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Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release January 23, 2004 #04-04
E-mail: [email protected]

ACB SUGGESTS ENHANCEMENTS TO GOVERNANCE OF FHLBANKS

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WASHINGTON, D.C. — America’s Community Bankers today provided the Federal Housing Finance Board with suggestions on enhancing the governance of the Federal Home Loan Banks.

At an hearing to follow up on an FHFB report on governance, J. Edward Norris III, chairman of ACB’s Government Affairs Steering Committee, commended the Finance Board for taking the initiative on governance, and offered suggestions involving FHLBank directors.

“As the financial structure of the FHLBanks becomes increasingly complex, it is essential to improve the qualifications of directors so that they can effectively oversee the FHLBanks’ operations,” Norris said.

Norris also suggested that the FHLBanks would benefit from “enhanced influence of stockholders that have a substantial stake in the system,” although not necessarily based on size.

Public Interest Directors. Norris recommended that the FHFB appoint public interest directors to the FHLBank boards who have financial expertise to oversee the Banks’ sophisticated business activities. ACB said the Finance Board could implement this proposal without a change in the law. Currently, two of six public interest directors must be representatives of consumer or community interests.

To address concerns that stockholders’ interests are not always heeded by the Bank boards, Norris suggested that stockholders be allowed to vote on an advisory basis for appointive director candidates.

If Congress adopts a new regulatory structure for the government-sponsored enterprises that eliminates presidentially appointed directors to the boards of Fannie Mae and Freddie Mac, Norris suggested eliminating the appointment of FHLBank directors by the Finance Board.

Selection of Directors. Norris said that ACB “recognizes that limitations preventing large stockholders from voting all of their shares has been an important feature of FHLBank System governance.” ACB has not taken a position on whether larger members of the FHLBanks should have greater voting power.

Norris said a potential solution might be to give institutions greater voting power in elections for board directors based on the advances to banks, in addition to its stock holdings. Institutions that rely not just on stock dividends, but also on advances, “have much more at stake in the system than do institutions that take out relatively few advances,” Norris said.

A revised voting formula could be based on a percentage of an institution’s liabilities that are represented by advances. “This change would give institutions with a greater commitment to the system a greater say in its operations, without exacerbating divisions based on size,” Norris said. As an example, he said a small member that depends heavily on advances would gain influence, while a very large member that uses a relatively smaller percentage of advances for its funding would not.

Norris is also chairman, president and CEO, Plantation Federal Bank, Pawleys Island, S.C.

Click here for a copy of the testimony.

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

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