WASHINGTON - The Gramm-Leach-Bliley Act was supposed to make it easier for small banks to get advances from the Federal Home Loan Bank System, but industry officials are complaining that a capital restructuring proposal would increase their costs.

In more than 130 comment letters due last week, the officials warned the Federal Housing Finance Board that its plan to revamp the system's capital structure could inadvertently force member banks and thrifts to start paying taxes on stock transactions with their Home Loan banks that are presently tax-exempt.

Also, industry officials argued that the proposal could force each of the 12 regional Home Loan banks to set aside more capital to cover advances, and as a result would make it more expensive for members to borrow money and move some member banks to leave the system.

Curtis L. Hage, chairman and chief executive officer of Home Federal Savings Bank in Sioux Falls, S.D., and a former chairman of the Council of Federal Home Loan Banks, wrote that, "given the fact that any serious misstep in this process can trigger substantial membership withdrawal, and in the extreme the possible failure of one or more" Home Loan banks, "all significant legal, tax, and accounting issues need to be resolved before any final capital regulation is put in place."

The industry has only three more weeks to make its voice heard, because the Finance Board is scheduled to approve the final version of the capital rule at its Dec. 20 meeting. Sources said the agency is rushing to complete the rule - which was mandated by Gramm-Leach-Bliley and is more than two weeks past due - before the next President is sworn in.

If Gov. George W. Bush staves off electoral challenges by Vice President Al Gore, then the agency's chairman, the Democrat William C. Apgar, could be forced to resign and leave the already short-handed Finance Board without a quorum indefinitely.

The Home Loan banks give member commercial banks and thrifts access to secured loans and other financial services at interest rates lower than they often can get in the private market. Members are required to buy a minimum amount of stock based on the size of their mortgage assets and other assets, and must purchase additional stock when borrowing to finance mortgages and community development loans.

Under Gramm-Leach-Bliley, the Home Loan banks are given more discretion on how to raise funds from member banks, and the Home Loan banks are required to institute risk-based, leverage, and operational capital requirements. The law let the Home Loan banks offer two types of stock to member banks, though now only one type is available.

The proposal would allow Home Loan banks to offer up to two types of stock. Class A shares could be traded with six-months notice, would be valued at $100 apiece, and would be first in line for dividends. Class B shares would represent long-term equity in the system and would have to be held for five years; they could also fluctuate in value.

The Finance Board would have to approve each Home Loan bank's new stock structure. Once approved, each bank would have up to three years to implement the new structure and exchange new shares for old ones.

One of the industry's big worries is that the Internal Revenue Service may charge members taxes on the transaction when the stock is exchanged, and on future stock dividends. Under the current capital structure, no taxes are charged on the dividends, because the Home Loan banks are seen as cooperatives and dividends are equally apportioned.

Officials fear that the IRS could view the exchange of members' current stock for the new shares as a profit-making, taxable transaction.

In a comment letter, Edward L. Yingling, the American Bankers Association's executive director of government relations, wrote that if member banks were charged taxes on Home Loan bank stock transactions, it would lead to "less credit availability due to shrinkage of investment and available advances and could have wide-ranging negative effects on the economy as a whole."

These negative results "will be increasingly likely as financial institutions turn to advances as a stable and competitive source of funding," he wrote. "Closing or restricting the availability of advances shifts the financial services competitive landscape to the disadvantage of community financial institutions and the small businesses and families they serve. Tax consequences of the new forms of stock will have a real impact on these institutions."

There are signs that the industry's complaints about the plan's possible tax consequences are having an effect.

Joseph Pigg, an ABA senior counsel, said the Finance Board is considering eliminating a provision that would let members sell their shares to each other - instead of only being able to sell it back to the Home Loan banks - to reduce the appearance that these are typical investment transactions.

Still, the industry has other concerns.

Banking associations complained that the proposal would impose higher capital charges for riskier advances.

Regulators currently require commercial banks and thrifts to hold $1.60 of capital for every $100 of Home Loan bank stock, to hedge against risk. Under the proposal, bank and thrift regulators could increase that requirement to as much as $8 of capital for every $100 of stock if they determine that the stock carries a higher risk.

In a follow-up comment letter, Mr. Yingling wrote that the ABA is particularly concerned that the price of credit risk advances would rise.

"Conversations with staff suggest" that the Finance Board "does not expect the proposed capital charges to impact advance pricing; however, good business sense would dictate that any institution would charge more for a service that costs more to provide," he wrote. "Higher capital charges encourage" a Home Loan bank "to make fewer long-term advances or else price them higher."

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