Home Loan Banks to Trim the Fat

WASHINGTON - The government is taking what may be a first step to consolidating the 12 banks in the Federal Home Loan Bank System.

The Federal Housing Finance Board said Thursday that it had launched a drive to streamline the back offices of the regional Home Loan banks. The initiative may set the stage for eventual mergers of the banks.

Speculation has been rising about consolidations of the 12 banks, which were established in the 1930s to provide liquidity to home lenders and have seen their activities constrained along with the thrift industry's troubles.

Over the next 90 days, a Finance Board task force will conduct a thorough review of the operations and begin to eliminate overlapping functions, particularly in the cost-intensive data systems area.

Planned Phase-In for Cuts

Officials of the Finance Board - an agency set up in 1989 to oversee the Home Loan banks - anticipate they can cut operating expenses by $10 million to $20 million a year. That would be a noticeable chunk of total expenditures, estimated at $260 million in 1991.

Once recommendations are in hand, cost-cutting measures will be phased in over the next year.

Each of the 12 Home Loan banks maintains an independent data-processing system for tracking such elements as investments, loans, and collateral. By sharing hardware, software, and personnel, they could slash expenses dramatically, agency officials maintain.

The task force - headed by Finance Board Directors Lawrence U. Costiglio and Marilyn R. Seymann - has begun taking inventory of all operations, from equipment purchases to maintenance contracts to telephone services. The Finance Board has temporarily frozen capital expenditures of $100,000 or more by the Home Loan banks.

Though its 2,800 members now include more than 300 commercial banks and credit unions, assets of the Home Loan Bank System have been shrinking for the past two years because members are not hungry for loans.

Shrinkage has created earnings pressures. But the board has been reluctant to push for rapid consolidation, fearing that such upheaval would disrupt operations and mar the system's image just as it is trying to attract commercial bank members.

Instead, by setting performance targets and streamlining the way the Home Loan banks deliver services, the Finance Board is gradually nudging the 12 banks toward merger.

Private-Sector Model

"We're under the same pressures as the private sector, and we should have the same responses," said one agency official, speaking on background. "But the results should be invisible to the end user of the bank system. This is what you do if you are going to consolidate."

Outsourcing arrangements may be part of the answer.

In August, the Federal Home Loan Bank of San Francisco farmed out the management of its data processing facilities to Systematics Information Services Inc. in a five-year, $80 million contract. Systematics also acquired the Home Loan bank's check processing unit.

The two-pronged deal enabled the San Francisco district bank to cut 230 of 485 staff positions.

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