WASHINGTON -- The Federal Housing Finance Board is circulating its long-awaited proposal on how thrifts would be allowed to cash out a chunk of their Federal Home Loan Bank stock and eventually quit the system.

Under the plan, which needs congressional approval, thrifts insured by the Savings Association Insurance Fund could cash in 40% of their Home Loan Bank stock by the end of 1993, whether they want to withdraw or not.

Institutions could leave the Home Loan Bank System starting in 1995. But they would have to take the balance of their investments in the form of non-voting, adjustable-rate stock, not cash.

Lobbying Effort

Thrifts have been agitating for the right to leave the system, which provides liquidty to mortgage lenders, ever since commercial banks were permitted to join on a voluntary basis in 1989.

The finance board wants the proposal to be part of the legislation on government-sponsored enterprises now before Congress. But first, it must forge a consensus within the Bush administration and among the 12 Home Loan Banks and their members.

If adopted, the measure could accelerate the shrinkage of the bank system, which has been dwindling since the government began aggressively shutting weak thrifts in 1989.

But a finance board official said the plan would equalize membership and borrowing. Ultimately, it would yield benefits for both thrifts and a growing cadre of commercial bank members, the official said.

Stock Worth $10.5 Billion

Last year, more than a dozen thrifts petitioned to leave, saying they could reinvest their capital more profitably elsewhere. The bank system's capital stock totaled $10.5 billion at the end of August.

But the government blocked the exits after Treasury officials warned that a widespread exodus could impair the bank system's ability to contribute $300 million annually to the thrift bailout, as required under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.

The finance board is proposing to take care of the latter problem by creating the new category of preferred or class A common stock. That would keep a minimum of $5 billion in the bank system, no matter how many thrifts left.

Trade Group Reactions Diverge

"It might not be 100% of what we're looking for, but at least it's a first step, and that's encouraging," said James Grohl, a spokesman for the U.S. League of Savings Institutions.

But the National Council of Community Bankers, whose membership is dominated by voluntary Home Loan Bank System members, was more skeptical.

"The technical aspects of the proposal are woefully short of what you need to evaluate it," said Martin A. Regalia, the group's chief economist.

There is broad agreement that it is wise to figure out the impact of changes before adopting them. "Had Congress done that in FIRREA, we wouldn't have to be answering this question now," Mr. Regalia said.

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