WASHINGTON Banking groups praised a risk-based capital rule issued Wednesday by the Federal Housing Finance Board, though the agency warned that industry concerns about higher tax and capital charges rest in the hands of other regulators.
The 246-page rule revamps the capital structure for the 12 regional Home Loan banks as required by the Gramm-Leach-Bliley Act of 1999. The purpose of the Home Loan banks is to provide member banks and thrifts with advances at below-market rates to fund more mortgage and other lending.
A capital restructuring proposal published in July worried many industry representatives, who said it could have raised the cost of borrowing by triggering new taxes, caused additional capital requirements by banking and thrift regulators on riskier advances, and upset the cooperative nature of the system.
The Finance Board promised on Wednesday that it will issue a preliminary proposal within the next three months seeking further comment on tax issues and others that arise as the Home Loan banks develop their individual capital plans.
We dont pretend to have all the answers, said William C. Apgar of the Department of Housing and Urban Development, a board member who has been acting chairman since Bruce Morrison resigned in July. Until the federal Home Loan banks take this process down the road, we wont know the right questions to ask.
The agency said the rules tax implications will be unclear until the Internal Revenue Service weighs in.
As for capital issues, the board awaits a decision from bank and thrift regulators on the proper risk-weighting for the two types of stock created by the rule. Currently, regulators require institutions to hold $1.60 of capital for every $100 of Home Loan bank stock to hedge against risk. Under Gramm-Leach-Bliley, the rule has to give regulators a chance, once they see the capital plan for a Home Loan bank, to determine if its stock carries a higher risk. They could make banks hold as much as $8 in capital for every $100 in stock.
Despite these looming questions, industry representatives welcomed both the chance to provide updated comments and the boards solutions to other problems.
There should not be any adverse effect on any banks as they issue new stock in this transition, said Eric Mondres, senior government relations counsel for Americas Community Bankers. We think this will allow a very smooth transition and set up a mechanism to solve problems.
Mr. Mondres said he likes the requirement that the Home Loan banks create similar capital structures.
The rule said that some elements must be common to all plans, including a requirement that all stock be issued and repurchased at face value. The plans will also be harmonized through the review of the banks capital plan submissions, the Finance Board said. Mr. Mondres said the industry was worried that wildly different structures could increase competition among the banks and lead to riskier behavior.
The rule also eliminated controversial proposals to allow the trading of stock among the Home Loan banks, and the possibility of allowing a membership fee for banks to join the system. Industry groups, worried that the cooperative nature of the system could be destroyed, had opposed both ideas.
