UPDATE 1-Two U.S. home loan banks in talks on merger

Thu Jul 31, 2014 3:19pm EDT

(Adds background, reaction from FHFA)

July 31 (Reuters) - The Federal Home Loan Bank of Des Moines and the Federal Home Loan Bank of Seattle said on Thursday they had entered into an exclusive arrangement on a potential merger.

The Federal Home Loan Bank System is made up of 12 regional banks that help finance mortgages made to consumers by their members that include banks, credit unions and insurance companies.

FHLB Des Moines is the larger of the two banks by assets with $82.2 billion at the end of June. FHLB Seattle had $36.5 billion.

The proposed merger would require approval from their regulator, the Federal Housing Finance Agency, and the two banks' members, they said in a statement.

"FHFA views this potential merger as consistent with the mission of the Federal Home Loan Bank System and with the safe and sound operation of each Federal Home Loan Bank," FHFA director Melvin Watts said in a statement.

It was not the first time two FHLBs consider merging. Almost seven years ago, the Federal Home Loan Bank of Chicago was in talks with its Dallas counterpart to merge, but the deal was called off eight months later.

FHFA also regulates Fannie Mae and Freddie Mac . The three mortgage agencies combined finance more than $5.5 trillion of U.S. mortgages. (Reporting by Richard Leong in New York and Jason Lange in Washington; Editing by James Dalgleish)

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