House Banking Committee Chairman Jim Leach attacked the Treasury Department last week, accusing it of having failed to restrict investments by the Federal Home Loan banks.
The Iowa Republican said the department must ensure that investments by the Home Loan banks help Americans obtain mortgages.
The Treasury seems "unwilling to stand up" to the Home Loan banks and other government-sponsored enterprises, Rep. Leach said, though it has "legal authority" and moral obligation to do so.
Speaking Thursday at a hearing of House Banking's capital markets subcommittee, Rep. Leach said Assistant Treasury Secretary Richard S. Carnell ought to be "red in the face" about the size of the Home Loan banks' investment portfolio-$143 billion on June 30.
The tongue-lashing surprised some observers, because Rep. Leach and Mr. Carnell appear to see eye-to-eye about the problems with Home Loan bank investment policies.
"The extent of investment activities by the Home Loan Bank System ... is cause for real concern," testified Mr. Carnell. The Treasury supports reducing Home Loan bank investments to about $40 billion, he said.
But Rep. Leach said it is no longer enough for the Treasury to recommend limiting investments unrelated to housing. "Why don't you implement it?" he asked.
Bruce A. Morrison, chairman of the Federal Housing Finance Board, which directly regulates the Home Loan banks, said he agrees that the banks need to focus more on housing. "The question isn't whether, but how fast and how much, that arbitrage activity ought to be adjusted," he said.
But John von Seggern, executive vice president of the Council of Federal Home Loan Banks, said it would be impossible to reduce investments significantly without first reforming the capital structure of the Home Loan bank system. "Reducing investments is not a stand-alone issue," he said.
Mr. Morrison also rebutted some of the criticisms leveled at his agency in a recent General Accounting Office report. Among other things, he said the board's safety-and-soundness policies were "more stringent and conservative" than those applied to banks and thrifts.