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CREATION OF A SYSTEM OF FEDERAL HOME

LOAN BANKS

WEDNESDAY, MARCH 16, 1932

HOUSE OF REPRESENTATIVES,
SURCOMMITTEE OF THE COMMITTEE,
ON BANKING AND CURRENCY,

Washington, D. C. The subcommittee met, pursuant to call, at 11 o'clock a. m., in the caucus room of the House Office Building, Representative Michael K. Reilly presiding.

Present: Representatives Reilly (chairman of the subcommittee), Hancock, Williams, Luce, and Campbell.

The subcommittee thereupon proceeded to the consideration of the bill (H. R. 7620) to create Federal home loan banks, to provide for the supervision thereof, and for other purposes.

[H. R. 7620, Seventy-second Congress, first session) A BILL To create Federal Home Loan Banks, to provide for the supervision thereof, and

for other purposes

Be it enacted by the Senate and House of Representatives of the United States of Amerioa in Congress assembled, That this Act may be cited as the "Federal home loan bank act."

DEFINITIONS

SEC. 2. As used in this act-
(1) The term “board” means the Federal home loan bank board.

(2) The term “ Federal home loan bank” means a bank established by the . board under authority of this act.

(3) The term “ State" includes the District of Columbia and the Territories of Alaska and Hawaii.

(4) The term "member" (except when used in reference to a member of the board) means any institution which has subscribed for the stock of a Federal home loan bank, and includes any institution which has, in lieu of subscribing for stock, deposited cash or securities, as authorized in section 5 (e).

(5) The term "home-mortgage loan” means a loan made by a member upon the security of a home mortgage.

(6) The term “home mortgage" means a first mortgage upon real estate upon which there is located a dwelling for not more than three families, and shall include such classes of first liens other than mortgages as are commonly given to secure advances on real estate by institutions authorized under this act to become members, under the laws of the State in which the same are located, together with the credit instruments, if any, secured thereby.

(7) The term “unpaid principal ” when used in respect of a loan secured by a home mortgage means the principal thereof less the sum of (1) payments made on such principal, and (2) in cases where shares of stock pledged as sexturity for the loan may, to the extent they are paid, be applied toward dischharging the principal of the loan, the amounts paid on such shares either directly or by credit of dividends, or otherwise.

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Sec. 3. As soon as practicable the board shall divide the continental United States and the Territories of Alaska and Hawaii into twelve districts. Such districts shall be apportioned with due regard to the convenience and customary course of business of the institutions eligible to and likely to subscribe for stock of a Federal home loan bank to be formed under this act but no such district shall contain fractional part of any State. From time to time the board may adjust such districts and may create new districts, but the total number of such districts shall remain twelve. Such districts shall be known as Federal home loan bank districts and may be designated by number. As soon practicable the board shall establish, in each district, a Federal home loan bank at such city as may be designated by the board. Its title shall include the name of the city at which it is established.

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CAPITAL OF FEDERAL HOME LOAN BANKS AND SUBSCRIPTION THERETO

SEC. 4. (a) Such of the following as are duly organized under the laws of any State or of the United States, and are subject to inspection and regulation under the banking laws, or under similar laws, of the State or of the United States, shall be eligible to become a member of a Federal home loan bank:

(1) Building and loan associations, cooperative banks, and homestead associations;

(2) Any of the following whose time deposits and financial condition, in the judgment of the board, warrant their making such home mortgage loans as, in the judgment of the board, are long-term loans : Savings banks, trust companies, and other banks; and

(3) Insurance companies.

(b) An institution eligible to become a member under this section may become a member only of the Federal home 'loan bank of the district in which is located the institution's principal place of business, or of the bank of a district adjoining such district.

SEC. 5. (a) As soon as practicable after the enactment of this act, the board, with the approval of the Secretary of the Treasury, shall determine the minimum capital of each Federal home loan bank which shall be not less than $5,000,000. The board shall, as soon as practicable thereafter, open books in each district established under section 3 for subscription to the capital stock of the Federal home loan bank of the district.

(b) The capital stock of each Federal home loan bank shall be divided into shares of a par value of $100 each. The minimum capital stock shall be issued at par. Stock issued thereafter shall be issued at such price as may be fixed by the board.

(c) The original stock subscription for each institution eligible to become a member under section 4 shall be not less than $2,500, plus an amount equal to 1 per cent of the aggregate of the unpaid principal of the subscriber's home mortgages. The board shall from time to time adjust the amount of stock held by each member so that, as nearly as possible, such member shall at all times have invested in the stock of the Federal home loan bank at least an amount calculated in the same manner as in the case of the member's original stock subscription.

(d) Stock subscriptions other than by the United States shall be paid for in cash, or by certified check, and shall be paid for at the time of application therefor, or, at the election of the subscriber, in installments, but not less than one-fourth of the total amount payable shall be paid at the time of filing applicaion, and a further sum of not less than one-fourth of such total shall have been paid at the end of each succeeding period of four months.

(e) If the law of the State under which an institution described in section 4 operates does not permit such institution to subscribe for stock in the Federal Home Loan Bank, the board may permit such institution, in lieu of subscribing for stock, to deposit with the bank an amount of cash, shortterm debenture bonds issued by the bank, or Federal Government securities, e qual to the amount of the required stock subscription of such institution had it bjeen authorized to subscribe for stock. The board shall prescribe terms and conditions under which such deposits are made so that the obligations of the institution to the bank will be adequately secured. Upon such deposit su ch institution shall become a member for the purposes of this act. Upon the enactment of State legislation authorizing the subscription to Federal Home

Loan Bank stock by such member, the bank shall issue to such member an amount of stock equal to the value at that time of the property deposited with the bank by such member under this subsection. In the case of any institution which has become a member under the provisions of this section, if the law of the State under which it operates does not at the end of fortytwo months after the enactment of this act permit stock subscription by such institution, such institution shall cease to be a member, and the same provisions shall apply with respect to the termination of its relations with the Federal Home Loan Bank as apply in the case of the withdrawal of members under subsection (i) of this section. The board shall not permit the acceptance of cash or securities in lieu of subscriptions to stock after State legislation has been enacted authorizing the institution to purchase Federal Home Loan Bank stock, or after forty-two months after the enactment of his act, whichever is earlier.

The board shall prescribe regulations under which institutions enabled to become members under authority of this subsection shall, as nearly as practicable, have the same rights, privileges, powers, and benefits, and be subject to the same conditions, limitations, restrictions, and liabilities as institutions which have become members by reason of their purchase of capital stock of Federal Home Loan Banks. For the purposes of the foregoing provisior, whenever any reference is made in this act to amounts of capital stock subscribed for, amounts required to be deposited under this subsection shall be held to be included, and if the reference is to amounts of capital stock paid in, amounts deposited under this subsection shall be held to be included.

(f) The Secretary of the Treasury shall subscribe, on behalf of the United States, for such part of the minimum capital of each Federal Home Loan Bank as is not subscribed for by members under subsections (c) and (el of this section within thirty days after books have been opened for stock subscriptions as provided in subsection (a). Payments for stock subscriptions by the Secretary of the Treasury shall be subject to call in whole or in part by the board, with the approval of the Secretary of the Treasury, at such time or times as may be deemed advisable. The aggregate amount expended by the United States for the purchase of stock under this act shall not exceed $150,000,000, and such sums as may be necessary for such purpose are hereby authorized to be appropriated out of any money in the Treasury not otherwise appropriated. Each Federal Home Loan Bank receiving such paynients shall issue receipts therefor to the Secretary of the Treasury, and such receipts shall be evidence of the stock ownership of the United States.

(g) After the amount of capital of a Federal Home Loan Bank paid in by members equals the amount paid in by the Secretary of the Treasury under subsection (f), such bank shall apply annually to the payment and retirement of the shares of the capital stock held by the United States, 50 per centum of all sums thereafter paid in as capital until all such capital stock held by the United States is retired at par. Stock held by the United States may at any time, in the discretion of the Federal Home Loan Bank, and with the approval of the board, be paid off at par and retired in whole or in part; and the board may at any time require such stock to be paid off at par and retired in whole or in part if in the opinion of the board the Federal Home Loan Bank has resources available therefor.

(h) Stock subscribed for otherwise than by the United States, and the right to the proceeds thereof, shall not be transferred or hypothecated except as hereinafter provided, and the certificates therefor shall so state,

(i) Any member may withdraw from membership in a Federal Home Loan Bank six months after filing with the board written notice of intention so to do, and the board may, after hearing, remove any member from membership if, in the opinion of the board, such member has failed to comply with any provision of this act or the regulations of the board made pursuant thereto. In any such case, the indebtedness of such member 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 surrendered and canceled. Upon the liquidation of such indebtedness such member shall be entitled to the return of its collateral, and, upon surrender and cancellation of such capital stock, the member shall receive a sum equal to its cash paid subscriptions for the capital stock surrendered, except that if at any time the board finds that the paid-in capital of a Federal Home Loan Bank is or is likely to be impaired as a result of losses in or depreciation of the assets held, the Federal Home Loan Bank shall on the order of the board withhold from the amount paid

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