Bank Board Doubles S&L; Bailout Cost : Committee Members Shocked and Angry at ‘Rosy Scenarios’ Shift

The Federal Home Loan Bank Board today doubled its estimate of the cost of rescuing the savings and loan industry to $42.5 billion through 1994 because of the merging of 12 Texas thrifts.

Bank Board Chairman M. Danny Wall told the House Banking Committee that the new estimate was made after an all-night session that ended at 6:30 a.m.

The $42.5-billion figure included the cost of dealing with the more than 100 insolvent institutions in Texas alone, which had to be revised from between $6 billion and $7 billion to $15 billion, based on the bank board’s experience in merging 12 insolvent Texas thrifts in the last two months.

A shocked Banking Committee Chairman Fernand J. St Germain (D-R.I.) called the sudden revision in the estimate a “now you see it, now you don’t, watch the bouncing ball” gambit.

Dealing With the Thorn

“The rose is gone and we’re now dealing with the thorn,” St Germain said.

“It’s called garbage in, garbage out,” complained Rep. Stan Parris (R-Va.), who angrily recalled that Wall had stuck to the previous estimates in a private meeting last week. “The rosy scenarios change so fast we can’t even keep track of them.”

Wall estimated that the bank board will resolve the cases of 259 insolvent or failing thrift institutions through the end of 1989 and another 250 institutions in the three following years.

He insisted that the bank board and the Federal Savings and Loan Insurance Corp. have sufficient resources to deal with the problem without an injection of tax money, but he refused to rule out that possibility.

Sees ‘Great Struggle’

“There isn’t anybody alive who could make such a promise,” Wall said during a break in the proceedings.

The industry “would have the ability to do it but it would be a great struggle,” Wall told the committee.

Wall said the issue of a taxpayer bailout is “something for the next President and the next Congress to deal with.”

At a May 19 Senate Banking Committee hearing on the same problem, Wall estimated that the total cost of resolving the problems of the savings and loan industry would total $22.7 billion.

The General Accounting Office a week earlier had placed the total cost at between $27 billion and $36 billion, but private economists estimated that the cost could reach $60 billion and require a taxpayer bailout.