Proposal Would Exempt Healthy S&Ls; From Levy : FHLBB Wants to Shift Burden to Thrifts Most Likely to Need FSLIC Help
Federal regulators said Friday that they are considering exempting the nation’s healthiest savings and loan firms from a controversial special levy that raises $1.2 billion a year to help bail out failing thrifts.
The Federal Home Loan Bank Board, which regulates the S&L; industry, said it will unveil details of its proposal early next week and seek public comments on the plan.
The board said the concept would shift more of the burden of financing the Federal Savings and Loan Deposit Insurance Corp. to the weaker institutions because they are most likely to need assistance from the fund. FSLIC insures customer deposits up to $100,000 and assists insolvent institutions.
Experts speculate that more than $50 billion will be needed in the next two to three years to clean up the hundreds of unhealthy savings and loans in the nation, which are concentrated in Texas and other Southwestern states hit hard by falling oil prices and declining real estate values.
Transfer to FDIC Threatened
The plan appears to be designed to make remaining with FSLIC more palatable for the nation’s healthiest savings and loans by reducing their cost of belonging.
FSLIC and its commercial banking counterpart, the Federal Deposit Insurance Corp., are funded by a levy equal to one-twelfth of 1% of the deposits at member institutions. That amount would be unchanged, and the new proposal would affect only a special assessment levied by FSLIC since 1985.
Beginning three years ago, FSLIC has assessed its members an additional one-eighth of 1%. The $1.2 billion it raises annually was earmarked for replenishing FSLIC’s bankrupt fund and later for paying interest on bonds issued to recapitalize the fund.
As a result, savings and loans pay more for deposit insurance than rival banks insured by the FDIC. The strong thrifts have bristled at the additional costs and have threatened to transfer to the FDIC when a moratorium on such changes runs out in August.
The new proposal would create an adjustable scale under which the special levy would be reduced in direct proportion to an institution’s capital level. Simply put, the stronger the institution, the less of the special levy it would have to pay.
Total Exemptions Possible
Betsy Greer, a spokeswoman for the bank board in Washington, said thrifts with the strongest capitalization could wind up completely exempted from the special levy. She declined to release specific figures for the various levels.
“Well-capitalized thrifts are paying more than they should be for their deposit insurance, and any kind of a reduction for them is equitable,” said Bert Ely, a financial consultant and thrift expert in Alexandria, Va. “But economics and justice and fairness have nothing to do with this proposal.”
Ely said the bank board wants to lessen the incentive for healthy thrifts to leave its system if the moratorium on transfers is not extended in August. He said the reduction might also make it less likely that the strong thrifts would fight an extension of the moratorium by Congress.
