12 U.S.C. § 4614 — Capital classifications

Page 1690 TITLE 12—BANKS AND BANKING § 4613 quirements with respect to any product or activ- ity of a regulated entity, as the Director con- siders appropriate to ensure that the regulated entity operates in a safe and sound manner, with sufficient capital and reserves to support the risks that arise in the operations and manage- ment of the regulated entity. (f) Periodic review The Director shall periodically review the amount of core capital maintained by the enter- prises, the amount of capital retained by the Federal Home Loan Banks, and the minimum capital levels established for such regulated en- tities pursuant to this section. (Pub. L. 102–550, title XIII, § 1362, Oct. 28, 1992, 106 Stat. 3975; Pub. L. 110–289, div. A, title I, § 1111, July 30, 2008, 122 Stat. 2676.) Editorial Notes AMENDMENTS 2008—Subsec. (a). Pub. L. 110–289, § 1111(1), substituted ‘‘Enterprises’’ for ‘‘In general’’ in heading. Subsecs. (b) to (f). Pub. L. 110–289, § 1111(2), added sub- secs. (b) to (f) and struck out former subsec. (b) which related to minimum capital level during transition pe- riod. § 4613. Critical capital levels (a) Enterprises For purposes of this subchapter, the critical capital level for each enterprise shall be the sum of— (1) 1.25 percent of the aggregate on-balance sheet assets of the enterprise, as determined in accordance with generally accepted ac- counting principles; (2) 0.25 percent of the unpaid principal bal- ance of outstanding mortgage-backed securi- ties and substantially equivalent instruments issued or guaranteed by the enterprise that are not included in paragraph (1); and (3) 0.25 percent of other off-balance sheet ob- ligations of the enterprise not included in paragraph (2) (excluding commitments in ex- cess of 50 percent of the average dollar amount of the commitments outstanding each quarter over the preceding 4 quarters), except that the Director shall adjust such percentage to re- flect differences in the credit risk of such obli- gations in relation to the instruments in- cluded in paragraph (2). (b) Federal Home Loan Banks (1) In general For purposes of this subchapter, the critical capital level for each Federal Home Loan Bank shall be such amount of capital as the Director shall, by regulation, require. (2) Consideration of other critical capital levels In establishing the critical capital level under paragraph (1) for the Federal Home Loan Banks, the Director shall take due con- sideration of the critical capital level estab- lished under subsection (a) for the enterprises, with such modifications as the Director deter- mines to be appropriate to reflect the dif- ference in operations between the banks and the enterprises. (Pub. L. 102–550, title XIII, § 1363, Oct. 28, 1992, 106 Stat. 3976; Pub. L. 110–289, div. A, title I, § 1141(a), July 30, 2008, 122 Stat. 2730.) Editorial Notes AMENDMENTS 2008—Pub. L. 110–289 designated existing provisions as subsec. (a), inserted heading, and added subsec. (b). Statutory Notes and Related Subsidiaries REGULATIONS Pub. L. 110–289, div. A, title I, § 1141(b), July 30, 2008, 122 Stat. 2730, provided that: ‘‘Not later than the expi- ration of the 180-day period beginning on the date of en- actment of this Act [July 30, 2008], the Director of the Federal Housing Finance Agency shall issue regula- tions pursuant to section 1363(b) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 [12 U.S.C. 4613(b)] (as added by this section) estab- lishing the critical capital level under such section.’’ § 4614. Capital classifications (a) Enterprises For purposes of this subchapter, the Director shall classify the enterprises according to the following capital classifications: (1) Adequately capitalized An enterprise shall be classified as ade- quately capitalized if the enterprise— (A) maintains an amount of total capital that is equal to or exceeds the risk-based capital level established for the enterprise under section 4611 of this title; and (B) maintains an amount of core capital that is equal to or exceeds the minimum capital level established for the enterprise under section 4612 of this title. (2) Undercapitalized An enterprise shall be classified as under- capitalized if— (A) the enterprise— (i) does not maintain an amount of total capital that is equal to or exceeds the risk- based capital level established for the en- terprise; and (ii) maintains an amount of core capital that is equal to or exceeds the minimum capital level established for the enterprise; or (B) the enterprise is otherwise classified as undercapitalized under subsection (b)(1) of this section. (3) Significantly undercapitalized An enterprise shall be classified as signifi- cantly undercapitalized if— (A) the enterprise— (i) does not maintain an amount of total capital that is equal to or exceeds the risk- based capital level established for the en- terprise; (ii) does not maintain an amount of core capital that is equal to or exceeds the min- imum capital level established for the en- terprise; and (iii) maintains an amount of core capital that is equal to or exceeds the critical cap- ital level established for the enterprise under section 4613 of this title; or Page 1691 TITLE 12—BANKS AND BANKING § 4614 1 See References in Text note below. (B) the enterprise is otherwise classified as significantly undercapitalized under sub- section (b)(2) of this section or section 4615(b) of this title. (4) Critically undercapitalized An enterprise shall be classified as critically undercapitalized if— (A) the enterprise— (i) does not maintain an amount of total capital that is equal to or exceeds the risk- based capital level established for the en- terprise; and (ii) does not maintain an amount of core capital that is equal to or exceeds the crit- ical capital level for the enterprise; or (B) is otherwise classified as critically undercapitalized under subsection (b)(3) of this section or section 4616(b)(5) 1 of this title. (b) Federal Home Loan Banks (1) Establishment and criteria For purposes of this subchapter, the Director shall, by regulation— (A) establish the capital classifications specified under paragraph (2) for the Federal Home Loan Banks; (B) establish criteria for each such capital classification based on the amount and types of capital held by a bank and the risk-based, minimum, and critical capital levels for the banks and taking due consideration of the capital classifications established under sub- section (a) for the enterprises, with such modifications as the Director determines to be appropriate to reflect the difference in op- erations between the banks and the enter- prises; and (C) shall classify the Federal Home Loan Banks according to such capital classifica- tions. (2) Classifications The capital classifications specified under this paragraph are— (A) adequately capitalized; (B) undercapitalized; (C) significantly undercapitalized; and (D) critically undercapitalized. (c) Discretionary classification (1) Grounds for reclassification The Director may reclassify a regulated en- tity under paragraph (2) if— (A) at any time, the Director determines in writing that the regulated entity is en- gaging in conduct that could result in a rapid depletion of core or total capital or the value of collateral pledged as security has decreased significantly or that the value of the property subject to mortgages held by the regulated entity (or securitized in the case of an enterprise) has decreased signifi- cantly; (B) after notice and an opportunity for hearing, the Director determines that the regulated entity is in an unsafe or unsound condition; or (C) pursuant to section 4631(b) of this title, the Director deems the regulated entity to be engaging in an unsafe or unsound prac- tice. (2) Reclassification In addition to any other action authorized under this chapter, including the reclassifica- tion of a regulated entity for any reason not specified in this subsection, if the Director takes any action described in paragraph (1), the Director may classify a regulated entity— (A) as undercapitalized, if the regulated entity is otherwise classified as adequately capitalized; (B) as significantly undercapitalized, if the regulated entity is otherwise classified as undercapitalized; and (C) as critically undercapitalized, if the regulated entity is otherwise classified as significantly undercapitalized. (d) Quarterly determination The Director shall determine the capital clas- sification of the regulated entities for purposes of this subchapter on not less than a quarterly basis (and as appropriate under subsection (c)). (e) Restriction on capital distributions (1) In general A regulated entity shall make no capital dis- tribution if, after making the distribution, the regulated entity would be undercapitalized. (2) Exception Notwithstanding paragraph (1), the Director may permit a regulated entity, to the extent appropriate or applicable, to repurchase, re- deem, retire, or otherwise acquire shares or ownership interests if the repurchase, redemp- tion, retirement, or other acquisition— (A) is made in connection with the issuance of additional shares or obligations of the regulated entity in at least an equiva- lent amount; and (B) will reduce the financial obligations of the regulated entity or otherwise improve the financial condition of the entity. (f) Implementation Notwithstanding any other provision of this section, during the period beginning on October 28, 1992, and ending upon the effective date of section 4615 of this title (as provided in section 4615(c) 1 of this title), an enterprise shall be clas- sified as adequately capitalized if the enterprise maintains an amount of core capital that is equal to or exceeds the minimum capital level for the enterprise under section 4612 of this title. (Pub. L. 102–550, title XIII, § 1364, Oct. 28, 1992, 106 Stat. 3976; Pub. L. 110–289, div. A, title I, §§ 1142(a), 1161(a)(3), July 30, 2008, 122 Stat. 2730, 2779.) Editorial Notes REFERENCES IN TEXT Section 4616(b)(5) of this title, referred to in subsec. (a)(4)(B), was redesignated section 4616(b)(6) of this title by Pub. L. 110–289, div. A, title I, § 1144(5)(D), July 30, 2008, 122 Stat. 2733. This chapter, referred to in subsec. (c)(2), was in the original ‘‘this title’’, meaning title XIII of Pub. L. Page 1692 TITLE 12—BANKS AND BANKING § 4615 102–550, Oct. 28, 1992, 106 Stat. 3941, which is classified principally to this chapter. For complete classification of title XIII to the Code, see Short Title note set out under section 4501 of this title and Tables. Section 4615(c) of this title, referred to in subsec. (f), was repealed and a new section 4615(c) was added by Pub. L. 110–289, div. A, title I, § 1143(6), July 30, 2008, 122 Stat. 2734. The new section 4615(c) does not relate to ef- fective date. AMENDMENTS 2008—Subsec. (a). Pub. L. 110–289, § 1142(a)(1), sub- stituted ‘‘Enterprises’’ for ‘‘In general’’ in heading. Subsec. (b). Pub. L. 110–289, § 1142(a)(4), added subsec. (b) and struck out former subsec. (b) which related to discretionary classification. Subsec. (c). Pub. L. 110–289, § 1161(a)(3), which directed amendment of subsec. (c) by striking out the last sen- tence, was not executed as the probable intent of Con- gress. The amendment was probably intended to strike out the last sentence of former subsec. (c), now subsec. (d), as it existed prior to being struck out by Pub. L. 110–289, § 1142(a)(2)(C). See below. Pub. L. 110–289, § 1142(a)(3), (4), added subsec. (c) and redesignated former subsec. (c) as (d). Pub. L. 110–289, § 1142(a)(2)(C), struck out last sen- tence which read as follows: ‘‘The first such determina- tion shall be made during the 3-month period beginning on the appointment of the Director.’’ Pub. L. 110–289, § 1142(a)(2)(A), (B), substituted ‘‘regu- lated entities’’ for ‘‘enterprises’’ and ‘‘subsection (c)’’ for ‘‘subsection (b)’’. Subsec. (d). Pub. L. 110–289, § 1142(a)(3), redesignated subsec. (c) as (d). Former subsec. (d) redesignated (f). Subsec. (e). Pub. L. 110–289, § 1142(a)(5), added subsec. (e). Subsec. (f). Pub. L. 110–289, § 1142(a)(3), redesignated subsec. (d) as (f). Statutory Notes and Related Subsidiaries REGULATIONS Pub. L. 110–289, div. A, title I, § 1142(b), July 30, 2008, 122 Stat. 2732, provided that: ‘‘Not later than the expi- ration of the 180-day period beginning on the date of en- actment of this Act [July 30, 2008], the Director of the Federal Housing Finance Agency shall issue regula- tions to carry out section 1364(b) of the Federal Hous- ing Enterprises Financial Safety and Soundness Act of 1992 [12 U.S.C. 4614(b)] (as added by this section), relat- ing to capital classifications for the Federal Home Loan Banks.’’ § 4615. Supervisory actions applicable to under- capitalized regulated entities (a) Mandatory actions (1) Required monitoring The Director shall— (A) closely monitor the condition of any undercapitalized regulated entity; (B) closely monitor compliance with the capital restoration plan, restrictions, and re- quirements imposed on an undercapitalized regulated entity under this section; and (C) periodically review the plan, restric- tions, and requirements applicable to an undercapitalized regulated entity to deter- mine whether the plan, restrictions, and re- quirements are achieving the purpose of this section. (2) Capital restoration plan A regulated entity that is classified as undercapitalized shall, within the time period provided in section 4622(b) and (d) of this title, submit to the Director a capital restoration plan that complies with section 4622 of this title and carry out the plan after approval. (3) Restriction on capital distributions A regulated entity that is classified as undercapitalized may not make any capital distribution that would result in the regulated entity being reclassified as significantly undercapitalized or critically undercapital- ized. (4) Restriction of asset growth An undercapitalized regulated entity shall not permit its average total assets during any calendar quarter to exceed its average total assets during the preceding calendar quarter, unless— (A) the Director has accepted the capital restoration plan of the regulated entity; (B) any increase in total assets is con- sistent with the capital restoration plan; and (C) the ratio of tangible equity to assets of the regulated entity increases during the calendar quarter at a rate sufficient to en- able the regulated entity to become ade- quately capitalized within a reasonable time. (5) Prior approval of acquisitions and new ac- tivities An undercapitalized regulated entity shall not, directly or indirectly, acquire any inter- est in any entity or engage in any new activ- ity, unless— (A) the Director has accepted the capital restoration plan of the regulated entity, the regulated entity is implementing the plan, and the Director determines that the pro- posed action is consistent with and will fur- ther the achievement of the plan; or (B) the Director determines that the pro- posed action will further the purpose of this subchapter. (b) Reclassification from undercapitalized to sig- nificantly undercapitalized The Director shall reclassify as significantly undercapitalized a regulated entity that is clas- sified as undercapitalized (and the regulated en- tity shall be subject to the provisions of section 4616 of this title) if— (1) the regulated entity does not submit a capital restoration plan that is substantially in compliance with section 4622 of this title within the applicable period or the Director does not approve the capital restoration plan submitted by the regulated entity; or (2) the Director determines that the regu- lated entity has failed to comply with the cap- ital restoration plan and fulfill the schedule for the plan approved by the Director in any material respect. (c) Other discretionary safeguards The Director may take, with respect to an undercapitalized regulated entity, any of the ac- tions authorized to be taken under section 4616 of this title with respect to a significantly undercapitalized regulated entity, if the Direc- tor determines that such actions are necessary to carry out the purpose of this subchapter.