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Committee on Financial Services

United States House of Representatives

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Opening Statement of
Rep. Paul E. Kanjorski

Ranking Democratic Member

Capital Markets, Securities & Government Sponsored Enterprises Subcommittee

House Committee on Banking & Financial Services

Hearing on the GAO Report on the Merger of OFHEO and the Federal Housing Finance Board

July 24, 1997

Mr. Chairman, I welcome today's hearing on the advantages and disadvantages of creating a single regulator for housing government sponsored enterprises (GSEs). I want to thank the General Accounting Office (GAO) for its thoughtful work on this topic, and all of the agencies for their comments on the GAO report.

It is clear to me that the single most important step we in the Congress can take to ensure effective regulation of the housing GSEs is to protect their independence and to make sure they have the resources they need to get their job done. These are principles that are endorsed both by the GAO, and by all the regulators who appear before us today.

From a theoretical standpoint, there is a great deal of logic to merging the housing GSE regulators. As the GAO notes, a merger could bring economic efficiencies, increase the knowledge base of the regulator, and increase the prominence and importance of the regulator.

At the same time, it is important to note that a merger will not result in any direct cost savings to taxpayers because the housing GSEs pay for the cost of their safety and soundness regulation through user fees. As with the bank regulatory agencies, no appropriated funds are used for safety and soundness regulation of housing GSEs.

It is also important to note that a merger is not critical. The system is not broken. It is working. We do not face an impending crisis that compels a merger.

My main reasons for opposing a merger at this time, however, are:

  1. I believe form should follow substance, rather than precede it. We must determine what we want the housing GSEs to do before we decide how to regulate them, rather than setting-up a regulatory structure and then deciding what we want the GSEs to do.

  2. I am afraid that raising the issue of a regulatory merger at this time would impede, rather than expedite, our chances to enact the Baker-Kanjorski Federal Home Loan Bank Modernization legislation. Regardless of what structure we would adopt, someone would undoubtedly be opposed to the change and would then seek to block the Bank System Reform legislation out of fear that it would become a vehicle for the regulatory changes they oppose. I do not know who specifically would take such a position, but I am confident that someone would, and enacting Bank System Reform legislation is more important than a merger whose merits would be marginal at best.

  3. I am concerned that any merger would make it significantly more difficult for the Office of Federal Housing Enterprise Oversight (OFHEO) to complete its work on final risk-based capital standards for FannieMae and FreddieMac. All mergers cause turmoil at the affected agencies and inevitably delay existing work in progress. Even moving offices without an agency merger can result in delays. Mergers, even public discussion of mergers, also make it significantly more difficult for agencies, particularly small agencies like OFHEO and the Federal Housing Finance Board (FHFB), to attract and retain the highly skilled and technical staff they need. This is especially true at a relatively new agency like OFHEO that is still trying to staff up. It is human nature for employees, and prospective employees, to be worried about their futures in an environment where major changes in organizational structure are being discussed. I want the employees at OFHEO to focus their time, energy and skills on the important job they have ahead of them, without having to be distracted by fears of organizational upheaval.

Finally, Mr. Chairman, I want to note that there is a school of thought that suggests that the housing GSEs should only be regulated for safety and soundness, and not for mission. I want to state my forceful opposition to that position. If housing GSEs do not have a mission, then they have no reason for having a federal charter, or any federal benefits. It is both appropriate, and necessary for the housing GSEs to have a mission regulator. A mission regulator, however, need not, and should not, micro-manage the day-to-day operations of the GSE. While the line between mission and management may be a gray line, and not a bright line, that is the distinction the regulator should be trying to maintain.



 

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