Group Offers Plan to Aid Ailing S&Ls; : Would Ease Load on Regulators, Bolster U.S. Insurance Fund
The savings and loan industry’s most powerful trade group unveiled a plan Wednesday that it says is intended to bolster the industry’s sagging deposit insurance fund by decentralizing the manner in which banking regulators handle savings institutions in trouble.
The Chicago-based U.S. League of Savings Institutions called for the establishment of a nationwide network of Regional Advisory Committees (RACs) that would be able to react quickly and efficiently to problems at crippled financial institutions.
The RACs, to be composed of both industry and regulatory officials, would help manage problem loans of S&Ls; that have been taken over by the government, the trade group said.
Would Shift Job
The move, if adopted by banking regulators, would effectively shift the job of solving serious industry problems from the Washington-based staff of the Federal Savings and Loan Insurance Corp. to a more diffuse group operating under the supervision of the nation’s 12 Federal Home Loan Banks. These banks and FSLIC are both part of the Federal Home Loan Bank Board, the nation’s primary S&L; regulatory agency.
The proposal appears to reflect industry frustration with FSLIC’s alleged inability to react quickly to problems at troubled associations. Some industry insiders complain privately that these delays are extremely expensive and have seriously depleted the industry’s already fragile deposit insurance fund.
FSLIC’s primary job is to administer this $6-billion fund, which insures customer deposits up to $100,000 per account should an institution fail. In addition, it is normally the government agency that’s in charge when an insolvent S&L; is placed in receivership.
Under the U.S. League proposal, the FSLIC staff involved in these takeovers would work out of the regional Federal Home Loan Bank offices and be part of the Regional Advisory Committees.
The U.S. League said its proposal has been sent to the Federal Home Loan Bank Board “for action,” but officials there and at FSLIC said they couldn’t comment on the plan because they hadn’t had an opportunity to read it.
FSLIC has been plagued by a plethora of woes in recent years, including mounting work loads, chronic understaffing and heavy turnover. Making matters worse, the value of the insurance fund has been dropping steadily while the level of deposits that it is supposed to insure has been soaring.
Profits on Rise
Ironically, the U.S. League’s proposal comes at a time when industry profits in general are rising sharply because of dramatic drops in interest rates.
Jay Janis, a former chairman of the Federal Home Loan Bank Board, estimates that the savings and loan industry may have its best year ever in 1985, with earnings as high as $6 billion. At the same time, though, a significant minority of S&Ls; remain in serious trouble.
According to Kaplan, Smith & Associates, an S&L; consulting firm, more than one-quarter of California’s 200 savings institutions had net worths below the required regulatory minimum at the end of 1984, including seven associations whose net worths were actually negative. That means they are technically insolvent because their liabilities exceed assets.
