WASHINGTON - Regulators took another step forward last week in their effort to create a new capital system for the 12 Federal Home Loan Banks as required by the Gramm-Leach-Bliley Act.
The Federal Housing Finance Board gave some ground to industry critics and unveiled three prototypes, drawn from capital plans submitted by five of the Home Loan banks.
At a three-hour meeting Tuesday designed to get feedback, agency officials seemed to back off a plan to let member banks and thrifts simply pay a membership fee rather than buy stock in a Home Loan bank.
The Finance Board also agreed to slow its ambitious timetable for a final capital rule. The board will accept comments on its June proposal until Nov. 20. A final rule is expected early next year, and the Home Loan banks will then have nine months to implement it.
While not insisting all the Home Loan banks take the same approach, Finance Board member William C. Apgar said the capital plans should be similar enough to minimize competition and maintain the system's cooperative nature.
The first prototype envisions a Home Loan bank issuing two types of stock, both of which would be issued and redeemed at a set price so the value would not fluctuate. Class A stock could be redeemed with six months' notice, while class B stock would require five years' notice.
How much stock a member would be required to buy would be determined by its asset size, how much it borrows, and how many mortgages it sells to the Home Loan bank. However, to encourage longer-term investments, members could meet the minimum requirements with less Class B stock.
Only holders of the longer-term stock would be guaranteed voting rights. Holders of class A shares would only get voting rights under certain circumstances, such as if their dividends had been suspended. Dividends would be paid to class A holders first, but that does not necessarily mean class B owners would receive lower or no dividends.
No member bank or thrift could control more than 20% of the voting rights, but there would be no limit on how much of a Home Loan bank's stock one institution could own.
The second prototype also envisions two forms of stock. The shorter-term A stock would be issued and redeemed at the same price. The B stock would be sold at $50 a share, but would be redeemed at book value. How book value would be determined has not been decided.
Stock requirements would be based only on asset size and borrowings, not on how many mortgages a bank or thrift has sold to the Home Loan bank. Again, banks and thrifts that buy B shares would face lower minimum requirements. Only holders of B stock would get voting rights, but an institution would not be able to control more than 10% the voting rights. There would be a 25% cap on ownership by a single institution.
The third option proposes just one class of stock, which would be issued and redeemed at a set price. Holders would have to give five years' notice to redeem it.
How much a bank or thrift would have to buy would be determined by assets, advances, and mortgage sales. Voting rights have not been decided yet, but there would be a 20% cap on voting rights. There would be no limit on how much stock any institution could buy.
The third option is attracting the most support.
"The beauty in this option is that it is very similar to the current structure, except you shift to a five-year notice" on stock sales, said Eric Mondres, a legislative specialist at America's Community Bankers. "It keeps it simple. It makes it predictable, and it doesn't force a lot of change on the Home Loan banks too quickly."
Raymond Christman, president of the Federal Home Loan Bank of Atlanta, agreed. "It is what we think is the best approach," he said during the Finance Board meeting last week.