The creation of the Federal Housing Finance Agency brought together the regulation of all of the housing GSEs. Shortly thereafter, Fannie Mae and Freddie Mac were placed into conservatorship by this new regulator, the Federal Housing Finance Agency. This change in status for Fannie Mae and Freddie Mac only highlights the differences between the FHLBank System and Fannie Mae and Freddie Mac, and the need for regulation to recognized the unique nature of the FHLBank System. Unlike the other housing GSEs, the FHLBank System is a cooperative made up of twelve independent FHLBanks with joint and several liability. The FHLBanks, out of the proceeds from net income, operate statutorily mandated affordable housing programs and are responsible for paying off the RefCorp bonds that were used to help resolve the 1980s savings and loan deposit insurance agency losses. Each FHLBank is primarily capitalized through the purchase of stock by its member institutions. FHLBank stock is not available to the public and is not tradable even within an FHLBank without the express permission of the FHLBank.

The current corporate governance structure of the FHLBank System was established by statute. Over the years, certain governance functions have devolved from the regulator to the FHLBanks themselves. ABA members believe that the composition of the Boards of each of the FHLBanks is a critical element in ensuring that the governance of the FHLBank is undertaken in an appropriate manner. As all of the FHLBanks, and the FHLBank System in general, have evolved into sophisticated financial institutions, we believe that financial, business, and operating expertise must be demonstrated by the Board of each FHLBank. We strongly support careful consideration of changes to the statute, the regulation, and practices, which will ensure that each FHLBank has a Board that is composed of members with a stake in the System who understand the commitment and importance of serving on the FHLBank Board. As the financial structure of the Banks becomes increasingly complex, it is important to have strong financial qualifications for all directors so that they can effectively oversee the FHLBanks' operations.

The FHLBanks should have, within the risk-based capital structure, maximum flexibility in determining the most appropriate investment strategy for the FHLBanks, in order to meet the needs of their member institutions and communities. The FHLBanks should be encouraged to be responsive to member needs, developing new products and programs that enhance their members' ability to extend competitive credit products to the communities they serve. New forms of member created assets should evolve on the balance sheets and in the operations of the FHLBanks in a manner consistent with the statutory authority of the FHLBanks and objective risk/reward criteria. They should be governed by risk-based capital standards and cooperative, activity-based capital requirements. 

The capital plans of the twelve FHLBanks have diverse and varying components designed best to meet the needs of their members. In such an environment the FHFA must, in addition to ensuring that each FHLBank operates in a safe and sound manner, analyze the impact of the plans on the System as a whole. Careful review and prudent oversight must be carried out to avoid destabilizing competition and arbitrage of membership and to preserve the cooperative nature of the System. Requiring the members of a cooperative to provide capital support for their individual activities is the best method of preserving the cooperative nature of the System.

The RefCorp obligation, which the FHLBanks are expected to have fulfilled ahead of schedule, should not be increased or extended when the RefCorp obligation has been fulfilled.  No new program or legislation is needed.  Once this obligation is met, the FHLBanks should devote these resources towards the programs and purposes that benefit the System and its members, as authorized in their charters.

ABA supports conditional multi-district membership if the FHFA determines it is authorized by statute. Any policies developed must be developed in an environment of full industry participation and discussion that preserves the cooperative nature of the System and the vital functions performed by the FHLBank System and its district Banks.

ABA supports allowing the FHLBanks to issue standby letters of credit to community banks in support of tax exempt bonds for community and economic development purposes. 

Letters of Credit will provide an additional credit enhancement option as issuers work to structure cost effective financing on projects like water treatment facilities, fire stations, long-term care facilities for the elderly, medical clinics, school buses, bridges and other infrastructure improvements. This will enhance competition in the marketplace and expand access to critical funding for projects and authorities often overlooked by larger players.