Moody's: FHLBanks Face Possible Accounting Problem

Under a "worst case scenario," the Federal Home Loan Banks may have to report substantial impairment in the value of their $76.2 billion of private-label MBS, but the true economic losses embedded in the portfolio are manageable, according to Moody's Investment Service. Moody's estimated that the impairment would be so great that only four of the 12 FHLBanks would remain above regulatory capital minimums if all of the MBS are subject to "other than temporary impairment" under accounting rules. But Moody's said this degree of impairment is unlikely. Overall, Moody's estimates that the economic losses embedded in the MBS total less than $1 billion. John von Seggern, president and CEO of the Council of Federal Home Loan Banks, noted that most of the banking industry is upset about the "other than temporary impairment" standard and that bankers are advocating accounting changes. "The real story of the Moody's report is that the economic losses embedded in the FHLBanks' MBS are manageable," Mr. Von Seggern said.