The Federal Home Loan Bank of Chicago has received the go-ahead from its regulator to begin repurchasing stock from its member banks.

The $73.3 billion-asset bank said in a letter to members Friday that the Federal Housing Finance Agency has approved its stock repurchase plan and that it expects to begin buying back about $500 million of excess stock starting in the first quarter.

The Home Loan bank has been conserving capital since it was placed under a cease-and-desist order from its regulator in late 2007 that required it to bolster its capital levels and prohibited it from paying dividends without the FHFA's approval.

With the bank's financial condition approving, the FHFA in October approved a capital-raising plan that would allow the bank to convert its capital stock into two subclasses of stock. That transaction, expected to be completed Jan. 1, helped the bank win approval for its repurchase program, which will allow it deploy excess cash at a time when demand for traditional Home Loan bank advances is weak.

To complete its stock repurchase plan, the Home Loan bank must maintain a total capital ratio of at least 4.25% and risk-based capital at least 125% of the minimum amount required by regulations. At Sept. 30, the bank had a capital to assets ratio of 6.86%, up from 5.9% at Dec. 31, 2010.

The FHFA has also approved a one-time redemption of $527 million of stock from former members. That repurchase is expected to take place Wednesday.

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