Bank Groups Split on How to Change The Way Refcorp Bonds are Funded

WASHINGTON - Plans to change how Federal Home Loan banks pay interest on thrift-bailout bonds met with a mixed reaction from bankers' groups Thursday.

The American Bankers Association and the Independent Bankers Association of America didn't oppose the proposals by the Clinton administration and Rep. Richard Baker, R-La., to rewrite the formula by which the Home Loan banks pay $300 million a year in interest on Resolution Funding Corp. bonds.

But when asked at a House Banking subcommittee hearing if resolving the Refcorp issue was a high priority for them, representatives of both groups said no.

America's Community Bankers, on the other hand, argued that the existing Refcorp funding formula - which puts a heavier burden on district banks with a high proportion of members backed by the Savings Association Insurance Fund - has got to go.

"This thing is a constant irritation," said Milwaukee savings bank executive Michael T. Crowley Jr., who spoke on behalf of the thrift group. "I think it's worth trying to do something about this."

Rep. Baker and the Treasury Department agree, and have come up with a formula under which Home Loan banks would make Refcorp payments in proportion to their average minimum level of capital. That would mean hefty payment hikes for Home Loan banks such as Pittsburgh's and Boston's, which have relatively few SAIF-insured members.

Rep. Baker and the Clinton administration are also proposing several less controversial changes designed to encourage more banks to join the Federal Home Loan Bank System. Those met with strong support from all three bank groups.

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