WASHINGTON - The administration on Wednesday unveiled its plan to overhaul the Federal Home Loan Bank System but ran into sharp criticism from a member of its own party.
During a hearing before the House Banking subcommittee on capital markets, Rep. Paul E. Kanjorski, D-Pa., described one element of the administration plan - a new formula for allocating interest payments on Resolution Funding Corp. bonds - as unconscionable.
"The administration's Refcorp reallocation proposal is Robin Hood in reverse," Rep. Kanjorski said. "I am extremely disappointed that the administration has capitulated to the ultimatum of a small cartel of greedy savings and loans who seek to shirk any responsibility for their industry's past problems."
The allocation of Resolution Funding Corp. bond interest among the 12 Home Loan banks could be the trickiest and most contentious issue in the quest to modernize the system, since it creates as many losers as winners.
The amount of such interest paid by the Federal Home Loan Bank of Pittsburgh - which serves Rep. Kanjorski's district - could increase by as much as 60% under the proposal.
Subcommittee Chairman Richard Baker, R-La., introduced legislation last month containing a similar interest allocation formula, but Rep. Kanjorski held most of his fire for Richard Carnell, an assistant secretary of the Treasury.
Congress established the Resolution Funding Corp. in 1989 to issue bonds the proceeds of which went to help cover thrift losses. Each year for the next 35 years, the Home Loan Bank System must pay $300 million in interest on the bonds.
Currently, each district bank pays up to 20% of its income to the Resolution Funding Corp. If this totals less than $300 million, then the shortfall is collected from each district bank in proportion to its advances to members insured by the Savings Association Insurance Fund.
"The current formula discourages the banks from lending to SAIF-insured members, which was the original purpose of the system," Mr. Carnell said.
Some districts would benefit handsomely from the proposals. San Francisco, home to a large number of institutions insured by the thrift fund, paid the corporation nearly $70 million in 1994 - more than any other district. The proposals would cut the district's obligation by as much as 20%.
On the other hand, the Boston and Pittsburgh districts - each of which paid only about 5% of the $300 million last year - would absorb much more of the obligation than they do under the current formula.
However, Mr. Carnell argued that "It is not our objective to benefit one district versus another, but to have a formula which is going to be workable going forward."
Unlike the Baker bill, the administration measure would also give Home Loan banks 60 days after enactment to agree upon an alternative allocation formula.
"In the past six years, we haven't been successful - I don't know what 60 days will do," Rep. Baker said.
Both measures would make all Home Loan bank membership voluntary, including that of federal savings and loans, which currently must own stock in the system.
