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Legislative Updates

October 11, 2006

I. Congressional Calendar/ Policy Matter in Play in the 109th Congress

A post-election lame-duck session of the 109th Congress is guaranteed. The Congress is slated to return November 10. A continuing resolution that will keep much of the federal government funded at 2006 levels expires on November 16 and must be addressed either through individual appropriations bills or another continuing resolution that would last until next year. It will be an especially fluid situation because, as the 109th Congress is winding up, members of the 110th Congress will begin meeting to elect leaders and begin jockeying for committee positions.

The big question for those with pending matters before the 109th Congress is the length of the lame-duck session. A longer session helps those seeking to get things done. However, should the House and/or Senate change control, the session will be shorter. Following the landmark 1994 election in which the Republicans won control of the House, the Senate was in session for two days with the House in session for one.

The following FHLBank policy items are in play:

• GSE Regulatory Reform: House Democrats and the Treasury Department have been attempting to reach a final agreement on GSE legislation. Unless the Treasury relents and accepts in large part the House language dealing with Fannie Mae and Freddie Mac portfolios, an agreement is unlikely.
• Director Compensation Terms: House and Senate GSE reform bills include a removal of statutory caps on FHLBank director compensation and an extension of director terms from three to four years. While the GSE bill has even a small chance of passage, the bill's proponents will not support the separation of any popular provisions to be moved on other legislation.
• Appointment of Public Interest Directors: Last month, Federal Housing Finance Board (FHFB) Chairman Ronald Rosenfeld told the House Capital Markets Subcommittee that he did not think the law that required "the regulator to appoint the regulated" made much sense. Not only did that engender opposition from subcommittee members and full-committee Chairman Mike Oxley (R-OH), the chairs and vice chairs of all twelve FHLBanks sent a letter urging that he make these appointments. Since Chairman Rosenfeld has also stated he did not think it made sense to appoint these directors while GSE legislation was pending, it is possible he might change his position should the legislation not pass.
• FHLBank Letters of Credit in Support of Tax-exempt Bonds: Passage of this legislation is unlikely in the 109th Congress.

II. FDIC Receives 651 Comments on Implementation of Risk-based Deposit Insurance Premiums

The FDIC is currently considering its final regulation implementing a new risk-based deposit insurance system. The comment period on the proposal closed September 22. The law requires that the final rule must be approved by November 5.

The FDIC received 651 letters with 560 addressing the treatment of advances as volatile liabilities. All of these letters argued that advances should not be treated as volatile liabilities.

U.S. Reps. Barney Frank (D-MA) and Paul Kanjorski (D-PA) sent a joint letter to the FDIC also arguing that advances should not be treated as volatile liabilities.

III. FHFB Retained Earnings Proposal

In the face of criticism from a number of members of the House Capital Markets Subcommittee during a hearing last month, FHFB Chairman Rosenfeld indicated he was considering amending the proposed regulation in three significant areas: the formula for determining the required level of retained earnings for each FHLBank; the length of time to reach that level; and the percentage of earnings that an FHLBank could pay as member dividends until the required level was reached. While the FHFB hopes to approve the final regulation at its meeting November 8, it could well slip until the December meeting.

IV. FHFB Meeting

On October 12, the FHFB unanimously approved John Price and FHLBank of Topeka President Andy Jetter to serve on the Financing Corporation Directorate.

The Board also approved an amendment to FHLBank Seattle's capital plan authorizing an interim excess stock pool and issuance of Class A stock to support advances.