GSE Regulator Urges 10% Capital Risk Weight for FHLB Debt

The nation's top GSE regulator is urging federal banking regulators to provide a 10% capital risk weight for Federal Home Loan Bank debt, just like they are proposing for Fannie Mae and Freddie Mac debt. In a comment letter, Federal Housing Finance Agency director James Lockhart says the reduced risk weight will give Fannie and Freddie an "advantage" relative to the FHLBanks and other government-sponsored enterprises. In addition, it "will put further funding pressure" on the FHLBanks. "We hope we are getting a sympathetic ear," Federal Housing Finance Agency director James Lockhart told reporters on Wednesday. But he noted that the banking regulators have not responded to his letter. After Fannie and Freddie were placed into conservatorships, the banking regulators proposed to reduce the risk-based capital ratio to 10% from 20% to make their debt and mortgage-backed securities more attractive to banks and thrifts. This action also reflected the fact that the Treasury Department had extended special lending privileges and net worth protections to the two GSEs. "The ABA strongly recommends that the agencies apply a comparable risk weight to the FHLBanks," the American Bankers Association says in a comment letter.