FOR IMMEDIATE RELEASE
ICBA Supports GSE Reform, Cautions Against Too Much Power
Washington, D.C. (April 19, 2005) - The chairman of the Independent Community Bankers of America (ICBA) told the Senate Banking Committee today that the association "strongly supports efforts to improve the regulation of the housing GSEs," but added that "Congress should take precautions to ensure that new powers conferred on the regulator are not overly broad."
ICBA Chairman David E. Hayes, president and CEO of Security Bank in Dyersburg, Tenn., testified that the housing GSEs-Fannie Mae, Freddie Mac and the Federal Home Loan Bank System-provide community banks with "irreplaceable access to capital markets" as well as advances for liquidity and asset-liability management. "The GSEs need a strong, independent safety and soundness regulator to ensure they remain reliable sources of funding and liquidity for decades to come," he said.
But Hayes added: "As a general rule, we believe that the powers of the new GSE regulator and its director should not surpass those at federal banking agencies." He cautioned that conferring too much power on the new regulator could open the door to harmful political influences.
Hayes also testified that Congress should not attempt to draw a "bright line" between primary and secondary market activities. Many lenders use automated underwriting systems developed by Fannie and Freddie, which have "driven down lender and borrower costs, expanded approvals and increased standardization, which helps level the playing field between large and small institutions," he said. Drawing sharp distinctions between primary and secondary market activities could preclude development of these and similar products.
Hayes cautioned Congress against imposing statutory caps on portfolio growth, which could lead to problems in providing sufficient liquidity for heavy consumer demand. "At the same time, the GSE regulator should have the authority to restrain growth for safety and soundness reasons, just as bank regulators do," he added.
The ICBA chairman also recommended that the committee adopt an ICBA-backed amendment to encourage FHLBanks to use new authorities under the Gramm-Leach-Bliley Act. The new authorities, implemented by some FHLBanks and not others, provide support for small farms, small agri-business and small business financing. The asset-size cap for institutions eligible for these programs, he said, should be raised to $1 billion.
Hayes also suggested that it was a good time to look at the regulatory oversight of the Farm Credit System, although he acknowledged that it was outside the jurisdiction of the Banking Committee. "We have seen the Farm Credit System engage in significant mission creep and a strong regulator is clearly needed to ensure that it is adhering to its congressionally mandated mission," he said.
See the full text of Hayes' testimony at www.icba.org/pressroom, and click on "Testimony."