CURRENCY Committee on Banking and Financial Services
James A. Leach, Chairman
For Immediate Release:	Contact: David Runkel or
Tuesday, May 16, 2000	Brookly McLaughlin (202) 226-0471

On the GSE subject caution should always be the watchword but oversight is critical and there should never be intransigence in support of the status quo if it is the status quo - i.e., the privileged status of the GSEs - that precipitates radical change in the market.

GSEs, we should remind ourselves, were established to serve and complement private sector needs, not become the marketplace.

In this regard, as a general rule, great care should be taken to insist that Fannie Mae and Freddie Mac stick exclusively to the home mortgage market, that the Farm Credit System and Farmer Mac deal exclusively with agriculture, and that the Federal Home Loan Banks make advances to member institutions, not loans or their equivalent in their own right.

But I would like this morning to register three specific concerns: a) the abuse of public power by all GSEs, particularly Farmer Mac, Freddie Mac, the Federal Home Loan Bank System as well as Fannie Mae, in their extensive arbitrage activities; b) the desire reflected in proposed rule changes of the Federal Home Loan Banks to weaken their capital ratios; and c) the proposal to make stock tradable within the Federal Home Loan Bank system without limits on outside control. The idea that a Federal Home Loan Bank could be controlled by a single private entity, whether a commercial bank, S&L, affiliate of a securities company, or an insurance company, is deeply troubling. Federal Home Loan Banks not only have access to capital at near Treasury rates, they are tax exempt at the Federal level. It is not the intention of Congress to have a private entity control one of these banks and transform their cooperative ethic. Nor is it Congressional intent to have Fannie or Freddie with their tax exempt status at the state level to expand their tax advantages by making them tax exempt at the federal also through purchase of a Federal Home Loan Bank.

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