The Council of Federal Home Loan Banks is urging federal regulators to withdraw a proposed capital rule that it says could have "negative ramifications" for the FHLBanks, their members, and their communities.In a letter to the Federal Housing Finance Board, the chairmen and vice chairs of the 12 FHLBanks recommend that the regulator restart the debate over retained earnings and excess stock by issuing an advance notice of proposed rulemaking. "We would envision that this process will result in a better and more reasonable way of dealing with the issues raised in your notice," the council letter says. The Finance Board's proposed rule would require the FHLBanks to increase their retained earning by $3 billon and limit their excess stock to 1% of a bank's total assets. Separately, the Shadow Financial Regulatory Committee has endorsed the Financial Board's capital approach. But the committee of academics is urging the Finance Board to "recategorize" excess stock as a form of debt. Excess stock currently accounts for 16% of FHLBank total capital. The comment period on the capital proposal ends July 13.

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