Bill Would Let State S&Ls; Convert to Savings Banks

State legislators are considering a bill that would allow some savings and loan institutions in California to escape the federal government’s troubled S&L; deposit insurance fund by becoming state-chartered savings banks that would be insured by the relatively healthy Federal Deposit Insurance Corp.

Senate Bill 2700, introduced last month by state Sen. Barry Keene (D-Benecia), would also help certain FDIC-insured banks gain access to lower-cost funds from the Federal Home Loan Bank Board.

California law now allows only for S&Ls; and commercial banks. But 20 other states, including Oregon, Washington and Alaska, allow a third type of institution, the state-chartered, FDIC-insured “savings bank.”

Keene introduced the bill because “California institutions are at a competitive disadvantage with institutions from other states,” spokesman Terry Frost said in Sacramento.

The proposed savings banks, like S&Ls;, would be most heavily involved in real estate lending. But the savings banks would be allowed to make a higher percentage of their loans to commercial customers than S&Ls; can. The proposed savings banks, which would be regulated by the California State Banking Department, would have to satisfy FDIC net worth requirements that are stricter than those of the Federal Savings and Loan Insurance Corp., which regulates S&Ls.;

Consequently, the new charters would probably be most appealing to San Diego-based Home Federal Savings & Loan and Beverly Hills-based Great Western Financial Corp., both of which have “good, clean balance sheets and a high net worth,” said E. Gareth Plank,a vice president of research with the investment firm of Shearson Lehman Hutton in San Francisco.

About 70 S&Ls; in California, representing about 5% of the nation’s S&L; deposits, meet the FDIC’s net worth requirements and would be able to switch to FDIC insurance now if state law permitted the move, according to Ray Mercado, a Home Federal attorney.

Home Federal began lobbying Keene and other legislators last year to create the savings bank charter legislation. That lobbying campaign started after the financially troubled FSLIC began assessing healthy S&Ls; for additional premiums. Home Federal’s deposit insurance premiums for 1988 would fall by at least $12 million if it were operating as an FDIC-insured state savings bank, according to a company spokeswoman.

However, industry analysts suggested that the economic benefits associated with escaping FSLIC and joining FDIC could be dramatically reduced if FDIC becomes entangled in many more financial overhauls of large banks.

In the past two weeks, the FDIC has been struggling to save a $1.5-billion bailout package for Houston’s First City Bancorp that was pieced together earlier by the FDIC and private investors. The FDIC last week also made a $1-billion loan to troubled First RepublicBank in Dallas.