The Federal Home Loan Bank System's voluntary members including commercial banks, FDIC-insured savings banks, credit unions, insurance companies, and state-insured and uninsured financial institutions - now represent 53% of all members.

Further, the slates of potential Home Loan bank directors include many voluntary members. Reportedly more than one-third of those accepting nominations to be directors are commercial bankers. Many will end up replacing current thrift directors.

Commercial banks and other voluntary members will soon dominate the membership of the Home Loan banks. And as their use of advances (borrowings) increases, they will come to dominate the ownership of most of the system's stock.

Policymakers should consider their future prescriptions accordingly.

A Rapid Change

So how dramatic has the change in membership composition been?

In 1989, the only voluntary members of the system were FDIC-insured savings banks, and then were in significant numbers only in the Boston Home Loan Bank.

On June 30. 1993, there were 3,971 members. of whom 2,143 were voluntary members. These included 1,675 commercial banks, 390 FDIC-insured savings banks, and 78 others (credit unions, insurance companies, and state-insured and uninsured institutions).

Voluntary members now represent two-thirds or more of the total membership of three Home Loan banks: Boston (78.8%), Seattle (7.1%), and Topeka (65.6%).

And in another three banks, the percentage of voluntary members in closing in on this two thirds: Des Moines (62.7%), Pittsburgh (62.0%), and Dallas (59.5%).

In fact, there were only two Home Loan banks in which voluntary members represented less than 40% of the membership: New York (30.0%) and San Francisco (32.4%).

Paying Dividends

Why are so many new voluntary members joining the Home Loan Bank System?

There are a lot of good reasons, but an important one has to be the Home Loan banks' stronger earnings and their good dividends.

The banks are now experiencing much improved real earnings - up 23% from the first half of last year. The troubles of the past few years seem to have bottomed out despite the increasing assessments on the system which now account for 40% of reported earnings.

As a result, most of the Home Loan banks paid good dividends for the first couple of quarters of 1993. In fact, in some instances they were outstanding.

Given the very good dividends being paid by most of the Home Loan banks, one might reasonably assume that dividend rates are the key reason the Banks are being so successful in attracting new members.

Some cursory observations that would seem to support this idea.

For example, the Seattle Bank which had the highest dividend yield in the system during the first half of this year, also had voluntary members totaling almost three-fourths (71%) of its total membership.

At the same time, the San Francisco bank. which had the next lowest dividend rate also had the next to lowest percentage of voluntary members (32.4%).

Other Attractions

If one looks further, however, the pattern does not hold. The Dallas bank, which had the lowest dividend rate during the first half, had voluntary members representing three-fifths of its total membership at the end of June.

Similarly, the New York banks, which had the lowest percentage of voluntary members of any Home Loan bank in the system, paid a relatively high dividend during the first half of 1993.

Obviously, the ability to purchase Home Loan bank stock paying a good rate of return on a voluntary membership basis is a major attraction for new members.

But, there are also other benefits that make membership attractive, including access to a substantial line of credit; access to housing programs for people of low or moderate income; and access to other Home Loan bank services.

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