S&P Raps FHLB Capital Proposal

A proposed rule by the Federal Housing Finance Board would not improve the current regulatory capital framework, and it would make Federal Home Loan Bank membership less attractive, according to Standard & Poor's.The capital proposal to restrict excess stock would "pose a severe limitation" on the FHLBanks' ability to deliver low-cost advances to their members and to provide them with an attractive dividend on their stock, S&P says in a research paper. The Finance Board's proposal would end the practice of paying dividends in the form of excess stock and would mandate a high level of retained earnings. "Should this proposed regulation be adopted as it is currently written, Standard & Poor's will have to monitor any negative impacts to the liquidity profile of the individual banks, core business dynamics, and membership trends," S&P says. The rating agency can be found online at http://www.standardandpoors.com.