Long-Awaited Bill Would Expand Home Loan System, Allow Founding of

The reform bill approved Thursday by House lawmakers contains a number of other provisions that would affect financial services companies. It would:

Permit the creation of wholesale financial institutions, or "woofies." Woofies could offer deposit services not backed by federal deposit insurance, with a deposit minimum of $100,000. They could apply for either a national or state charter and would be subject to bank-like regulations, including the Community Reinvestment Act.

The woofie's parent company, called a wholesale financial holding company, would be registered as a bank holding company but could not control any other type of depository institution.

Prohibit commercial firms from purchasing or establishing a thrift. The prohibition would not apply to unitary thrift holding companies that owned or applied to acquire a thrift before March 4, 1999. Existing thrifts could be sold to commercial firms with the approval of the Federal Reserve Board and the Office of Thrift Supervision.

Expand the mission of the Federal Home Loan banks. Today, Home Loan banks provide liquidity to financial institutions primarily for the origination of mortgage loans. Under the House bill, Home Loan banks could issue advances for other types of loans, including small business, agriculture, rural development, and low-income community development, provided the lender had less than $500 million of assets.

The bill would also eliminate mandatory membership in the Federal Home Loan bank system for federally chartered savings associations.

Eliminate the special reserve fund of the Savings Association Insurance Fund. Created on Jan. 1, the hard-to-access special reserve fund siphoned nearly $1 billion from the SAIF. The House bill would dismantle the special reserve fund and return its balance to the SAIF.

Require the government to draft several reports concerning the financial services industry. A Federal Deposit Insurance Corp. study would examine the impact of merger activity and geographic concentration on the insurance funds' safety-and-soundness. The Treasury Department would study the effectiveness of the Community Reinvestment Act.

The General Accounting Office would issue annual reports on market concentration in the banking industry and its impact on consumers. GAO would also study the bill's impact on financial institutions with assets of $100 million or less.

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