See 12 U.S.C. 1423 and 1432(a). The twelve Banks are located 
in: Boston, New York, Pittsburgh, Atlanta, Cincinnati, Indianapolis, 
Chicago, Des Moines, Dallas, Topeka, San Francisco, and Seattle.
    \7\ See 12 U.S.C. 1426(a)(4), 1430(a), and 1430b.
    \8\ See 12 U.S.C. 1427.
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    In 1999, the GLB Act \9\ amended the Bank Act to replace the 
capital structure of the Bank Systems. Under the GLB Act, the Banks 
became subject to risk-based and leverage capital requirements similar 
to those applicable to depository institutions and other housing GSEs. 
The GLB Act also directed the Finance Board to adopt regulations 
prescribing uniform capital standards applicable to each Bank. It also 
required the Banks to replace their existing capital stock with new 
classes of capital stock that would have different terms from the stock 
then-held by Bank System members. Specifically, the GLB Act authorized 
the Banks to issue new Class A stock, which the GLB Act defined as 
redeemable six months after filing of a notice by a member, and Class B 
stock, defined as redeemable five years after filing of a notice by a 
member. The GLB Act allowed Banks to issue Class A and Class B stock in 
any combination and to establish terms and preferences for each class 
or subclass of stock issued, consistent with Finance Board regulations 
and the Bank Act.\10\
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    \9\ Pub. Law 106-102, 113 Stat. 1338 (Nov. 12, 1999).
    \10\ See 12 U.S.C. 1426, and 12 CFR parts 931 and 933.
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    As part of the process for converting the ``old'' capital stock to 
the new GLB Act Class A and Class B stock, the GLB Act required each 
Bank to adopt and maintain a capital plan that established the rights, 
terms and preferences of each class or subclass of capital stock that 
it would issue.\11\ The GLB Act also required that each Bank's capital 
plan establish the minimum investment in capital stock required for its 
members to maintain membership and to conduct business with the Bank. 
Such minimum investment requirements needed to be sufficient for the 
Bank to meet its new minimum regulatory capital requirements. The GLB 
Act provided each Bank's board of directors the discretion to develop 
and implement a capital plan that it determined was best suited for the 
conditions and operations of the Bank and the interests of the Bank's 
members.\12\ It also required Finance Board approval of each Bank's 
capital plan prior to it taking effect.
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    \11\ Id.
    \12\ See 12 U.S.C. 1426(b)(1).
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    Under the Finance Board regulations, each Bank had discretion as to 
when it would convert to the new capital structure. The Finance Board 
regulations also addressed in detail the process for the one-time 
conversion to the new capital structure, including requirements for 
disclosure to be given to members prior to the conversion. Since the 
Finance Board originally adopted these regulations in 2001, all Banks 
have converted to the GLB Act capital structure. The original Finance 
Board regulations have not yet been amended, however, to remove 
provisions that applied only to the initial conversion process.\13\
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    \13\ See Final Rule: Capital Requirements for Federal Home Loan 
Banks, 66 FR 8262 (Jan. 30, 2001); and Final Rule: Capital 
Requirements for Federal Home Loan Banks, 66 FR 54097 (Oct. 26, 
2001) (amending capital requirements).
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D. Considerations of Differences Between the Banks and the Enterprises

    When promulgating regulations relating to the Banks, section 
1313(f) of the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992 (Safety and Soundness Act) requires the Director 
of FHFA (Director) to consider the differences between the Banks and 
the Enterprises with respect to the Banks' cooperative ownership 
structure; mission of providing liquidity to members; affordable 
housing and community development mission; capital structure; and joint 
and several liability.\14\ This requirement does not apply to 
regulations of the Finance Board that the Director reissues. The 
changes proposed in this rulemaking are clarifying and conforming in 
nature and apply exclusively to the Banks. Apart from those changes, 
the substance of the

[[Page 60785]]

proposed rule is the same as that of the existing Finance Board 
regulations. Accordingly, the proposed rule does not trigger this 
statutory requirement. Nonetheless, FHFA, in preparing this proposed 
rule, considered the differences between the Banks and the Enterprises 
as they relate to the above factors. FHFA requests comments from the 
public about whether these differences should result in any revisions 
to the proposed rule.
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    \14\ See 12 U.S.C. 4513 (as amended by section 1201 Pub. L. 110-
289, 122 Stat. 2782-83).
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II. Analysis of the Proposed Rule

The Proposed Rule

    The proposed rule would transfer the Finance Board Bank capital 
stock regulations from 12 CFR part 931 and the Bank capital plan 
regulations from 12 CFR part 933 to subparts C and D of new part 1277 
of FHFA regulations, respectively. Relevant definitions for parts 931 
and 933 would be transferred to subpart A of new part 1277.\15\ As part 
of this transfer, FHFA also proposes to make certain non-substantive, 
clarifying and conforming changes to these provisions and to remove 
requirements which applied only to the Banks' initial conversion to the 
GLB Act capital structure.
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    \15\ As part of a separate and future rulemaking, FHFA intends 
to amend and transfer the existing Bank capital regulations from 
part 932 of the Finance Board regulations to subpart B of new part 
1277.
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    Definitions. FHFA proposes to replace definitions for ``regulatory 
risk-based capital requirement'' and ``regulatory total capital 
requirement'' with a new single definition for ``regulatory capital 
requirements.'' The proposed rule would define this new term as the 
minimum amounts of permanent and total capital that a Bank is required 
to maintain under section 6(a) of the Bank Act (12 U.S.C. 1426(a)) and 
any related regulations, as such requirements may be modified by the 
Director, or any similar requirement established for a Bank by 
regulation, order, written agreement or other action. FHFA would 
replace various references to ``minimum capital requirement'' or 
``capital requirement'' with a reference to ``regulatory capital 
requirements'' in the text of the transferred regulations.
    FHFA also proposes to define the term ``former member'' as an 
institution whose membership in a Bank has been terminated, but which 
continues to hold stock in the Bank as required by the Bank's capital 
plan, and includes any successor to such institution that continues to 
hold the Bank's stock that had been issued to the acquired institution. 
As discussed more fully below, FHFA proposes to add various references 
to ``former member'' in the regulatory text to clarify that under the 
Bank Act and existing regulations, such institutions can be required to 
hold Bank stock in certain situations after termination of their Bank 
membership.
    Capital Stock Provisions. FHFA proposes to transfer current 12 CFR 
part 931 to new subpart C of part 1277. Most of these provisions will 
be transferred without change, beyond necessary conforming changes. 
FHFA, however, proposes to delete current Sec.  931.9 which addresses 
various transition requirements related to the Banks' conversion to the 
GLB Act capital structure. Given that all Banks have successfully 
completed this process, Sec.  931.9 has no future applicability and can 
be removed.
    As already noted, FHFA also proposes to clarify in various 
provisions that former members can be required to hold Bank stock, or 
otherwise engage in stock transactions, after withdrawal. For example, 
an institution is not required upon withdrawal to pay off all 
outstanding advances or other activity, but instead, a Bank can allow 
such institution to liquidate such indebtedness in an orderly manner. 
See 12 U.S.C. 1426(d)(3). Under current rules, such institution must 
retain sufficient stock to fulfill any stock purchase requirement 
established by the Bank's capital plan related to the outstanding 
activity. See 12 CFR Sec.  1263.29(b). Some, but not all, Banks' 
capital plans also may require former members to buy additional Bank 
stock if a Bank increases the relevant activity stock purchase 
requirement during the orderly liquidation period.\16\
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    \16\ FHFA does not intend any of its proposed changes in this 
rulemaking to imply that a Bank must require former members to buy 
stock as a result of an increase in a relevant stock purchase 
requirement while activity remains outstanding. Instead, FHFA seeks 
to clarify that such a requirement is possible as long as a Bank 
specifies such a requirement in its approved capital plan.
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    In other situations, a Bank may not be required to purchase a 
former member's stock upon withdrawal because the relevant redemption 
periods have not been completed on such date.\17\ A Bank also may be 
prohibited by regulation or FHFA order from redeeming a former member's 
stock upon its withdrawal, so that the institution must continue to 
hold the stock beyond the date that membership terminates.\18\
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    \17\ A Bank is only required to redeem a member's, or former 
member's, stock upon expiration of the relevant redemption period, 
and then only if the stock is not needed to meet any applicable 
stock purchase requirement or Bank regulatory capital requirement. 
See 12 CFR 931.7 (proposed Sec.  1277.26).
    \18\ For example, a Bank cannot redeem any stock if it would 
fail to meet any regulatory capital requirement after the 
redemption. See 12 U.S.C. 1426(f) and 12 CFR 931.7(c) (proposed 
Sec.  1277.26(c)).
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    To account for such situations, FHFA proposes to add relevant 
references to former members in a number of provisions, including 
proposed Sec. Sec.  1277.21, 1277.22, 1277.25, 1277.26, and 
1277.28(d)(4). Because FHFA generally has continued the Finance Board's 
approach and interpreted references to ``member'' in these regulations 
to include a former member, when appropriate, FHFA views these changes 
as clarifying in nature.\19\
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    \19\ In this respect, both the Finance Board and FHFA have 
approved Bank capital plans that apply stock transaction or stock 
holding provisions specifically to former members, even though 
current, relevant regulations refer only to members.
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    FHFA also proposes to add clarifying language to Sec.  1277.23. The 
new language provides that any provision in a Bank's capital plan 
related to stockholder rights in a liquidation, merger or consolidation 
of the Bank cannot limit FHFA's authority under the Bank Act or the 
Safety and Soundness Act to issue a regulation or order or to take any 
other action that may affect or otherwise alter the rights or 
privileges of stock holders in these situations. FHFA believes that the 
proposed language is consistent to wording that already has been 
incorporated into each Bank's approved capital plan and therefore will 
not alter the scope of current approved capital plan provisions that 
address the Bank's liquidation, merger or consolidation.
    Capital Plan Requirements. FHFA proposes to transfer relevant 
provisions in current part 933 to subpart D of new part 1277. As part 
of this process, it proposes to remove those provisions that relate 
only to the Banks' initial conversion to the GLB Act capital structure, 
given that the provisions have no continuing applicability. The 
provisions FHFA proposes to delete include, provisions in current Sec.  
933.1 that relate only to the initial submission of capital plans by 
the Banks for approval, and Sec. Sec.  933.2(d), (e) and (h), 933.3, 
933.4, and 933.5. Other provisions in part 933 will be carried over to 
subpart D of part 1277 with necessary conforming changes.
    FHFA also proposes not to reissue duplicative provisions related to 
the calculation and application of a member's, or former member's, 
minimum investment requirements. These requirements are now contained 
in both Sec.  931.3 of the rules, which sets forth requirements for the 
minimum stock investment, and Sec.  933.2(a), which sets forth the 
requirements for a Bank's capital plan related to the minimum

[[Page 60786]]

investment. Instead, the proposed rule would provide that a Bank's 
capital plan should specify the manner for calculating the minimum 
investment and require a member, and if applicable a former member, to 
purchase and maintain such investment in accordance with proposed Sec.  
1277.22. The change would incorporate by reference the requirements 
governing the calculation and maintenance of the minimum investment set 
forth in proposed Sec.  1277.22 and, thus, would not alter the current 
capital plan requirements in any substantive manner.
    FHFA also proposes to add to subpart D new Sec.  1277.29 to address 
amendments to approved Bank capital plans. The current part 933 rules 
do not specifically address the process for submitting capital plan 
amendments for FHFA approval, although the Bank Act allows Banks to 
amend their capital plans with such approval.\20\ FHFA proposes to 
incorporate in this new section requirements that reflect the process 
that long has been applied to the submission and approval of Bank 
capital plan amendments, including applicable Finance Board guidance, 
first provided to the Banks in 2003, on information that a Bank should 
submit with any approval request. FHFA also proposes to carry over in 
proposed Sec.  1277.29(c), current language from Sec.  933.1(c) that 
would allow the Director to approve an amendment to a capital plan 
subject to specific conditions.
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    \20\ See 12 U.S.C. 1426(b)(2).
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III. Paperwork Reduction Act

    The information collection, entitled ``Capital Requirements for the 
Federal Home Loan Banks,'' contained in the current 12 CFR parts 931 
and 933 of the regulations that would be transferred to 12 CFR part 
1277 by this proposed rule, has been assigned control number 2590-0002 
by the Office of Management and Budget (OMB). The proposed rule if 
adopted as a final rule would not substantively or materially modify 
the current, approved information collection.

IV. Regulatory Flexibility Act

    The proposed rule applies only to the Banks, which do not come 
within the meaning of small entities as defined in the Regulatory 
Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance 
with section 605(b) of the RFA, FHFA certifies that this proposed rule, 
if adopted as a final rule, would not have significant economic impact 
on a substantial number of small entities.

List of Subjects

12 CFR Parts 931 and 933

    Capital, Credit, Federal home loan banks, Investments, Reporting 
and recordkeeping requirements.

12 CFR Part 1277

    Capital, Credit, Federal home loan banks, Investments, Reporting 
and recordkeeping requirements.

    Accordingly, for reasons stated in the Preamble and under the 
authority of 12 U.S.C. 1426, 1436, 1440, 1443, 1446, 4511, 4513, 4526, 
FHFA proposes to amend subchapter E of chapter IX and subchapter D of 
chapter XII of title 12 of the Code of Federal Regulations as follows:

CHAPTER IX--FEDERAL HOUSING FINANCE BOARD

Subchapter E--Federal Home Loan Bank Risk Management and Capital 
Standards

PART 931--[REMOVED]

0
1. Remove part 931.

PART 933--[REMOVED]

0
2. Remove part 933.

CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY

Subchapter D--Federal Home Loan Banks

0
3. Add part 1277 to subchapter D to read as follows:

PART 1277--FEDERAL HOME LOAN BANK CAPITAL REQUIREMENTS, CAPITAL 
STOCK AND CAPITAL PLANS

Subpart A--Definitions
Sec.
1277.1 Definitions.
Subpart B--[Reserved]
Subpart C--Bank Capital Stock
1277.20 Classes of capital stock.
1277.21 Issuance of capital stock.
1277.22 Minimum investment in capital stock.
1277.23 Dividends.
1277.24 Liquidation, merger, or consolidation.
1277.25 Transfer of capital stock.
1277.26 Redemption and repurchase of capital stock.
1277.27 Other restrictions on the repurchase or redemption of Bank 
stock.
Subpart D--Bank Capital Plans
1277.28 Bank capital plans.
1277.29 Amendments to a Bank's capital plan.

    Authority: 12 U.S.C. 1426, 1436(a), 1440, 1443, 1446, 4511, 
4513, 4514, 4526, 4612.

Subpart A--Definitions


Sec.  1277.1  Definitions.

    As used in this part:
    Class A stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified by Sec.  1277.20(a) 
of this part.
    Class B stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified by Sec.  1277.20(b) 
of this part.
    Former member means an institution for which the membership in a 
Bank has been terminated but which continues to hold stock in the Bank 
as required by the Bank's capital plan, and includes any successor to 
such institution that continues to hold the stock in the Bank that had 
been issued to the acquired institution.
    General allowance for losses means an allowance established by the 
Bank in accordance with GAAP for losses, but which does not include any 
amounts held against specific assets of the Bank.
    Minimum investment means the minimum amount of stock that an 
institution is required to own in order to be a member of a Bank and in 
order to obtain advances and to engage in other business activities 
with the Bank in accordance with Sec.  1277.22 of this part.
    Permanent capital means the retained earnings of a Bank, determined 
in accordance with GAAP, plus the amount paid-in for the Bank's Class B 
stock.
    Redeem or Redemption means the acquisition by a Bank of its 
outstanding Class A or Class B stock at par value following the 
expiration of the six-month or five-year statutory redemption period, 
respectively, for the stock.
    Regulatory capital requirements means the minimum amounts of 
permanent and total capital that a Bank is required to maintain under 
section 6(a) of the Bank Act (12 U.S.C. 1426(a)) and any related 
regulations, as such requirements may be modified by the Director, or 
any similar requirement established for a Bank by regulation, order, 
written agreement or other action.
    Repurchase means the acquisition by a Bank of excess stock prior to 
the expiration of the six-month or five-year statutory redemption 
period for the stock.
    Total capital of a Bank means the sum of permanent capital, the 
amounts paid-in for Class A stock, the amount of any general allowance 
for losses, and the amount of other instruments identified in a Bank's 
capital plan that the Director has determined to be available to absorb 
losses incurred by such Bank.

[[Page 60787]]

Subpart B--[Reserved]

Subpart C--Bank Capital Stock


Sec.  1277.20  Classes of capital stock.

    The authorized capital stock of a Bank shall consist of the 
following instruments:
    (a) Class A stock, which shall:
    (1) Have a par value as determined by the board of directors of the 
Bank and stated in the Bank's capital plan;
    (2) Be issued, redeemed, and repurchased only at its stated par 
value; and
    (3) Be redeemable in cash only on six-months written notice to the 
Bank.
    (b) Class B stock, which shall:
    (1) Have a par value as determined by the board of directors of the 
Bank and stated in the Bank's capital plan;
    (2) Be issued, redeemed, and repurchased only at its stated par 
value;
    (3) Be redeemable in cash only on five-years written notice to the 
Bank; and
    (4) Confer an ownership interest in the retained earnings, surplus, 
undivided profits, and equity reserves of the Bank; and
    (c) Any one or more subclasses of Class A or Class B stock, each of 
which may have different rights, terms, conditions, or preferences as 
may be authorized in the Bank's capital plan, provided, however, that 
each subclass of stock shall have all of the characteristics of its 
respective class, as specified in paragraph (a) or (b) of this section.


Sec.  1277.21  Issuance of capital stock.

    A Bank may issue either one or both classes of its capital stock 
(including subclasses), as authorized by Sec.  1277.20, and shall not 
issue any other class of capital stock. A Bank shall issue its stock 
only to its members, or to former members to the extent those 
institutions are required to maintain a minimum stock investment for 
existing activities under the capital plan, and only in book-entry 
form. The Bank shall act as its own transfer agent. All capital stock 
shall be issued in accordance with the Bank's capital plan.


Sec.  1277.22  Minimum investment in capital stock.

    (a) A Bank shall require each member to maintain a minimum 
investment in the capital stock of the Bank, both as a condition to 
becoming and remaining a member of the Bank and as a condition to 
transacting business with the Bank or obtaining advances and other 
services from the Bank. The amount of the required minimum investment 
shall be determined in accordance with the Bank's capital plan and 
shall be sufficient to ensure that the Bank remains in compliance with 
its regulatory capital requirements. A Bank shall require each member 
to maintain its minimum investment for as long as the institution 
remains a member of the Bank and shall require each member and former 
member to maintain its minimum investment for as long as the 
institution engages in any activity with the Bank for which the capital 
plan requires the institution to maintain capital stock.
    (b) A Bank may establish the minimum investment as a percentage of 
the total assets of an institution, as a percentage of the advances 
outstanding to that institution, as a percentage of any other business 
activity conducted with the institution, on any other basis that is 
approved by the Director, or any combination thereof.
    (c) A Bank may require that the minimum investment requirement be 
satisfied through the purchase of either Class A or Class B stock, or 
through the purchase of one or more combinations of Class A and Class B 
stock that have been authorized by the board of directors of the Bank 
in its capital plan. A Bank, in its discretion, may establish a lower 
minimum investment to the extent the requirement is met through 
investment in Class B stock than if the requirement is met through 
investment in Class A stock, provided that such reduced investment 
provides sufficient capital for the Bank to remain in compliance with 
its regulatory capital requirements.
    (d) Each member, or if applicable, former member, of a Bank shall 
at all times maintain an investment in the capital stock of the Bank in 
an amount that is sufficient to satisfy the minimum investment required 
under the Bank's capital plan.


Sec.  1277.23  Dividends.

    (a) In general. A Bank may pay dividends on Class A or Class B 
stock, including any subclasses of such stock, only out of previously 
retained earnings or current net earnings, and shall declare and pay 
dividends only as provided by its capital plan. The capital plan may 
establish different dividend rates or preferences for each class or 
subclass of stock, which may include a dividend that tracks the 
economic performance of certain Bank assets, such as Acquired Member 
Assets. A member, including a member that has provided the Bank with a 
notice of intent to withdraw from membership, or a former member shall 
be entitled to receive any dividends that a Bank declares on its 
capital stock while such institution owns the stock.
    (b) Limitation on payment of dividends. In no event shall a Bank 
declare or pay any dividend on its capital stock if after doing so the 
Bank would fail to meet any of its regulatory capital requirements, nor 
shall a Bank that is not in compliance with any of its regulatory 
capital requirements declare or pay any dividend on its capital stock.


Sec.  1277.24  Liquidation, merger, or consolidation.

    The respective rights of the Class A and Class B stockholders, in 
the event that the Bank is liquidated, or is merged or otherwise 
consolidated with another Bank, shall be determined in accordance with 
the capital plan of the Bank, provided, however, that nothing in the 
capital plan shall be construed to limit any rights or authority 
granted FHFA under the Bank Act or the Safety and Soundness Act to 
issue any regulation or order or to take any other action that may 
affect or otherwise alter the rights or privileges of stock holders in 
a liquidation, merger or consolidation of a Bank.


Sec.  1277.25  Transfer of capital stock.

    A Bank in its capital plan may allow a member or former member to 
transfer any excess stock to a member of that Bank or to an institution 
that has been approved for membership in that Bank and that has 
satisfied all conditions for becoming a member, other than the purchase 
of the minimum amount of Bank stock that it is required to hold as a 
condition of membership. Any such stock transfers shall be at par value 
and shall be effective upon being recorded on the appropriate books and 
records of the Bank. The Bank may, in its capital plan, require that 
the transfer be approved by the Bank before such transfer can occur.


Sec.  1277.26  Redemption and repurchase of capital stock.

    (a) Redemption. (1) A member or former member may have its stock in 
a Bank redeemed by providing written notice to the Bank in accordance 
with this section. A member or former member shall provide six-months 
written notice for Class A stock and five-years written notice for 
Class B stock. The notice shall indicate the number of shares of Bank 
stock that are to be redeemed. No more than one notice of redemption 
may be outstanding at one time for the same shares of Bank stock. At 
the expiration of the applicable notice period, the Bank shall pay to 
the member or other institution holding the stock the stated par value 
of that stock in cash.

[[Page 60788]]

    (2) A member may cancel a notice of redemption by so informing the 
Bank in writing, and the Bank may impose a fee (to be specified in its 
capital plan) with respect to any cancellation of a pending notice of 
redemption. A request by a member (whose membership has not been 
terminated) to redeem specific shares of stock shall automatically be 
cancelled if the Bank is prevented from redeeming the member's stock by 
paragraph (c) of this section within five business days from the end of 
the expiration of the applicable redemption notice period because the 
member would fail to maintain its minimum investment in the stock of 
the Bank after such redemption. The automatic cancellation of a 
member's redemption request shall have the same effect as if the member 
had cancelled its notice to redeem stock prior to the end of the 
redemption notice period, and a Bank may impose a fee (to be specified 
in its capital plan) for automatic cancellation of a redemption 
request.
    (3) A Bank shall not be obligated to redeem its capital stock other 
than in accordance with this paragraph.
    (b) Repurchase. A Bank, in its discretion and without regard to the 
applicable redemption periods, may repurchase excess stock in 
accordance with the capital plan of that Bank. A Bank undertaking such 
a stock repurchase at its own initiative shall provide reasonable 
notice prior to repurchasing any excess stock, with the period of such 
notice to be specified in the Bank's capital plan, and shall pay the 
stated par value of that stock in cash. A member's submission of a 
notice of intent to withdraw from membership, or its termination of 
membership in any other manner, shall not, in and of itself, cause any 
Bank stock to be deemed excess stock for purposes of this section.
    (c) Limitation. In no event may a Bank redeem or repurchase any 
stock if, following the redemption or repurchase, the Bank would fail 
to meet its regulatory capital requirements, or if the member or former 
member would fail to maintain its minimum investment in the stock of 
the Bank, as required by Sec.  1277.22 of this part.


Sec.  1277.27  Other restrictions on the repurchase or redemption of 
Bank stock.

    (a) Capital impairment. A Bank may not redeem or repurchase any 
capital stock without the prior written approval of the Director if the 
Director or the board of directors of the Bank has determined that the 
Bank has incurred or is likely to incur losses that result in or are 
likely to result in charges against the capital of the Bank. This 
prohibition shall apply even if a Bank is currently in compliance with 
its regulatory capital requirements, and shall remain in effect for 
however long the Bank continues to incur such charges or until the 
Director determines that such charges are not expected to continue.
    (b) Bank discretion to suspend redemption. A Bank, upon the 
approval of its board of directors, or of a subcommittee thereof, may 
suspend redemption of stock if the Bank reasonably believes that 
continued redemption of stock would cause the Bank to fail to meet its 
regulatory capital requirements, would prevent the Bank from 
maintaining adequate capital against a potential risk that may not be 
adequately reflected in its regulatory capital requirements, or would 
otherwise prevent the Bank from operating in a safe and sound manner. A 
Bank shall notify the Director in writing within two business days of 
the date of the decision to suspend the redemption of stock, providing 
the reasons for the suspension and the Bank's strategies and time 
frames for addressing the conditions that led to the suspension. The 
Director may require the Bank to re-institute the redemption of stock. 
A Bank shall not repurchase any stock without the written permission of 
the Director during any period in which the Bank has suspended 
redemption of stock under this paragraph.

Subpart D--Bank Capital Plans


Sec.  1277.28  Bank capital plans.

    Each Bank shall have in place a capital plan approved by the Bank's 
board of directors and the Director. The capital plan shall include, at 
a minimum, provisions addressing the following matters:
    (a) Minimum investment. (1) The capital plan shall require each 
member, and if applicable each former member, to purchase and maintain 
a minimum investment in the capital stock of the Bank and prescribe the 
manner for calculating the minimum investment, in accordance with Sec.  
1277.22 of this part.
    (2) The capital plan shall specify the amount and class (or 
classes) of Bank stock that an institution is required to own in order 
to become and remain a member of the Bank, and to obtain advances from, 
or to engage in other business transactions with, the Bank. If a Bank 
requires that the minimum investment be satisfied through the purchase 
of one or more combinations of Class A and Class B stock, the 
authorized combinations of stock shall be specified in the capital 
plan, which shall afford the option of satisfying the minimum 
investment through the purchase of any such combination of stock.
    (3) The capital plan shall require the board of directors of the 
Bank to monitor and, as necessary, to adjust, the minimum investment to 
ensure that outstanding stock remains sufficient for the Bank to comply 
with its regulatory capital requirements. The plan shall require each 
member or, where required by the plan, former member, to comply 
promptly with any adjusted minimum investment established by the board 
of directors of the Bank, but may allow a reasonable time to do so and 
may allow a reduction in outstanding business with the Bank as an 
alternative to purchasing additional stock.
    (b) Classes of capital stock. The capital plan shall specify the 
class or classes of stock (including subclasses, if any) that the Bank 
will issue, and shall establish the par value, rights, terms, and 
preferences associated with each class (or subclass) of stock. A Bank 
may establish preferences relating to, but not limited to, the 
dividend, voting, or liquidation rights for each class or subclass of 
Bank stock. Any voting preferences established by the Bank pursuant to 
Sec.  1261.6 of this chapter shall expressly state the voting rights of 
each class of stock with regard to the election of Bank directors. The 
capital plan shall provide that the owners of the Class B stock own the 
retained earnings, surplus, undivided profits, and equity reserves of 
the Bank, but shall have no right to receive any portion of those 
items, except through declaration of a dividend or capital distribution 
approved by the board of directors or through the liquidation of the 
Bank.
    (c) Dividends. The capital plan shall establish the manner in which 
the Bank will pay dividends, if any, on each class or subclass of 
stock, and shall provide that the Bank may not declare or pay any 
dividends if it is not in compliance with any regulatory capital 
requirement or if after paying the dividend it would not be in 
compliance with any regulatory capital requirement.
    (d) Stock transactions. The capital plan shall establish the 
criteria for the issuance, redemption, repurchase, transfer, and 
retirement of stock issued by the Bank. The capital plan also:
    (1) Shall provide that the Bank may not issue stock other than in 
accordance with Sec.  1277.21 of this part;
    (2) Shall provide that the stock of the Bank may be issued only to 
and held only by the members of that Bank, and by former members to the 
extent necessary to meet requirements set forth in a capital plan;
    (3) Shall specify whether the stock of the Bank may be transferred, 
as allowed

[[Page 60789]]

under Sec.  1277.25 of this part, and, if such transfer is allowed, 
shall specify the procedures to effect such transfer, and provide that 
the transfer shall be undertaken only in accordance with Sec.  1277.25;
    (4) Shall specify that the stock of the Bank may be traded only 
among the Bank and its members, and former members;
    (5) May provide for a minimum investment based on investment in 
Class B stock that is lower than a minimum investment based on 
investment in Class A stock, provided that the level of investment is 
sufficient for the Bank to comply with its regulatory capital 
requirements;
    (6) Shall specify the fee, if any, to be imposed upon cancellation 
of a request to redeem Bank stock or upon cancellation of a request to 
withdraw from membership; and
    (7) Shall specify the period of notice that the Bank will provide 
before the Bank, on its own initiative, determines to repurchase any 
excess Bank stock.
    (e) Termination of membership. The capital plan shall address the 
manner in which the Bank will provide for the disposition of its 
capital stock that is held by institutions that terminate their 
membership, and the manner in which the Bank will liquidate claims 
against such institutions, including claims resulting from prepayment 
of advances prior to their stated maturity.


Sec.  1277.29  Amendments to a Bank's capital plan.

    (a) In general. A Bank's board of directors shall approve any 
amendments to the Bank's capital plan and submit such amendment to the 
Director for approval. No such amendment may take effect until it has 
been approved by the Director.
    (b) Submission of amendments for approval. Any request for approval 
of capital plan amendments should be submitted to the Deputy Director 
for the Division of Federal Home Loan Bank Regulation and should 
include the following:
    (1) The name of the Bank making the request and the name, title, 
and contact information of the official filing the request;
    (2) The name, title and contact information of the staff member(s) 
whom FHFA may contact for additional information;
    (3) A certification by an executive officer of the Bank with 
knowledge of the facts that the representations made in the request are 
accurate and complete. The following form of certification may be used: 
``I hereby certify that the statements contained in the submission are 
true and complete to the best of my knowledge. [Name and Title]'';
    (4) A written, narrative description of the proposed amendments to 
the Bank's capital plan and a discussion of the Bank's reasons for the 
proposed changes;
    (5) The amended capital plan as approved by the Bank's board of 
directors;
    (6) A version of the Bank's capital plan showing all proposed 
changes to its previously approved capital plan;
    (7) Resolutions of the Bank's board of directors:
    (i) Approving the proposed capital plan amendments; and
    (ii) Authorizing the filing of the application for approval of the 
amendments and concurring in substance with the supporting 
documentation provided;
    (8) An opinion of counsel demonstrating that the proposed 
amendments comply with the Bank Act, FHFA regulations and any other 
applicable law or regulation. If the amendments would be identical in 
substance to provisions approved for other Banks' capital plans, a 
Bank's legal analysis may reference the other capital plans that 
contain the provisions in question;
    (9) An analysis of the effect of the proposed amendments, if any, 
on the Bank's capital levels and the Bank's ability to meet its 
regulatory capital requirements;
    (10) Pro forma financial statements from the end of the quarter 
immediately prior to the date of submission of the request for approval 
through at least the end of the next two years, showing the impact of 
the proposed changes, if any, on capital levels; and
    (11) A discussion of and an explanation for changes to the Bank's 
strategic plan, if any, which may be related to the capital plan 
amendments.
    (c) FHFA consideration of the amendment. The Director may approve 
any amendment to a Bank's capital plan as submitted or may condition 
approval on the Bank's compliance with certain stated conditions.

    Dated: September 30, 2104.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2014-23799 Filed 10-7-14; 8:45 am]
BILLING CODE 8070-01-P