[Congressional Record Volume 143, Number 1 (Tuesday, January 7, 1997)]
[Extensions of Remarks]
[Pages E65-E66]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                THE ENTERPRISE RESOURCE BANK ACT OF 1996

                                 ______
                                 

                         HON. RICHARD H. BAKER

                              of louisiana

                    in the house of representatives

                        Tuesday, January 7, 1997

  Mr. BAKER. Mr. Speaker, today I am introducing legislation, with my 
distinguished colleague, the Minority Leader of the Capital Markets 
Subcommittee, Rep. Paul Kanjorski (D-PA), to reform the Federal Home 
Loan Bank System (FHLB). Throughout the 104th Congress, Mr. Kanjorski 
and I have worked diligently to craft a bi-partisan reform bill. This 
legislation reflects the product of our subcommittee from April of last 
year.
  While this bill reflects general consensus among members of the 
subcommittee, we are committed to working with other members of the 
full committee as well as the Administration to craft a bill that 
reflects most concerns. Greater attention will be given to the 
regulation and governance of the Bank System, the proper capital 
structure, the membership profile, and the mission of the system.
  The Federal Home Loan Bank System was established in 1932 primarily 
to provide a source of intermediate- and long-term credit for savings 
institutions to finance long-term residential mortgages and to provide 
a source for liquidity loans for such institutions, neither of which 
was readily available for savings institutions at that time the Federal 
Home Loan Bank system was created.
  In recent years, the System's membership has expanded to include 
other depository institutions that are significant housing lenders.

[[Page E66]]

  The segment of savings institutions and other depository institutions 
that are specialized mortgage lenders has decreased in size and market 
share and may continue to decrease. The establishment of the Federal 
National Mortgage Association (Fannie Mae), the Federal Home Loan 
Mortgage Corporation (Freddie Mac), and the Government National 
Mortgage Association (Ginnie Mae) and the subsequent development of an 
extensive private secondary market for residential mortgages has 
challenged the Federal Home Loan Bank System as a source of 
intermediate- and long-term credit to support primary residential 
mortgages lenders.
  For most depository institutions, residential mortgage lending has 
been incorporated into the product mix of community banking that 
typically provides a range of mortgage, consumer, and commercial loans 
in their communities.
  Community banks, particularly those in rural markets, have a 
difficult time funding their intermediate- and long-term assets held in 
portfolio and accessing capital markets. For example, rural nonfarm 
businesses tend to rely heavily on community banks as their primary 
lender. Like the savings associations in the 1930's, these rural 
community banks draw most of their funds from local deposits. Longer-
term credit for many borrowers in rural areas may therefore be 
difficult to obtain. In short, the economy of rural America may benefit 
from increased competition if rural community banks are provided 
enhanced access to capital markets.
  Access to liquidity through the FHLB System benefits well-managed, 
adequately-capitalized community banks. For these banks, term advances 
reduce interest rate risk. In addition, the ability of a community bank 
to obtain advances to offset deposit decreases or to temporarily fund 
portfolios during an increase in loan demand reduces the bank's overall 
cost of operation and allows the institution to better serve their 
market and community.
  Used prudently, the FHLB System is an integral tool to assist 
properly regulated, well-capitalized community banks, particularly 
those who lend in rural areas and underserved neighborhoods, a more 
stable funding resource for intermediate- and long-term assets.
  With that in mind, I have introduced this legislation today to 
enhance the utility of the Federal Home Loan Bank System. I want the 
mission of the system to remain strong in the ability to help Americans 
realize the dream of home ownership, but equally as important: I want 
the System to enrich the communities in which Americans build their 
dreams.
  America is the world capital of free enterprise. Free enterprise is 
the foundation on which the ``American Dream'' is built, and it is the 
engine by which ``American ingenuity'' is driven. My legislation will 
help nurture American free enterprise. That is why I call this bill the 
``Enterprise Resource Bank Act.''
  The Enterprise Resource Bank Act will strengthen the System's mission 
to promote residential mortgage lending (including mortgages on housing 
for low- and moderate-income families. Enterprise Resource Banks will 
facilitate community and economic development lending, including rural 
economic development lending. And Enterprise Resource Banks will 
facilitate this lending safely and soundly, through a program of 
collateralized advances and other financial services that provide long-
term funding, liquidity, and interest-rate risk management to its 
stockholders and certain non-member mortgages.
  Since 1932, the Bank System has served as a link between the capital 
markets and local housing lenders, quietly making more money available 
for housing loans at better rates for Americans. Today the Federal Home 
Loan Banks' 5,700 member financial institutions provide for one out of 
every four mortgage loans outstanding in this country, including many 
loans that would not qualify for funding under secondary market 
criteria. The Bank System accomplishes this without a penny of taxpayer 
money through an exemplary partnership between private capital and 
public purpose.
  More than 3,500 of the Bank System's current members are commercial 
banks, credit unions and insurance companies that became eligible for 
Bank membership in 1989. They demonstrate the market's value of the 
Bank System by investing in the capital stock of the regional home loan 
banks. These institutions have recognized the advantages of access to 
the Bank System's credit programs and have responded to their local 
communities' needs for mortgage lending. As the financial marketplace 
grows larger and more complex, I envision the Bank System as a 
necessary vehicle for serving community lending needs especially in 
rural and inner-city credit areas.

  The Federal Home Loan Bank System serves an active and successful 
role in financing community lending and affordable housing through the 
Affordable Housing Program (AHP) and the Community Investment Program 
(CIP). The AHP program provides low-cost funds for member institutions 
to finance affordable housing, and the CIP program supports loans made 
by members to community-based organizations involved in commercial and 
economic development activities to benefit low-income areas.
  The Federal Home Loan Banks' loans (advances) to their members have 
increased steadily since 1992 to the current level of more than $122 
billion. Since 1990, the Banks have made $7.1 billion in targeted 
Community Investment Program advances to finance housing units for low- 
and moderate-income families and economic development projects. In 
addition, the Banks have contributed more than $350 million through 
their Affordable Housing Programs to projects that facilitate housing 
for low- and moderate-income families.
  While these figures are impressive, the Federal Home Loan Bank System 
needs some fine tuning to enable it to continue to meet the needs of 
all its members in a rapidly changing financial marketplace. The 
Enterprise Resource Bank Act of 1996 recognizes the changes that have 
occurred in home lending markets in recent years, which is reflected in 
the present composition of the Bank System's membership. Enacting this 
legislation will enhance the attractiveness of the Banks as a source of 
funds for housing and related community development lending, and will 
encourage the Banks to maintain their well-recognized financial 
strength. Specifically, my legislation: targets the Bank System's 
mission in statute to emphasize the System's important role of 
supporting our nation's housing finance system and its potential role 
of supporting economic development by providing long term credit and 
liquidity to housing lenders; establishes voluntary membership and 
equal terms of access to the System for all institutions eligible to 
become Bank System members, and eliminates artificial restrictions on 
the Banks' lending to member institutions based on their Qualified 
Thrift Lender status; equalizes and rationalizes Bank members' capital 
stock purchase requirements, preserving the cooperative structure that 
has served the System well since its creation in 1932; separates 
regulation and corporate governance of the Banks that reflect their low 
level of risk ensuring the Banks can meet their obligations; and 
modifies the methodology for allocating the Bank System's annual $300 
million REFCORP obligation so that the individual Banks, economic 
incentives are consistent with their statutory mission to support 
primary lenders in their communities.
  Taken together, these interrelated provisions address the major 
issues identified in a recent series of studies of the Bank System that 
Congress required from the Federal Housing Finance Board (FHFB), the 
Congressional Budget Office (CBO), the General Accounting Office (GAO), 
the Department of Housing and Urban Development (HUD) and a Stockholder 
Study Committee comprised of 24 representatives of Federal Home Loan 
Bank shareholder institutions from across the country.
  The Enterprise Resource Banks Act will make the Banks more profitable 
by enabling them to serve a larger universe of depository institution 
lenders more efficiently, and it will return control of the Banks to 
their regional boards of director who are in the best position to 
determine the needs of their local markets. At the same time, it will 
provide for the safety and soundness oversight necessary to ensure that 
this large, sophisticated financial enterprise maintains its financial 
integrity and continues to meet its obligations.
  I first offered comprehensive legislation to modernize the Bank 
System in 1992. The legislation is the culmination of efforts over the 
last three years to address in a balanced way the concerns of the 
Banks' member institutions, community and housing groups, and various 
government agencies. Together with my respected colleague, Rep. Paul 
Kanjorski, I look forward to passage of this important legislation to 
modernize an institution that works to improve the availability of 
housing finance and the opportunity of credit for all Americans, 
particularly those who are underserved.

                          ____________________