Legislation to modernize the Federal Home Loan Bank System took a big step forward last week as the House Banking Committee's capital markets subcommittee approved the bill 14-0.

Despite the unanimous vote, pockets of opposition exist, and the legislation's future is uncertain.

The Treasury Department fears taxpayers will be put at risk if the Home Loan banks, which are government-sponsored enterprises, are allowed to significantly loosen collateral requirements for advances to members.

Administration officials also are arguing that the bill expands the system's mission far beyond what's appropriate for a government-sponsored business. The legislation would allow the 12 Home Loan banks to push beyond residential lending to fund rural and inner-city development loans.

Ironically, the Federal Housing Finance Board, the administration agency that oversees the system, endorses most of the provisions in the bill, sponsored by Rep. Richard H. Baker.

"That's just an underlying philosophical battle that's going to happen somewhere," said Rep. Baker.

The question of the Home Loan Bank System's mission probably will have to be hammered out in the full House Banking Committee, he said.

That is, if it ever gets there. Committee Chairman Jim Leach is a wild card in the legislation's future. The Iowa Republican has echoed the Treasury Department's concerns about expanding the banks' lending authority. And a number of lobbyists said he could let the bill languish by not scheduling a full committee vote.

Rep. Baker said Friday he had been instructed by Rep. Leach to strike a deal with the Treasury Department before the bill reaches the full committee.

At the very least, Rep. Baker has teed up the bill for negotiations with the Senate if the regulatory relief bill on that side of the Capitol is approved.

"If that's all this year will allow, at least the House has something to negotiate within a conference," one lobbyist said.

The Senate's regulatory relief bill would increase the cap on system loans to commercial banks to 40% - an important point addressed in the House bill. Banks are expected to exceed the current cap of 30% by the end of the year.

Rep. Baker admitted that the current climate in Congress makes it difficult to predict when - or if - his measure will be enacted.

But he's already getting positive signs from the Senate. After his bill was approved Thursday, Rep. Baker called Sen. Phil Gramm, R-Tex., to discuss the measure. "He is very open and willing to respond to the House position," Rep. Baker said.

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