§1436 Reserves and dividends; emergency suspensions of requirements

Summary

Federal Home Loan Banks must put part of their profits into a reserve account as their board decides. The Director can require extra reserves or write down assets if needed. Banks can only pay dividends from past retained earnings or from current profits left after they set aside required reserves, cover charge-offs, buy capital certificates of the Financing Corporation, and make required Funding Corporation payments under this law. Charge-offs or expenses from buying Financing Corporation stock under section 1441 and payments to the Funding Corporation Principal Fund under section 1441b(e) are not treated as part of those required reductions. The banks must invest their reserves in things like U.S. government obligations, instruments of the Federal National Mortgage Association or the Government National Mortgage Association, mortgages or securities sold by the Federal Home Loan Mortgage Corporation under sections 1454 or 1455, and other investments that state law allows for trust funds. If the Director finds severe financial trouble that could hurt member institutions, the Director may temporarily stop the semiannual requirement to set aside reserves and let banks pay dividends from undivided profits. Also, if a bank has a charge-off or expense from its investment in Financing Corporation stock under section 1441, the Director finds an extraordinary need for members to get dividends, and the bank has reduced all other reserves (except the basic reserve required at the start) to zero, the Director can allow dividends. Any dividend paid under that authorization does not change the bank’s responsibilities under section 1441 for its investment in the Financing Corporation.