Backed by Thrift Industry : House Endorses Plan to Rescue the FSLIC

The House passed an industry-backed $5-billion plan Tuesday to rescue the fund that insures savings deposits, defeating attempts by President Reagan and House Speaker Jim Wright for a larger alternative.

The two-year proposal, which the thrift industry supported, was approved 402-6 after the House rejected, 258-153, a five-year $15-billion option that was backed by the White House and recently endorsed by Wright.

Lawmakers agree the government fund, the Federal Savings and Loan Insurance Corp., is in dire need of help because the growing number of failed savings institutions has made it technically bankrupt. But there have been serious differences over how best to help the fund, known as the FSLIC.

Both proposals would authorize borrowing to pump money into the fund. The savings and loan industry would ultimately have to finance the borrowing and would also provide additional money through regular assessments.

The Administration-backed plan would have authorized $15 billion in borrowing and provided another $10 billion through the assessments.

That amount is needed, supporters argued Tuesday, to make sure the fund is solvent for a long time. The $5-billion option, they contended, would provide too little help and could, after two years, lead to a bailout of the FSLIC that would rely heavily on taxpayer money.

Called Too Expensive

“Do we want the industry to bail itself out or do we want the taxpayers to bail the industry out?” asked Rep. John LaFalce (D-N.Y.), arguing the $5-billion plan was only a “Band-Aid” on a huge problem.

But the industry has said the smaller option, which would produce $5 billion through borrowing and another $5 billion in assessments, is sufficient and the larger plan would be too expensive for the savings institutions. Rep. Bruce Vento (D-Minn.) complained the more expensive option would “bleed the patient to death.”

The U.S. League of Savings Institutions, meanwhile, charged Tuesday the Administration was using “scare tactics” to try to push through the larger plan. It applauded the House action and said the $15-billion plan would have resulted in “an excessive and wasteful drain” on the institutions.

Originally, Wright (D-Texas) and Banking Committee Chairman Fernand St Germain (D-R.I.) had fought for the smaller plan and last month they successfully pushed it through the committee.

Wright had argued that with too large a plan, savings and loan regulators would arbitrarily close thrifts that were ailing but still had a reasonable chance of recovery.

Shifting Support

But many members, worried about health of savings institutions in their states, continued to push for the larger option and Wright and St Germain last week changed their position and backed the $15-billion proposal.

In shifting their support, they stressed that the $15-billion plan limited how much could be spent in each year and also contained enough safeguards to protect the troubled thrifts that still could be saved.

Even though virtually all lawmakers agree they must do something to help the FSLIC, there also are considerable differences between the House and the Senate over which approach to take.

The Senate earlier this year passed its own two-year $7.5-billion borrowing plan to help the FSLIC, but included it in a much more comprehensive banking bill that contains many controversial provisions for other segments of the banking industry.

Sen. William Proxmire (D-Wis.), the head of the Senate Banking Committee, has rejected efforts to tackle the FSLIC problem by itself and has said he wants Congress to pass a sweeping banking reform measure.