FLSIC, FDIC Merger Possible, Bankers Told
Continuing problems in the savings and loan industry could force Congress to merge the healthy Federal Deposit Insurance Fund for commercial banks with the weakened insurance fund for thrifts, a leading bankers’ organization was told on Sunday.
The problems of the Federal Savings and Loan Insurance Corp. may require another $50 billion in capital, but Congress approved only $10.8 billion, Rep. Jim Leach (R-Iowa), told the annual convention of the American Bankers Assn.
“Anyone who thinks that the $10-billion recapitalization is enough is nuts,” said Leach, the second-ranking Republican on the House Banking Committee.
He said the bankers, instead of seeking new powers from Congress to underwrite securities, should be pressing for federal thrift regulators to apply stricter standards on thrifts on such matters as maintaining adequate capital to avoid insolvency.
Otherwise, the thrift industry’s woes may force Congress to turn to the Federal Deposit Insurance Corp., which insures bank deposits for up to $100,000 and is supported by contributions from member banks, as a solution.
“Congress would rather have that occur than have to go to taxpayers,” Leach said.
The FSLIC reserves were drained by losses of many thrifts in depressed parts of the country, and it was declared technically insolvent at the start of the year.
Congress voted this summer to allow $10.8 billion to be raised by borrowing in capital markets to refinance FSLIC, but another recapitalization of FSLIC is inevitable, Rep. Doug Barnard (D-Ga.), told the bankers.
The FDIC, on the other hand, is strong, with reserves of more than $18 billion.
Barnard, who is also a member of the banking committee, said the legislation adopted this year will be enough to prevent any runs on thrifts by depositors for the present, but he said a reorganization of FSLIC was likely.
“I do said: “I do not believe we will see a complete merger of FSLIC and FDIC, but there are discussions of merging the administrations of the two funds.”
