Magazine article American Banker

Panel Defends Bank Board; House Committee Finds Direct Investment Limits Necessary

Magazine article American Banker

Panel Defends Bank Board; House Committee Finds Direct Investment Limits Necessary

Article excerpt

WASHINGTON -- A congressional committee is coming to the defense of the Federal Home Loan Bank Board in its controversial effort to limit the direct investment activity of thrifts, according to a report due to be released this week.

The report by the House Government Operations Committee said that, in light of existing weaknesses in the federal deposit insurance fund for thrifts, Bank Board authority to check an institution's use of direct investments is "an appropriate and necessary restriction."

However, the report recommended that once the condition of the insurance fund is stabilized, thrifts no longer should be required to obtain prior approval from the Bank Board for direct investments. The report said that aspects of the rule that encourage diversification in investments should be "retained permanently" and perhaps strengthened.

A copy of the report was obtained on Monday by the American Banker.

The House Government Operations Committee, which is largely an investigate and oversight panel, voted last week to endorse recommendations on the subject from its subcommittee on commerce, consumer, and monetary affairs. Rep. Jack Brooks, D-Tex., is chairman of the full committee, while Rep. Doug Barnard Jr., D-Ga., is chairman of the subcommittee.

State governments in recent years have authorized state-chartered savings and loans to make broad equity investments in real estate projects, corporate stock, and other forms of "direct investments."

The Bank Board, however, has been concerned that too much in the way of direct investments might lead to added risks and therefore added burdens on the insurance fund. Also, agency officials were concerned that thrifts might stray too far from their traditional home mortgage lending role.

As a result, the Bank Board issued a rule in January requiring thrifts to get regulatory approval to make direct investments that would bring their portfolios above 10% of assets, or twice the institution's regulatory net worth, whichever is larger. …

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