Senate Banking Committee Chairman Alfonse M. D'Amato vowed Friday to abolish the agency that regulates the 12 Federal Home Loan banks.
The New York Republican introduced a bill that would dissolve the Federal Housing Finance Board and split its duties between the Department of Housing and Urban Development and the Office of Federal Housing and Enterprise Oversight.
"The board's regulatory structure is outdated and needs to be reformed," Sen. D'Amato said.
The finance board has come under fire in recent years from Sen. D'Amato, particularly for Chairman Bruce A. Morrison's efforts to rein in the Home Loan banks' nonhousing investments. Sen. D'Amato said he was acting in response to a recent General Accounting Office report that recommended a single regulator oversee the Home Loan banks, Fannie Mae, and Freddie Mac.
In a statement Sen. D'Amato complained that the board has an "inherent conflict of interest" because it is responsible for establishing the housing-development mission of the banks while also overseeing their safety and soundness.
Under Sen. D'Amato's plan, HUD would be responsible for determining whether the Home Loan banks' investment practices comply with their housing and community development mission.
The Office of Federal Housing and Enterprise Oversight, which is a branch of HUD, would handle safety and soundness regulation. All finance board employees would be transferred to that agency.
Sen. D'Amato's ire was raised most recently after President Clinton's March 9 firing of board member Lawrence U. Costiglio, who had resisted Mr. Morrison's efforts to reduce the banks' nonhousing investments.
It is unclear whether Sen. D'Amato's plan will find support on Capitol Hill. Several lawmakers, including Sen. Chuck Hagel, R-Neb., Rep. Richard Baker, R-La., and Rep. Paul Kanjorski, D-Pa., have been pushing legislation that would expand the Home Loan banks' authority to make advances for rural community development and small-business lending. Their bills also would alter the formula used to determine each bank's obligation to cover $300 million in annual debt payments on Refcorp bonds issued to bail out the savings and loan industry.
"We should deal with the immediate problems facing the Home Loan Bank System before trying to restructure their regulator," said a House source familiar with the debate.
Mr. Morrison could not be reached to comment Friday, but in testimony before a House Banking Committee subcommittee last July he said consolidation of the board and the Office of Federal Housing and Enterprise Oversight would result in "more effective, consistent regulation."
However, previous proposals had called for the finance board to be the lead regulator.
Representatives of the Home Loan banks were careful Friday not to anger either side in the debate.
"What's most important to us is that the banks have a strong safety and soundness regulator," said John L. von Seggern, executive director for the Council of Federal Home Loan Banks. He said his members have not had time to review Sen. D'Amato's plan.
