Bloomberg News
WASHINGTON — Sens. Jim Banks, R-Ind., and Catherine Cortez-Masto, D-Nev., are introducing a bill that would allow the Federal Housing Finance Agency director to set limits for executive pay at the Federal Home Loan banks, according to a copy of the legislation seen by American Banker.
The bill is a rare bipartisan effort in a divided Washington that combines Republicans’ desire to dramatically reduce the federal footprint and spending with Democrats’ complaints that the Federal Home Loan Bank System has drifted away from its initial mission of expanding affordable housing.
“Federal Home Loan banks exist to help Americans buy homes, not to pad the pockets of executives,” Banks said. “This bill keeps FHLBs on mission and empowers President Trump and FHFA Director Pulte to eliminate excessive pay and waste of government resources.”
Specifically, the bill allows the director of the FHFA — which oversees the Federal Home Loan Bank System — to establish compensation for any executive officer of a Federal Home Loan bank that is “reasonable and comparable with regulations promulgated by the director.”
“While the Federal Home Loan Bank System has continued to fail to meaningfully invest in affordable housing and community development, it pays its executives millions each year,” Cortez-Masto said. “This bipartisan legislation gives the Federal Housing Finance Agency more oversight over FHLBanks executives’ compensation to help make sure the system delivers for working families.”
The Council of Federal Home Loan Banks, which represents the Home Loan Bank System, said in a statement that the banks are cooperative enterprises that require considerable expertise to operate effectively.
“The FHLBanks are member-owned cooperatives operating with private capital and are subject to significant regulatory and supervisory requirements and their executives and boards must have the competencies and experience necessary to operate them safely and soundly,” the group said in a statement.
Broadly, the Federal Home Loan Bank System has pushed back against the idea that its executives are overcompensated.
“Each of the 11 FHLBanks manages, on average, more than $100 billion in assets and operates mission-critical liquidity programs that serve thousands of members in all 50 states,” the Council of Federal Home Loan Banks said in an early June statement responding to separate criticism about executive compensation. “These Banks are essential to increasing housing access and strengthening communities. Strong, experienced leadership isn’t a luxury in financial services — it’s a necessity — one that requires competitive, market-based compensation.”
Banks was part of a group that wrote to FHFA Director Bill Pulte in April expressing concerns about a report that the Federal Home Loan Bank of San Francisco agreed to make a multimillion-dollar payment to a former appointee of President Joe Biden, which the authors said raises “serious concerns” about the extent to which the Federal Home Loan banks are “effectively stewarding their resources.”
Senate Banking Committee Chairman Tim Scott, R-S.C., whose support will be crucial for the bill to get floor time during a markup, led that letter, alongside 12 other Republican Senate Banking Committee members.
Cortez Masto has historically made the Federal Home Loan banks a centerpiece of her work on the Senate Banking Committee, criticizing the system for not focusing enough on affordable housing and instead serving as a liquidity backstop for banks that don’t do enough lending in the affordable housing space.
She introduced a bill in April that would have required each Federal Home Loan bank to contribute 30% of its net earnings to the Affordable Home Program and other programs that meet community needs, or a system-wide minimum contribution of $200 million for those programs.
During the Biden administration, the FHFA said in a long-awaited report that the Home Loan Bank System should return to its housing finance roots rather than serve as a lender of last resort to imperiled financial institutions, as critics pointed out happened in the run-up to the 2023 regional banking crisis.
The FHFA said that it plans to increase federal oversight of how banks are using the Home Loan banks and steer more banks toward the Federal Reserve’s discount window for liquidity needs in the future.
While Pulte — Trump’s pick to lead the FHFA — isn’t likely to hew closely to the Biden administration report, the bill shows that there is bipartisan support for at least some measure of reform around establishing some limits around executive compensation at the Home Loan banks.
