Charles Bowsher said he resigned last month as chairman of the Federal Home Loan Bank system's Office of Finance because he wasn't comfortable with the way the banks value their mortgage securities.
"I decided I didn't have confidence in the financial statements," Mr. Bowsher said in an interview, confirming remarks that previously appeared in a Bloomberg News article. Mr. Bowsher, a former partner at the accounting firm Arthur Andersen, said he believes financial companies generally, not just the home-loan banks, have too much discretion in valuing assets such as mortgage securities. "They put a lot of assumptions in there," he said.
The Office of Finance coordinates debt sales by the 12 regional home-loan banks and compiles combined financial results for them. But the individual banks and their auditors are responsible for accounting policies. Six of the 12 banks reported losses for the fourth quarter, mostly due to write-downs on private-label mortgage securities, packaged by Wall Street during the housing boom. Some of the banks have been forced to cancel dividends and stock repurchases.
Mr. Bowsher, 77 years old, was named to the Office of Finance board in April 2007. In the 1980s and 1990s, he headed the General Accounting Office as comptroller general of the U.S. While in that post, he frequently criticized bank regulators for not following tougher accounting rules.
Responding to Mr. Bowsher's comments, the Federal Housing Finance Agency, of FHFA, which regulates the home-loan banks, said in a statement Friday: "As Mr. Bowsher recognized, the difficulties in establishing valuation in inactive and distressed markets are significant. We are sorry he chose to resign. We will be seeking a replacement who is prepared to work with the 12 banks and FHFA to promote greater rigor and consistency in the valuation process and impairment determinations."
The home-loan banks, established by Congress in 1932, are cooperatives owned by more than 8,000 commercial banks, thrifts, credit unions and insurers, which are known as members. The home-loan banks make loans, dubbed advances, to those members. Since investors believe the U.S. government would back them in a crisis, the home-loan banks have been able to borrow at relatively low interest rates.