§1436 — Title 12 Banks and Banking | U.S. Code

Summary

Federal Home Loan Banks must put part of their profits into a reserve account as their board decides. The Director can also require extra reserves or write-downs if assets lose value. Banks may only pay dividends from retained or current earnings after they make all required reserves, write-offs, purchases of Financing Corporation capital certificates, and payments the chapter requires — except that expenses from buying Financing Corporation stock under section 1441 and payments under section 1441b(e) are not counted in that list. Reserve money must be invested in things like U.S. government obligations, Fannie Mae or Ginnie Mae instruments, securities sold by the Federal Home Loan Mortgage Corporation under sections 1454 or 1455, or investments allowed for trusts under the bank’s state law. If the Director finds severe financial trouble that threatens member institutions, the Director may temporarily stop the semiannual reserve set-aside and allow banks to pay dividends from undistributed profits. Also, if a bank has a charge-off or expense from buying Financing Corporation stock under section 1441, the Director finds an extraordinary need for members to get dividends, and the bank has cut all other reserves (except the basic reserve) to zero, the Director may allow dividends. Any dividends paid that way do not change how section 1441 rules apply to the bank’s investment.

Title 12, §1436

Banks and Banking — Source: USLM XML via OLRC

(a)Each Federal Home Loan Bank may carry to a reserve account from time-to-time such portion of its net earnings as may be determined by its board of directors. Each Federal Home Loan Bank shall establish such additional reserves and/or make such charge-offs on account of depreciation or impairment of its assets as the Director shall require from time to time. No dividends shall be paid except out of previously retained earnings or current net earnings remaining after reductions for all reserves, chargeoffs, purchases of capital certificates of the Financing Corporation, and payments relating to the Funding Corporation required under this chapter have been provided for, other than chargeoffs or expenses incurred by a Bank in connection with the purchase of capital stock of the Financing Corporation under section 1441 of this title or payments relating to the Funding Corporation Principal Fund under section 1441b(e) of this title. The reserves of each Federal Home Loan Bank shall be invested, subject to such regulations, restrictions, and limitations as may be prescribed by the Director, in direct obligations of the United States, in obligations, participations, or other instruments of or issued by the Federal National Mortgage Association or the Government National Mortgage Association, in mortgages, obligations, or other securities which are or ever have been sold by the Federal Home Loan Mortgage Corporation pursuant to section 1454 or section 1455 of this title, and in such securities as fiduciary and trust funds may be invested in under the laws of the State in which the Federal Home Loan Bank is located.

(b)Notwithstanding subsection (a) or any other provision of this chapter, if the Director determines that severe financial conditions exist threatening the stability of member institutions, the Director may suspend temporarily the requirements of subsection (a) that a portion of net earnings be set aside semiannually by each Federal Home Loan Bank to a reserve account and permit each Federal Home Loan Bank to declare and pay dividends out of undivided profits.

(c)(1)Notwithstanding subsection (a) of this section, if—

(A)a Federal Home Loan Bank incurs a chargeoff or an expense in connection with such bank’s investment in the stock of the Financing Corporation under section 1441 of this title;

(B)the Director determines there is an extraordinary need for the member institutions of the bank to receive dividends; and

(C)the bank has reduced all reserves (other than the reserve account required by the first 2 sentences of subsection (a)) to zero,

(2)Notwithstanding any payment of dividends by any Federal Home Loan Bank pursuant to an authorization by the Director under paragraph (1), the applicable provisions of section 1441 of this title shall continue to apply with respect to such bank, and to such bank’s investment in the Financing Corporation, in the same manner and to the same extent as if such payment had not been made.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2008—Pub. L. 110–289 substituted “the Director” for “the Board” wherever appearing. 1999—Subsec. (a). Pub. L. 106–102, in third sentence substituted “previously retained earnings or current net earnings” for “net earnings” and struck out “, and then only with the approval of the Federal Housing Finance Board” after “section 1441b(e) of this title” and struck out fourth sentence which read as follows: “Beginning on

January 1, 1992, the preceding sentence shall be applied by substituting ‘previously retained earnings or current net earnings’ for ‘net earnings’.” 1989—Subsec. (a). Pub. L. 101–73, § 724(a)(1), substituted “Each Federal Home Loan Bank may carry to a reserve account from time-to-time such portion of its net earnings as may be determined by its board of directors.” for “Each Federal Home Loan Bank shall carry to a reserve account semiannually 20 per centum of its net earnings until said reserve account shall show a credit balance equal to 100 per centum of the paid-in capital of such bank. After said reserve has reached 100 per centum of the paid-in capital of said bank, 5 per centum of its net earnings shall be added thereto semiannually. Whenever said reserve shall have been impaired below 100 per centum of the paid-in capital it shall be restored before any dividends are paid.” Pub. L. 101–73, § 724(a)(2), substituted “No dividends shall be paid except out of net earnings remaining after reductions for all reserves, chargeoffs, purchases of capital certificates of the Financing Corporation, and payments relating to the Funding Corporation required under this chapter have been provided for, other than chargeoffs or expenses incurred by a Bank in connection with the purchase of capital stock of the Financing Corporation under section 1441 of this title or payments relating to the Funding Corporation Principal Fund under section 1441b(e) of this title, and then only with the approval of the Federal Housing Finance Board. Beginning on

January 1, 1992, the preceding sentence shall be applied by substituting ‘previously retained earnings or current net earnings’ for ‘net earnings’.” for “No dividends shall be paid except out of net earnings remaining after all reserves and charge-offs required under this chapter have been provided for, and then only with the approval of the board.” Pub. L. 101–73, § 701(b)(1), (3)(A), substituted “Board” for “board” wherever appearing. 1987—Subsec. (c). Pub. L. 100–86 added subsec. (c). 1982—Pub. L. 97–320 designated existing provisions as subsec. (a) and added subsec. (b). 1974—Pub. L. 93–383 inserted reference to mortgages, obligations, or other securities sold by the Federal Home Loan Mortgage Corporation pursuant to section 1454 or section 1455 of this title. 1968—Pub. L. 90–448 authorized investments in obligations, participations, or other instruments issued by the Government National Mortgage Association. 1964—Pub. L. 88–560 substituted “in obligations, participations, or other instruments of or issued by the Federal National Mortgage Association” for “in obligations of the Federal National Mortgage Association”. 1954—Act Aug. 2, 1954, inserted reference to obligations of Federal National Mortgage Association in last sentence.

Statutory Notes and Related Subsidiaries

Effective Date

of 1989 Amendment Pub. L. 101–73, title VII, § 724(b), Aug. 9, 1989, 103 Stat. 429, provided that: “The amendment made by subsection (a)(1) [amending this section] shall take effect on January 1, 1992.”

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of 1968 AmendmentFor

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of amendment by title VIII of Pub. L. 90–448, see section 808 of Pub. L. 90–448, set out as an

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note under section 1716b of this title.

§1436 Reserves and Dividends; Emergency Suspensions of Requirements

Summary

Title 12, §1436

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