Dragged down by losses related to private-label MBS, the Federal Home Loan Bank of Seattle said late Monday that it expects to fall below regulatory capital minimums as of Dec. 31.


Following regulatory standards, the Seattle Home Loan Bank said it would not pay dividends, redeem or repurchase capital stock.


In a letter to members, Richard Riccobono, the president and chief executive of the Seattle Home Loan Bank, did not specify how much capital his institution has on hand. The announcement does not mean the bank has run out of capital but that its holdings have slipped below what would be required by a regulatory formula.


Riccobono wrote in his letter that compliance with an accounting rule "significantly overstates our market risk" and said the bank's $2.8 billion in permanent capital is "more than enough capital to cover the risks reflected in the bank's balance sheet."


He also told members that he has brought up his concerns about the risk-based capital methodology to regulators at the Federal Housing Finance Agency. An agency spokeswoman did not immediately comment.


Still, Riccobono noted that the Seattle Home Loan bank calculates its risk-based capital on a monthly basis and, given the fluctuations in the mortgage market, said it could return to compliance without changes to its balance sheet or regulation.


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