WASHINGTON - A little-noticed by-product of the Gramm-Leach-Bliley Act has been a dramatic improvement in the personal bottom lines of the Federal Home Loan banks' presidents.

The 1999 financial reform law removed a statutory requirement that the Federal Housing Finance Board approve the Home Loan bank presidents' compensation packages. Last year, the first in which the banks' boards were left to their own devices, the presidents with at least a year of experience in their posts received an average raise of 42.75%.

Members of the Home Loan banks' boards argue that the increases were necessary because of a combination of factors, including years of unreasonably low pay and the need to retain talented executives in the face of a coming overhaul of the system's capital structure.

"It makes sense to have the flexibility to retain the people they want," said John L. von Seggern, president of the Council of Federal Home Loan Banks. "These guys are in charge of pretty large banks. I don't think that in this type of world it pays to be penny-wise and pound-foolish. These guys have all earned their keep."

But the average tenure of the current Home Loan bank presidents is eight years. Half have served 10 years or more, and instances of presidents leaving to join the private sector are few and far between.

Bert Ely, an independent consultant in Alexandria, Va., voiced a question on the minds of a number of industry observers: "Was it in fact necessary to increase salaries as much as they did in 2000 to retain these executives?"

The most likely candidate for a private-sector job would appear to be Chicago Home Loan Bank president Alex J. Pollock, who spearheaded the system's Mortgage Partnership Finance program. Mr. Pollock, the highest-paid president last year, received $750,000, including $500,000 in base salary and $250,000 in incentive pay.

In 1999 the Chicago bank actually received permission from the Finance Board to raise Mr. Pollock's salary in response to a competitive job offer. His pay last year rose 47% from the year before, but that percentage increase paled in comparison with his fellows in Cincinnati, Boston, and New York.

Charles L. Thiemann, who has run the Cincinnati Home Loan Bank since 1976, was the second-highest paid president last year. He also received the largest percentage pay increase - his compensation package rose 64.9%, to $711,209, including $435,000 in base salary and $276,209 in incentive pay.

Michael A. Jessee, president of the Boston Home Loan Bank, received a 59.5% pay raise. Last year he was paid $687,710, including $400,000 in base salary, $202,600 in incentive pay, and $85,110 in other compensation.

Alfred A. DelliBovi, president of the New York Home Loan Bank, was paid 54% more in 2000 than in 1999. He made $664,160, including $425,000 in base salary and $239,160 in incentive pay.

By comparison, the presidents of the Home Loan banks based in the same cities as Federal Reserve district banks earned at least twice - and in some cases three times - as much as their Fed counterparts.

In Chicago, Mr. Pollock's $750,000 compensation dwarfs that of Chicago Fed President Michael H. Moskow, who took home $249,000. New York Fed President William J. McDonough's $283,300 salary was roughly 43% of Mr. DelliBovi's $664,160 package. And Boston Fed President Cathy E. Minehan earned $222,800 in 2000, about 32% of what the Boston Home Loan Bank paid Mr. Jessee.

Charles W. Smith, chairman of the Boston Home Loan Bank board, said that the restrictions placed on bank president salaries by the Finance Board before Gramm-Leach-Bliley had kept them too low.

"We think that the caps that were put on before were not fair," said Mr. Smith, who is also chairman and chief executive officer of Granite Bank in Keene, N.H. "In the whole system you saw adjustments, but that doesn't mean you are going to see them again. You won't."

Paul Tipps, chairman of the Cincinnati Home Loan Bank, said his board reviewed all pay packages last year. "We recognized that there was a good chance that we were not keeping pace with an adequate compensation package for all bank employees," he said.

In considering the president's pay, "the members of the personnel committee looked at things such as Dr. Thiemann's 25 years as president and the performance of our bank as it relates to all of the other banks," he said

Mr. Tipps, a principal of State Street Consultants of Columbus, Ohio, said that despite its recent increase, Mr. Thiemann's salary is still "substantially less" than the head of a comparably sized commercial bank, but is "consistent with what we felt the role of a wholesale bank and government-sponsored enterprise should be."

Mr. Ely said that is as it should be. "It is relatively easier to run a Federal Home Loan bank," he said. "They don't have any funding problems, and they don't have marketing and deposit issues to address. Also, these are small organizations in terms of head count, so the work force issues are much less significant."

Additionally, their risk management problems are less demanding than those at commercial banks, he said. "They take no credit risk. The Federal Home Loan Bank System prides itself on having never taken a loss on any of its advances. It is a very conservative lender, and frankly there is a cookie-cutter aspect to this."

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