Panel Votes to Raise $5 Billion to Help FSLIC

The House Banking Committee voted Wednesday to raise $5 billion over the next two years to help the ailing Federal Savings and Loan Insurance Corp., which government auditors say is technically insolvent.

The committee approved and sent to the House floor a FSLIC rescue plan supported by the savings and loan industry after rejecting, 25-24, an alternative proposal to raise $15 billion in the capital markets over five years. That plan had been adopted earlier by a Banking subcommittee.

Both plans also rely on about $2 billion a year in industry assessments and fees.

The Senate Banking Committee has approved a $7.5-billion, two-year plan as part of a larger banking bill. That measure is awaiting Senate floor action.

The $5-billion House plan was first proposed by the committee’s chairman, Rep. Fernand St Germain (D-R.I.), who said it will provide initial relief to the depleted insurance fund and allow Congress to reconsider the issue in two years if more was needed.

It was initially rejected by the subcommittee on financial institutions, which voted 23-20 on Tuesday for the $15-billion plan.

Message to Depositors

Rep. Thomas Carper (D-Del.), who pushed the larger fund, said Congress needed to solve the problem and restore confidence in the industry from both depositors and investors.

“We’re sending a strong message to depositors that we’re not going to simply paste on a Band-Aid,” he said. “We’re going to make sure this patient gets well.”

But support for the program dwindled before the full committee session, and Rep. Stephen Neal (D-N.C.) on Wednesday again offered the $5-billion plan.

Neal noted the opposition by the savings and loan industry to the large program, arguing: “If we overburden the industry, we run the risk of making very healthy institutions very unhealthy.”

The General Accounting Office has said FSLIC is insolvent under ordinary accounting principles, under which it should set aside money to pay off depositors in S&Ls; that are already insolvent and should be closed.

The question does not affect depositors right now because those institutions are being kept open and operating at a cost of $6 million a day in accumulating losses. That spares the insurance fund of the immediate cost of paying off depositors.