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ICBA Testifies on Federal Home Loan Bank Governance Report

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Washington, D.C. (Jan. 23, 2004) - "A safe and sound Federal Home Loan Bank system is vitally important to community banks. We recognize that an important part of safety and soundness of any institution is a well functioning and engaged board of directors. The Federal Home Loan Banks are no exception," said David Hayes, president and CEO of Security Bank in Dyersburg, Tenn., testifying on behalf of the Independent Community Bankers of America before the Federal Housing Finance Board on its "Report of the Horizontal Review of Board Governance of the Federal Home Loan Banks." Hayes serves as ICBA's vice chairman.

Hayes said that Congress has given the Federal Home Loan Banks a nontraditional board structure, which calls for a certain ratio of director seats set aside for elected member representatives and a certain ratio for appointed representatives of the public interest. ICBA sees this structure as appropriate to the unique mission of the Federal Home Loan Bank system and its cooperative structure.

If voting rights were changed so that the largest Federal Home Loan Bank users could vote all their stock, they would likely dominate their Federal Home Loan Bank both through governance and through their influence as dominant customers. Not only would this create safety and soundness and board independence issues, but also it would make it far more difficult for community financial institutions to have a voice in their respective districts.

"We believe this is contrary to the wishes of Congress, which expanded community financial institution access to Federal Home Loan Bank membership and advances in the Gramm-Leach-Bliley 1999 Act of 1999," said Hayes. "Congress gave the Federal Home Loan Bank system a cooperative structure. In a cooperative it is important to give all members an opportunity to be represented, regardless of size and the amount of advances they borrow."

Hayes told the FHFB that ICBA sees no need to seek comprehensive changes in FHLB governance at this time, particularly since Congress had the opportunity to address these issues so recently when it passed Gramm-Leach-Bliley. He expressed ICBA's support for the FHFB's plans to enhance its examination procedures, saying the report contains a number of good suggestions that do not require changes in the statute or regulations but can be addressed as part of a Federal Home Loan Bank's overall safety and soundness examination.

"In our view, the FHFB has an important role to play in enhancing Federal Home Loan Bank governance and we encourage you to do so, through guidance and examination rather than regulation and legislation," said Hayes.