The Federal Home Loan banks of Des Moines and Seattle revealed Thursday that they are in talks to merge.

The two have "entered into an exclusivity arrangement regarding a potential merger of the two banks," the government-sponsored enterprises said in a joint statement.

The news was a surprising, even shocking, development. Although there had been frequent discussion about merging several of the 12 Home Loan banks before the financial crisis, that idea has largely faded into the background in recent years.

If approved by the banks and their regulator, the Federal Housing Finance Agency, it would be the first voluntary merger in the Home Loan bank system’s history—and could pave the way for other Home Loan banks to follow suit.

Current law would allow the number of Home Loan banks to shrink to eight.

The Seattle and Des Moines banks said the merger, which would create an institution with $118 billion of assets, would benefit members of both banks.

"Our organizations share similar values, member characteristics and corporate cultures," said Richard Swanson, the Des Moines bank's president and chief executive.

"We believe that the members of both institutions stand to benefit from the financial strength and geographic reach of a combined institution, which would enable it to better fulfill its mission of funding the housing, economic and business development needs of its members and their communities."

But proposed mergers have been scuttled before amid the difficulties of dealing with the unique aspects of the Home Loan banks.

The Chicago and Dallas banks tried unsuccessfully to merge in 2007 before talks fell apart a year later.

Because Home Loan banks are owned by member banks and credit unions, their mergers work differently than those of privately owned institutions.

At issue are problems related to price, dividends paid to members and who would control the merged entity.

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