Deregulation Is Blamed for S&Ls;’ Troubles : Trade Group Chief Says U.S. Must Solve Problem

The head of the nation’s largest savings and loan industry trade group called on the U.S. government Monday to solve the industry’s deposit insurance problems because, he charged, the government caused the problem in the first place.

Theo H. Pitt Jr., outgoing chairman of the U.S. League of Savings Institutions, said government deregulation in the early 1980s caused grave damage to the Federal Savings and Loan Insurance Corp. Deregulation, he said, led to high interest costs and to expanded investment powers that got hundreds of thrifts into financial trouble.

“We are saying it is the government’s responsibility to solve that problem,” Pitt said at a news conference here. “It’s not a decision for us to make.”

Report Nearly Finished

Pitt’s remarks reflect a growing consensus within the thrift industry that the taxpayers must ultimately bail out FSLIC. Estimates of the amount of money needed to solve the problems of the deposit insurance system vary from $45 billion to more than $100 billion, and the industry has lost more than $7 billion so far in 1988.

The backdrop for Pitt’s remarks was the U.S. League’s 96th annual convention, being held this year at the Hilton Hawaiian Village Hotel on Waikiki Beach.

The contrast between the convention’s pleasant surroundings here and the crisis that the savings and loan industry is going through was not lost on Pitt.

Pitt, whose one-year term as the group’s chairman ends this week, defended the choice of Hawaii as a convention site, saying the decision was made more than four years ago. And, he added, “serious business” is going on here.

Pitt also said the U.S. League is close to completing a task force report on recommendations to shore up the Federal Home Loan Bank system, which oversees the nation’s 3,100 FSLIC-insured thrifts. The home loan bank claims to have “resolved” the problems of more than 130 troubled thrifts so far this year.

Pitt indicated that the task force’s recommendations are likely to include tighter restrictions on S&Ls;’ growth, on their commercial lending and on the amount of money that they may invest in securities rated below investment grade.

Pitt’s remarks came amid increasing doubts about the necessity of having a separate banking system--the savings and loan industry--that is designed primarily to make mortgage loans.

But he defended the arrangement, saying the industry “must be preserved.” Savings and loans make about half the nation’s home loans, with the rest made primarily by commercial banks and mortgage banking firms.

Meanwhile, Chairman L. William Seidman of the Federal Deposit Insurance Corp., the insurance system for commercial banks, said here that the cost of bank failures, notably in Texas, will cut the net worth of the FDIC fund to less than $16 billion by the end of the year. It had a net worth of $18.3 billion at the end of 1987.

Seidman told the convention that this year FDIC has handled 190 bank failures involving institutions whose assets totaled more than $50 billion.

At the same time, though, the FDIC chairman noted that the number of commercial banks on FDIC’s “problem bank list” has fallen from 1,624 last year to 1,434 today. There are about 14,000 commercial banks nationwide.

Seidman also said he expects the FDIC fund to begin growing again in 1989, adding that the fund’s net worth should grow by about $500 million next year.

The FSLIC fund, on the other hand, had a negative net worth of more than $13 billion at the end of 1987, meaning that its debts exceeded its assets by that amount. Its current level has not been made public.