FHFB Chair Has Greater Authority to Make Key Administrative Decisions Than the Chairs of Most Other Financial Regulators

The FHFB chairs’ authority to administer the agency is broader than that of  the chairs of the other financial regulators included in our review, with the  exception of the FDIC. At FCA, the board must approve major organizational  changes, but the chair has the authority to make organizational changes  within particular units. Delegations of Authority Serve as Basis for FHFB and FDIC Chairs’ Powers

The basis for the FHFB chair’s significant administrative power is a  delegation of authority approved by the board in 1990 and 1993. That is, FHFB agreed to pay each  affected employee 3 to 6 months salary in exchange for agreeing to sign the  settlement agreement. . .  (i) Filing a charge or complaint, including a challenge to the validity of a  waiver agreement, with EEOC, or (ii) Participating in any investigation or  proceeding conducted by EEOC.”
The settlement agreements also do not appear consistent with OWBPA  requirements and EEOC regulations that require employers to notify  employees in writing to consult with an attorney prior to agreeing to waive  their rights under ADEA. In addition, FHFB did not provide information to the affected employees as  is required under OWBPA and EEOC regulations. FHFB Has Announced Plans to Improve Its FHLBank Examination Program

Although we identified weaknesses in FHFB’s examination program in a  1998 report, FHFB did not address these weaknesses, and they persisted  for several years. For example, the report  found that FHFB examiners did not thoroughly review FHLBank internal  control systems. Moreover, from 1998 through  2002, direct mortgage acquisition programs added risks to the FHLBank  System and the FHLBanks developed increasingly complex approaches to  manage these risks. Conclusions

Due to the delegation of authority, the FHFB chair has relatively broad  administrative power, compared with most financial regulatory chairs, to  appoint senior officials and reorganize the agency without obtaining a  board vote or approval. That is, the board  structure is designed to help ensure that key decisions benefit from the  experiences and perspectives of all board members. In addition, the FHFB  board’s decision will likely result in the continuation of the sometimes  bitter conflicts that have periodically characterized the relationships  among board members over the past 8 years. However, in 2002, current FHFB Chair Korsmo announced plans and  initiated actions, such as hiring more examiners that have the potential to  improve the quality of the agency’s safety and soundness oversight. We also recommend that FHFB fully comply with applicable federal age  discrimination statutes and regulations in offering settlement agreements  to employees subject to RIFs. Objectives, Scope, and Methodology

As discussed with your staff, our report objectives are to (1) compare the  Federal Housing Finance Board (FHFB) chair’s administrative authorities  to those of the chairs of other financial regulators and discuss the basis for  that authority; (2) assess FHFB’s compliance with selected applicable  statutes and procedural requirements in connection with a reduction-in- force (RIF) that was carried out as part of an agency reorganization  announced on August 7, 2002; (3) assess FHFB’s progress in enhancing its  Federal Home Loan Bank (FHLBank) safety and soundness examination  program; (4) provide data showing the political contributions of FHLBank  public interest directors prior to their appointments; and (5) compare  FHFB’s use of Schedule C appointments and the organization of its public  and congressional affairs functions with the practices of other financial  regulatory agencies.
Why GAO Did This Study

The Federal Home Loan Bank System (System) faces additional risks due to the development of new products such as direct mortgage purchase programs. Responding to concern about the methods used for administrative decisionmaking, and the ability of the Federal Housing Finance Board (FHFB) to fulfill its critical mission to regulate the safety and soundness of the System, GAO was asked to (1) compare the FHFB chair's administrative authorities with those of other financial regulators and discuss the basis for that authority, (2) assess FHFB's compliance with selected statutes and regulations in connection with an August 2002 reduction-in-force (RIF) carried out as part of an agency reorganization, and (3) assess FHFB's progress in enhancing its FHLBank safety and soundness examination program.

What GAO Found

FHFB's chair has greater authority to make key administrative decisions than the chairs at five of the six other financial regulators GAO reviewed. FHFB's chair has the authority to appoint and remove officials and reorganize the agency without a vote by the board. In contrast, statutes, regulations, and practices limit the chairs' authorities at most other regulators. In particular, the boards or commissions at these agencies approve most senior-level appointments and several boards approve major reorganizations. The basis for the FHFB chair's comparatively broad administrative authority is a delegation of authority, which the board passed in 1990 and 1993. The delegation allows the chair to make and implement key decisions without obtaining or benefiting from the views of all board members and has contributed to sometimes bitter conflicts among board members over the past 8 years. Although FHFB provided significant financial compensation to staff subject to the RIF, its procedures were not fully consistent with all applicable federal age discrimination statutes and regulations. For example, FHFB presented a settlement agreement to separated staff that offered 3 to 6 months salary in exchange for, among other things, the employees agreeing to waive their rights to file charges, complaints, or appeals with the Equal Employment Opportunity Commission (EEOC). EEOC regulations implementing the Age Discrimination in Employment Act do not permit waivers of employees' rights to file charges or complaints with EEOC. In addition, FHFB did not advise the affected employees in writing to consult an attorney prior to signing the agreements as is required. Although for several years FHFB did not take steps to correct weaknesses in its FHLBank examination program that GAO identified in a 1998 report, FHFB's current Chair has recently undertaken several steps to improve its examinations. In 1998, and again in 2002, GAO found that FHFB performed limited reviews of FHLBank functions that are critical in managing the banks' financial and operational risks. Among other changes announced in 2002, FHFB plans to increase the number of examiners from 10 to 24 and revise its examination approach to focus on the major risks and quality of controls at each FHLBank. Although these changes have the potential to improve FHFB's examination program, it is too soon to assess their effectiveness.