As president of the Federal Home Loan Bank of Des Moines, Patrick J. Conway is making decisions that will affect a slew of banks.

The new financial reform law lets the Federal Home Loan Bank System lend against new types of collateral - small-business and farm loans. Congress wanted to make it easier for banks with less than $500 million of assets to borrow more from the system. But lawmakers left the specifics to the experts, and the Des Moines bank is expected to play a big role in deciding how much collateral banks must pledge to get this funding.

"Pat Conway is going to set the tone," said the system's regulator, Federal Housing Finance Board Chairman Bruce A. Morrison.

That's because the Des Moines bank, which operates in Iowa, Missouri, Minnesota, and North and South Dakota, has about 1,000 small-bank members, which are packed with small-business and farm loans. Mr. Conway calls the Gramm-Leach-Bliley Act one of the most important legislative changes in the history of the Home Loan bank system.

"This is just like manna from heaven," he said in an interview.

For small banks, the law will provide much-needed liquidity by expanding acceptable collateral; previously, only residential mortgages could be borrowed against. The finance board issued broad guidelines last month that cap the size of a qualifying farm loan at $500,000 and a small-business loan at $1 million.

But many crucial decisions about the new collateral are being delegated to the Home Loan banks. Each of the 12 banks will set its own rules. Mr. Conway said this autonomy is important, given how the new types of collateral can vary from region to region.

"Small-agriculture and small-business loans mean different things to different institutions," he said. "To some institutions, a small-business loan may be a boat loan because they're lending to a fisherman out on the Gulf."

The big question is how much new collateral banks will have to pledge.

Under current rules, banks typically put up $1.15 to $1.25 of residential mortgages for each $1 borrowed. Though he shied away from specific numbers, Mr. Conway said banks should expect even larger haircuts on small-business and agricultural collateral.

He estimated that member banks would have $30 billion to $40 billion of additional collateral to pledge. Assuming a bank could borrow 50 cents for each $1 of the new collateral, the Des Moines bank could double its outstanding advances.

In a trend that has lasted through the 1990s, banks have replaced their dwindling core deposits with borrowings from the Home Loan banks. At the Des Moines bank, advances to member banks have risen more than eightfold, to $21.5 billion, during the 1990s.

Though Gramm-Leach-Bliley creates substantial business opportunities both for the Des Moines Home Loan Bank and its members, Mr. Conway said the new collateral also poses a serious risk. His $35 billion-asset bank has more than 60 years of experience in making advances on traditional home mortgages, he said, but small-business and agricultural loans have completely different risk profiles.

"What is the market for a farm equipment loan? I'm not quite sure," Mr. Conway admitted.

Because the terrain is unfamiliar, officials of the Des Moines bank are studying how to identify, measure, and manage the risk posed by the new types of collateral. "Our members own us - they're not just borrowers, they're investors," Mr. Conway said. "We need to do this in a way that inspires confidence, that won't create losses."

He has hired First Manhattan Consulting Group for research assistance, which will be supplemented by discussions with trade groups and members as well as work done by the Des Moines bank's staff.

The bank plans to adopt final rules by June 30 and begin accepting farm and small-business credits as collateral in late September or October, Mr. Conway said. He promised to keep the rule simple.

"The key, after all this analysis, is simplifying this so it's not too bureaucratic," he said. "The one thing people like a lot about our existing programs is that they're very simple and straightforward."

The Des Moines bank may add three people to its 16-member credit and collateral department, according to Mr. Conway. The new people would be experienced in the new types of collateral and take an active role in training the rest of the staff.

Mr. Conway, a native San Franciscan with nearly 25 years of Home Loan bank experience, was appointed acting president of the Des Moines bank in April 1999. He was formally hired as CEO and president of the eighth-largest Home Loan bank in October.

Succeeding Thurman Connell, who took early retirement last summer, Mr. Conway walked into a difficult situation. A speculative derivatives transaction had led to a $10 million loss and reportedly to Mr. Connell's ouster. Officials of the Des Moines bank declined to comment on their former chief's departure, but most said Mr. Conway's strength in finance has been a boon.

"His greatest accomplishment at the bank so far has been in financial management," said Dale J. Torpey, chairman of the Des Moines Home Loan Bank. "He's gotten his hands around everything - how we structured our assets and liabilities, how we priced our advances. We're extremely satisfied." Mr. Morrison had similar praise.

"Pat's technical expertise is superb, and I've been delighted to see his leadership abilities become so apparent so quickly," he said. "He's seen the many changes in regulation and legislation as opportunities to make his bank better and to serve his members better. He understands what the future of the Federal Home Loan Bank System is all about."

In 1999, net income at the Des Moines bank rose 13.7%, to $132 million.

Mr. Conway, who turned 50 this month, has been commuting to Des Moines from San Francisco for nearly a year - an eight-hour trip door-to-door. But that will end soon. After much research on school districts and neighborhoods, the Conways - a clan of nine - have finally settled on a home in the suburbs of the Iowa capital.

Almost everyone agrees the move was overdue, but at least one banker expressed some tongue-in-cheek regret.

"Not having his family around," Mr. Torpey said of Mr. Conway, "gave him more time to spend at the bank."

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