Mr. William B. O'Connell Page 2 In the coming months we will be looking closely at what new statutory provisions should be developed to enable the Board to continue carrying out its duties effectively. I look forward to working with the Federal Home Loan Bank Board, the U.S. League, and others in dealing with these issues. I am writing you in regard to the Board's consideration of the direct investment regulation. I am well aware of the controversy surrounding the issue and the possibility of a short extension to accommodate hearings. Some well-capitalized and well-run institutions may have valid concerns which, after careful scrutiny, might lead the FHLBB to modify the rule by granting more flexibility for such institutions. On the other hand, the 10%-of-assets test might prove to be too generous for some institutions. Without question, continued analysis of a direct investment regulation is necessary. However, it is my considered judgment that a clear majority of the Members of Congress are in favor of extending the limitation on direct investments. As a general rule, if the Congress acts on an issue, it becomes a more permanent decision. Such a result would limit the flexibility of the FHLBB to implement modifications to the rule now and/or in the future. Therefore, I strongly recommend that the Bank Board extend the direct investment regulation for at least one year, making only those modifications, if any, that it believes are currently justifiable. Sincerely, Jake Garn |