Home Loan Bank Is a Vital Link

To the Editor:

The "Comment" article by Karen Shaw Petrou on Sept. 30 ("Home Loan Banks' Job Is Done; Why Not Just Shut Them Down?", page 4) would leave your readers with the misguided opinion that the Federal Home Loan Bank System no longer serves a useful purpose. Nothing could be farther from the truth.

The bank system and its traditional advance services are critical to the continued existence of small rural and community-based depository institutions. In our state of Indiana, all of our 70-plus thrifts belong to the FHLB of Indianapolis. So do over half of the state's commercial banks and a dozen or so credit unions. Obviously voluntary membership in our bank is high-well over 50%. Those that have tried it have stayed. They don't have to, but they do.

The Petrou article suggests that all banking institutions have access to the capital markets and therefore the system isn't needed. What was not said is that not all have access on the same terms and conditions. For the small to medium-size bank or thrift serving the families, small businesses, and housing needs of Indiana towns, the Federal Home Loan Bank of Indianapolis IS their access to the capital markets.

The role of the Home Loan bank is to equalize the terms (dare I say "level the playing field"?) between the large money-center banks and the community bank in the capital market arena. Oh, I'm sure Ms. Petrou or someone else will be quick to offer the services of money-center banks to perform this role. Sure they will-but on terms and conditions and WHEN it serves the money-center bank's interest to do so. No thanks. There is no substitute for a member-owned and member-driven wholesale bank whose reason for being is to assist its stockholder members in meeting the credit needs of their communities.

It is probably true that most Americans have never heard of the Federal Home Loan Bank System. That's both good and bad. Good, in the sense that the system has done its job with no trouble or hint of problems. Bad, because few people realize what the existence of the system means to them and are unlikely to rise to its defense.

Outlived its usefulness? Far from it. As the process of consolidation continues, the competitiveness of our retail credit markets is compromised. Market economies drive consolidation, so we have to accept it as inevitable. In doing so, however, it becomes ever more important to protect and preserve those few tools left to the community-based lending institutions. First and foremost among them is the Federal Home Loan Bank System. James H. Cousins President,Indiana League of Savings Institutions,Indianapolis