Carl E. Reichardt, chairman of Wells Fargo, on Tuesday advocated creating a single regulatory agency to govern both the banking and savings and loan industries and said the thrift industry will vanish within a decade.
In a particularly blunt talk in Los Angeles, Reichardt said the nation’s savings and loan industry no longer serves its original purpose of providing home mortgages and has no role in the marketplace.
“I think the thrift industry has no future,” said Reichardt. “There will be no thrift industry within the next 10 years.”
The Wells Fargo chief also predicted that Congress will merge the two federal agencies that insure deposits in banks and thrifts.
Reichardt’s provocative statements created a stir among his audience of business and civic leaders because no banker of his stature has taken this position so openly and forcefully before.
The speech was delivered at the Biltmore Hotel to a meeting of the Town Hall of California, a forum for business and civic leaders. In a question-and-answer session after his talk, Reichardt was asked about the future of the S&L; industry and he delivered his gloomy prognosis.
A top executive at one of California’s biggest savings and loans said he agreed with Reichardt’s assessment of the prospects for merging the insurance funds and of the dismal future of the thrift industry. But the executive refused to allow his name to be used.
Reichardt has developed a reputation for speaking his mind while turning Wells Fargo into one of the nation’s most profitable banking companies. The San Francisco-based bank’s cost-efficient management has emerged as an industry standard.
Government and savings and loan industry officials generally concede that the current deposit-insurance programs and regulatory systems are inadequate for coping with the deepening crisis in the thrift industry.
Savings and loan industry officials have argued that a minority of the nation’s 3,100 thrifts have damaged the reputation of the entire industry. Some contend that the industry still serves a key role in providing home mortgages.
Big Tab for Bailout
Estimates vary about the size of the “minority.” Federal regulators acknowledge that as many as 511 thrifts are insolvent, but some outside analysts place the number nearer 900.
The tab for bailing out the industry has been estimated at $50 billion to $100 billion, and many experts expect the cost to be paid by taxpayers. But Reichardt predicted that Congress will merge the two deposit-insurance agencies before going to taxpayers to shore up the sagging industry.
The Federal Savings and Loan Insurance Corp., which insures thrift deposits for up to $100,000, is essentially bankrupt. The Federal Deposit Insurance Corp., which insures bank deposits for the same amount, has a surplus of $18 billion.
The prospect of merging the two funds has come up before, but bankers have steadfastly opposed the move. The two insurance agencies are funded by the banks and thrifts through assessments on deposits, and the bankers argue that a merger would stick them with the bill for the errant ways of their rivals in the savings and loan industry.
“There’s a very real possibility that the FSLIC and the FDIC insurance funds will eventually be melded in some fashion,” Reichardt said. “No one in either agency, and certainly no one in the banking industry, likes the idea very much. But I seriously question whether Congress is going to vote for direct subsidies to the FSLIC until all sources of industry funding have been tapped.”
2 Sets of Rules
If the nation is going to have one deposit-insurance fund, Reichardt said, it follows that there should be one regulatory agency and a single set of regulations governing both industries. Currently, savings and loan firms have much broader investment powers than banks, such as the ability to own real estate developments and acquire stocks for themselves. Many have blamed abuses of these powers for contributing to the industry’s problems.
“We can’t have banks and S&Ls; operating under totally different sets of accounting principles, capital requirements and rules of conduct, as we do now,” Reichardt said.
The single regulator, he added, should replace not only the five existing federal regulators that govern banking and thrifts, but also the 100 separate state banking and savings and loan commissions. In addition to the FDIC, banks are regulated by the Federal Reserve Board and the Office of the Comptroller of the Currency. Besides FSLIC, thrifts are governed by the Federal Home Loan Bank Board.
“Certainly, there’s little evidence to support the need for 105 separate rule-making and enforcement agencies in the regulated financial services industry,” he said.