Treasury Flexes Muscles on GSE Bill, Markup Postponed
Intense lobbying by Treasury officials to reshape GSE reform legislation to give Treasury more power led to an abrupt postponement this week of a scheduled markup of the bill in the House Financial Services Committee, and left the outcome of the bill in doubt.
The legislation, crafted as a substitute to H.R. 2575 by committee chairman Mike Oxley (R-OH), creates a new regulator housed in the Treasury Department to oversee Fannie Mae and Freddie Mac. Under the Oxley measure, the new regulator would be housed at Treasury but retain its independence from political interference by Treasury policymakers. The structure would be similar to that of the OCC and the OTS. In addition, the Oxley bill would allow HUD to retain control over new Fannie and Freddie programs and activities and set national housing goals.
Regulatory independence and HUD control over mission activities have been priorities of the ICBA and other trade groups, including the National Association of Home Builders and the National Association of Realtors. Without these two safeguards, future Treasury officials who do not support these housing finance agencies could severely curtail their activities.
The day before the markup, assistant Treasury secretary Wayne Abernathy charged that the Oxley proposal did not give the Treasury Department enough power to police the GSEs. Abernathy's remarks suggested that Treasury would settle for nothing less than full authority to review new activities of the GSEs, and the budget, regulations, and congressional testimony of their new regulator. He said the Treasury also would want to be involved in setting the GSE's risk based capital requirements.
In defending these powers, Abernathy said, "… the legislation that creates a new regulator for Fannie Mae and Freddie Mac could reinforce the dangerous misperception that investing in these enterprises involves no risk. We must go to great effort to guard against this hazard."
Abernathy concluded that the Oxley legislation was "not a credible bill."
Treasury opposition to the Ohio Republican's bill put the chairman between a rock and a hard place. The housing lobby (including ICBA) pushed hard for regulatory independence; Treasury officials lobbied Republicans for more Treasury control. And the Democrats were lined up to oppose the bill as drafted. An Oxley spokesperson said the chairman sought a balanced bill that addressed the need to oversee the GSE's housing mission while strengthening their safety and soundness. We commend Chairman Oxley for taking this evenhanded approach.
No new date has been set for the markup. However, Rep. Richard Baker (R-LA), chairman of the subcommittee that oversees GSEs and a long-time advocate of GSE reform, said that "… if next week the committee is unable to mark up and pass a strong reform bill, I will recommend to the chairman that we hold off until the time is right to get it right."
Also left unresolved is the fate of Federal Home Loan Banks under the legislation. An amendment was expected to be offered by Reps. Royce (R-CA), Maloney (D-NY) and Leach (R-IA) to move regulation of the Federal Home Loan Banks to the Treasury Department. ICBA and our state affiliates fought hard against this amendment, and the fight is far from over. A majority of Federal Home Loan Banks now favor a move to Treasury, and ACB, the trade group for savings and loans, recently changed its position to support the move. ACB, which previously opposed moving FHLBanks under the Treasury regulatory umbrella, adopted a new position that is in line with the positions of World Savings and Washington Mutual, two of its largest members.
Earlier this week, the ICBA Board of Directors, after a full discussion at its fall meeting, voted unanimously to oppose the Royce-Maloney-Leach amendment. ICBA believes moving regulation of Federal Home Loan Banks to Treasury would be a mistake because it could hinder community banks' access to this key funding source, and possibly expose it to the influence of political officials who may not support it.
Thank you for your lobbying efforts against the Royce-Maloney-Leach amendment. Please don't let up on these efforts because the bill could be scheduled for another markup on short notice.
The Senate Banking Committee is scheduled to hold a hearing on GSE reform on October 16. Committee chairman Richard Shelby (R-AL) has already expressed support for including Federal Home Loan Banks under an umbrella regulator at Treasury, so expect a tough lobbying fight in the Senate as well.