assets, short-term liquid assets, or liquidity base, respectively, as of the close of each business day in a calendar month, and for any nonbusiness day, as of the close of the nearest preceding business day, and by dividing the respective total by the number of days in such month.

(d) Reduction and suspension of liquidity requirements. Whenever the Board deems it advisable in order to enable a member to meet withdrawals or to pay obligations, the Board may, to such extent and subject to such conditions as it may prescribe, permit the member to reduce its liquid assets below the minimum amount required by paragraph (a) of this section. Whenever the Board determines that conditions of national emergency or unusual economic stress exist, the Board may suspend any part or all of the liquidity requirements of paragraph (a) of this section for such period as the Board may prescribe. Any such suspension, unless sooner terminated by its terms or by the Board, shall terminate at the expiration of 90 days next after its commencement, but nothing in this sentence shall prevent the Board from again suspending any part or all of such liquidity requirements before, at, or after any such termination.

(e) Election for mutual savings banks. In lieu of the liquid-asset requirement imposed by the first sentence of paragraph (a) of this section, any member which is a mutual savings bank may, by resolution of its board of directors, elect to maintain liquid assets in accordance with the provisions of this paragraph. Any such member so electing shall maintain, for each calendar month, an average daily balance of liquid assets in an amount not less than 5 percent of the average daily balance of such member's liquidity base during the preceding calendar month, except as otherwise provided in paragraphs (b) and (d) of this section, and such member shall maintain Federal funds and commercial paper in an aggregate amount not less than the difference between (1) the amount of liquid assets which, but for such election, would have been required under the first sentence of paragraph (a) of this section and (2) the actual amount of liquid assets maintained by such member. Such election shall remain in effect, unless sooner revoked by resolution of such member's board of directors, so long as such member continues to meet the re

quirement specified in the preceding sentence.

(Sec. 5A, 47 Stat. 727, as added by sec. 1, 64 Stat. 256, as amended; 12 U.S.C. 1425a) [34 F.R. 20413, Dec. 31, 1969, as amended at 36 FR 25150, Dec. 29, 1971; 39 FR 34396, Sept. 25, 1974]

§ 523.12 Deficiencies and penalties.

(a) Calculation of deficiency. (1) Except as provided in subparagraph (2) of this paragraph, a member's liquid assets or short-term liquid assets for any calendar month are deficient in the amount that the average daily balance of such assets for such calendar month is less than the respective minimum amounts required pursuant to § 523.11.

(2) A member, other than an insurance company, may reduce any deficiency calculated pursuant to subparagraph (1) of this paragraph as follows:

(1) With respect to the first month of a current distribution period, by the amount of the member's aggregate net withdrawals (excess of withdrawals over cash savings received) from withdrawable accounts during the last 3 business days of the immediately preceding month and the first 10 calendar days of the current month; and

(ii) With respect to the second month of the same current distribution period, by one-half of such amount of aggregate net withdrawals; but

(iii) No such reduction of any deficiency shall operate to reduce the member's liquidity requirement below 4 percent of its liquidity base as of the end of the immediately preceding distribution period.

(b) Calculation of penalty. The amount of penalty for any deficiency calculated pursuant to paragraph (a) of this section shall be determined by each member by multiplying the amount of such deficiency by one-twelfth of the sum of 2 percent and the annual interest rate for advances of 1 year or less charged by the member's Bank on the last day of the month in which such deficiency occurred. If there is a deficiency in the same calendar month in both liquid assets and short-term liquid assets, the penalty shall be calculated only on the larger deficiency. No penalty shall be calculated on any deficiency of $5,000 or less unless the Board shall otherwise direct in a specific case.

(c) Assessment of penalty; compromise, remission, or mitigation. The Board hereby assesses a penalty against

each member in the amount calculated pursuant to paragraph (b) of this section. For good cause shown, the Board may, upon application by a member submitted through the Bank of which it is a member, compromise, remit, or mitigate, in whole or in part, any penalty herein assessed before collection thereof. The president of such Bank, or any other officer of such Bank designated by him, may, upon such application and subject to such conditions as he may impose, so compromise, remit, or mitigate such penalty, if he determines that:

(1) The penalty would have a seriously adverse effect upon the member; or

(2) The deficiency in liquid assets or short-term liquid assets resulted from either:

(i) The temporary disruption of normal operations because of negotiation or implementation of a merger or similar transaction; or

(ii) Any situation beyond the control of the institution's management, including but not limited to:

(a) A breakdown or unforeseen delay in mail or other form of communication; (b) An unexpectedly heavy withdrawal of savings coupled with large disbursements on commitments;

(c) A natural disaster; or

(d) Abnormally heavy withdrawals caused by harmful rumors.

However, no such penalty may be compromised, remitted, or mitigated if the member has failed to observe any condition imposed in connection with a prior compromise, remission, or mitigation of any such penalty.

(Sec. 5A, 47 Stat. 727, as added by 64 Stat. 256, as amended by sec. 4, 82 Stat. 856; 12 U.S.C. 1425a) [23 F.R. 9886, Dec. 23, 1958, as amended at 35 F.R. 11462, July 17, 1970] $523.13 Reports; records.

(a) Reports. If there is a deficiency pursuant to the provisions of paragraph (a) of § 523.12 and a penalty is assessed pursuant to the provisions of paragraph (c) of § 523.12, the member shall submit to the Bank of which it is a member, not later than the 10th calendar day of the month following the month for which the penalty is assessed, a report with respect to such penalty and related matters in form prescribed by the Board. Copies of this form may be obtained from the Federal Home Loan Bank Board, Washington, D.C., or from any Bank.

Each member shall make a semiannual report of its affairs as of the end of each half of its fiscal year, on forms prescribed by the Board. The original of each such report shall be forwarded to the Federal Home Loan Bank Board, Washington, D.C. 20552, and one copy shall be forwarded to the member's Bank, within 30 days following the date as of which the report is made. A savings bank may comply with the requirements of this section with respect to forms of reports by furnishing copies of the reports which such savings bank regularly makes to the Federal Deposit Insurance Corporation or to the State supervisory authority and by furnishing to the Bank as of December 31 of each year such additional information as the Bank requires pursuant to the provisions of § 523.5 with respect to minimum stock subscription.

[29 F.R. 8163, June 27, 1964]

§ 523.25 Official membership insignia. Each member is authorized to display the approved design of insignia of membership on its letterheads, share accounts books, advertising, and similar material and to display the insignia on its windows or the exterior of its quarters. Members are likewise authorized to use the words "Member Federal Home Loan Bank System" in plain lettering in similar instances.

FLOOD INSURANCE

§ 523.29 Flood disaster protection.1

(a) General. This section implements, in part, the provisions of subsections (b) and (c) of section 102 and subsection (b) of section 202 of the Flood Disaster Protection Act of 1973 (Pub. L. 93-234) and subsection (a) of section 816 of the Housing and Community Development Act of 1974 (Pub. L. 93-383). The provisions of this section do not apply retroactively to any loan or commitment related thereto. As used in this section, the term "loan" includes an installment sale contract.

(b) Flood insurance-(1) Requirement. Notwithstanding any provision of this subchapter other than this section, a member, other than a savings bank whose accounts are insured by the Federal Deposit Insurance Corporation, shall not make (including purchase, except as provided in paragraph (e) of this section), increase, extend, or renew after March 1, 1974, any loan (other than a loan closed after March 1 1974, as to which there was outstanding at the close of March 1, 1974, a commitment to make such loan) secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968, as amended, unless the building or mobile home and any personal property securing such loan is covered for the term of the loan by flood insurance in an amount at least equal to the outstanding principal balance of the loan or to the maximum limit of coverage made available with respect to the particular type of property under the National Flood Insurance Act of 1968, as amended, whichever is less.

139 FR 5749, Feb. 14, 1974.

(2) Exception. Notwithstanding the provisions of paragraph (b) (1) of this section, flood insurance is not required by this paragraph (b) on any Stateowned property that is covered under an adequate State policy of self-insurance satisfactory to the Secretary of Housing and Urban Development. Subsection (c) of section 102 of the Flood Disaster Protection Act of 1973, the first sentence of which is implemented by the first sentence of this subparagraph (2), provides, in part, that such Secretary shall publish and periodically revise the list of States to which that subsection applies.

(c) Community participation in insurance program. On and after July 1, 1975, a member, other than a savings bank whose accounts are insured by the Federal Deposit Insurance Corporation, shall not make (including purchase, except as provided in paragraph (e) of this section), increase, extend, or renew any loan secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards, unless the community in which such area is situated is then participating in the national flood insurance program. (d) Records of compliance. Each member, other than a savings bank whose accounts are insured by the Federal Deposit Insurance Corporation, shall maintain in connection with all loans secured by improved real estate or a mobile home sufficient records to indicate the method used by such member to determine whether or not such loans fall within the provisions of this section.

(e) Purchase of loans. The provisions of this section do not prohibit the purchase after March 1, 1974, of a loan secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968, as amended, without compliance with the flood insurance requirements in paragraphs (b) and (c) of this section, if:

(1) As to a loan closed before March 2, 1974, such loan has not been increased, extended, or renewed after March 1, 1974;

(2) As to a loan closed after March 1, 1974, such loan was closed pursuant to a

commitment, outstanding at the close of March 1, 1974, to make such loan and such loan has not been increased, extended, or renewed.

(f) Service corporation loans. The provisions of this section do not apply to loans of a service corporation (see § 545.9-1 of this chapter) even though one or more Bank members own all or part of the capital stock of such corporation.

(g) Loans of savings and loan holding companies. The provisions of this section do not apply to loans of a savings and loan holding company (defined in § 583.11 of this chapter) although such provisions may apply to certain loans of a Bank member which is controlled by such holding company.

(h) Notice of hazard. After September 21, 1974, a member, other than a savings bank whose accounts are insured by the Federal Deposit Insurance Corporation, shall, as a condition of making (including purchasing), increasing, extending, or renewing any loan secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards, mail or deliver as soon as feasible but not less than 10 days in advance of closing of the transaction (or not later than the member's commitment, if any, if the period between commitment and closing is less than 10 days) a written notice to the borrower that the property securing the loan is in an area so identified. In lieu of the notification required in this section, a member, other than a savings bank whose accounts are insured by the Federal Deposit Insurance Corporation, may obtain satisfactory written assurances from a seller or lessor that such seller or lessor has notified the borrower, prior to the execution of any agreement for sale or lease, that the property securing the loan is in an area so identified. A member, other than a savings bank whose accounts are insured by the Federal Deposit Insurance Corporation, shall require the borrower, prior to closing, to provide the member with a written acknowledgment that the borrower realizes that the property securing the loan or upon which the mobile home is or will be located is in an area so identified.

(Secs. 102(b), 102(c) and 202(b) of the Flood Disaster Protection Act of 1973, 87 Stat. 978, 982) [39 FR 5749, Feb. 14, 1974, as amended at 39 FR 33788, Sept. 20, 1974]

A member, having filed notice of intention to withdraw from membership, may cancel such notice by notifying the Board at any time prior to the effective date of withdrawal.

[38 FR 4575, Feb. 16, 1973]

§ 523.32 Procedure for removal.

(a) Grounds for removal. The grounds for the removal of a member from membership in a Federal Home Loan Bank or to deprive any nonmember borrower of the privilege of obtaining further advances from a Bank shall consist of any one or more of the following:

(1) The failure of the member or nonmember borrower to comply with any provision of the act.

(2) The failure of the member or nonmember borrower to comply with any regulation of the Board adopted pursuant to the act.

(3) The insolvency of the member or nonmember borrower. Any member which is a building and loan association, savings and loan association, cooperative bank or homestead association will be deemed insolvent if its assets are less than its obligations to creditors and others, including the holders of its withdrawable accounts.

(4) The management or home-financing policy of the member or nonmember borrower is of a character inconsistent with sound and economical home financing or with the purposes of the act.

(b) Hearing. In the event the Board is of the opinion that one or more of the grounds enumerated in paragraph (a) of this section exists for the removal of any member from membership or the depriving of any nonmember borrower of the privilege of obtaining further advances, the Board will give such member or nonmember borrower at least 30 days' written notice of its intention to terminate such membership or to deprive such nonmember borrower of the privilege of obtaining further advances, which notice shall state the grounds for such action and the time and place of a hearing

(a) Ordinarily the acquisition and/or disposition of securities shall originate with the Banks. The Board of Directors of a Bank may authorize one or more officers of the Bank to acquire and/or to dispose of such securities which mature or are redeemable within thirteen months as in the judgment of such officer or officers is necessary in the operation of the Bank. The proposed acquisition and/or disposition of all other securities by a Bank shall be authorized in advance by a majority of the members of its Board of Directors, Executive Committee, or Investment Committee con

sisting of not less than three members at least a majority of whom shall be directors of the Bank; such authorization shall be either: (1) For each acquisition and/or disposition, or (2) for acquisitions and/or dispositions of securities not exceeding the maximum amount stated in the authorization and not having maturity dates beyond that specified therein, which authorization shall be for a period not exceeding ninety days, and under which one or more of the Bank's officers designated by its Board of Directors may consummate such security transactions as in his or their judgment are necessary in the operation of the Bank. Acquisitions and/or dispositions of securities may be made by any Bank without the prior approval of the Board or a designated representative of said Board, only when such security transactions are in conformity with policies established by said Board and transmitted to the Banks or authorizations of said Board or said representative of the Board.

(b) The principal amount of obligations of the United States shall be used as the basis in determining compliance with the provisions of sections 11 and 16 of the act.

(c) Advances to members maturing within 1 year on the security of home mortgages or obligations of the United States may be deemed investments in compliance with section 11(g) of the act.

(d) The temporary holding of cash awaiting a propitious opportunity for the investment of reserves under the provisions of section 16 of the act is held to be not a violation thereof.

§ 524.2-1

Loans guaranteed under the Foreign Assistance Act of 1961.

(a) General. Upon authorization by its board of directors, but subject to the requirement of paragraph (b) of this section, a Bank may acquire, hold, or dispose of any of the following loans, or any interest therein, for the primary purpose of facilitating acquisition of participation interests in such loans by members legally authorized to make such investment:

(1) Housing project loans having the benefit of any guaranty under section 221 of the Foreign Assistance Act of 1961, as in effect prior to December 30, 1969;

(2) Loans having the benefit of any guaranty under section 224 of such Act,