Korsmo Takes Heat for FHLBank Comment

Rep. Edward Royce, R-Calif., went after Federal Housing Finance Board Chairman John Korsmo Wednesday for suggesting that regulators cannot stop financial institutions from making mistakes.Mr. Korsmo noted that the Federal Home Loan Banks of Pittsburgh, New York, and Atlanta incurred losses in the third quarter, saying they were due to business decisions that are "perhaps unavoidable," since they are risk-taking enterprises. Rep. Royce said Chairman Korsmo's comments "suggest to me that he does not fully understand the complexities of the institutions he is charged to oversee." The congressman supports moving the regulation of the FHLBanks to the Treasury Department. "Ensuring that the individual FHLBanks properly manage interest rate risk should be amongst the Finance Board's top priorities," he said. The Pittsburgh bank ran into problems hedging its mortgage portfolio. Meanwhile, the Finance Board chairman told the Exchequer Club that his agency has taken supervisory actions against the FHLBanks. "The Finance Board is taking an active role in guaranteeing that the boards of directors of those three banks respond in ways that used be unthinkable," Mr. Korsmo said. He declined to provide any details.