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FINANCE BOARD RELEASES REPORT TO CONGRESS ON BANK SYSTEM

 WASHINGTON, April 28 /PRNewswire/ -- The Federal Housing Finance Board today released its report to Congress on the structure and role of the Federal Home Loan Bank System. The report was required by the Housing and Community Development Act of 1992, which set today as the due date. Studies of the same 14 questions were assigned separately to the Finance Board, several government agencies and a committee of Bank System stockholders.
 The questions asked by Congress relate to the continued safety and soundness and the public purposes of the Bank System as a Government- Sponsored Enterprise (GSE). By statute, the Finance Board has responsibility for both matters -- to ensure that the Bank System operates in a safe and sound manner and that it carries out its housing finance mission.
 "With so much change occurring in the economy and especially in housing finance, the time was right for this kind of comprehensive study," Finance Board Chairman Daniel F. Evans Jr. observed. "Its conclusions should prompt legislative changes that will ensure both the continued viability of the Bank System and the fulfillment of its public policy purpose."
 The report outlines the Finance Board's perspective that the Bank System is a safe and sound GSE that continues to play an essential role in making credit available for housing. However, the Finance Board makes several recommendations in the report that build on the Bank System's primary strength: support of portfolio lenders.
 The Finance Board has an acute awareness of the public policy purpose of the Bank System which is linked to its GSE status, and believes the Bank System's role should be enhanced to assist in satisfying today's unmet needs in housing and neighborhood development finance. The report addresses this issue and others in a proposed mission statement for the Bank System which is at the beginning of the report.
 In order to optimize the Bank System's role in the above-mentioned areas, the Finance Board recommends that Congress revise and modernize existing law to recognize that:
 -- Voluntary membership and equal access to products and services for all members would increase the availability of housing credit, remove existing roadblocks which have created two classes of members, and facilitate future consideration of expanding the System's role in housing and neighborhood development finance.
 -- It is in the System's long-term best interest to change the fixed $300 million REFCorp obligation to the lesser of 20 percent of the System's net income or $300 million. As a practical matter, the Finance Board believes that the Bank System can pay the existing REFCorp and AHP obligations without safety and soundness consequences as long as capital is adequate, leverage is prudent, and credit risk remains well- controlled. However, the fixed REFCorp obligation has important implications in that it does not contribute to the System's housing finance mission and works against the cyclical nature of the System -- its hallmark since inception.
 -- An expanded role for the Bank System in housing and neighborhood development finance consistent with safety and soundness will require careful development through general program authority for the Bank System, subject to Finance Board approval. In attempting to satisfy unmet needs, the Finance Board believes that general program authority for the Bank System will build upon the two characteristics of the Affordable Housing and Community Investment Programs that have made them successful: program flexibility and regional responsiveness.
 -- The System's high capitalization, the result of outdated statutory formulas, prevents the Bank System from making advances for home loans at the lowest possible cost. Subject to a minimum leverage ratio, capital standards should be appropriate to the risk profile of Bank System activities, in keeping with international risk-based standards.
 In its report to Congress the Finance Board also noted that System 2000, the Bank System's strategic planning process, will be completed this summer. System 2000 deals with many of the same issues as the report released today, but it will be a product of negotiation to build consensus within the Bank System on its mission, vision and values. System 2000 is a joint effort of the Bank System stockholders, the 12 FHLBank Presidents, the Bank System's Office of Finance, and the Finance Board.
 The Federal Housing Finance Board was established in 1989 by FIRREA and was given supervisory authority and oversight for the Federal Home Loan Bank System, a Government-Sponsored Enterprise (GSE). As such, the Finance Board promotes housing finance, administers the multi-million dollar Affordable Housing and Community Investment Programs, and reviews the Bank System's financial performance and operating procedures to ensure the safety and soundness of the System.
 -0- 4/28/93
 /NOTE: Copies of the report are available upon request./
 /CONTACT: Chuck Chamness of the Federal Housing Finance Board, 202-408-2986/


CO: Federal Housing Finance Board ST: District of Columbia IN: FIN SU:

MH-TW -- DC035 -- 2167 04/28/93 14:49 EDT
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Date:Apr 28, 1993
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