Many years ago, a drunken fan staggered up to Groucho Marx, pumped his hand, and said, "You probably don't remember me."

"I never forget a face," Marx replied, "but in your case, I'll make an exception."

It would be understandable if outgoing Federal Housing Finance Board Chairman Bruce Morrison wanted, like Groucho Marx, to forget the Council of Federal Home Loan Banks, which represents the banks he has regulated for the past five years. During his tenure, the council diverged with Chairman Morrison and the Finance Board far more often than it agreed.

Yet in spite of the combativeness, it has been a period of remarkable growth and success for the Home Loan Bank System. Advances have increased from 40% to 70% of our assets. Our membership rose from 5,300 banks to 7,500. And we quite frankly became the lifeblood of modern community banking.

I'd argue that this success has occurred, in no small part, because of the dynamic tension between the Home Loan banks and the Finance Board.

To understand this, it is necessary to understand that the Home Loan Bank System has stress built into its makeup. Stress is inherent in the fact that we must meet the needs of 7,500 community financial institutions, that we are a government-sponsored enterprise without government financial backing, and that we pursue a public mission with only private money.

Yes, Fannie Mae and Freddie Mac are also GSEs that pursue public housing finance goals with private money. But as publicly traded corporations, their focus is on producing equity growth for their stockholders. The Home Loan banks, on the other hand, are relatively silent partners within a cooperative system owned by financial institutions. These investor/owners expect the Home Loan banks to provide both a fair return and an ample supply of financial products and services at the lowest possible cost. That's a tough juggling act and the relative importance of return on investment over low-cost products and services has been a constant source of struggle.

That struggle was evident, for instance, during the creation of Mortgage Partnership Programs, which Mr. Morrison pushed for and most Home Loan banks resisted. However, once their owner/investors accepted the idea, so did the Home Loan banks and now they all participate.

At the heart of such debates is a constant friction between the market and the mission. The Finance Board, driven by a Washington regulatory agenda, has placed greater emphasis on mission, while the Home Loan banks and their members, which deal daily with the realities of Wall Street and Main Street, are heavily focused on market forces. Together these two institutions, in their push-me-pull-you fashion, ensure an effective set of checks and balances.

If the Home Loan Bank System is to succeed, it needs to retain that strong grip on both the market and its mission. There is no either/or option. Our members rely on advances from Federal Home Loan Banks to replace their declining deposits and reduce interest rate risk. They look to us as the primary wholesale source of community development funding in the country. And they keep an unblinking eye on whether they get enough bang for their investment buck.

This dual mandate for earnings and low-cost products has never been more stressful than it is today. Membership in the Home Loan Bank System, which was once mandatory for many financial institutions, became voluntary in May. Members may now vote with their feet.

Disagreements between the Finance Board and the banks are unlikely to disappear when Mr. Morrison steps down as chairman in July. That is because the system faces a tremendous challenge: Congress has mandated that the banks overhaul the way they maintain capital. It is a sensible but difficult change to achieve, not unlike replacing a jet's engine in midflight. With Chairman Morrison stepping down, capital restructuring must be accomplished amid a major transition in regulatory leadership.

Yet in spite of this, the Home Loan Bank System is strong and getting stronger, in large part because each and every battle is so hard won. The system's decisions are reached after every aspect of the decision is scrutinized, tested, challenged, and re-examined - not just by our regulator, but by the 7,500 member-owners of the system.

It is in this spirit of healthy debate that we wish Chairman Morrison the best in his new career and we welcome his successor, whoever he or she may be. Ours is not an easy system. But the council is not like the drunken fan who slapped Groucho Marx on the back. We don't challenge ideas just to be contentious. We do it to keep the system competitive and effective.

Mr. von Seggern is president of the Council of Federal Home Loan Banks.

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