Concern is mounting that losses on private-label MBScould exhaust the capital of several Federal Home Loan banks, sources inside and close to the system said this week.

In a worst-case scenario, eight of the banks would be undercapitalized if they were forced to recognize these losses, according to a report issued Thursday by Moody's Investors Service What would happen next is the source of debate, with options ranging from regulators putting one or more of the 12 banks into conservatorship to forcing healthy ones to support struggling ones.

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