Understanding Mission Expansion in the Federal Home Loan Banks: A Return to Behavioral-Choice Theory |
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| Authors: | Susan M Hoffmann Mark K Cassell |
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| Institution: | Associate professor of political science at Western Michigan University. Her research focuses on the intersection of the policy process and the structures of administration in U.S. financial institutions. She is the author of Politics and Banking: Ideas, Public Policy, and The Creation of Financial Institutions (Johns Hopkins University Press, 2001) and articles on government-sponsored enterprises and capital budgeting. E-mail:;. Associate professor of political science at Kent State University. He is the author of How Governments Privatize: The Politics of Divestment in the United States and Germany (Georgetown University Press, 2002) and the recipient of the 2003 Charles H. Levine Award for the Best Book in Public Policy and Administration. His research centers on understanding how market-based organizational structures influence policy outcomes across advanced industrial countries. E-mail: . |
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| Abstract: | Congress established the Federal Home Loan Banks (FHLBs) in 1932 to pursue the public purpose of homeownership. Recently, three views of their mission have emerged; one is that their purpose is to help small banks to remain viable. Why did their mission expand in this direction? We argue that mission expansion is a process that is better understood in terms of behavioral choice than public choice. Change began when expert attention was directed to small banks in rural areas and officials innovated within the existing rules to address their needs. Recognizing the FHLBs' usefulness, community bankers sought a more fundamental change in their practice. Responding to the general interest in preserving small banks' viability, legislative entrepreneurs advanced permissive rule changes. These were implemented to different extents in individual FHLBs in response to local needs. The case illustrates the usefulness of the behavioral‐choice paradigm for understanding change in public agencies and suggests legitimacy for mission change and the value of maintaining publicly directed administrative capacity. |
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