The Treasury Department has killed any chance that legislation to reform the Federal Home Loan Banks system would be enacted this year.
According to system sources, lobbyists, and staffers on Capitol Hill, the department last week hammered the final nail into the bill's proverbial coffin by demanding inclusion of controversial amendments.
The bill's prospects were looking good back in March, when House Banking's capital markets subcommittee, chaired by Rep. Richard H. Baker, approved the measure 14-0. Banking Committee Chairman Jim Leach pledged to schedule a full committee vote on the bill, but only after Rep. Baker ironed out a number of problems that the Treasury Department had with the measure.
The department's overriding concern with the bill has been that it expands the system's mission far beyond what is appropriate for a government-sponsored enterprise, allowing Home Loan banks to fund rural and inner-city development loans.
But when the department's 47-page list of changes emerged last week, it became clear that a deal would be next to impossible to reach.
"This is a hoax," said an infuriated Alfred A. DelliBovi, president of the Federal Home Loan Bank of New York. "Now we know (the Treasury Department has) been negotiating in bad faith, because these provisions go in the opposite direction of anything we've discussed before.
"This is legislation that is not offered seriously, only to prevent progress from being made. This is designed to derail the Baker bill."
The president of the New York bank was especially steamed about Treasury's recommendation that members only be allowed to borrow from their Home Loan Bank for "unexpected or exigent liquidity needs."
"That's a real problem, because being a first-resort provider of liquidity is exactly the purpose of the Federal Home Loan banks," Mr. DelliBovi said.
The Treasury Department list also would bar a member bank from receiving funds if its total borrowings exceeded the amount of community development loans it held. In addition, a member would not be allowed receive funds if its total borrowings exceeded 25% of its outstanding whole mortgage loans.
"That just won't fly, because it will dramatically change the ability of existing members to use the system," said Bruce Morrison, chairman of the Federal Housing Finance Board, the agency that oversees the 12 Home Loan banks.
In an interview last week, Treasury Under Secretary John D. Hawke Jr. dismissed Mr. DelliBovi's allegation that the administration is trying to kill the measure as "absolute nonsense."
"There are some people in the system who have a vested interest in resisting reform," Mr. Hawke said. "There are important reforms that are necessary to the system, and we want to assure that the system's activities are consistent with its mission."
Mr. Hawke said he still wants to see reform enacted this year, and an aide said Rep. Baker plans to ask Rep. Leach to bring the bill up for a vote.
But an aide to Rep. Paul E. Kanjorski, a House Banking Democrat, said Treasury's position makes the "odds pretty low" that the bill will see further action.