Federal Housing Finance Board

GAO reached four primary conclusions about the Federal Housing Finance Board's (FHFB) regulatory oversight of the nation's third-largest government-sponsored enterprise--the Federal Home Loan Bank System. First, FHFB did not ensure that all parts of the annual examinations GAO reviewed met FHFB's internal standards for assessing safety and soundness. Second, weaknesses exist in FHFB's off-site monitoring and supervisory enforcement programs. Third, FHFB lacks policies and procedures, outside of its reviews of the special affordable housing and community investment programs, to determine whether or the extent to which Federal Home Loan Banks are supporting their public mission of housing finance. Fourth, FHFB's involvement in promoting System programs and projects that it later evaluates for mission compliance and for safety could complicate its primary duty as a safety and soundness regulator and may prompt questions about FHFB's objectivity. GAO summarized this report in testimony before Congress; see: Federal Housing Finance Board: Actions Needed to Improve Regulatory Oversight, by Nancy R. Kingsbury, Assistant Comptroller General for General Government Programs, before the Subcommittee on Capital Markets, Securities, and Government Sponsored Enterprises, House Committee on Banking and Financial Services. GAO/T-GGD-98-185, Sept. 24 (14 pages).

GAO noted that: (1) FHFB did not ensure that the annual examinations GAO reviewed met internal FHFB standards for assessing the safety and soundness of FHLBanks; (2) while each of the 12 sampled examinations included reviews of FHLBanks policies and procedures to mitigate interest-rate and credit risk, the examinations did not include assessments of those areas that FHFB and others have identified as vital in evaluating an institution's risk-management capabilities; (3) further, after identification of deficiencies in consecutive examinations of one FHLBank, examinations were not expanded to investigate the extent of related potential problems, as required by FHFB standards; (4) with regard to examining for mission compliance, the agency acknowledges having no examination policies or procedures outside of its reviews of the special affordable housing and community investment programs, to determine whether or to what extent FHLBanks were supporting housing finance; (5) these special programs that were examined represented less than 1 percent of System assets at year-end 1997; (6) since 1997, FHFB has taken several steps to develop procedures and mechanisms to better ensure mission compliance; (7) additional weaknesses existed in off-site monitoring and supervisory enforcement guidance; (8) in 1997, the Office of Supervision (OS) suspended monthly off-site monitoring of FHLBank activities due to staffing constraints; (9) examiners primarily reviewed off-site information for each FHLBank's condition and activities during their annual preexamination planning, and, although OS and Office of Policy prepared several periodic reports that tracked specific bank activities, they did not coordinate their activities; (10) FHFB lacked clear policies and procedures regarding corrective actions for specific FHLBank conditions; (11) GAO found that FHFB has undertaken activities that further involve it in System business; (12) in GAO's view, some of FHFB's activities may undermine FHFB's independence as a regulator; (13) while FHFB began to devolve certain authorities, within limits, to FHLBanks in 1995, FHFB continues to promote and coordinate System activities; (14) FHFB's involvement in promoting System programs and projects that it subsequently evaluates for mission compliance and safety and soundness could complicate FHFB's primary duty as safety and soundness regulator and may prompt questions about its objectivity; and (15) FHFB views these activities as consistent with its primary duty of ensuring the System's safety and soundness.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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