Magazine article American Banker

Planning for the Future of Home Loan Bank System

Magazine article American Banker

Planning for the Future of Home Loan Bank System

Article excerpt

The Federal Housing Finance Board has just finished a series of hearings aimed at helping it develop legislation to overhaul the Federal Home Loan Bank System, which it regulates.

In an session with American Banker reporters last week, Nicolas Retsinas, an assistant HUD secretary who sits on the Finance Board, and Rita Fair, the agency's managing director, said they expect the legislation to be ready in the first quarter.

The proposal will aim to codify the mission of the system, revamp its governance and regulation, and provide for voluntary membership and some form of permanent capital, he said.

During last week's hearings, two capital-structure alternatives that could pave the way for voluntary membership were suggested to the Finance Board.

* The first option would mirror the current structure but would restrict stock redemption.

* A "two-tier" model would create a designated permanent base of common stock.

Currently, federal savings and loans are required to own stock in the system, while commercial banks, which make up over half of the system's membership, are not restrained from leaving and taking their capital with them.

Excerpts from the interview follow.

Q.: What did you learn at last week's hearings?

RETSINAS: I think the preliminary observation is that the system has been responsive.

While there was an agreement that certain parts of the system and certain issues need to be addressed, at the same time we did not hear feedback that the system was broken, which coincided with our observations here of the system over time.

So I thought the hearings were very beneficial. While it was time consuming, I think it was time efficiently spent, because it will build a base for future work on the system.

Q.: Was voluntary membership a big issue during the hearings?

RETSINAS: The hearings reaffirmed the consensus of the various studies, which is that over time voluntary membership is a prerequisite for an efficient system. As to how we get there, there are many issues.

There are continuing obligations regarding Refcorp [the Resolution Funding Corp.! and obligations regarding the Affordable Housing Program. We need to make sure that as we transition to complete voluntary membership, we are mindful of those obligations.

So I don't rule out going to voluntary membership expeditiously -- we just need to be aware of those transition issues.

Q.: Do you think many thrifts would leave the system if the membership was voluntary?

RETSINAS: That's hard to say. I don't know what they would do, but thrift membership is the issue here.

That's the reason why we are holding the hearings, to make sure that all the affected parties _can participate in the deliberations. …

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