FHLBs To Request Withdrawal Of FHFB Retained Earnings Plan
By Damian Paletta
OF DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--The chairmen of the 12 Federal Home Loan Banks are preparing to collectively challenge a recent proposal issued by the Federal Housing Finance Board that would create new retained earnings standards and limit the dividends FHLBs can pay to members.
The challenge would, for the first time, show a rare consensus among the chairmen at the 12 FHLBs as they challenge their regulator's proposal. The opposition is set to come in a letter, co-signed by the 12 chairmen, asking Finance Board Chairman Ronald A. Rosenfeld to withdraw the proposal, several people familiar with the letter said. The letter was expected to be sent to Rosenfeld in the next day or so.
John von Seggern, president and chief executive of the Council of Federal Home Loan Banks, refused to discuss if such a letter was in the works.
He did say, though, that opposition to the Finance Board's proposal had grown.
"The Federal Home Loan banks are growing very concerned about this process and how this rule has progressed," he said in an interview Wednesday.
Daris Meeks, a spokesman for the Finance Board, said the agency would review any letter but didn't have any plans to withdraw its proposal.
The 12 FHLBs aren't commercial banks. Rather, their stock is owned by banks, thrifts, and credit unions, and they act as lenders to those institutions to help fund residential mortgages.
The Finance Board's March 8 proposal would require each of the FHLBs to have retained earnings of at least $50 million, plus an amount equal to 1% of "non-advance assets" such as mortgage and mortgage-backed securities.
The proposal would also prohibit FHLBs from paying dividends in the form of stock.
The FHLBs of New York and Dallas are the only two that have estimated the proposal would have little impact on their retained earnings.
Other FHLBs are predicting the proposal would have a dramatic impact on their businesses.
Rosenfeld has defended the proposal as an effort to prevent future mistakes from FHLBs. The Finance Board issued enforcement actions in 2004 against the FHLBs of Chicago and Seattle because of weak risk management and other issues.
"The Federal Home Loan Banks have grown in size, complexity, and inherent risk," he said in a statement when the proposal was released. "My goal is to ensure that the banks remain safe and sound, appropriately capitalized, and able to raise funds in the capital markets. The proposal today is an important step towards fulfilling that goal."
Charles "Bud" Koch, chairman of the FHLB of Cincinnati, on Friday sent a comment letter to the Finance Board in which he said thatthe proposal would hurt the bank's credit rating, threaten the "viability of the community banking system," and possibly violate the Gramm-Leach-Bliley Act.
"Our smaller members depend, to a significant extent, on the bank for their dividends to support earnings and access to our services," he wrote.
Tensions between Rosenfeld and the Cincinnati FHLB escalated Tuesday when the Finance Board chairmen met with close to 100 directors and staff members from each of the 12 FHLBs in Washington. During a lunchtime speech, Rosenfeld reportedly chastised the Cincinnati bank for its April 20 decision to temporarily suspend two voluntary housing programs. One of the suspended programs included $15 million in grants to help people displaced by Hurricane Katrina.
"The decision of the Federal Home Loan Bank of Cincinnati is within their prerogative," Meeks said. "However, the decision not to honor its commitment to the Katrina relief effort is very disappointing."
Koch said in a statement accompanying the announcement of the Cincinnati FHLB's decision last month that the programs had to be suspended "until we are in a position to know the full extent of our retained earnings shortfall and the negative impact this proposed regulation would have on our business model."
A spokesman for the Cincinnati FHLB wouldn't comment Wednesday on Rosenfeld's remarks.
The Finance Board's proposal has come under attack from other groups. America's Community Bankers, a trade group whose members belong to each of the FHLBs, has filed a Freedom of Information Act request seeking information about how the agency drew up its proposal.
The public has until July 13 to comment on the proposal.
-By Damian Paletta, Dow Jones Newswires; 202-862-9241; Damian.Paletta@dowjones.com
(END) Dow Jones Newswires
May 03, 2006 14:13 ET (18:13 GMT)
Copyright (c) 2006 Dow Jones & Company, Inc.- - 02 13 PM EDT 05-03-06 |
