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2009 Member News
Important Information about the Seattle Bank’s Risk-Based Capital
January 12, 2009
Dear Seattle Bank Members,
As you are aware, the ongoing turmoil in the capital and mortgage markets
has caused a decline in the market value of the Seattle Bank’s private-label
mortgage-backed securities, significantly beyond any expected actual loss.
Unfortunately, the risk-based capital rules that apply to the Seattle Bank rely
on market value rather than expected loss as the measure for determining
our risk-based capital requirement. As a result, the Seattle Bank will likely
report a risk-based capital deficiency as of December 31, 2008. I believe it is
important that our members be informed of this situation, the reason why it
has occurred, and its possible implications.

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The Seattle Bank is required to hold risk-based capital at least equal to the
sum of our credit-risk, market-risk, and operations-risk capital requirements.
One component of the market-risk requirement is that we maintain capital
equal to the amount by which the market value of our assets is less than 85
percent of their book value. With the continued decline in the market value of
our private-label mortgage-backed securities, our market-risk capital
requirement has increased significantly. Because the bank is also required
to maintain operations-risk capital equal to 30 percent of its market-risk
requirement, our risk-based capital requirement increases by $1.30 for every
$1.00 that the market value of our assets is less than 85 percent of their
book value.
Under Federal Housing Finance Agency regulations, a Federal Home Loan
Bank that fails to meet any regulatory capital requirement may not declare a
dividend or redeem or repurchase capital stock. As such, the Seattle Bank
will not be able to redeem or repurchase any Class A or Class B stock
outstanding while a risk-based capital deficiency exists. As you know, the
Seattle Bank has not repurchased Class B stock since 2004 and recently
announced that we would not pay a dividend in fourth quarter 2008.
We believe that the calculation of risk-based capital under the current rules
significantly overstates our market risk in the current market environment. In
our opinion, the Seattle Bank—with nearly $2.8 billion in permanent capital
(Class B stock plus retained earnings)—has more than enough capital to
cover the risks reflected in the bank’s balance sheet. While the market
values of mortgage-based assets are currently under extraordinary pressure,
the vast majority of the private-label mortgage-backed securities that we
hold are highly rated, credit-enhanced, adjustable-rate securities that we
have the ability and intent to hold until they mature.
We have communicated our concerns regarding the current risk-based
capital methodology to our regulator and have requested that they review the
regulation, but we have not yet received a final determination as to whether
or not there will be any relief on this issue. It is important to note, however,
that the Seattle Bank calculates its risk-based capital requirement on a
monthly basis, and given the volatility in the mortgage market, it is possible
that we may return to compliance at a future reporting period without
changes to our balance sheet or capital position or any change to the
regulation. We remain in compliance with all of our other regulatory capital
requirements, specifically our capital-to-assets ratio and our leverage capital
We are confident that this issue will not affect our ability to meet your liquidity[1/20/2015 1:21:52 PM]



Federal Home Loan Bank of Seattle >> Our Company
and funding needs, as we continue to maintain a strong capital position and
have intentionally structured our balance sheet to ensure our ready access
to our usual, reliable sources of liquidity.
We understand that you may have questions regarding this issue, and I
invite you to contact me, your Seattle Bank relationship manager; or any
member of the Seattle Bank’s senior management team with any questions
or concerns.
On behalf of everyone here at the Seattle Bank, we thank you for your
business and your ongoing support of the cooperative.
Richard M. Riccobono
President and CEO
The information contained herein contains forward-looking statements.
Forward-looking statements are subject to known and unknown risks and
uncertainties. Actual performance or events may differ materially from that
expected or implied in forward-looking statements because of many factors.
Such factors may include, but are not limited to, general economic conditions
(including effects on, among other things, mortgage-based securities), the
bank's ability to maintain adequate capital levels, changes in our
membership profile or the withdrawal of one or more large members and
changes in relationships with former members, demand for advances,
changes in projected business volumes, business and capital plan
adjustments and amendments, changes in the bank's management and
Board of Directors, regulatory actions or approvals, competitive pressure
from other Federal Home Loan Banks and alternative funding sources,
accounting adjustments or requirements, interest-rate volatility, our ability to
appropriately manage our cost of funds, the cost-effectiveness of our
funding, hedging and asset-liability management activities, and shifts in
demand for our products and consolidated obligations. Additional factors are
discussed in the Seattle Bank's 2008 quarterly reports on Form 10-Q and its
2007 annual report on Form 10-K as filed with the SEC, which are available
on the Seattle Bank's Web site at The Seattle Bank does
not undertake to update any forward-looking statements made in this

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