Consensus Reached on FHLB Reform

Senate Republicans have reached a compromise on Federal Home Loan Bank reform legislation that has the support of most industry trade groups and the FHLBank presidents.Senate Banking Committee Chairman Alfonse D'Amato, R, N.Y., and Sen. Chuck Hagel, R, Neb., recently agreed to incorporate a risk-based permanent capital requirement into the legislation as part of a compromise. This would enable the FHLBanks to free up some of the excess capital currently built into their balance sheets. Despite the support that the Hagel bill has garnered, Clinton administration officials are concerned that the bill does not try to limit arbitrage investments. "Most of the system's investments, which amount to 40% of the system's assets, do nothing to support residential mortgage lending," Treasury Secretary Robert Rubin wrote in a letter to Sen. D'Amato. "We believe that any legislation aimed at reforming the system must resolve this serious problem." Sen. Hagel is expected to attach his FHLB reforms to a more sweeping regulatory relief bill (S. 1405) that the Senate Banking Committee is expected to mark up Wednesday. However, Sen. Hagel's staff told MortgageWire they are still debating how to offer the bill.