Federal Home Loan Bank of Seattle short of capital

The Federal Home Loan Bank (FHLB) of Seattle said it didn't meet a regulatory capital requirement at the end of last month because of the declining value of mortgage-backed securities.

The FHLB of Seattle, a government-chartered cooperative, said in a statement Monday that because of the capital deficiency it is disallowed from paying a dividend or repurchasing capital stock.

The Seattle bank in January became the second FHLB, after San Francisco, to warn of a potential capital shortage and take steps to guard reserves. As many as eight of the 12 banks may fall short of capital requirements after writing down holdings of so-called nonagency mortgage securities, Moody's Investors Service predicted.

The federal home-loan banks of Atlanta, Pittsburgh and Indianapolis have delayed or suspended dividend payments, and the Chicago bank said last month that it would report a fourth-quarter charge for the impairment of mortgage securities. The 12 banks lend money to more than 8,000 savings and loans, credit unions and commercial banks at below-market rates, mainly to finance their mortgage holdings.

While the Seattle FHLB was in compliance with its capital-to-assets ratio and leverage ratio in December, the bank said it had a risk-based capital deficiency as of Feb. 28 because of "distressed prices of certain held-to-maturity" mortgage securities.

The bank took a $304.2 million charge for the drop in securities prices, resulting in a fourth-quarter net loss of $241.2 million, compared with a profit of $18.6 million a year earlier. Assets declined to $58.4 billion at the end of 2008 from $64.2 billion a year earlier because of a decrease in advances.

Full-year results will be released in an annual report expected by March 31, the Seattle bank said in the statement.