WASHINGTON - Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System should be broken into smaller companies and privatized, the Shadow Financial Regulatory Committee said.

The group of academics, which meets periodically to discuss financial regulation, said Monday their plan would reduce an excessive concentration of power held by the institutions, and would make a government bailout unnecessary in the event that one fails.

As an example, the committee suggested Congress split Fannie and Freddie each into two firms and the Home Loan Bank System's portfolio to create another four.

If Congress will not privatize the enterprises, the committee said it supports a bill sponsored by Rep. Richard Baker, R-La., which would eliminate the U.S. Treasury's $2.25 billion lines of credit for Fannie and Freddie and its $4 billion line for the Home Loan banks.

The committee suggested several additions to the Baker bill, including a repeal of Fannie's and Freddie's immunity from state and local taxes and the removal of tax breaks for Home Loan banks and their bondholders.

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