The financial reform bill would also implement changes long sought by the 12 Federal Home Loan banks.

Membership would finally be voluntary, freeing roughly 1,100 thrifts that have been required to buy stock in one of the banks. The legislation would also make it easier for institutions with less than $500 million of assets to get advances. Collateral that could be accepted for an advance would be expanded to include small-business and farm loans.

The legislation would impose a minimum 4% capital-to-assets leverage ratio on the Home Loan bank while creating a second class of long-term redeemable stock.

More power would be delegated to the individual Home Loan banks from the system's regulator, the Federal Housing Finance Board. For example, the reform bill would permit the board of an individual Home Loan bank to hire the bank's chairman.

Finally, the legislation would change the way the Home Loan banks pitch in to pay off some of the bonds used to finance the S&L cleanup. Instead of a set dollar figure, the Home Loan banks would contribute a flat percentage of income.

Rather than the $300 million required today, the banks would pay 20% of total income, which this year is expected to result in a payment of $380 million. Though that means a higher cost in the short run, the Home Loan banks had been arguing for a set fee so that when earnings ebb they are not locked into the $300 million-a-year payment.

Finance Board Chairman Bruce Morrison applauded the legislative changes on Tuesday. "Overall, I'm very pleased," he said. "It represents the core reforms that I've been advocating for a while."

If the financial reform bill is signed into law, Mr. Morrison said, the Finance Board would withdraw a proposed rule out for comment that would make sweeping changes to Home Loan bank operations. However, the agency would need to issue rules governing the new collateral provisions, he said. A bank borrowing from the system would probably have to put up more small-business and farm loans than if it pledged real estate-backed loans as collateral.

"I think the haircut would reflect the volatility of the asset," Mr. Morrison said. "We're not going to stampede into a lot of unfamiliar collateral."

John von Seggern, executive vice president of the Council of Federal Home Loan Banks, agreed that the legislation represents an improvement over current law.

"This is not what we would consider ideal, but it is an improvement," he said. "This is considerably more capital than Fannie and Freddie have to hold. Our members have to compete against Fannie and Freddie, and this puts them at a disadvantage."

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