FHLBank System:

Reforms Needed to Promote Its Safety, Soundness, and Effectiveness

T-GGD-95-244: Published: Sep 27, 1995. Publicly Released: Sep 27, 1995.

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Pursuant to a congressional request, GAO discussed the reforms needed to promote safety, soundness, and effectiveness within the Federal Home Loan Bank (FHLBank) System. GAO noted that: (1) the biggest obstacles to effective FHLBank reform are the Resolution Funding Corporation (REFCorp) and the Affordable Housing Program (AHP) annual System obligations; (2) activities undertaken to increase System income to pay the obligations may have increased the extent of risk in the System; (3) the fixed nature of the obligations may inhibit potential improvements in the capital structure, and complicate possible moves toward consolidation; (4) required capital is not tied to the risks each FHLBank incurs and it is impermanent; (5) a risk-based capital requirement would allocate capital on the basis of credit risk and a retained earnings requirement would provide a buffer for interest rate risk undertaken by a FHLBank; and (6) administrative control of AHP along with other management functions should be devolved to FHLBanks rather than to the Federal Housing Finance Board.

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