Fed Chief’s Views on Single Deposit Insurance Agency Disclosed in Letter : Volcker Plans to Push Merger of FSLIC, FDIC

Federal Reserve Board Chairman Paul A. Volcker has told banking and savings institution regulators that he plans to take a more active role in supporting a proposed merger of the government’s two big deposit insurance agencies--the Federal Savings and Loan Insurance Corp. and the much healthier Federal Deposit Insurance Corp.

Volcker’s views, disclosed in a letter written by George D. Gould, under secretary of the Treasury, became known as the Reagan Administration again proposed to Congress that the FSLIC be recapitalized with up to $15 billion from industry contributions and bond sales.

The House and the Senate each passed its own version of a recapitalization bill last fall, but an effort to reconcile the differences failed in the waning hours of the 99th Congress. The same bill is to be reintroduced today, Gould said Monday.

Volcker supported the recapitalization bill last fall and is likely do so again--at least as a short-term solution before an eventual merger of the two funds, said Joseph Coyne, a spokesman for Volcker. Coyne acknowledged that Volcker now feels “more strongly” about the need to merge the two funds than he has previously.

The FDIC and the FSLIC impose on banks and savings and loan firms, respectively, a series of regulations, examinations and, if needed, orders as conditions for providing federal insurance of $100,000 on every depositor’s account.

A merger of the two funds has been an on-again-off-again controversy in the industry, partly because new laws have blurred the distinction between banks and S&Ls; and partly because numerous failures in recent years have cut the FSLIC’s reserves to about $1 billion.

Many government officials favor a merger to simplify regulation and administration of the nation’s banking system. The savings and loan industry has resisted the effort on grounds that the financing of homes is critical to the American economy and deserves its own system of regulation and support.

Volcker was reported Monday to have voiced his support in mid-December at one of the occasional and informal breakfast meetings held by the nation’s top four banking and S&L; regulators. Gould and another Treasury official also usually attend. Gould was not at the December meeting, he said, but was briefed by his Treasury colleague.

Besides Volcker, the regulators attending were Federal Home Loan Bank Board Chairman Edwin J. Gray Jr., Comptroller of the Currency Robert L. Clarke and FDIC Chairman L. William Seidman.

Gould said he wrote the letter to Volcker to emphasize his own view that the recapitalization bill ought to be the top priority and that a merger of the funds should come only if the bill fails. He said passage of a recapitalization bill would be likely to kill talk of a merger.

Volcker has testified before various congressional committees in the past that a merger is worth considering, Coyne said, and he is likely to be questioned about it again during hearings to be held later this month by the Senate Banking, Housing and Urban Affairs Committee.

Sen. William Proxmire (D-Wis.), the committee’s new chairman, also has “floated” ideas about merging the funds, a congressional staff worker said. Congressional leaders have said the recapitalization bill failed last fall partly because the S&L; industry did not fully support the plan. Industry leaders have been divided over regulatory issues and over their increasing assessments to pay for FSLIC’s operation of failed S&Ls.;

Some legislators also were wary of entrusting up to $15 billion to the FSLIC and its parent agency, the Federal Home Loan Bank Board, whose chairman, Gray, is under fire from some industry members for his strict and allegedly heavy-handed procedures and for accepting reimbursement for some questionable expenses.