Magazine article American Banker

Controversial Rules Expanding Powers of Home Loan Banks

Magazine article American Banker

Controversial Rules Expanding Powers of Home Loan Banks

Article excerpt

By ANASON, DEAN

The Federal Housing Finance Board approved two rules Wednesday that federal officials said will spur more lending for local economic development.

The board unanimously backed a regulation that would make it easier for the 12 Federal Home Loan banks to issue standby letters of credit to banks and thrifts. Their use was broadened to help finance loans for residential housing and community development, assist with asset and liability management, as well as increase liquidity.

Financial institutions could pledge a wider array of collateral, too, including secured small-business loans and investment-grade bonds issued by state and local governments.

The other rule, approved 2 to 1, creates two new programs to promote investments in rural and urban communities that would benefit low- and middle-income families. Under the programs, Federal Home Loan banks could make cash advances to fund loans for small businesses and economic development projects in empowerment zones or communities hit by base closings or job losses to foreign countries.

Finance Board Chairman Bruce A. Morrison said that the new advances would encourage Home Loan banks to provide more long-term financing for development projects beyond housing, and that expansion of letters of credit will help "Wall Street come to Main Street."

He rebutted point by point a recent Treasury Department letter that criticized the rule on standby letters of credit as risky and "a needless expansion of government-subsidized competition. …

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