Small Thrifts Protest State Levy Proposal

The state’s smallest savings and loan associations are preparing to fight a five-fold rise in the annual assessments levied on them by the California Department of Savings and Loan, an increase that they see as further evidence that the state’s large thrifts are calling the shots on regulation of the industry here.

Executives of the smaller S&Ls; say the proposed increase is unfair because the state’s largest and most powerful institutions would see their assessments rise less than 20%. The proportionately heavier burden on the small thrifts impairs their earnings and hinders their growth, they say.

The assessments are levied to fund the Department of Savings and Loan, which regulates the 153 state-chartered S&Ls.; The department wants to restructure the formula used to assess the thrifts so it can rebuild a department decimated by previous cutbacks caused, in part, by the conversion of state chartered institutions to federal charters.

More Examniners

It also needs to hire more examiners and appraisers to come into compliance with an agreement reached with federal regulators after last June’s federal moratorium on approving insurance for new S&Ls; in the state.

Under the agreement, the FHLBB and its Federal Savings and Loan Insurance Corp. agreed to approve insurance for new associations as long as the state employs one examiner or appraiser for every 1.9 institutions. Currently, the state has one field employee for every 2.28 institutions. Awaiting insurance are 42 new organizations already approved for business by the state, according to William Crawford, commissioner of the state Department of Savings and Loan.

The 100-member state department staff includes 58 examiners who audit each institution every two years, five lawyers who interpret the department’s laws and regulations and 10 appraisers who evaluate each institution’s loan portfolios.

Crawford figures he needs to add 57 more employees by the end of June, 1987. His current 1986 fiscal budget is $6.64 million and he is asking the legislature to approve a $9.04 million budget for the 1987 fiscal year. The budget, however, will not be decided by the legislature until next spring, he said.

The proposed changes in the assessments would raise the basic rate for a thrift with $10 million in assets to $25,000, from the current $5,000. A $10 billion S&L; would be assessed $513,130, a 28% increase over the $400,717 it now pays. The increases are on a sliding scale which bottoms out at 13% for S&Ls; with $30 billion or more in assets.

‘Off the Deep End’

“For a teeny S&L;, that (difference) could be its profits for the year,” said Fredric J. Forster, president of Newport Balboa Savings & Loan Assn. in Newport Beach. “It’s just not right. . . . This proposal is going off the deep end.”

With $218.9 million in assets as of June 30, his thrift would pay about $30,000, twice the $15,000 it now pays, he said.

The state department says it formulated the proposal under the assumption that smaller thrifts require more supervision, although they concede that they have no statistical evidence for that theory. It is a contention challenged by executives of the smaller thrifts.

“The problems have not been limited to the small associations,” said Robert Parker, president of Sterling S&L; in Irvine. “All you have to do is look at the big guys that the (federal regulatory agency) is running right now.”

The Federal Home Loan Bank Board, which regulates most of the nation’s thrifts, has taken over nine California S&Ls; this year, four of them with assets of more than $1 billion each and two others with more than $600 million in assets each.

A Full Year

Commissioner Crawford acknowledged that three of his employees worked a full year each on the troubled American Savings & Loan Assn. of Stockton, the nation’s largest thrift with $27.7 billion in assets.

“The small S&L; executives are saying that if they’re running a clean shop, they don’t want to be paying for someone who isn’t,” said Charles Terrill, senior vice president and managing officer of Western Empire Savings & Loan Assn. in Irvine.

Terrill heads the Smaller Associations Committee of the California League of Savings Institutions, which plans to meet today in Los Angeles to come up with a counter-proposal. The committee’s recommendation will likely lay the costs off on those who use the state agency’s services the most, which some executives say are the new associations and the ones in trouble.

The smaller associations do not doubt that the state agency, which is funded totally by the assessments, needs more money. The issue is how to get it.

“The small S&Ls; say the big ones should pay more, and the big ones say they’re going to convert to federal charters if we raise their assessments too much,” said Crawford, who acknowledged that the adverse reaction may force the department to alter the proposal after the comment period ends on Dec. 16.

Federal Charters

In the last four years, 20 thrifts, including eight of the 11 largest in the state, have converted to federal charters, thus avoiding the assessment. But during the same period, nine federally chartered S&Ls;, including five of the largest 11, converted or reconverted to state charters, largely to take advantage of liberal investment powers allowed under state law.

“The small guys have the idea that there are still some giants around to assess but there aren’t,” Crawford said. “We’ve got 75% of the institutions and the Feds have 75% of the assets.” Still, half of the 30 largest thrifts in California are state chartered.

Executives from the smaller state-chartered associations, those with less than $200 million in assets, worry that Crawford is playing politics by bringing the hammer down on them while touching the large institutions more lightly. The larger institutions generally dominate the industry trade group and the powerful Federal Home Loan Bank of San Francisco.

“Everything in the industry, from consulting fees and attorney fees to assessments, has always been geared to start out lower and rise as the institution grows,” said one operator of a $30 million to $40 million thrift who did not want to be identified.

Crawford admits his proposed assessment schedule hits the smaller institutions the hardest. But, he contends, the smaller institutions are “quite a burden.”

“The small ones present more problems,” he said. “There are more of them, they are more inexperienced, they don’t keep books as well as larger ones do and they don’t understand things the first time we explain them.”