FHLBs to Shift S&L Clean-Up Payments to Build Capital Accounts

The Federal Home Loan Banks plan to set aside some earnings to supplement their normal capital once payments they’ve been making to offset the cost of the savings- and-loan crisis of the 1980s are no longer required.

Each of the 12 government-chartered cooperatives plans to start putting aside 20 percent of net income into a “restricted retained earnings account” until the reserve reaches 1 percent of the amount of their collective bonds for which the bank takes lead responsibility, according to a statement e-mailed today by the system’s Reston, Virginia-based finance office.

The FHLBs, which lend the money they raise in the bond market to the banks and insurers that own them, have been sending funds to the U.S.’s Resolution Funding Corp., an obligation expected to end this year, Kevin Kincaid, a spokesman, said in a telephone interview. The FHLBs’ payments to Refcorp, which was established in 1989 and sold bonds to fund the Resolution Trust Corp., have totaled $8.6 billion, Kincaid said.

The new accounts “can only be used for the purpose for shoring up after any unexpected losses,” he said.

The 12 regional Federal Home Loan Banks lend money at below-market rates to the almost 8,000 thrifts, credit unions, insurers and commercial banks that serve as their owners, mainly to finance those members’ mortgage holdings. They also buy and hold mortgage-related assets themselves.

Their collective debt totaled $782.5 billion as of Jan. 31, according to the website of their finance office.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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