12 U.S.C. § 1426 — Capital structure of Federal home loan

Page 284 TITLE 12—BANKS AND BANKING §§ 1425 to 1425b VII, §§ 701(b)(1), (3)(A), 704(a), 710(b)(1), Aug. 9, 1989, 103 Stat. 412, 415, 418; Pub. L. 106–102, title VI, § 605, Nov. 12, 1999, 113 Stat. 1452; Pub. L. 110–289, div. A, title II, §§ 1204(8), 1206, July 30, 2008, 122 Stat. 2786, 2787; Pub. L. 114–94, div. G, title LXXXII, § 82001(a), Dec. 4, 2015, 129 Stat. 1795.) Editorial Notes REFERENCES IN TEXT The Community Development Banking and Financial Institutions Act of 1994, referred to in subsec. (a)(1)(B), is subtitle A (§§ 101–121) of title I of Pub. L. 103–325, Sept. 23, 1994, 108 Stat. 2163, which is classified prin- cipally to subchapter I (§ 4701 et seq.) of chapter 47 of this title. For complete classification of subtitle A to the Code, see Short Title note set out under section 4701 of this title and Tables. Section 461 of this title, referred to in subsec. (a)(1)(C), was in the original ‘‘section 19 of the Federal Reserve Act’’. Definition provisions of section 19 are classified to section 461 of this title. Other provisions of section 19 are classified to sections 142, 371b, 371b–1, 374, 374a, 463 to 466, 505, and 506 of this title. AMENDMENTS 2015—Subsec. (a)(5). Pub. L. 114–94 added par. (5). 2008—Subsec. (a)(1). Pub. L. 110–289, § 1206(1), which di- rected insertion of ‘‘community development financial institution,’’ after ‘‘savings bank,’’, was executed by making the insertion after ‘‘savings bank,’’ the first time appearing. Subsec. (a)(1)(B). Pub. L. 110–289, § 1206(2), which di- rected insertion of ‘‘or, in the case of a community de- velopment financial institution, is certified as a com- munity development financial institution under the Community Development Banking and Financial Insti- tutions Act of 1994.’’ after ‘‘United States,’’, was exe- cuted by making the insertion after ‘‘United States’’ to reflect the probable intent of Congress. Subsecs. (a)(1)(C), (3), (b), (c). Pub. L. 110–289, § 1204(8), substituted ‘‘the Director’’ for ‘‘the Board’’ wherever appearing. 1999—Subsec. (a)(2) to (4). Pub. L. 106–102 inserted ‘‘(other than a community financial institution)’’ after ‘‘institution’’ in par. (2)(A), designated concluding pro- visions of par. (2) as par. (3), inserted heading and sub- stituted ‘‘paragraph (2)’’ for ‘‘preceding sentence’’, and added par. (4). 1989—Subsec. (a). Pub. L. 101–73, § 704(a), amended sub- sec. (a) generally. Prior to amendment, subsec. (a) read as follows: ‘‘Any building and loan association, savings and loan association, cooperative bank, homestead as- sociation, insurance company, or savings bank shall be eligible to become a member of, or a nonmember bor- rower of, a Federal Home Loan Bank if such institution (1) is duly organized under the laws of any State or of the United States; (2) is subject to inspection and regu- lation under the banking laws, or under similar laws, of the State or of the United States; and (3) makes such home mortgage loans as in the judgment of the board, are long-term loans (and in the case of a savings bank if, in the judgment of the board, its time deposits, as defined in section 461 of this title, warrant its making such loans). No institution shall be eligible to become a member of, or a nonmember borrower of, a Federal Home Loan Bank if, in the judgment of the board, its financial condition is such that advances may not safe- ly be made to such institution or the character of its management or its home-financing policy is incon- sistent with sound and economical home financing, or with the purposes of this chapter.’’ Subsec. (b). Pub. L. 101–73, § 710(b)(1), struck out ‘‘or a nonmember borrower’’ after ‘‘eligible to become a member’’. Pub. L. 101–73, § 701(b)(1), (3)(A), substituted ‘‘Board’’ for ‘‘board’’. Subsec. (c). Pub. L. 101–73, § 701(b)(1), (3)(A), sub- stituted ‘‘Board’’ for ‘‘board’’. 1933—Subsec. (d). Act June 13, 1933, struck out subsec. (d) which provided for direct loans to homeowners. See chapter 12 (§ 1461 et seq.) of this title. §§ 1425 to 1425b. Repealed. Pub. L. 101–73, title VII, §§ 705, 716, 720, Aug. 9, 1989, 103 Stat. 416, 421, 423 Section 1425, acts July 22, 1932, ch. 522, § 5, 47 Stat. 727; Dec. 24, 1969, Pub. L. 91–152, title IV, § 416(a), 83 Stat. 401, related to limitation on lawful contract rate of in- terest receivable by members and nonmember bor- rowers, and applicability to home mortgage loans on single-family dwellings. Section 1425a, act July 22, 1932, ch. 522, § 5A, as added June 27, 1950, ch. 369, § 1, 64 Stat. 256; amended Aug. 11, 1955, ch. 783, title I, § 109(a)(3), 69 Stat. 640; Sept. 21, 1968, Pub. L. 90–505, § 4, 82 Stat. 856; Mar. 31, 1980, Pub. L. 96–221, title I, § 104(b), title IV, § 405, 94 Stat. 139, 158; Oct. 8, 1980, Pub. L. 96–399, title III, § 325(a), 94 Stat. 1648; Oct. 15, 1982, Pub. L. 97–320, title III, § 332, 96 Stat. 1504; Oct. 17, 1984, Pub. L. 98–479, title II, § 207, 98 Stat. 2235, related to liquidity requirements for savings and loan associations and other members. Section 1425b, act July 22, 1932, ch. 522, § 5B, as added Sept. 21, 1966, Pub. L. 89–597, § 4, 80 Stat. 824; amended Sept. 21, 1968, Pub. L. 90–505, § 2(c), 82 Stat. 856; Dec. 23, 1969, Pub. L. 91–151, § 2(b), 83 Stat. 372; Oct. 29, 1974, Pub. L. 93–501, title I, § 103, title III, § 303, 88 Stat. 1558, 1560; Nov. 5, 1979, Pub. L. 96–104, title II, § 203, 93 Stat. 793; Dec. 28, 1979, Pub. L. 96–161, title II, § 210, 93 Stat. 1239; Mar. 31, 1980, Pub. L. 96–221, title II, § 207(b)(7)–(9), title V, § 529, 94 Stat. 144, 168, related to rate of interest pay- able on deposits, shares or withdrawable accounts by members, insured institutions and other nonmember fi- nancial institutions. § 1426. Capital structure of Federal home loan banks (a) Regulations (1) Capital standards Not later than 18 months after November 12, 1999, the Director shall issue regulations pre- scribing uniform capital standards applicable to each Federal home loan bank, which shall require each such bank to meet— (A) the leverage requirement specified in paragraph (2); and (B) the risk-based capital requirements, in accordance with paragraph (3). (2) Leverage requirement (A) In general The leverage requirement shall require each Federal home loan bank to maintain a minimum amount of total capital based on the total assets of the bank and shall be 5 percent. (B) Treatment of stock and retained earnings In determining compliance with the min- imum leverage ratio established under sub- paragraph (A), the paid-in value of the out- standing Class B stock and the amount of re- tained earnings shall be multiplied by 1.5, and such higher amounts shall be deemed to be capital for purposes of meeting the 5 per- cent minimum leverage ratio, except that a Federal home loan bank’s total capital (de- termined without taking into account any such multiplier) shall not be less than 4 per- cent of the total assets of the bank. Page 285 TITLE 12—BANKS AND BANKING § 1426 (3) Risk-based capital standards (A) Risk-based capital standards The Director shall, by regulation, estab- lish risk-based capital standards for the Fed- eral Home Loan Banks to ensure that the Federal Home Loan Banks operate in a safe and sound manner, with sufficient perma- nent capital and reserves to support the risks that arise in the operations and man- agement of the Federal Home Loans Banks. (B) Consideration of other risk-based stand- ards In establishing the risk-based standard under subparagraph (A), the Director shall take due consideration of any risk-based capital test established pursuant to section 1361 of the Federal Housing Enterprises Fi- nancial Safety and Soundness Act of 1992 (12 U.S.C. 4611) for the enterprises (as defined in that Act [12 U.S.C. 4501 et seq.]), with such modifications as the Director determines to be appropriate to reflect differences in oper- ations between the Federal home loan banks and those enterprises. (4) Other regulatory requirements The regulations issued by the Director under paragraph (1) shall— (A) permit each Federal home loan bank to issue, with such rights, terms, and pref- erences, not inconsistent with this chapter and the regulations issued hereunder, as the board of directors of that bank may approve, any 1 or more of— (i) Class A stock, which shall be redeem- able in cash and at par 6 months following submission by a member of a written no- tice of its intent to redeem such shares; and (ii) Class B stock, which shall be redeem- able in cash and at par 5 years following submission by a member of a written no- tice of its intent to redeem such shares; (B) provide that the stock of a Federal home loan bank may be issued to and held by only members of the bank, and that a bank may not issue any stock other than as provided in this section; (C) prescribe the manner in which stock of a Federal home loan bank may be sold, transferred, redeemed, or repurchased; and (D) provide the manner of disposition of outstanding stock held by, and the liquida- tion of any claims of the Federal home loan bank against, an institution that ceases to be a member of the bank, through merger or otherwise, or that provides notice of inten- tion to withdraw from membership in the bank. (5) Definitions of capital For purposes of determining compliance with the capital standards established under this subsection— (A) permanent capital of a Federal home loan bank shall include— (i) the amounts paid for the Class B stock; and (ii) the retained earnings of the bank (as determined in accordance with generally accepted accounting principles); and (B) total capital of a Federal home loan bank shall include— (i) permanent capital; (ii) the amounts paid for the Class A stock; (iii) consistent with generally accepted accounting principles, and subject to the regulation of the Director, a general allow- ance for losses, which may not include any reserves or allowances made or held against specific assets; and (iv) any other amounts from sources available to absorb losses incurred by the bank that the Director determines by reg- ulation to be appropriate to include in de- termining total capital. (6) Transition period Notwithstanding any other provision of this chapter, the requirements relating to purchase and retention of capital stock of a Federal home loan bank by any member thereof in ef- fect on the day before November 12, 1999, shall continue in effect with respect to each Federal home loan bank until the regulations required by this subsection have taken effect and the capital structure plan required by subsection (b) has been approved by the Director and im- plemented by such bank. (b) Capital structure plan (1) Approval of plans Not later than 270 days after the date of pub- lication by the Director of final regulations in accordance with subsection (a), the board of directors of each Federal home loan bank shall submit for approval by the Director a plan es- tablishing and implementing a capital struc- ture for such bank that— (A) the board of directors determines is best suited for the condition and operation of the bank and the interests of the members of the bank; (B) meets the requirements of subsection (c); and (C) meets the minimum capital standards and requirements established under sub- section (a) and other regulations prescribed by the Director. (2) Approval of modifications The board of directors of a Federal home loan bank shall submit to the Director for ap- proval any modifications that the bank pro- poses to make to an approved capital struc- ture plan. (c) Contents of plan The capital structure plan of each Federal home loan bank shall contain provisions ad- dressing each of the following: (1) Minimum investment (A) In general Each capital structure plan of a Federal home loan bank shall require each member of the bank to maintain a minimum invest- ment in the stock of the bank, the amount of which shall be determined in a manner to be prescribed by the board of directors of each bank and to be included as part of the plan. Page 286 TITLE 12—BANKS AND BANKING § 1426 1 So in original. Probably should be ‘‘Class B stock’’. (B) Investment alternatives (i) In general In establishing the minimum investment required for each member under subpara- graph (A), a Federal home loan bank may, in its discretion, include any 1 or more of the requirements referred to in clause (ii), or any other provisions approved by the Director. (ii) Authorized requirements A requirement is referred to in this clause if it is a requirement for— (I) a stock purchase based on a per- centage of the total assets of a member; or (II) a stock purchase based on a per- centage of the outstanding advances from the bank to the member. (C) Minimum amount Each capital structure plan of a Federal home loan bank shall require that the min- imum stock investment established for members shall be set at a level that is suffi- cient for the bank to meet the minimum capital requirements established by the Di- rector under subsection (a). (D) Adjustments to minimum required in- vestment The capital structure plan of each Federal home loan bank shall impose a continuing obligation on the board of directors of the bank to review and adjust the minimum in- vestment required of each member of that bank, as necessary to ensure that the bank remains in compliance with applicable min- imum capital levels established by the Di- rector, and shall require each member to comply promptly with any adjustments to the required minimum investment. (2) Transition rule (A) In general The capital structure plan of each Federal home loan bank shall specify the date on which it shall take effect, and may provide for a transition period of not longer than 3 years to allow the bank to come into compli- ance with the capital requirements pre- scribed under subsection (a), and to allow any institution that was a member of the bank on November 12, 1999, to come into compliance with the minimum investment required pursuant to the plan. (B) Interim purchase requirements The capital structure plan of a Federal home loan bank may allow any member re- ferred to in subparagraph (A) that would be required by the terms of the capital struc- ture plan to increase its investment in the stock of the bank to do so in periodic in- stallments during the transition period. (3) Disposition of shares The capital structure plan of a Federal home loan bank shall provide for the manner of dis- position of any stock held by a member of that bank that terminates its membership or that provides notice of its intention to withdraw from membership in that bank. (4) Classes of stock (A) In general The capital structure plan of a Federal home loan bank shall afford each member of that bank the option of maintaining its re- quired investment in the bank through the purchase of any combination of classes of stock authorized by the board of directors of the bank and approved by the Director in ac- cordance with its regulations. (B) Rights requirement A Federal home loan bank shall include in its capital structure plan provisions estab- lishing terms, rights, and preferences, in- cluding minimum investment, dividends, voting, and liquidation preferences of each class of stock issued by the bank, consistent with regulations of the Director and market requirements. (C) Reduced minimum investment The capital structure plan of a Federal home loan bank may provide for a reduced minimum stock investment for any member of that bank that elects to purchase Class B 1 in a manner that is consistent with meeting the minimum capital requirements of the bank, as established by the Director. (D) Liquidation of claims The capital structure plan of a Federal home loan bank shall provide for the liq- uidation in an orderly manner, as deter- mined by the bank, of any claim of that bank against a member, including claims for any applicable prepayment fees or penalties resulting from prepayment of advances prior to stated maturity. (5) Limited transferability of stock The capital structure plan of a Federal home loan bank shall— (A) provide that any stock issued by that bank shall be available only to and held only by members of that bank and tradable only between that bank and its members; and (B) establish standards, criteria, and re- quirements for the issuance, purchase, trans- fer, retirement, and redemption of stock issued by that bank. (6) Bank review of plan Before filing a capital structure plan with the Director, each Federal home loan bank shall conduct a review of the plan by— (A) an independent certified public ac- countant, to ensure, to the extent possible, that implementation of the plan would not result in any write-down of the redeemable bank stock investment of its members; and (B) at least one major credit rating agen- cy, to determine, to the extent possible, whether implementation of the plan would have any material effect on the credit rat- ings of the bank. (d) Termination of membership (1) Voluntary withdrawal Any member may withdraw from a Federal home loan bank if the member provides writ- Page 287 TITLE 12—BANKS AND BANKING § 1426 ten notice to the bank of its intent to do so and if, on the date of withdrawal, there is in effect a certification by the Director that the withdrawal will not cause the Federal Home Loan Bank System to fail to meet its obliga- tion under section 1441b(f)(2)(C) of this title to contribute to the debt service for the obliga- tions issued by the Resolution Funding Cor- poration. The applicable stock redemption no- tice periods shall commence upon receipt of the notice by the bank. Upon the expiration of the applicable notice period for each class of redeemable stock, the member may surrender such stock to the bank, and shall be entitled to receive in cash the par value of the stock. During the applicable notice periods, the member shall be entitled to dividends and other membership rights commensurate with continuing stock ownership. (2) Involuntary withdrawal (A) In general The board of directors of a Federal home loan bank may terminate the membership of any institution if, subject to regulations of the Director, it determines that— (i) the member has failed to comply with a provision of this chapter or any regula- tion prescribed under this chapter; or (ii) the member has been determined to be insolvent, or otherwise subject to the appointment of a conservator, receiver, or other legal custodian, by a Federal or State authority with regulatory and super- visory responsibility for the member. (B) Stock disposition An institution, the membership of which is terminated in accordance with subparagraph (A)— (i) shall surrender redeemable stock to the Federal home loan bank, and shall re- ceive in cash the par value of the stock, upon the expiration of the applicable no- tice period under subsection (a)(4)(A); (ii) shall receive any dividends declared on its redeemable stock, during the appli- cable notice period under subsection (a)(4)(A); and (iii) shall not be entitled to any other rights or privileges accorded to members after the date of the termination. (C) Commencement of notice period With respect to an institution, the mem- bership of which is terminated in accordance with subparagraph (A), the applicable notice period under subsection (a)(4) for each class of redeemable stock shall commence on the earlier of— (i) the date of such termination; or (ii) the date on which the member has provided notice of its intent to redeem such stock. (3) Liquidation of indebtedness Upon the termination of the membership of an institution for any reason, the outstanding indebtedness of the member to the bank shall be liquidated in an orderly manner, as deter- mined by the bank and, upon the extinguish- ment of all such indebtedness, the bank shall return to the member all collateral pledged to secure the indebtedness. (e) Redemption of excess stock (1) In general A Federal home loan bank, in its sole discre- tion, may redeem or repurchase, as appro- priate, any shares of Class A or Class B stock issued by the bank and held by a member that are in excess of the minimum stock invest- ment required of that member. (2) Excess stock Shares of stock held by a member shall not be deemed to be ‘‘excess stock’’ for purposes of this subsection by virtue of a member’s sub- mission of a notice of intent to withdraw from membership or termination of its membership in any other manner. (3) Priority A Federal home loan bank may not redeem any excess Class B stock prior to the end of the 5-year notice period, unless the member has no Class A stock outstanding that could be redeemed as excess. (f) Impairment of capital If the Director or the board of directors of a Federal home loan bank determines that the bank has incurred or is likely to incur losses that result in or are expected to result in charges against the capital of the bank, the bank shall not redeem or repurchase any stock of the bank without the prior approval of the Di- rector while such charges are continuing or are expected to continue. In no case may a bank re- deem or repurchase any applicable capital stock if, following the redemption, the bank would fail to satisfy any minimum capital requirement. (g) Rejoining after divestiture of all shares (1) In general Except as provided in paragraph (2), and not- withstanding any other provision of this chap- ter, 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 di- vestiture is a consequence of a transfer of membership on an uninterrupted basis be- tween banks. (2) Exception for withdrawals from member- ship before 1998 Any institution that withdrew from mem- bership 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 Director and the requirements of this chapter. (h) Treatment of retained earnings (1) In general The holders of the Class B stock of a Federal home loan bank shall own the retained earn- ings, surplus, undivided profits, and equity re- serves, if any, of the bank. (2) Exception Except as specifically provided in this sec- tion or through the declaration of a dividend Page 288 TITLE 12—BANKS AND BANKING § 1426 or a capital distribution by a Federal home loan bank, or in the event of liquidation of the bank, a member shall have no right to with- draw or otherwise receive distribution of any portion of the retained earnings of the bank. (3) Limitation A Federal home loan bank may not make any distribution of its retained earnings un- less, following such distribution, the bank would continue to meet all applicable capital requirements. (July 22, 1932, ch. 522, § 6, 47 Stat. 727; June 27, 1934, ch. 847, § 509, 48 Stat. 1264; May 28, 1935, ch. 150, § 2, 49 Stat. 293; June 27, 1950, ch. 369, § 2, 64 Stat. 257; Aug. 11, 1955, ch. 783, title I, § 109(a)(1), 69 Stat. 640; Pub. L. 87–210, §§ 1, 2, Sept. 8, 1961, 75 Stat. 482, 483; Pub. L. 96–153, title III, § 327, Dec. 21, 1979, 93 Stat. 1121; Pub. L. 97–320, title III, §§ 353, 355, Oct. 15, 1982, 96 Stat. 1507, 1508; Pub. L. 97–457, § 16, Jan. 12, 1983, 96 Stat. 2509; Pub. L. 101–73, title VII, §§ 701(b)(1), (3)(A), 706, 710(b)(2), (3), 715, Aug. 9, 1989, 103 Stat. 412, 416, 418, 421; Pub. L. 106–102, title VI, § 608, Nov. 12, 1999, 113 Stat. 1456; Pub. L. 106–569, title XII, § 1224, Dec. 27, 2000, 114 Stat. 3036; Pub. L. 110–289, div. A, title I, § 1110(b), title II, § 1204(4), (10), July 30, 2008, 122 Stat. 2676, 2786.) Editorial Notes REFERENCES IN TEXT The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, referred to in subsec. (a)(3)(B), is title XIII of Pub. L. 102–550, Oct. 28, 1992, 106 Stat. 3941, which is classified principally to chapter 46 (§ 4501 et seq.) of this title. For complete classification of this Act to the Code, see Short Title note under sec- tion 4501 of this title and Tables. AMENDMENTS 2008—Pub. L. 110–289, § 1204(10), substituted ‘‘the Di- rector’’ for ‘‘the Finance Board’’ wherever appearing in subsecs. (a)(1), (3)(B), (4) to (6), (b)(1)(C), (2), (c)(1), (4)(A), (C), (6), (d)(1), (f), and (g). Subsec. (a)(3)(A). Pub. L. 110–289, § 1110(b)(1), added subpar. (A) and struck out former subpar. (A). Prior to amendment, text read as follows: ‘‘Each Federal home loan bank shall maintain permanent capital in an amount that is sufficient, as determined in accordance with the regulations of the Finance Board, to meet— ‘‘(i) the credit risk to which the Federal home loan bank is subject; and ‘‘(ii) the market risk, including interest rate risk, to which the Federal home loan bank is subject, based on a stress test established by the Finance Board that rigorously tests for changes in market variables, including changes in interest rates, rate volatility, and changes in the shape of the yield curve.’’ Subsec. (a)(3)(B). Pub. L. 110–289, § 1110(b)(2), sub- stituted ‘‘(A)’’ for ‘‘(A)(ii)’’. Subsec. (b)(1). Pub. L. 110–289, § 1204(4)(A), (10), sub- stituted ‘‘the Director’’ for ‘‘the Finance Board’’ and ‘‘approval by the Director’’ for ‘‘Finance Board ap- proval’’ in introductory provisions. Subsecs. (c)(4)(B), (d)(2)(A). Pub. L. 110–289, § 1204(4)(B), substituted ‘‘regulations of the Director’’ for ‘‘Finance Board regulations’’. 2000—Subsec. (a)(1). Pub. L. 106–569 substituted ‘‘18 months’’ for ‘‘1 year’’ in introductory provisions. 1999—Pub. L. 106–102 amended section generally, sub- stituting present provisions for provisions authorizing banks to issue capital stock and providing for min- imum subscriptions, retirement of oversubscriptions, cancellation of oversubscriptions, aggregate unpaid loan principal, reports and information, payments for stock, transfer or hypothecation of stock, withdrawal or removal of members, surrender and cancellation of stock, prepayment penalties, disposal of stock, divi- dends, and acquisition of membership after expiration of period of withdrawal. 1989—Subsec. (a). Pub. L. 101–73, §§ 701(b)(1), (3)(A), 706(1), redesignated subsec. (b) as (a), substituted ‘‘Board’’ for ‘‘board’’, and struck out former subsec. (a) which related to minimum amount of capital stock and subscription books. Subsec. (b). Pub. L. 101–73, §§ 701(b)(1), (3)(A), 706(1), redesignated subsec. (c) as (b) and substituted ‘‘Board may’’ for ‘‘Federal Home Loan Bank Board may’’ in par. (1), and ‘‘The Board’’ for ‘‘The Federal Home Loan Bank Board’’ in par. (5). Former subsec. (b) redesig- nated (a). Subsecs. (c), (d). Pub. L. 101–73, § 706(1), redesignated subsecs. (d) and (h) as (c) and (d), respectively. Former subsec. (c) redesignated (b). Subsec. (e). Pub. L. 101–73, § 710(b)(3), which directed amendment of subsec. (e) by striking out ‘‘or deprive any nonmember borrower of the privilege of further ad- vances,’’ after ‘‘remove any member from member- ship,’’ was executed by striking ‘‘or deprive any non- member borrower of the privilege of obtaining further advances,’’ as the probable intent of Congress. Pub. L. 101–73, § 710(b)(2), struck out ‘‘or nonmember borrower’’ after ‘‘such member’’ wherever appearing. Pub. L. 101–73, § 706(2), substituted ‘‘If any member’s membership in a Federal Home Loan Bank is termi- nated, the indebtedness of such member to the Federal Home Loan Bank shall be liquidated in an orderly man- ner (as determined by the Federal Home Loan Bank), and upon completion of such liquidation, the capital stock in the Federal Home Loan Bank owned by such member shall be surrendered and canceled. Any such liquidation shall be deemed a prepayment of any such indebtedness, and shall be subject to any penalties or other fees applicable to such prepayment.’’ for ‘‘In any such case, the indebtedness of such member or non- member borrower to the Federal Home Loan Bank shall be liquidated, and the capital stock in the Federal Home Loan Bank owned by such member shall be sur- rendered and canceled, except that in the case of a vol- untary withdrawal, such liquidation shall be deemed a prepayment of any such indebtedness, and shall be sub- ject to any penalties applicable to such prepayment.’’ Pub. L. 101–73, §§ 701(b)(1), (3)(A), 706(1), redesignated subsec. (i) as (e), substituted ‘‘Board’’ for ‘‘board’’ wherever appearing, and struck out former subsec. (e) which related to loans to institutions not authorized to subscribe to stock. Subsec. (f). Pub. L. 101–73, §§ 701(b)(1), (3)(A), 706(1), re- designated subsec. (j) as (f), substituted ‘‘Board’’ for ‘‘board’’, and struck out former subsec. (f) which re- lated to subscription by United States, maximum amounts, and payments. Subsec. (g). Pub. L. 101–73, § 706(1), redesignated sub- sec. (k) as (g) and struck out former subsec. (g) which related to retirement of stock of United States. Subsec. (h). Pub. L. 101–73, § 715, substituted ‘‘10’’ for ‘‘five’’. Pub. L. 101–73, § 706(3), substituted ‘‘charter as a Fed- eral savings association (as defined in section 1813 of this title)’’ for ‘‘charter from the Federal Home Loan Bank Board’’. Pub. L. 101–73, § 706(1), redesignated subsec. (m) as (h). Former subsec. (h) redesignated (d). Subsecs. (i) to (k). Pub. L. 101–73, § 706(1), redesignated former subsecs. (i) to (k) as (e) to (g), respectively. Subsec. (m). Pub. L. 101–73, § 706(1), redesignated former subsec. (m) as (h). 1983—Subsec. (m). Pub. L. 97–457 substituted ‘‘banks or in connection with obtaining a charter from the Fed- eral Home Loan Bank Board’’ for ‘‘Banks’’ after ‘‘be- tween’’. 1982—Subsec. (c)(2). Pub. L. 97–320, § 353, struck out cl. (i) limitations which had prohibited members from re- Page 289 TITLE 12—BANKS AND BANKING § 1426a ducing stock to less than the amount held on Sept. 8, 1961, except for a reduction at any time to not less than 2 percent of its aggregate unpaid loan principal as of the beginning of the calendar year in which reduction was made, but not less than $500, or if reduced to less than 2 percent, such reduction to be in the discretion of the Board; and reenacted cl. (ii) limitations as par. (2), substituting ‘‘the Board defining such term’’ for ‘‘said Board defining said term’’. Subsec. (i). Pub. L. 97–320, § 355(a), provided for treat- ment of a liquidation of indebtedness, in the case of a voluntary withdrawal of an institution from member- ship, as a prepayment of the indebtedness, subject to applicable prepayment penalties. Subsec. (m). Pub. L. 97–320, § 355(b), added subsec. (m). 1979—Subsec. (c)(2)(ii). Pub. L. 96–153 substituted ‘‘twenty’’ for ‘‘twelve’’. 1961—Subsec. (c). Pub. L. 87–210, § 1, amended sub- section generally, and among other changes, authorized the bank to adjust at the end of each calendar year, under Board regulations, the stock held by each mem- ber, to retire stock of members in excess of required amounts, prohibited members to reduce stock to less than the amount held on Sept. 8, 1961, except for a re- duction at any time to not less than 2 percent of its ag- gregate unpaid loan principal as of the beginning of the calendar year in which reduction is made, but not less than $500, or if reduced to less than 2 percent, such re- duction to be in the discretion of the Board, provided that no bank shall act so as to cause the aggregate out- standing advances, within the meaning of regulations of the Board defining said term, to exceed 12 times the amounts paid in by members for outstanding capital stock held by such members, defined term ‘‘aggregate unpaid loan principal’’ and authorized the board to re- quire members to submit reports and information for purposes of this subsection. Subsec. (l). Pub. L. 87–210, § 2, repealed subsec. (l) which required members to acquire, hold and maintain their stock holding in an amount equal to at least 2 per centum of the aggregate of the unpaid principal of such member’s home mortgage loans, home-purchase con- tracts, and similar obligations, but not less than $500, and provided for the retirement of Government-owned stock. 1955—Subsec. (i). Act Aug. 11, 1955, provided that a Federal savings and loan association may not withdraw voluntarily, inserted proviso clause in item (ii), and in- serted provisions authorizing removal of a member in- stitution which has a management or home-financing policy of a character inconsistent with sound and eco- nomical home financing or with the purposes of this chapter. 1950—Subsec. (l). Act June 27, 1950, added subsec. (l). 1935—Subsec. (k). Act May 28, 1935, omitted exception clause relating to stock held by the United States. 1934—Subsecs. (c), (e). Act June 27, 1934, substituted ‘‘$500’’ for ‘‘$1,500’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1961 AMENDMENT Pub. L. 87–210, § 7, Sept. 8, 1961, 75 Stat. 485, provided that: ‘‘This Act [amending this section and section 1727 of this title and enacting provisions set out as a note under section 1727 of this title] shall become effective on January 1 next following the date of its enactment [Sept. 8, 1961].’’ § 1426a. Exclusion from certain requirements (a) In general The Federal Home Loan Banks shall be ex- empt from compliance with— (1) sections 78m(e), 78n(a), and 78n(c) of title 15, and related Commission regulations; (2) section 78o of title 15, and related Com- mission regulations, with respect to trans- actions in the capital stock of a Federal Home Loan Bank; (3) section 78q–1 of title 15, and related Com- mission regulations, with respect to the trans- fer of the securities of a Federal Home Loan Bank; and (4) the Trust Indenture Act of 1939 [15 U.S.C. 77aaa et seq.]. (b) Member exemption The members of the Federal Home Loan Bank System shall be exempt from compliance with sections 78m(d), 78m(f), 78m(g), 78n(d), and 78p of title 15, and related Commission regulations, with respect to ownership of or transactions in the capital stock of the Federal Home Loan Banks by such members. (c) Exempted and Government securities (1) Capital stock The capital stock issued by each of the Fed- eral Home Loan Banks under section 1426 of this title are— (A) exempted securities, within the mean- ing of section 77c(a)(2) of title 15; and (B) exempted securities, within the mean- ing of section 78c(a)(12)(A) of title 15, except to the extent provided in section 78oo of title 15. (2) Other obligations The debentures, bonds, and other obligations issued under section 1431 of this title are— (A) exempted securities, within the mean- ing of section 77c(a)(2) of title 15; (B) government securities, within the meaning of section 78c(a)(42) of title 15; and (C) government securities, within the meaning of section 80a–2(a)(16) of title 15. (3) Brokers and dealers A person (other than a Federal Home Loan Bank effecting transactions for members of the Federal Home Loan Bank System) that ef- fects transactions in the capital stock or other obligations of a Federal Home Loan Bank, for the account of others or for that person’s own account, as applicable, is a broker or dealer, as those terms are defined in paragraphs (4) and (5), respectively, of section 78c(a) of title 15, but is excluded from the definition of— (A) the term ‘‘government securities broker’’ under section 78c(a)(43) of title 15; and (B) the term ‘‘government securities deal- er’’ under section 78c(a)(44) of title 15. (d) Exemption from reporting requirements The Federal Home Loan Banks shall be ex- empt from periodic reporting requirements under the securities laws pertaining to the dis- closure of— (1) related party transactions that occur in the ordinary course of the business of the Banks with members; and (2) the unregistered sales of equity securi- ties. (e) Tender offers Commission rules relating to tender offers shall not apply in connection with transactions in the capital stock of the Federal Home Loan Banks.