WASHINGTON — The Federal Housing Finance Board has eased restrictions on the Federal Home Loan Bank of Chicago to let members redeem certain stock, the agency confirmed Thursday.

In October the agency issued a cease-and-desist order against the bank that, among other things, barred it from redeeming capital stock from members without the written permission of Steve Cross, the director of the Finance Board's Office of Supervision.

Under a decision made during a closed session meeting on Wednesday, the agency approved the bank's request to redeem stock used to support new advance borrowings as long as capital requirements are maintained. It is unclear how much stock could be redeemed through the new authority, but in its first-quarter earnings report the bank said Mr. Cross had denied a request to redeem $8 million in stock connected to seven members.

Representatives of the bank were not immediately available for comment.

The Finance Board issued the cease-and-desist order after the Chicago bank's proposed merger with the Federal Home Loan Bank of Dallas collapsed in October. The Chicago bank has been plagued with dwindling earnings and risk management problems related to its mortgage program.

The cease-and-desist order also imposed capital requirements and dividend restrictions, and targets risk management and hedging policies. Those provisions of the order are unchanged by Wednesday's decision.

The move could prompt members of the Chicago bank to borrow more advances, secure in the knowledge that they can redeem their stock once the advances are repaid. The Finance Board's resolution Wednesday noted that the Chicago bank's "advance business has grown modestly since the imposition of the consent order but has not grown commensurately with the growth in advances at the other eleven Home Loan Banks."

In a letter to members on Monday, Matthew Feldman, the Chicago bank's chief executive, wrote that advances grew 15% in the first half of the year, to $34.7 billion.

The Finance Board's move may be an acknowledgement of sorts that the Chicago bank is making progress in its efforts to remain independent. Mr. Feldman was installed as the CEO in April, succeeding Mike Thomas, who resigned in the wake of the merger's failure.

Mr. Feldman has made dramatic changes to improve the Chicago bank's balance sheet. Most prominent among them was a decision in April to stop making purchases under the mortgage partnership finance program, though he was able to arrange for other Home Loan banks to make purchases through October.

He has also enhanced communications with members by writing letters explaining the bank's financial position before earnings reports are filed with the Securities and Exchange Commission.

Those changes appear to be taking root. In his letter on Monday, Mr. Feldman wrote that the bank's advance balance exceeded its mortgage holdings for the first time since 2002.

The Finance Board's resolution said the agency "believes that the expanded growth of the advances portfolio could contribute to the long term stability of the bank and benefit all members by allowing the bank to increase its current and retained earnings, which could in turn facilitate dealing with other challenges."

Still, challenges persist. Mr. Feldman wrote that the bank will post a $74 million second-quarter loss and expressed doubt that members will see a dividend for the rest of the year.

The Finance Board's decision could be its final regulatory action. The House approved legislation Wednesday that would abolish the agency and shift its regulatory functions to a new agency, which will also oversee Fannie Mae and Freddie Mac. The Senate is expected to quickly approve the legislation and President Bush has said he will sign it into law.

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