WASHINGTON -- The presidnets of the Federal Home Loan banks are asking their regulator to overhaul the system's capital structre and pave the way for voluntary membership.

During a Federal Housing Finance Board hearing last week, Charles L. Thiemann, president of the system's Cincinnati bank, described two capital-structure alternatives he wants the agency to consider.

The finance board is drafting legislation, which it hopes will get attention in the next Congress, to voerhaul the bank system.

Mr. Thiemann, who also is chairman of the agency's Bank Capital Study Task Force, a panel organized by the boards of the 12 district banks, urged the finance board to choose between a one- or two-tier capital structure.

The first option would mirror the current structure but would restrict stock redemption to insure some degree of permanency, he said.

The two-tier model would create two types of capital: a designated permanent base of common stock and a separate redeemable class of stock.

The second approach would be difficult to carry out because of the complexity of deciding how to weight "permanent" stock with regard to voting rights, said Brian Smith, director of policy at the Savings and Community Bankers of America.

"We would prefer an enhanced, one-tiered approach be given every opportunity to work," Mr. Smith said. "Perhaps the FHLB stock could pay dividends in the form of nonredeemable stock."

However, Mr. Thiemann recommended that the legislative proposal, which is to be completed early next year, remain only a general directive for the 12 district banks.

"The legislation should not attempt to specify either a one- or two-tiered structure but... permit the individual banks and their regulator to implement the requirements consistent with its mission and the requirements of the district," Mr. Thiemann said.

Either model would create a permanent capital base to help ensure the system's safety and soundness.

A primary concern shared by system members and the finance board concerns commercial banks, which now make up more than half of the system's membership.

Unlike thrifts, commercial banks are not restrained from leaving the system and taking their capital with them.

"Any capital base is a cushion to protect an entity from losses," said Rita Fair, managing director of the finance board. "We have had captive capital for years, but now that we've moved to over 50% voluntary membership, we need a permanent capital structure to protect the system from losses."

And with a solid capital base, the finance board would have no qualms about making all system membership voluntary, Ms. Fair said. This would be good news for federal savings and loans, whcih are required to own stock in the Home Loan Bank System.

"If there were any disposition to use the system for some sort of social engineering purposes," said Mr. Smith, the trade group official, "the ability of thrifts to say, `You can't use my capital for that,' would place a sort of check and balance on the system."

Voluntary membership for all members would also level the playing field between thrifts and commercial banks, Mr. Smith said. "Anybody that has access should have it on the same terms," he said.

The primary function of the Federal Home Loan Banks is to provide advances to member financial institutions to help make home mortgages more available and affordable. Members include commercial banks, thrifts, credit unions, and insurance companies.

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