Shadow Panel Opposes Expanding Home Loan Banks' Lending

A measure expanding the lending powers of the Federal Home Loan Bank system is a terrible piece of legislation, according to the Shadow Financial Regulatory Committee.

The committee, which consists of bankers, lawyers, and academics, said the Federal Home Loan banks have no business providing economic development loans unless they relinquish their status as a government-sponsored enterprise.

"The current legislation tries to invent new reasons for the continued existence of the Federal Home Loan bank," said co-chairman Lawrence Connell, the president of Atlantic Bank in South Portland, Maine.

Mr. Connell said the system has outlived its purpose, noting that banks and thrifts can sell mortgages on the open market to raise cash for new loans.

The shadow committee did support a provision in the bill that recalculates each Home Loan bank's share of the Resolution Funding Corp. bonds, which were used to finance the thrift bailout. The bill is sponsored by Rep. Richard H. Baker, R-La.

In addition, the committee proposed that regulators should disclose a bank's Camel rating to the public. Disclosure would give depositors and analysts a better understanding of a bank's financial condition, they said.

- Scott Smith, Medill News Service