WASHINGTON - Banks, thrifts, credit unions, and community groups almost unanimously support the idea of allowing financial institutions to belong to multiple Federal Home Loan banks, according to comment letters received in recent weeks by the Federal Housing Finance Board.
However, there are some vocal critics of the plan, and at least one of the 12 Home Loan banks recommended an alternative.
The Finance Board solicited comments in response to the requests of two key players, Washington Mutual Bank FA and FleetBoston Financial Corp., to join more than one of the regional banks because they acquired firms outside their home districts. The comments were due last week.
"As depository institutions continue to consolidate and streamline their operations, Federal Home Loan banks will continue to face more and more membership, asset, capital, and affordable housing disruptions," wrote William A. Longbrake, the vice chairman of enterprise risk management for Washington Mutual Inc., the Seattle thrift company that owns Wamu Bank. "The Finance Board should allow multiple memberships before the impacts of marketplace trends become irreversible."
Merrily S. Gerrish, Fleet's senior counsel, argued that banking companies no longer do business solely within one Home Loan bank's jurisdiction.
"We believe this is especially true for Fleet National Bank, since it does approximately 50% of its deposit taking outside of the Boston district," he wrote. "The current structure simply does not make sense in light of the current banking/thrift environment. The current regulations were designed for institutions that lend in their local community and are dated in the face of interstate banking and the consolidation in the banking/thrift industries."
World Savings Bank, an Oakland, Calif.-based competitor of the Stockton-based Wamu Bank, continued to oppose the idea.
"World has repeatedly expressed its legal and policy concerns about the concept of a single-chartered entity being a member of several Federal Home Loan banks," wrote Herbert M. Sandler, the chairman of World Savings. "Let us state the obvious once again: The applicants can leave in place their newly acquired charters, and even transfer most of the acquired assets and liabilities to their existing depository subsidiaries, thereby achieving the operating efficiencies they desire, while at the same time maintaining membership in the relevant Federal Home Loan banks."
The Federal Home Loan Bank of Des Moines, which along with a few other Home Loan banks had raised objections to pending applications, floated an alternative intended to lessen the economic impact on banks that lose members because of industry mergers.
It proposed a system that would basically allow Home Loan banks to buy and sell parts of advances made to member institutions. For example, if a thrift belonged to the San Francisco Home Loan bank but did business in the Boston region, the two banks could divvy up interests in the advances similar to a loan syndication.
Other Home Loan banks endorsed the idea of multiple memberships.
"The Dallas Bank believes that some form of multidistrict membership will be critical to preservation of a system of strong regional Federal Home Loan Banks in the face of the industry consolidation that is likely to continue through the next decade and beyond," wrote Terry Smith, the president of the Dallas Home Loan bank.
Most of the organizations that submitted letters - the Finance Board received more than 150 - focused on the system's affordable-housing program. Each Home Loan bank dedicates 10% of its net income to affordable-housing lending. Member institutions pay into the pool and apply to the Home Loan bank to withdraw funds. If an institution's membership is transferred to a different bank, so is that member's pool investment.
"Currently, bank mergers present a zero-sum scenario from a community group perspective," wrote John Taylor, the president of the National Community Reinvestment Coalition.
"Suppose, for example, an East Coast bank merges with a Southern bank and then must choose whether to continue affiliation with the New York Federal Home Loan Bank or affiliate with the Dallas Bank. If the bank selects the Dallas Federal Home Loan Bank, then the bank will no longer have access to the affordable housing program dollars in the New York region. While housing and community development projects in the South will enjoy a new infusion of affordable-housing program dollars, development projects on the East Coast will have less financing."
Finally, some community bankers see multiple membership as an opportunity to expand their business.
"Today we may only use the products and services available to us at the Indianapolis Bank," wrote Martin L. Hager, the president of Bank of Ann Arbor in Michigan.
"Other Federal Home Loan Banks provide different products and services, and some of these interest us," he wrote. "Specifically, we have been anxiously awaiting the opportunity to offer stock-indexed certificates of deposit through our bank. At least two of the [banks] in the East offer their members this service, but Indianapolis does not."
