Comment Detail

Comment

To the Honorable Sandra L. Thompson, FHFA Director:
Thank you for this opportunity to comment on the Federal Home Loan Bank system as it celebrates its 100 year anniversary. I have had the privilege of serving as an Independent Director of the Federal Home Loan Bank of San Francisco (FHLBSF) since 2007. My term on the FHLBSF board expires at the end of 2023 so I do not stand to benefit from any of my comments. I offer the following for your consideration as you assess the future of the Federal Home Loan Banks in the United States.
First allow me to share my background and experience as a FHLBSF director. I am a 34-year attorney licensed in California and the District of Columbia. Prior to joining the FHLBSF board, I served as a Trustee of three university systems in California and I have served on numerous for profit, private and public boards including several community development organizations and Hispanic chambers of commerce. During my tenure on the FHLBSF board, I have qualified as both a public interest director and an independent director with skills. I have served as Vice Chairman of the board, and I have served as chairman of several committees, including Finance, Governance, Affordable Housing and Community Investment and Diversity, Equity and Inclusion. I also regularly serve on or attend Audit committee meetings.
I write this note to compliment the FHLB system and to offer constructive comments for your consideration. Over the past 16 years, I have observed the important value of the FHLB as a resource to member institutions during economic turmoil in our country’s history, including the most recent economic conditions during COVID and events which have occurred in the past 30 days. In each instance, the FHLB offered its members important sources of funding for mortgages and asset-liability management, liquidity for short term and longer-term needs, and additional funds for housing finance and community development. I have been proud of the financial support the FHLBs provide to their member institutions, and it has been clear that this source of funding has been critical for the bank’s members during these sensitive economic times.
I also compliment the FHLB’s for providing leadership and vision in providing affordable housing grants, economic development grants and other programs to stimulate and realize the development of affordable housing and economic development in each of the system’s districts. Our own bank created a $100 million Quality Jobs Fund, and has invested greatly in its affordable housing and AHEAD programs, with special emphasis on bridging the significant gap in Black homeownership, enhancing housing opportunities in Native communities and focusing on increased housing in specific geographic areas within our district including Nevada.
As I close, I believe it important to comment on the leadership of the FHLB districts and in particular on board governance. Each of the bank boards is structured to be represented by both member director and independent director members from within the districts. Inclusion of independent and public interest directors has been material to the leadership and vision within each of the bank boards and central to the issue of enhanced board governance and accountability for each bank.
The inclusion of Independent directors and public interest directors on FHLB boards is critical to enhanced governance, central to the mission of the FHLB system and material to the future of the FHLB system. Historically, independent directors and public interest directors have played significant roles in advocating for the mission of the system, in raising critical standards of board governance and in setting a vision for the member institutions and the system as a whole. Many of the successes of the FHLB system would simply not have been possible without inclusion of the independent directors and public interest directors who serve as an important voice of reason, voice of governance, and the heart of mission for the system. I strongly encourage the FHFA to maintain their role on these important bank boards.
Independent directors and public interest directors understand the financial needs of member institutions and our decisions to engage in member programs and to provide tools and programs for the members is well documented. At the same time, it is noted that independent directors and public interest directors, at least at our bank, are the ones who advocated for supplier diversity accountability and programs, for diversity in board governance and for focus on mission with investments in affordable housing, AHEAD and other programs. I know this well from personal experience. Issues of DE&I were first raised by independent directors and over time, especially with emphasis of such programs by the FHFA, the boards have embraced the programs that had long been supported and/or sought by independent directors.
In the past, by regulation, independent directors or public interest directors were designated to serve as chairman of the FHLB boards. That regulation changed over time, and currently for most banks the chairman can be either a member director or independent director (although there are some banks with policies that only permit a member director to serve as chairman). There is in most instances a healthy tension that exists between member directors and independent directors on these boards, including the continued debate as to who should be elected to serve as board chairman, how much each bank should invest in affordable housing and economic grants and how much the banks should distribute to its members as dividends. The debate on these boards with the participation of both member directors and independent directors is central to the continued value, legitimacy and strength of the FHLBs because the diversity of the bank boards adds important layers of governance and accountability to member institutions and the public.
I encourage the FHFA to maintain the same number of independent directors (approximately half) on each bank board. Any decrease in the number of independent directors would negatively impact the standards of governance which these directors bring to each board. I also believe that independent directors should be encouraged (not discouraged or prevented) to serve as a chairman or vice chairman of the bank boards. An effective chairman should both understand the needs of members and the financial role of the FHLB and offer leadership and good governance to board leadership and in each instance a healthy respect for the FHLB mission. In my experience independent directors can serve as exceptional chairs of any board and it is a mistake to preclude them from serving.
Thank you for this opportunity to comment on the FHLB as it celebrates its 100-year anniversary. I welcome the opportunity to provide further comments and look forward to continued successes of this important system.
Respectfully Submitted,

Melinda Guzman