FHFB Chairman Korsmo Does Not Favor FHLB Consolidation

MARCH 7, 2003


FHFB Chairman Korsmo Does Not Favor FHLB Consolidation

When asked whether he favors consolidation of the Federal Home Loan Bank (FHLB) System, Federal Housing Finance Board Chairman John T. Korsmo said, "I absolutely do not. I understand and appreciate how important the opportunity for local banks to influence their regional Federal Home Loan Bank is."

Chairman Korsmo said his staff is completing a study of industry trends and the implications of the changes in the financial industry where some members of the FHLBs operate across the nation but belong to only one FHLB per bank charter. Chairman Korsmo stated that he comes to the issue with no preconceived notion. If facts reveal that membership rules should be modernized in some fashion, any proposal that he develops will respect the cooperative structure of the System.

Chairman Korsmo stood his ground on whether the Federal Home Loan Banks (FHLBs) should come under the disclosure jurisdiction of the Securities and Exchange Commission (SEC). Chairman Korsmo stated that he believes that the FHLBs should be role models and fully and freely disclose under the Securities Exchange Act of 1934 Act. "And its going to happen," he said.

Korsmo pointed out that someone borrowing from a community bank will receive a "better deal" if they can supply the bank with a full accounting of their finances, fully vetted by a reliable independent, outside agent. "For the Federal Home Loan Banks, that reliable independent, outside agent should be the Securities and Exchange Commission," he stated. "With enhanced disclosure based on the 'gold standard' of the Securities and Exchange Commission, the Federal Home Loan Banks can borrow at a better rate, and ultimately, lower the cost of the borrowing all of you make through advances," he said.

Responding to those, including ICBA, who support enhanced disclosure but believe that the FHFB, not the SEC, should oversee the function, Chairman Korsmo indicated that the FHFB should focus on the System's safety and soundness. He sees the SEC as the "proven expert" in financial disclosure, that can ensure the public and FHLB System investors of the reliability and completeness of the disclosures.

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