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WASHINGTON, D.C. — America’s Community Bankers has urged the Federal Housing Finance Board to revise its proposed rule on capital for the Federal Home Loan Banks. ACB made a number of suggestions in its comment letter to the agency, which is implementing the FHLBank capital and stock purchase restructuring requirements of the Gramm-Leach-Bliley Act.

ACB President Diane M. Casey urged the FHFB to “take the time necessary to get the regulations right the first time,” suggesting that the FHFB either issue a revised proposal or, at the least, adopt an interim rule with an additional 60-day comment period.

ACB thanked the FHFB for working with the FHLBanks and their members to address the rule’s complex issues. Virtually all members of ACB are members of the FHLBank System and they hold half of the nearly $32 billion of the stock in the system.

“It is vital that the FHFB actively seek to avoid any unnecessary complications to the way community banks use and participate in the system and work diligently to prevent any adverse tax, accounting and regulatory consequences from the conversion process,” Casey said.

She stressed the need for the FHFB’s rule to provide flexibility while ensuring commonality among the capital plans to be developed by the 12 FHLBanks. “It is imperative that the cooperative nature of the system be preserved because that relationship between the members of the system and the FHLBanks helps ensure that community-based financial institutions can continue to provide competitive housing and community based credit,” she said.

In comments on the proposal’s major issues, ACB:

• Urged a strict reading of the statute on the allocation of FHLBank directors and voting rights “to avoid legal challenges that could delay and complicate the transition” to a new capital structure. ACB supported giving the FHLBanks the flexibility to designate FHLBank director seats on the basis of stock holdings and user size to ensure better representation for small, medium and large system members. ACB said the proposed limit on any one member casting more than 20 percent of the votes for directors “appears to be inconsistent with the statutory state average number of shares limits contained in section 7 of the Act.” ACB opposed the proposal’s limit on any one member owning more than 40 percent of a FHLBank’s stock.

• Urged the FHFB to require members to buy stock to capitalize their participation in certain FHLBank activities, including the mortgage partnership/purchase programs.

• Opposed the substitution of an annual membership fee for the statutorily mandated minimum purchase of stock by System members. ACB noted that Rep. Richard Baker (R-La.), the primary author of the FHLBank provisions of the G-L-B Act, said the fee idea was considered and rejected by lawmakers.

• Urged the FHFB to require the FHLBanks to issue and redeem Class B stock at par, in line with the statutory requirements for Class A stock. ACB urged that stock purchases and sales be at par and only with the FHLBank.

• Urged the FHFB to give the individual FHLBanks additional flexibility to set the priorities and dividends for Class A and B stock. The proposal would give the dividends on Class A stock priority over dividends on Class B stock and would require that the Class A dividend be set in advance based on a formula or index.

• Opposed giving the FHLBanks the authority to create subclasses of Class A and B stock, saying it would “add an unnecessary dimension of complexity to the FHLBank System” and would be contrary to congressional intent.

The Comment Letter is LINKED