Magazine article American Banker

Home Loan System Urged to Reduce Capital, Decentralize

Magazine article American Banker

Home Loan System Urged to Reduce Capital, Decentralize

Article excerpt

WASHINGTON - The shareholders of the Federal Home Loan Bank System told Congress on Wednesday that the system should reduce its capital, transfer more control out of Washington to district offices, and allow members to join or quit more freely.

The conclusions resulted from a study that Congress mandated in the Housing and Community Development Act of 1992. Some 24 thrift executives from around the country participated.

The law also required studies on the future of the system by the Federal Housing Finance Board, which oversees the system; Congressional Budget Office; General Accounting Office; and Department of Housing and Urban Development.

Funds for Home Loans

Congress created the Home Loan Bank System in 1932 to encourage home ownership. The system consists of 12 district banks, which lend money to their 3,905 bank and thrift members at below-market rates. Members then use the money in part to make home loans, and they must buy stock in the system to borrow from it.

Thrifts whose deposits are not insured by the Federal Deposit Insurance Corp. have always been required to belong to the system. Since 1989, when commercial banks were allowed to join, 1,609 have signed up. The stockholder study favors voluntary membership.

Michael T. Crowley Jr., chairman of the stockholder committee and president and chief executive of the Mutual Savings Bank in Milwaukee, said the stockholders' group also discussed reducing the system's risk-based capital - now at 29. …

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