WASHINGTON — Facing losses on its private-label mortgage holdings, the Federal Home Loan Bank of Boston is refusing to redeem excess stock held by its members.

"This action will help preserve the bank's capital," Michael Jessee, the Boston bank's president and chief executive, wrote in a Dec. 8 letter to its member banks and thrifts. "While the bank has always had the discretion to approve or deny excess stock repurchase requests on a case-by-case basis, the moratorium will ensure that all members, large and small, receive fair and consistent treatment."

In its third-quarter earnings report, the Boston bank said members had already cashed in $154.5 million in excess stock this year, or nearly 42% of the $368.1 million in excess capital it had as of Sept. 30. Monday's decision means financial institutions will not be able to redeem the remaining $213.6 million in excess stock, or investments made above what is needed to belong to the Boston bank.

The Home Loan Bank of Chicago is the only other institution in the Federal Home Loan Bank System to adopt similar restirctions, but it is under a regulatory agreement that prevents redemptions of excess stock unless it is used to support new advance borrowings.

John von Seggern, the president of the Council of Federal Home Loan Banks, downplayed the significance of the Boston bank's decision. "This isn't unique," he said. "The way the capital structure is set up, you buy stock in the Federal Home Loan Bank System under the agreement that it's five-year stock. The Federal Home Loan banks have the right to redeem, but they're not required to."

A representative of the Boston bank would not comment beyond Mr. Jessee's letter.

In the letter, Mr. Jessee wrote that his bank could face losses related to its private-label mortgage-backed securities.

"Given the continuing uncertainty in the credit markets, substantial downturns in real estate values, and increasing weakness in the U.S. economy, if loan credit performance of the bank's private-label MBS portfolio deteriorates beyond forecasted assumptions, in the future it may be determined that certain private-label securities in the portfolio would require an impairment charge," he wrote.

Concerns about private-label holdings are not limited to the Boston bank.

In the third quarter the Home Loan Bank of Atlanta recorded an $87.3 million other-than-temporary impairment loss related to three private-label mortgage-backed assets. After delaying its third-quarter earnings report to work through accounting issues related to three private-label holdings, the Home Loan Bank of Seattle reported a $49.8 million other-than-temporary loss.

The Chicago bank posted a $9 million other-than-temporary impairment loss related to its private-label holdings.

These losses are often blamed on mark-to-market accounting rules, since most private-label securities are worth far less in today's environment than they were when the assets were purchased. For instance, the Home Loan Bank of San Francisco said the value of its private-label holdings dropped to $25.5 million on Sept. 30, or more than 19% below their book value.

Brian Harris, an analyst at Moody's Investors Service, called the Boston bank's decision "prudent" and said the institution is just responding to an environment that is dragging down most of the industry.

"We're in a period where capital preservation has been of utmost importance for all institutions and particularly the banking system," he said. "The need to enact policies regarding capital conservation given the economic environment shouldn't be surprising."

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