Lawmakers question home loan bank capital rules

By David Lawder

WASHINGTON (Reuters) – The Republican chairman and top
Democrat on the House Financial Services Committee on Friday
voiced concerns that a proposed tightening of capital standards
for Federal Home Loan Banks may harm the U.S. housing finance
system.

Rep. Michael Oxley, the Ohio Republican who heads the
panel, and Massachusetts Rep. Barney Frank, the ranking
Democrat, said in a letter to Federal Housing Finance Board
Chairman Ronald Rosenfeld that he should be prepared to explain
the changes to a committee hearing.

In March, the FHFB, which regulates the 12 regional banks
in the Federal Home Loan Bank System, voted to mandate a
minimum retained earnings level and restrict stock that a bank
can hold, which it said would strengthen the capital structure
of the banks.

“The fact that the proposal has been criticized by the
leadership of all 12 banks and key industry trade groups
indicates to us a need for pause. We are concerned that the
proposed changes may go too far and actually harm the bank
system more than protect it,” Oxley and Frank wrote.

The Federal Home Loan Banks are government-sponsored
enterprises that are privately capitalized and owned by more
than 8,000 lending institutions, forming a cooperative that
finances U.S. housing and community development.

A comment period on the proposal ends July 13. Oxley and
Frank said they would schedule a hearing on the matter shortly
after Congress returns from its August recess. A committee
spokeswoman said a more specific timeframe was not available.

The congressmen said they had questions regarding whether
Federal Home Loan Bank mortgage purchase programs and
investments in non-advance assets will be reduced and whether
payments for affordable housing program bonds will be reduced.

They also said they had questions regarding whether the
rules would raise the cost of Federal Home Loan Bank advances,
causing some larger members to choose other sources of funding,
thus reducing the flow of liquidity, and whether the new rules
adhere to bank risk-based capital standards under the Gramm
Leach Bliley Act.

A spokesman for the Federal Housing Finance Board was not
immediately available to comment.