PART 1277—FEDERAL HOME LOAN BANK CAPITAL REQUIREMENTS, CAPITAL STOCK AND CAPITAL PLANS Authority: 12 U.S.C. 1426, 1436(a), 1440, 1443, 1446, 4511, 4513, 4514, 4526, 4612. Source: 80 FR 12755, Mar. 11, 2015, unless otherwise noted. Subpart A—Definitions § 1277.1 Definitions. As used in this part: Affiliated counterparty Bankruptcy remote Class A stock Class B stock Collateralized mortgage obligation, CMO, Commitment to make an advance or acquire a loan subject to certain drawdown Credit derivative Credit risk Derivatives clearing organization Derivative contract Eligible master netting agreement Exchange rate contracts Former member General allowance for losses Government Sponsored Enterprise, GSE, Internal cash-flow model Internal market-risk model Market risk Market value-at-risk Minimum investment Non-mortgage asset Non-rated asset Operational risk Permanent capital Redeem or Redemption Regulatory capital requirements Repurchase Residential mortgage Residential mortgage asset, RMA, Residential mortgage security Sales of federal funds subject to a continuing contract Total assets Total capital [80 FR 12755, Mar. 11, 2015, as amended at 84 FR 5325, Feb. 20, 2019] Subpart B—Bank Capital Requirements Source: 84 FR 5326, Feb. 20, 2019, unless otherwise noted. § 1277.2 Total capital requirement. Each Bank shall maintain at all times: (a) Total capital in an amount at least equal to 4.0 percent of the Bank's total assets; and (b) A leverage ratio of total capital to total assets of at least 5.0 percent of the Bank's total assets. For purposes of determining this leverage ratio, total capital shall be computed by multiplying the Bank's permanent capital by 1.5 and adding to this product all other components of total capital. § 1277.3 Risk-based capital requirement. Each Bank shall maintain at all times permanent capital in an amount at least equal to the sum of its credit risk capital requirement, its market risk capital requirement, and its operational risk capital requirement, calculated in accordance with §§ 1277.4, 1277.5, and 1277.6, respectively. § 1277.4 Credit risk capital requirement. (a) General requirement. (b) Credit risk capital charge for residential mortgage assets and collateralized mortgage obligations. (c) Credit risk capital charge for advances, non-mortgage assets, and non-rated assets. (d) Credit risk capital charge for off-balance sheet items. (e) Derivative contracts. (i) The current credit exposure for the derivative contract, calculated in accordance with paragraph (i)(1) of this section, multiplied by the credit risk percentage requirement assigned to that derivative contract pursuant to Table 2 to this section, provided that a Bank shall use the credit risk percentages from the column for instruments with maturities of one year or less for all such derivative contracts; plus (ii) The potential future credit exposure for the derivative contract, calculated in accordance with paragraph (i)(2) of this section, multiplied by the credit risk percentage requirement assigned to that derivative contract pursuant to Table 2 to this section, where a Bank uses the actual remaining maturity of the derivative contract for the purpose of applying Table 2 to this section; plus (iii) A credit risk capital charge applicable to the undiscounted amount of collateral posted by the Bank with respect to a derivative contract that exceeds the Bank's current payment obligation under that derivative contract, where the charge equals the amount of such excess collateral multiplied by the credit risk percentage requirement assigned under Table 2 to this section for the custodian or other party that holds the collateral, and where a Bank deems the exposure to have a remaining maturity of one year or less when applying Table 2 to this section. (2)(i) A Bank may reduce the credit risk capital charge calculated under paragraph (e)(1) of this section by the amount of the discounted value of any collateral that is held by or on behalf of the Bank against an exposure from the derivative contract, and that satisfies the requirements of paragraph (e)(3) of this section. If the total amount of the discounted value of the collateral is less than the credit risk capital charge calculated under paragraph (e)(1) of this section for a particular derivative contract, then the credit risk capital charge for the derivative contract shall equal the amount of the initial charge that remains after having been reduced by the collateral. A Bank that uses a counterparty's pledged collateral to reduce the capital charge against a derivative contract under this provision, shall also apply a capital charge to the amount of the pledged collateral that it has used to reduce its credit exposure on the derivative contract. The amount of that capital charge shall be equal to the capital charge that would be required under paragraph (b) or (c) of this section, whichever applies to the type of collateral, as if the Bank were to own the collateral directly. In reducing the capital charge on a particular derivative contract, the Bank shall apply the discounted value of the collateral for that derivative contract in the following manner: (A) First, to reduce the current credit exposure of the derivative contract subject to the capital charge; and (B) Second, and only if the total discounted value of the collateral held exceeds the current credit exposure of the contract, any remaining amounts may be applied to reduce the amount of the potential future credit exposure of the derivative contract subject to the capital charge. (ii) If a counterparty's payment obligations to a Bank under a derivative contract are unconditionally guaranteed by a third-party, then the credit risk percentage requirement applicable to the derivative contract may be that associated with the guarantor, rather than the Bank's counterparty. (3) The credit risk capital charge may be reduced as described in paragraph (e)(2)(i) of this section for collateral held against the derivative contract exposure only if the collateral is: (i) Held by, or has been paid to, the Bank or held by an independent, third-party custodian on behalf of the Bank pursuant to a custody agreement that meets the requirements of § 1221.7(c) and (d) of this chapter; (ii) Legally available to absorb losses; (iii) Of a readily determinable value at which it can be liquidated by the Bank; and (iv) Subject to an appropriate discount to protect against price decline during the holding period and the costs likely to be incurred in the liquidation of the collateral, provided that such discount shall equal at least the minimum discount required under appendix B to part 1221 of this chapter for collateral listed in that appendix, or shall be estimated by the Bank based on appropriate assumptions about the price risks and liquidation costs for collateral not listed in appendix B to part 1221. (4) The credit risk capital charge for any derivative contracts entered into between a Bank and its members shall be calculated in accordance with paragraph (e)(1) of this section, except that the Bank shall use the credit risk percentage requirements from Table 1 to this section, which sets forth the credit risk percentage requirements for advances. (5) Notwithstanding any other provision in this paragraph (e), the credit risk capital charge for: (i) A foreign exchange rate contract (excluding gold contracts) with an original maturity of 14 calendar days or less shall be zero; and (ii) A derivative contract cleared by a derivatives clearing organization shall equal 0.16 percent times the sum of the following: (A) The current credit exposure for the derivative contract, calculated in accordance with paragraph (i)(1)(i) of this section; (B) The potential future credit exposure for the derivative contract calculated in accordance with paragraph (i)(2) of this section; and (C) The amount of collateral posted by the Bank and held by the derivatives clearing organization, clearing member, or custodian in a manner that is not bankruptcy remote, but only to the extent the amount exceeds the Bank's current credit exposure to the derivatives clearing organization. (f) Determination of credit risk percentage requirements General. Table 1 to § 1277.4—Requirement for Advances Maturity of advances Percentage Advances with: Remaining maturity <=4 years 0.09 Remaining maturity >4 years to 7 years 0.23 Remaining maturity >7 years to 10 years 0.35 Remaining maturity >10 years 0.51 Table 2 to § 1277.4—Requirement for Internally Rated Non-Mortgage Assets, Off-Balance Sheet Items, and Derivative Contracts [Based on remaining contractual maturity] FHFA Credit Rating Applicable percentage <=1 year >1 yr to 3 yrs >3 yrs to 7 yrs >7 yrs to >10 yrs U.S. Government Securities 0.00 0.00 0.00 0.00 0.00 FHFA 1 0.20 0.59 1.37 2.28 3.32 FHFA 2 0.36 0.87 1.88 3.07 4.42 FHFA 3 0.64 1.31 2.65 4.22 6.01 FHFA 4 3.24 4.79 7.89 11.51 15.64 FHFA 5 9.24 11.46 15.90 21.08 27.00 FHFA 6 15.99 18.06 22.18 26.99 32.49 FHFA 7 100.00 100.00 100.00 100.00 100.00 Table 3 to § 1277.4—Requirement for Non-Rated Assets Type of unrated asset Applicable Cash 0.00 Premises, Plant and Equipment 8.00 Investments Under 12 CFR 1265.3(e) & (f) 8.00 (ii) Each Bank shall develop a methodology to be used to assign an internal credit risk rating to each counterparty, asset, item, and contract that is subject to Table 2 to this section. The methodology shall involve an evaluation of counterparty or asset risk factors, and may incorporate, but must not rely solely on, credit ratings prepared by credit rating agencies. Each Bank shall align its various internal credit ratings to the appropriate categories of FHFA Credit Ratings included in Table 2 to this section. In doing so, FHFA Categories 7 through 1 shall include assets of progressively higher credit quality. After aligning its internal credit ratings to the appropriate categories of Table 2 to this section, each Bank shall assign each counterparty, asset, item, and contract to the appropriate FHFA Credit Rating category based on the applicable internal credit rating. (2) Exception for assets subject to a guarantee or secured by collateral. (ii) For purposes of paragraph (f)(2)(i) of this section, a non-mortgage asset shall be considered to be secured if the collateral is: (A) Actually held by the Bank, or an independent third-party custodian on the Bank's behalf, or, if posted by a Bank member and permitted under the Bank's collateral agreement with that member, by the Bank's member or an affiliate of that member where the term “affiliate” has the same meaning as in § 1266.1 of this chapter; (B) Legally available to absorb losses; (C) Of a readily determinable value at which it can be liquidated by the Bank; (D) Held in accordance with the provisions of the Bank's member products policy established pursuant to § 1239.30 of this chapter, if the collateral has been posted by a member or an affiliate of a member; and (E) Subject to an appropriate discount to protect against price decline during the holding period and the costs likely to be incurred in the liquidation of the collateral. (3) Exception for obligations of the Enterprises. (4) Methodology and model review. (g) Credit risk capital charges for residential mortgage assets Bank determination of credit risk percentage. (ii) Each Bank shall determine the credit risk percentage requirement applicable to each residential mortgage, residential mortgage pool, and residential mortgage security by identifying the appropriate FHFA RMA category set forth in the following Table 4 to this section to which the asset belongs, and shall determine the credit risk percentage requirement applicable to each collateralized mortgage obligation by identifying the appropriate FHFA CMO category set forth in Table 4 to this section to which the asset belongs, with the appropriate categories being determined in accordance with paragraph (g)(1)(iii) of this section. (iii) Each Bank shall develop a methodology to estimate the potential future stress losses on its residential mortgages, residential mortgage pools, residential mortgage securities, and collateralized mortgage obligations, as may yet occur from the current amortized cost (or fair value) of those assets, and that converts those loss estimates into a stress loss percentage for each asset, expressed as a percentage of its amortized cost (or fair value). A Bank shall use the stress loss percentage for each asset to determine the appropriate FHFA RMA or CMO ratings category for that asset, as set forth in Table 4 to this section. A Bank shall do so by assigning each such asset to the category whose credit risk percentage requirement equals the asset's stress loss percentage, or to the category with the next highest credit risk percentage requirement. For residential mortgages and residential mortgage pools, the methodology shall involve an evaluation of the residential mortgages and residential mortgage pools and any credit enhancements or guarantees, including an assessment of the creditworthiness of the providers of such enhancements or guarantees. In the case of a residential mortgage security or collateralized mortgage obligation, the methodology shall involve an evaluation of the underlying mortgage collateral, the structure of the security, and any credit enhancements or guarantees, including an assessment of the creditworthiness of the providers of such enhancements or guarantees. Table 4 to § 1277.4—Requirement for Residential Mortgage Assets and CMOs Credit risk Categories for residential mortgage assets: FHFA RMA 1 0.37 FHFA RMA 2 0.60 FHFA RMA 3 0.86 FHFA RMA 4 1.20 FHFA RMA 5 2.40 FHFA RMA 6 4.80 FHFA RMA 7 34.00 Categories for Collateralized Mortgage Obligations: FHFA CMO 1 0.37 FHFA CMO 2 0.60 FHFA CMO 3 1.60 FHFA CMO 4 4.45 FHFA CMO 5 13.00 FHFA CMO 6 34.00 FHFA CMO 7 100.00 (2) Exceptions. (ii) A Bank may use a credit risk capital charge of zero for any residential mortgage asset or collateralized mortgage obligation, or any portion thereof, guaranteed or insured as to payment of principal and interest by a department or agency of the United States government that is backed by the full faith and credit of the United States; and (iii) A Bank shall provide to FHFA upon request the methodology, model, and any analyses used to estimate the potential future stress losses on its residential mortgages, residential mortgage pools, residential mortgage securities, and collateralized mortgage obligations, and to determine a stress loss percentage for each such asset. FHFA may direct a Bank to promptly revise its methodology or model to address any deficiencies identified by FHFA. (h) Calculation of credit equivalent amount for off-balance sheet items General requirement. Table 5 to § 1277.4—Credit Conversion Factors for Off-Balance Sheet Items Instrument Credit Asset sales with recourse where the credit risk remains with the Bank 100 Commitments to make advances subject to certain drawdown. Commitments to acquire loans subject to certain drawdown. Standby letters of credit 50 Other commitments with original maturity of over one year. Other commitments with original maturity of one year or less 20 (2) Exceptions. (i) Calculation of credit exposures for derivative contracts Current credit exposure Single derivative contract. (A) If the mark-to-market value of the contract is positive, the mark-to-market value of the contract; or (B) If the mark-to-market value of the contract is zero or negative, zero. (ii) Derivative contracts subject to an eligible master netting agreement. (A) The net sum of all positive and negative mark-to-market values of the individual derivative contracts subject to the eligible master netting agreement, if the net sum of the mark-to-market values is positive; or (B) Zero, if the net sum of the mark-to-market values is zero or negative. (2) Potential future credit exposure. (i) Using an internal initial margin model that meets the requirements of § 1221.8 of this chapter and is approved by FHFA for use by the Bank, or using an initial margin model that has been approved under regulations similar to § 1221.8 of this chapter for use by the Bank's counterparty to calculate initial margin for those derivative contracts for which the calculation is being done; or (ii) By applying the standardized approach in appendix A to part 1221 of this chapter; or (iii) Using an initial margin model that is employed by a derivatives clearing organization. (j) Credit risk capital charge for non-mortgage assets hedged with credit derivatives Credit derivatives with a remaining maturity of one year or more. (2) Credit derivatives with a remaining maturity of less than one year. (3) Credit risk capital charge reduced to zero. (i) The remaining maturity for the credit derivative used for the hedge is identical to or exceeds the remaining maturity for the hedged non-mortgage asset, and either: (A) The non-mortgage asset referenced in the credit derivative is identical to the hedged non-mortgage asset; or (B) The non-mortgage asset referenced in the credit derivative is different from the hedged non-mortgage asset, but only if the asset referenced in the credit derivative and the hedged non-mortgage asset have been issued by the same obligor, the asset referenced in the credit derivative ranks pari passu to, or more junior than, the hedged non-mortgage asset and has the same maturity as the hedged non-mortgage asset, and cross-default clauses apply; and (ii) The credit risk capital charge for the credit derivative contract calculated pursuant to paragraph (e) of this section is still applied. (4) Capital charge reduction in certain other cases. (i) The remaining maturity for the credit derivative is less than the remaining maturity for the hedged non-mortgage asset and either: (A) The non-mortgage asset referenced in the credit derivative is identical to the hedged non-mortgage asset; or (B) The non-mortgage asset referenced in the credit derivative is different from the hedged non-mortgage asset, but only if the asset referenced in the credit derivative and the hedged non-mortgage asset have been issued by the same obligor, the asset referenced in the credit derivative ranks pari passu to, or more junior than, the hedged non-mortgage asset and has the same maturity as the hedged non-mortgage asset, and cross-default clauses apply; and (ii) The credit risk capital charge for the unhedged portion of the non-mortgage asset equals: (A) The credit risk capital charge for the non-mortgage asset, calculated as the amortized cost, or fair value, of the non-mortgage asset multiplied by that asset's credit risk percentage requirement assigned pursuant to paragraph (f)(1) of this section where the appropriate credit rating is that for the non-mortgage asset and the appropriate maturity is the remaining maturity of the non-mortgage asset; minus (B) The credit risk capital charge for the non-mortgage asset, calculated as the amortized cost, or fair value, of the non-mortgage asset multiplied by that asset's credit risk percentage requirement assigned pursuant to paragraph (f)(1) of this section where the appropriate credit rating is that for the non-mortgage asset but the appropriate maturity is deemed to be the remaining maturity of the credit derivative; and (iii) The credit risk capital charge for the hedged portion of the non-mortgage asset is equal to the credit risk capital charge for the credit derivative, calculated in accordance with paragraph (e) of this section. (k) Frequency of calculations. § 1277.5 Market risk capital requirement. (a) General requirement. (2) A Bank may substitute an internal cash-flow model to derive a market risk capital requirement in place of that calculated using an internal market-risk model under paragraph (a)(1) of this section, provided that: (i) The Bank obtains FHFA approval of the internal cash-flow model and of the assumptions to be applied to the model; and (ii) The Bank demonstrates to FHFA that the internal cash-flow model subjects the Bank's assets and liabilities, off-balance sheet items, and derivative contracts, including related options, to a comparable degree of stress for such factors as will be required for an internal market-risk model. (b) Measurement of market value-at-risk under a Bank's internal market-risk model. (2) The Bank's internal market-risk model may use any generally accepted measurement technique, such as variance-covariance models, historical simulations, or Monte Carlo simulations, for estimating the market value of the Bank's portfolio at risk, provided that any measurement technique used must cover the Bank's material risks. (3) The measures of the market value of the Bank's portfolio at risk shall include the risks arising from the non-linear price characteristics of options and the sensitivity of the market value of options to changes in the volatility of the options' underlying rates or prices. (4) The Bank's internal market-risk model shall use interest rate and market price scenarios for estimating the market value of the Bank's portfolio at risk, but at a minimum: (i) The Bank's internal market-risk model shall provide an estimate of the market value of the Bank's portfolio at risk such that the probability of a loss greater than that estimated shall be no more than one percent; (ii) The Bank's internal market-risk model shall incorporate scenarios that reflect changes in interest rates, interest rate volatility, option-adjusted spreads, and shape of the yield curve, and changes in market prices, equivalent to those that have been observed over 120-business day periods of market stress. For interest rates, the relevant historical observations should be drawn from the period that starts at the end of the previous month and goes back to the beginning of 1998; (iii) The total number of, and specific historical observations identified by the Bank as, stress scenarios shall be: (A) Satisfactory to FHFA; (B) Representative of the periods of the greatest potential market stress given the Bank's portfolio; and (C) Comprehensive given the modeling capabilities available to the Bank; and (iv) The measure of the market value of the Bank's portfolio at risk may incorporate empirical correlations among interest rates. (5) For any consolidated obligations denominated in a currency other than U.S. Dollars or linked to equity or commodity prices, each Bank shall, in addition to fulfilling the criteria of paragraph (b)(4) of this section, calculate an estimate of the market value of its portfolio at risk resulting from material foreign exchange, equity price or commodity price risk, such that, at a minimum: (i) The probability of a loss greater than that estimated shall not exceed one percent; (ii) The scenarios reflect changes in foreign exchange, equity, or commodity market prices that have been observed over 120-business day periods of market stress, as determined using historical data that is from an appropriate period; (iii) The total number of, and specific historical observations identified by the Bank as, stress scenarios shall be: (A) Satisfactory to FHFA; (B) Representative of the periods of the greatest potential stress given the Bank's portfolio; and (C) Comprehensive given the modeling capabilities available to the Bank; and (iv) The measure of the market value of the Bank's portfolio at risk may incorporate empirical correlations within or among foreign exchange rates, equity prices, or commodity prices. (c) Independent validation of Bank internal market-risk model or internal cash-flow model. (2) The results of such independent validations shall be reviewed by the Bank's board of directors and provided promptly to FHFA. (d) FHFA approval of Bank internal market-risk model or internal cash-flow model. (2) A model and any material adjustments to such model that were approved by FHFA or the Federal Housing Finance Board shall be deemed to meet the requirements of paragraph (d)(1) of this section, unless such approval is revoked or amended by FHFA. (e) Frequency of calculations. § 1277.6 Operational risk capital requirement. (a) General requirement. (b) Alternative requirements. (1) The Bank provides an alternative methodology for assessing and quantifying an operational risk capital requirement; or (2) The Bank obtains insurance to cover operational risk from an insurer acceptable to FHFA and on terms acceptable to FHFA. § 1277.7 Limits on unsecured extensions of credit; reporting requirements. (a) Unsecured extensions of credit to a single counterparty. (1) General limits. (i) The Bank's total capital; or (ii) The counterparty's Tier 1 capital, or if Tier 1 capital is not available, total capital (in each case as defined by the counterparty's principal regulator) or some similar comparable measure identified by the Bank. (2) Overall limits including sales of overnight federal funds. (3) Limits for certain obligations issued by state, local, or tribal governmental agencies. (4) Bank determination of applicable maximum capital exposure limits. Table 1 to § 1277.7—Maximum Limits on Unsecured Extensions of Credit to a Single Counter-party by FHFA Credit Rating Category FHFA Credit Rating Maximum capital FHFA 1 15 FHFA 2 14 FHFA 3 9 FHFA 4 3 FHFA 5 and Below 1 (b) Unsecured extensions of credit to affiliated counterparties In general. (2) Relation to individual limits. (c) Special limits for certain GSEs. (d) Extensions of unsecured credit after reduced rating. (e) Reporting requirements Total unsecured extensions of credit. (i) The Bank's total capital; or (ii) The counterparty's, or affiliated counterparties' combined, Tier 1 capital, or if Tier 1 capital is not available, total capital (in each case as defined by the counterparty's principal regulator), or some similar comparable measure identified by the Bank. (2) Total secured and unsecured extensions of credit. (3) Extensions of credit in excess of limits. (f) Measurement of unsecured extensions of credit In general. (i) For on-balance sheet transactions (other than a derivative transaction addressed by paragraph (f)(1)(iii) of this section), an amount equal to the sum of the amortized cost of the item plus net payments due the Bank. For any such item carried at fair value where any change in fair value would be recognized in the Bank's income, the Bank shall measure the unsecured extension of credit based on the fair value of the item, rather than its amortized cost; (ii) For off-balance sheet transactions, an amount equal to the credit equivalent amount of such item, calculated in accordance with § 1277.4(h); and (iii) For derivative transactions not cleared by a derivatives clearing organization, an amount equal to the sum of: (A) The Bank's current and potential future credit exposures under the derivative contract, where those values are calculated in accordance with § 1277.4(i)(1) and (2) respectively, reduced by the amount of any collateral held by or on behalf of the Bank against the credit exposure from the derivative contract, as allowed in accordance with the requirements of § 1277.4(e)(2) and (3); and (B) The value of any collateral posted by the Bank that exceeds the current amount owed by the Bank to its counterparty under the derivative contract, where the collateral is held by a person or entity other than a third-party custodian that is acting under a custody agreement that meets the requirements of § 1221.7(c) and (d) of this chapter. (2) Status of debt obligations purchased by the Bank. (i) Any amount owed the Bank against which the Bank holds collateral in accordance with § 1277.4(f)(2)(ii); or (ii) Any amount which FHFA has determined on a case-by-case basis shall not be considered an unsecured extension of credit. (g) Exceptions to unsecured credit limits. (1) Obligations of, or guaranteed by, the United States; (2) A derivative transaction accepted for clearing by a derivatives clearing organization, including collateral posted by the Bank with the derivatives clearing organization associated with that derivative transaction; (3) Any extension of credit from one Bank to another Bank; and (4) A bond issued by a state housing finance agency, if the Bank documents that the obligation in question is: (i) Principally secured by high quality mortgage loans or high quality mortgage-backed securities (or funds derived from payments on such assets or from payments from any guarantees or insurance associated with such assets); (ii) The most senior class of obligation, if the bond has more than one class; and (iii) Determined by the Bank to be rated no lower than FHFA 2, in accordance with this section. § 1277.8 Reporting requirements. Each Bank shall report information related to capital and other matters addressed by this part in accordance with instructions provided in the Data Reporting Manual issued by FHFA, as amended from time to time. Subpart C—Bank Capital Stock § 1277.20 Classes of capital stock. The authorized capital stock of a Bank shall consist of the following instruments: (a) Class A stock, which shall: (1) Have a par value as determined by the board of directors of the Bank and stated in the Bank's capital plan; (2) Be issued, redeemed, and repurchased only at its stated par value; and (3) Be redeemable in cash only on six-months written notice to the Bank. (b) Class B stock, which shall: (1) Have a par value as determined by the board of directors of the Bank and stated in the Bank's capital plan; (2) Be issued, redeemed, and repurchased only at its stated par value; (3) Be redeemable in cash only on five-years written notice to the Bank; and (4) Confer an ownership interest in the retained earnings, surplus, undivided profits, and equity reserves of the Bank. (c) Any one or more subclasses of Class A or Class B stock, each of which may have different rights, terms, conditions, or preferences as may be authorized in the Bank's capital plan, provided, however, that each subclass of stock shall have all of the characteristics of its respective class, as specified in paragraph (a) or (b) of this section. § 1277.21 Issuance of capital stock. A Bank may issue either one or both classes of its capital stock (including subclasses), as authorized by § 1277.20, and shall not issue any other class of capital stock. A Bank shall issue its stock only to its members, or to former members to the extent those institutions are required to maintain a minimum stock investment for existing activities under the capital plan, and only in book-entry form. The Bank shall act as its own transfer agent. All capital stock shall be issued in accordance with the Bank's capital plan. § 1277.22 Minimum investment in capital stock. (a) A Bank shall require each member to maintain a minimum investment in the capital stock of the Bank, both as a condition to becoming and remaining a member of the Bank and as a condition to transacting business with the Bank or obtaining advances and other services from the Bank. The amount of the required minimum investment shall be determined in accordance with the Bank's capital plan and shall be sufficient to ensure that the Bank remains in compliance with its regulatory capital requirements. A Bank shall require each member to maintain its minimum investment for as long as the institution remains a member of the Bank and shall require each member and former member to maintain its minimum investment for as long as the institution engages in any activity with the Bank for which the capital plan requires the institution to maintain capital stock. (b) A Bank may establish the minimum investment as a percentage of the total assets of an institution, as a percentage of the advances outstanding to that institution, as a percentage of any other business activity conducted with the institution, on any other basis that is approved by the Director, or any combination thereof. (c) A Bank may require that the minimum investment requirement be satisfied through the purchase of either Class A or Class B stock, or through the purchase of one or more combinations of Class A and Class B stock that have been authorized by the board of directors of the Bank in its capital plan. A Bank, in its discretion, may establish a lower minimum investment to the extent the requirement is met through investment in Class B stock than if the requirement is met through investment in Class A stock, provided that such reduced investment provides sufficient capital for the Bank to remain in compliance with its regulatory capital requirements. (d) Each member, or if applicable, former member, of a Bank shall at all times maintain an investment in the capital stock of the Bank in an amount that is sufficient to satisfy the minimum investment required under the Bank's capital plan. § 1277.23 Dividends. (a) In general. (b) Limitation on payment of dividends. § 1277.24 Liquidation, merger, or consolidation. The respective rights of the Class A and Class B stockholders, in the event that the Bank is liquidated, merged, or otherwise consolidated with another Bank, shall be determined in accordance with the capital plan of the Bank, provided, however, that nothing in the capital plan shall be construed to limit any rights or authority granted FHFA under the Bank Act or the Safety and Soundness Act to issue any regulation or order or to take any other action that may affect or otherwise alter the rights or privileges of stock holders in a liquidation, merger, or consolidation of a Bank. § 1277.25 Transfer of capital stock. A Bank in its capital plan may allow a member or former member to transfer any excess stock to a member of that Bank or to an institution that has been approved for membership in that Bank and that has satisfied all conditions for becoming a member, other than the purchase of the minimum amount of Bank stock that it is required to hold as a condition of membership. Any such stock transfers shall be at par value and shall be effective upon being recorded on the appropriate books and records of the Bank. The Bank may, in its capital plan, require that the transfer be approved by the Bank before such transfer can occur. § 1277.26 Redemption and repurchase of capital stock. (a) Redemption. (2) A member may cancel a notice of redemption by so informing the Bank in writing, and the Bank may impose a fee (to be specified in its capital plan) with respect to any cancellation of a pending notice of redemption. A request by a member (whose membership has not been terminated) to redeem specific shares of stock shall automatically be cancelled if the Bank is prevented from redeeming the member's stock by paragraph (c) of this section within five business days from the end of the expiration of the applicable redemption notice period because the member would fail to maintain its minimum investment in the stock of the Bank after such redemption. The automatic cancellation of a member's redemption request shall have the same effect as if the member had cancelled its notice to redeem stock prior to the end of the redemption notice period, and a Bank may impose a fee (to be specified in its capital plan) for automatic cancellation of a redemption request. (3) A Bank shall not be obligated to redeem its capital stock other than in accordance with this paragraph. (b) Repurchase. (c) Limitation. § 1277.27 Other restrictions on the repurchase or redemption of Bank stock. (a) Capital impairment. (b) Bank discretion to suspend redemption. Subpart D—Bank Capital Plans § 1277.28 Bank capital plans. Each Bank shall have in place a capital plan approved by the Bank's board of directors and the Director. The capital plan shall include, at a minimum, provisions addressing the following matters: (a) Minimum investment. (2) The capital plan shall specify the amount and class (or classes) of Bank stock that an institution is required to own in order to become and remain a member of the Bank, and to obtain advances from, or to engage in other business transactions with, the Bank. If a Bank requires that the minimum investment be satisfied through the purchase of one or more combinations of Class A and Class B stock, the authorized combinations of stock shall be specified in the capital plan, which shall afford the option of satisfying the minimum investment through the purchase of any such combination of stock. (3) The capital plan shall require the board of directors of the Bank to monitor and, as necessary, to adjust, the minimum investment to ensure that outstanding stock remains sufficient for the Bank to comply with its regulatory capital requirements. The plan shall require each member or, where required by the plan, former member, to comply promptly with any adjusted minimum investment established by the board of directors of the Bank, but may allow a reasonable time to do so and may allow a reduction in outstanding business with the Bank as an alternative to purchasing additional stock. (b) Classes of capital stock. (c) Dividends. (d) Stock transactions. (1) Shall provide that the Bank may not issue stock other than in accordance with § 1277.21; (2) Shall provide that the stock of the Bank may be issued only to and held only by the members of that Bank, and by former members to the extent necessary to meet requirements set forth in a capital plan; (3) Shall specify whether the stock of the Bank may be transferred, as allowed under § 1277.25, and, if such transfer is allowed, shall specify the procedures to effect such transfer, and provide that the transfer shall be undertaken only in accordance with § 1277.25; (4) Shall specify that the stock of the Bank may be traded only among the Bank and its members, and former members; (5) May provide for a minimum investment based on investment in Class B stock that is lower than a minimum investment based on investment in Class A stock, provided that the level of investment is sufficient for the Bank to comply with its regulatory capital requirements; (6) Shall specify the fee, if any, to be imposed upon cancellation of a request to redeem Bank stock or upon cancellation of a request to withdraw from membership; and (7) Shall specify the period of notice that the Bank will provide before the Bank, on its own initiative, determines to repurchase any excess Bank stock. (e) Termination of membership. § 1277.29 Amendments to a Bank's capital plan. (a) In general. (b) Submission of amendments for approval. (1) The name of the Bank making the request and the name, title, and contact information of the official filing the request; (2) The name, title and contact information of the staff member(s) whom FHFA may contact for additional information; (3) A certification by an executive officer of the Bank with knowledge of the facts that the representations made in the request are accurate and complete. The following form of certification may be used: “I hereby certify that the statements contained in the submission are true and complete to the best of my knowledge. [Name and Title]”; (4) A written, narrative description of the proposed amendments to the Bank's capital plan and a discussion of the Bank's reasons for the proposed changes; (5) The amended capital plan as approved by the Bank's board of directors; (6) A version of the Bank's capital plan showing all proposed changes to its previously approved capital plan; (7) Resolutions of the Bank's board of directors: (i) Approving the proposed capital plan amendments; and (ii) Authorizing the filing of the application for approval of the amendments and concurring in substance with the supporting documentation provided; (8) An opinion of counsel demonstrating that the proposed amendments comply with the Bank Act, FHFA regulations and any other applicable law or regulation. If the amendments would be identical in substance to provisions approved for other Banks' capital plans, a Bank's legal analysis may reference the other capital plans that contain the provisions in question; (9) An analysis of the effect of the proposed amendments, if any, on the Bank's capital levels and the Bank's ability to meet its regulatory capital requirements; (10) Pro forma (11) A discussion of and an explanation for changes to the Bank's strategic plan, if any, which may be related to the capital plan amendments. (c) FHFA consideration of the amendment.