The Federal Home Loan Bank of Chicago has received regulatory approval to finally convert to a capital structure that was mandated by the Gramm-Leach-Bliley Act back in 1999.
"As of January 1, 2012, members' capital stock will be converted into two subclasses of stock—redeemable in five years," the Chicago FHLB said Monday afternoon.
Chicago is the last of the 12 FHLBs to implement this capital structure.
"The conversion to the Bank's capital stock is an important development for the Bank and our members," said Chicago FHLB president and chief executive Matt Feldman.
The FHLB has been operating under supervisory constraints since July 2004. In the late 1990s, the Chicago bank pioneered the 'Mortgage Partnership Finance' program to purchase mortgages from its members, competing directly with Fannie Mae and Freddie Mac. But the FHLB ran into capital problems when it couldn't securitize the growing number of single-family loans on its balance sheet.
In the approval order, the Federal House Finance Agency notes that certain articles in the cease and desist order governing capital requirements will be lifted once the stock conversion is completed. Other parts of the C&D remain in effect.
Bank and thrift members of the Chicago FHLB can now opt out of the stock conversion and terminate their membership. However, these institutions must notify FHFA and the bank at least 30 days prior to the stock conversion to exercise this option.
Feldman also said the bank is moving toward repurchasing a portion of its excess stock from its current and former members. The Chicago bank sold excess stock to support its MPF program.
The bank will submit a repurchase plan in December to begin repurchasing "limited amounts" of excess stock within six months of the stock conversion.
