Rep. Richard Baker, dropping plans to radically reform the Federal Home Loan Bank System, will introduce narrow legislation designed to shore up its finances.
"The system's underlying financial concerns will all be addressed," Rep. Baker said in an interview Thursday. "I will focus on things that are generally agreed upon, so this bill will be much less contentious than bills I've introduced in the last two years."
The bill, which the Louisiana Republican said would be introduced in the next two weeks, would make membership in the system voluntary, even for thrifts.
Rep. Baker also plans to reduce the cost of membership-welcome relief to the 6,139 banks and thrifts that belong to the system. Currently, each Home Loan bank must hold capital equal to 5% of its assets. While he plans to cut the capital requirement, Rep. Baker has yet to settle on a new figure.
However, to ensure the system's capital would not be drained if a large number of members left, Rep. Baker would bar an institution from redeeming its stock if it meant a Home Loan bank's capital would drop below required levels.
Many banks and thrifts have worried that making membership entirely voluntary would imperil the system's capital base.
The bill also would require each of the 12 district banks to pay a fixed percentage of earnings to cover the system's $300 million annual obligation on Resolution Funding Corp. bonds. Under current law, the district banks pay a certain share of their earnings and the largest instzzitutions are forced to cover any shortfall.
Finally, Rep. Baker also wants to remove the 30% cap on advances to commercial banks. Banks now make up roughly two-thirds of the system's members and have committed 41% of its capital.
Floyd Stoner, a lobbyist for the American Bankers Association, said his group is likely to endorse Rep. Baker's bill.
"We've always been supportive of efforts to make the system work for its members," he said. "We backed his efforts in the last Congress."
Naomi Salus, a spokeswoman for the Federal Housing Finance Board, which supervises the Home Loan banks, said a pared-down bill is the right approach.
"We're very supportive of legislation that would fix the technical and structural issues," she said.
The finance board's chairman, Bruce A. Morrison, has repeatedly said his agency has authority to expand the banks' lending activities without new legislation.
With his blessing, Home Loan banks in Atlanta, Chicago, and New York have launched pilot programs to make multifamily and commercial loans and to hold mortgages originated by their members.
In January, Rep. Baker introduced legislation that would have allowed Home Loan banks to provide long-term credit for inner-city and rural development loans. But the administration and many other lawmakers, including House Banking Committee Chairman Jim Leach, have balked at expanding the mission of the government-sponsored banks.
Rep. Baker has long wanted to make the system's money available for community and rural development lending. Currently, the system is restricted to making advances for mortgages.
"It was my intent to provide an opportunity to be involved in small- business and job-development lending," he said. "But rather than wage war on that one issue, I believe that we should move forward in the areas where we agree."
