The Federal Housing Finance Board's (FHFB) proposed regulation to revise the Federal Home Loan Bank (FHLB) capital regulation may do the exact opposite of what it is intended to, according to analysts at Standard & Poor's. Although the regulation is meant to strengthen the composition of the FHLBs, S&P believes it would instead present capital management problems for the 12 FHLBs it regulates.

"The new proposed capital regulation does not appear to significantly enhance or improve the current regulatory capital framework now in place for the FHLBs under the GLB (Gramm-Leach-Bliley) Act of 1999 and the August 2003 Retained Earnings Advisory Bulletin," S&P analysts wrote in a report called FHFB Proposed Retained Earnings Regulation Poses Challenges for FHLBs. "The introduction of this potential regulation at a minimum raises concern regarding the status of the current capital plans now in place in all but one of the FHLBs..."

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