ACB: Press Releases

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 December 2, 2002
E-mail: [email protected]

BANKING TRADE GROUPS URGE FEDERAL HOUSING FINANCE BOARD TO RETAIN AUTHORITY OVER FHLBANK SECURITIES DISCLOSURES

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Joint News Release

America’s Community Bankers
American Bankers Association
Independent Community Bankers of America

Contacts:
ACB — Robert Schmermund (202) 857-3104
ABA — Catherine Pulley (202) 663-5468
ICBA — Ann Grochala (202) 659-8111

WASHINGTON, D.C., Dec. 2, 2002 — Three major national banking trade groups, representing virtually all members of the Federal Home Loan Bank System, urged the Federal Housing Finance Board today to retain authority over FHLBank System securities disclosures and not relinquish its responsibilities to the Securities and Exchange Commission.

The recommendation was made in a joint written statement by America’s Community Bankers, the American Bankers Association and the Independent Community Bankers of America. The statement was filed after the FHFB turned down a request by the trade groups to have a single witness testify at the public hearing on behalf of FHLBank System shareholders.

The trade groups, expressing “serious reservations about the apparent intention of the Finance Board to delegate its authority to the SEC,” said issues of proper disclosure and reporting requirements “are of utmost importance to the future of the Federal Home Loan Bank System and are inextricably linked to the system’s safety and soundness.”

The groups added: “The members of the FHLBank System strongly support full, accurate, transparent and enhanced securities disclosures that are appropriate for the unique cooperative structure of the system, and carried out through the Finance Board in consultation with the SEC.

“The system currently has a disclosure regime, one that is modeled after that of the SEC, but with specific adjustments to accommodate the unique nature of the system. We urge the Finance Board to not relinquish its responsibilities to the SEC.”

The groups expressed concern that, if the system were subject to disclosures designed for publicly traded companies, “an unintended consequence could result, confusing investors and others who try to compare the system’s disclosures with those of other companies.”

The groups noted that “SEC registration is not without cost. We have grave concerns that SEC application of the 1934 Act could have unintended consequences that might significantly increase costs to the FHLBanks and its members. The public policy purpose of the FHLBank System dictates that great care be given to ensuring that unnecessary regulatory or other costs do not occur.”

These increased costs will directly reduce Affordable Housing Program funding, will either increase residential and community development credit costs or decrease credit availability, and will extend the period required to pay off the Resolution Funding Corporation bonds.

The groups urged the Finance Board to recognize the unique nature and structure of the FHLBank System:

• The FHLBanks are cooperatives whose shareholders join the system to obtain the benefits of membership, not for the rewards and risks of investing. This differentiates FHLBank shareholders from shareholders of public companies.

•The capital stock of the FHLBank System is 100 percent owned by the system’s members. The stock is not publicly traded and does not fluctuate in value. The stock is issued and redeemed at par value. The amount of stock held by a member is related more to FHLBank activities than to investment expectations. Disclosure under SEC administration “would add much complexity to the system while providing little to benefit investors that would not be accomplished through Finance Board administration,” the trade groups said.

• The FHLBanks operate separately, but are financially linked as jointly and severally liable for the consolidated obligations issued by the Office of Finance. “This is a novel and critical factor that affects how the FHLBank System operates, how it should be regulated and what financial and other disclosures are appropriate,” the groups said.

•The business goal of the FHLBanks is not to maximize profit on each transaction so that shareholders can be rewarded. “Instead, the goal of a FHLBank is to create financial products that allow the members to maximize their ability to provide competitively prices home mortgage and community based credit products to their communities,” the groups said.

The groups also emphasized that Congress: preserved the Office of Finance as agent to issue the system’s debt in the Financial Institutions Reform, Recovery and Enforcement Act; left intact the Finance Board’s broad authority to oversee the system’s financial disclosures in the Gramm-Leach-Bliley Act; and did not modify the regulatory disclosure regime for the FHLBanks in the Sarbanes-Oxley Act.

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.

The ABA brings together all categories of banking institutions to best represent the interests of this rapidly changing industry. Its membership — which includes community, regional and money center banks and holding companies, as well as savings associations, trust companies and savings banks — makes ABA the largest banking trade association in the country. ABA can be found on the world wide web at http://www.aba.com.

The Independent Community Bankers of America is the nation’s leading voice for community banks and the only national trade association dedicated exclusively to protecting the interests of the community banking industry. ICBA aggregates the power of its members to provide a voice for community banking interests in Washington, resources to enhance community bank education and marketability, and profitability options to help community banks compete in an ever-changing marketplace. ICBA has 5,000 members with branches in 17,000 locations nationwide. Its members hold nearly $511 billion in insured deposits, $624 billion in assets and more than $391 billion in loans for consumers, small businesses, and farms in the communities they serve.

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