FHLB Seattle Exhausts Retained Earnings

Reeling from charges related to its mortgage holdings, the Federal Home Loan Bank of Seattle reported deep losses late Monday and became the first bank in the system to exhaust its cushion of retained earnings.The Seattle Home Loan Bank remains positively capitalized with stock used to satisfy membership requirements and advances but the depletion of the retained earnings fund, which totaled $162.3 million on Sept. 30, leaves the bank with almost $1.8 billion in total capital. That is below the regulatory risk-based capital requirement, which means the Home Loan bank is barred from paying dividends to shareholders or repurchasing capital stock. Less clear is whether the Seattle Home Loan Bank "broke the buck," which involves lowering the value of its par-value stock. The Home Loan bank's stock is redeemed in five years so the shares could theoretically regain value if they were damaged in the current climate. Such an occurrence would be a first in Home Loan Bank history and could have dire consequences for members of the Seattle bank.