Gray Likes Idea of Firm to Sell Problem S&L; Assets

Federal Home Loan Bank Board Chairman Edwin J. Gray gave his tentative blessing Thursday to the concept of forming a quasi-governmental corporation to liquidate the rapidly growing volume of problem loans in the nation’s savings and loan industry.

Gray, in an interview here at a convention of California savings and loan executives, said he is “very positively oriented” towards the idea.

The three-person bank board could approve the plan within a week or two at the earliest, Gray told reporters.

The bank board is the principal regulatory agency for the nation’s 3,200 federally insured savings and loans.

Gray also said he expected more S&L; insolvencies in California. Since April, eight savings and loans have been taken over by federal banking regulators.

The worst is over, Gray said, “but there’s more to come.” He declined to be more specific.

The proposal for the quasi-government corporation was first made in late July by the Federal Savings and Loan Advisory Council, an influential industry group. The concept was later endorsed by the U.S. League of Savings Institutions, the industry’s major trade group.

The corporation’s purpose would be to stem the continuing losses of the Federal Savings and Loan Insurance Corp. and relieve its work load by selling the assets of S&Ls; taken over by regulators.

The FSLIC, an arm of the bank board, insures customer deposits up to $100,000 per account and liquidates insolvent S&Ls.; The value of the FSLIC fund stood at $5.9 billion at the end of 1984, but losses this year stemming from S&L; failures have drained it further.

The agency has only a 25-person liquidation staff to handle problem assets of $2.3 billion in institutions that have been taken over. The staff is limited in its ability to get top dollar for these assets, industry officials contend.

Keep Industry Separate

Some industry leaders believe that such a corporation is vital to preserving the savings and loans as an industry separate from commercial banks. It is seen as a way of heading off a much-talked-about merger between the FSLIC and the Federal Deposit Insurance Corp., which insures deposits at commercial banks.

Gray said the corporation, which would actually be a federally chartered non-operating savings and loan, would have branches throughout the country.

The corporation would remain small and be staffed by real estate experts whose job would be to get the best prices possible for the problem assets, Gray said.

He said, however, that some issues need to be resolved before the concept can be approved. These issues relate to accounting, taxes and the volume of assets that the corporation would be called upon to liquidate, he said.

Though formal congressional approval is not required, Gray said he would like to get the blessing of such powerful members of Congress as Sen. Jake Garn (R-Utah) and Rep. Fernand St Germain (D-R.I.), chairmen of the Senate and House banking committees, respectively.

As proposed by the industry trade groups, initial funding for the corporation would come from the Federal Home Loan Bank system, which has a capital base of $9.5 billion. The initial capital required to start the corporation is estimated at about $800 million.

The corporation is reminiscent of Depression-era programs that were established to shore up the nation’s battered banking industry.

Gray said the corporation, if approved, would probably go out of business when the disposition of the problem assets is completed.