System Needs a Broader Mission, Says Dallas Chief

American Banker: What changes, if any, would you like to see in the Federal Home Loan Bank System?

George Barclay: I would like to see a greater recognition of ... community banks. I would like to see the treatment of our different classes of members be equalized. I would like to see voluntary membership, because I don't think we have anything to fear from voluntary membership - we have people joining us in droves on a voluntary basis.

AB: Do we really need the Federal Home Loan Bank System?

GB: The answer to that is an unequivocal yes, provided that the mission of the system be understood - the mission to be a wholesale lender to community financial institutions.

AB: As opposed to what?

GB: A wholesale lender to housing financial intermediaries. What we were dealing with in the past was being a provider of wholesale funds to regulated financial institutions that specialized in home loans.

I think that that needs to be broadened to be a wholesale lender to community oriented regulated financial institutions. And the difference in that is that you move from a specialty of lending for residential housing purposes to a broader specialty of lending for the benefit of communities.

AB: Do we need thrifts?

GB: We need community financial institutions, and as every day goes by, the activities of the community commercial bank and the community thrift become more similar. So do we need thrifts per se, do we need specialized residential housing lenders? Probably not in most cases.

But do we need community financial institutions who will make housing loans? Absolutely. Because although a larger and larger percentage of mortgage loans are originated for sale into the secondary market, there is a huge demand and need for mortgage loans that don't conform for sale into the secondary market.

And its predominately the community thrifts and community commercial banks that make those loans and hold them in their own portfolios at their own risk.

AB: What if no changes are made in the way the Federal Home Loan Bank system is run? How well will it work in the future?

GB: It will work fine, but on a much smaller scale and with a much smaller social impact than it would have if we made changes.

AB: What is important in Washington for your bank's region?

GB: The most important thing is what is going to happen with the economy generally, what is going to happen with deficit reduction, and what is going to happen with health care.

George M. Barclay, president of the Dallas Federal Home Loan Bank, visited Washington last week to discuss the future of the Federal Home Loan Bank System. He told American Banker reporter Robyn Meredith Berry that all the system needs is a mission.

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