FHLB Seattle Hurt by Private Label MBS, Capital in Question

The Federal Home Loan Bank of Seattle told its members on Jan. 12 (depositories mostly) that it may not meet its risk-based capital requirement for the period ending Dec. 31, blaming accounting rules that affect the value of its investment in private label mortgage-backed securities. In a letter to members, the FHLB says it must mark-to-market the non-prime assets, incurring a charge that is larger than any loss it anticipates on these investments. "We believe that the calculation of risk-based capital under the current rules significantly overstates our market risk in the current market environment," writes president Richard Riccobono, a former top thrift regulator in Washington. In the third quarter the bank took a $49.8 million charge on its private label investments, and lost $18.8 million in the quarter. If the FHLB cannot meet it risk-based capital goal it will be unable to pay dividends to members.