For many months now the Federal Home Loan Bank System has been under scrutiny. In a matter of weeks, studies will be presented to Congress by the likes of the General Accounting Office, the Congressional Budget Office, and the Federal Housing Finance Board.

Don't expect these to be reiterations of the conventional wisdom about the Home Loan system. They won't be - because with enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, that system effectively began to disappear.

The system is no longer merely a liquidity source for thrift institutions. Today the membership rolls are exploding, and the members have a growing stake and influence in the system.

In addition, powerful interest groups -- home builders, consumer and housing advocates, insurance companies, and state housing agencies among them - are positioning themselves for a piece of the action.

Many will be surprised by the recent trasformation of the system's membership.

In just three years, using authority provided by 1989 banking law, more the 1,300 commercial banks have joined a system that could once admit only thrifts.

Benefits to Banks

What's the attraction for commercial banks? They include:

* Access to what is i essence a substantial line of credit at little or no cost. (As Federal Deposit Insurance Corp. gets a better understanding of how well this benefit can be used, its value will grow.)

* Access to housing programs for people of low or moderate income, which will help institutions meet their Community Reinvestment Act obligations.

* Access to Federal Home Loan Bank stock providing a good rate of return in most districts during most quarters.

Evolving System

A recent membership study conducted by the Financial Research Institute found:

* Commercial banks now represent roughly one-third of the membership of the Home Loan Bank System, and their numbers are increasing rapidly. Voluntary members, now more than one-third of the total system-wide, are expected to outnumber mandatory members in seven Home Loan banks and the system as a whole by yearend.

* Commercial banks now hold more than one-fifth of the total member assets. Voluntary members account for roughly one-third. Given current membership trends, voluntary members' assets are likely to exceed those of mandatory members in two to three years.

* Most of the system's advances outstanding are to thrift members. The voluntary members hold less than one-fifth of all advances outstanding. Still, in two of the Home Loan banks -- Boston and Pittsburgh -- voluntary members have taken down the majority of advances.

* Although the Home Loan banks have attracted commercial bank members, the percentage of commercial banks that are now members is less than 10% in most districts. The influx can continue at today's fast pace for several years.

* Although some new commercial bank members have relatively low equity-capital ratios, they are few. District by district, ratios for member and non-member commercial banks are very similar.

* The average returns on assets for commercial bank members ad nonmembers were both relatively good, and also very similar.

* Relatively few new commercial bank members have serious troubled-asset problems. In fact, new members compare favorably with the industry as a whole.

* The commercial bank members tend to focus more on housing than does the commercial banking industry as a whole.

Thus, the new commercial bank members are simply a microcosm of the commercial banking industry -- with one significant exceptio. Most tend to be more focused on residential housing finance than their counterparts in the rest of the industry.

Overall, it is clear that the Federal Home Loan Bank System is no longer the thrift-based entity it was in the past. It is now an enterprise oriented toward housing finance, and with a much broader base of members and stockholders.

Furthermore, current trends suggest that the new voluntary members will increasingly dominate the Home Loan Banks over the next few years.

In short, the Federal Home Loan banks have changed greatly. They are new entities, evolving every day. This should be kept in mind as the system's future is debated.

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