The Federal Housing Finance Board on Thursday handed over responsibility for setting the salaries of the 12 Federal Home Loan Bank presidents to their boards of directors.

The new rule, published in Thursday's Federal Register, is part of the agency's effort to farm out day-to-day management responsibilities to the individual banks, Finance Board Chairman Bruce Morrison said in an interview Thursday.

"We are trying to create a situation where we set the regulatory standards and let the banks have the management authority," Mr. Morrison said. "We are taking our statutory requirements and pushing them in that direction as far as we can."

The 12 boards do not have free reign to boost their president's pay under the new rule. The salaries may not exceed a figure that is 5% less than the average pay of chief executives at nearby financial institutions with assets comparable to the Home Loan Bank.

Using that formula, the Finance Board rule would cut Federal Home Loan Bank of Seattle President James R. Faulstich's 1997 pay by $2,400 to $285,000. However, the agency exempted him from the salary cap; he will continue to earn his 1996 salary this year.

Federal Home Loan Bank of Des Moines President Thurman C. Connell could gain the most under the new rule. The Des Moines board could raise his salary as much as $59,350 to a cap of $305,000.

The rule also stipulates that bonuses to bank presidents may not exceed the difference between the president's base salary set by the board of directors and 125% of the salary cap. "This is a standard way to make sure presidents don't get a sweetheart deal," Mr. Morrison said.

In addition, at least half of any president's bonus must be based on whether a Home Loan Bank meets specific targets, set by the board of directors, related to the system's housing finance mission.

For example, a board could require an increase in advances to member institutions. The 12 banks must set their 1997 targets by the end of this month.

Under the rule, bonuses will not be awarded to a president if Finance Board examiners find "unsafe or unsound practices" at the bank.

Finally, the rule allows the banks to reappoint incumbent presidents without prior approval from the Finance Board. New appointments still will require the agency's consent.

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