WASHINGTON - A House Banking subcommittee canceled a vote on legislation to modernize the Federal Home Loan Bank System, casting serious doubts on prospects for broad system reform.
Rep. Richard Baker, chairman of the House Banking subcommittee on capital markets, called off Thursday's vote out of frustration over disagreement among the 12 Home Loan bank district presidents on how to allocate interest payments on thrift-bailout bonds.
"It is clear that the presidents of the (Federal Home Loan Bank System) are unwilling to take complete action to modernize the system and protect the public interest," Rep. Baker, R-La., said. "It is clear that the ... presidents are attempting to stop needed reform."
A number of industry and legislative sources said that expansive Home Loan Bank System legislation is now unlikely.
"This particular bill is dead - there's just no chance of a comprehensive bill," said a lobbyist representing a number of Home Loan bank districts. "Baker essentially told the presidents that without an agreement on the allocation formula, there'll be no bill.
"And there's simply no way the bank presidents will come to agreement on this issue," he added.
Under the proposed formula, Home Loan bank districts including Boston and Pittsburgh would have paid more of the bailout tab, while others - such as the San Francisco district - would have seen a drop in their contributions.
Earlier this week, Rep. Baker pulled the controversial allocation formula from the bill. That might have assured the bill of crucial support if he had not also made other changes that caused concern among industry trade groups.
Rep. Baker removed a provision that would have allowed commercial banks to increase their borrowings above the current ceiling of 30% of Home Loan Bank System advances.
"That is the most important piece to our membership," said Ann Grochala, director of bank operations for the Independent Bankers Association of America.
"If that cap is not lifted, they're not going to have access to the liquidity they need," Ms. Grochala added.
Michael A. Jesse, president of the Federal Home Loan Bank of Boston, said that legislative improvements to an already healthy system will now have to come incrementally.
"Because it's difficult to move a comprehensive bill like this when there is no crisis, I think we'll be much more successful by taking two or three items that everyone agrees on and moving them through Congress," Mr. Jesse said.
Lifting the 30% cap will remain one of the top legislative priorities for Federal Home Loan banks, Mr. Jesse added.
