Martin Wants S&Ls; to Set Up an Ethics Board : Seeks to Restore Public Confidence in Industry
Federal Reserve Board Vice Chairman Preston Martin called on savings and loan executives Thursday to establish an ethics and standards board in order to restore public confidence in their industry.
Such an organization, which he named the Savings Bank Principles Board, would act as a self-policing body to protect the industry against what Martin called the “slings and arrows of the speculator-gambler type of managers.”
Martin, a former chairman of the Federal Home Loan Bank Board, made a similar proposal for commercial banks earlier this year. But this is the first time that he has detailed such a proposal for savings and loans.
The board would set standards for good business practices and establish a code of ethics, he proposed. It would also establish model business plans and have surveillance powers.
“Successfully implemented,” he told a regulator-sponsored conference of industry officials here, “such a board could be the major change in how the industry regards itself, how it restores ebbing public confidence in all kinds of financial institutions, how it adapts to change and how it relates to the regulators.
Industry in Turmoil
“The alternative is an inevitable overkill in (government) re-regulation sometime in the next decade. You know that.”
The savings and loan industry has been in turmoil since state and federal legislation three years ago deregulated the ways that S&Ls; are allowed to invest depositors’ money.
Regulators say these expanded powers have been abused by a small but significant number of lending institutions, leading to an alarming rise in bad assets and putting a severe strain on the financial resources of the Federal Savings and Loan Insurance Corp., which insures individual accounts up to $100,000.
Martin said the principles board could head off the problems before they become too serious by acting as an early-warning system for regulators. He said this kind of board might have helped prevent such failures or near failures as Continental Bank, Financial Corp. of America and Beverly Hills Savings & Loan Assn.
“The people in the industry know who is making the crazy loans, they know who’s going to go broke,” Martin said at a press conference after his speech. “It’s common cocktail-party gossip.”
The proposal may not be that easy to sell, however.
“I think there may be some antitrust or conflict-of-interest problems involved,” said Dean Cannon, president of the California League of Savings Institutions, an industry trade group. “I’m not too enthused about the idea.”
