In the first indication of how President-elect Bush will try to deal with the savings and loan crisis, a senior Administration official Tuesday described a plan to raise $20 billion to $30 billion a year in cash for three years to close or merge hundreds of insolvent S&Ls; nationwide.
Treasury Department officials who are crafting the plan are considering 10 alternatives to raise the cash, including selling bonds that would be paid off by the industry, using taxpayer funds or a combination of the two, said the Administration official, who did not want to be identified.
Under the plan, which is likely to be completed as early as mid-December, the regulatory framework for the S&L; industry would be left nearly intact.
The Administration, however, has not ruled out a significant revamping of the Federal Home Loan Bank Board, which regulates the industry, and its insolvent insurance unit, the Federal Savings and Loan Insurance Corp., the official said.
The key goal of the plan is to find a lasting solution to the crisis, which has dogged the Reagan Administration for eight years, by raising “a sizable sum of cash” in a way that has the least impact on the federal budget.
‘Got to Be Cash’
The cash would allow the government to act swiftly to resolve hundreds of problem S&Ls; that the government has been keeping in business with expensive, stop-gap measures such as issuing bank board notes and making profit guarantees.
“It’s got to be cash,” the Administration official said.
Savings institutions have failed in record number since the early 1980s, especially in Texas and California, largely because of depressed oil and real estate prices, but also because of fraud and mismanagement.
The failures overwhelmed the resources of the FSLIC, the bank board unit that insures deposits at S&Ls; up to $100,000, leaving the fund at the end of last year nearly $14 billion short of the money it needs to meet its obligations to depositors.
That fund shortfall has forced the bank board to keep hundreds of failing S&Ls; open because the agency has lacked the cash to close them and pay off depositors.
In recent months, the agency has promised investors in troubled S&Ls; billions of dollars in government payments during the next few years.
Regional Banks Excluded
In many cases, it would be less costly if the bank board had the cash to simply close the institutions, officials of the agency have acknowledged.
The Treasury plan would not tamper with the 12 regional Federal Home Loan Banks, the Administration official said.
The regional banks raise money at low rates available to the government and pass the funds to S&Ls;, in theory for loans to home buyers. The bank board also has used the regional banks in recent years to help examine and regulate S&Ls.;
The official said that the government cannot reasonably consider dismantling the regional banks because they have $110 billion in loans outstanding to S&Ls.;
The Treasury proposals will be among several to be released by government and private organizations in the next few months as regulators and industry executives continue to debate how to resolve the S&L; industry problem.
Completion of the Treasury report, the Administration official said, is being held up by two key issues:
Deciding how to raise the $20 billion to $30 billion each year without increasing the budget deficit. One possible answer is an “off-budget” financing, such as the sale of bonds whose principal payments would be made by the regional home loan banks but whose interest obligations would be paid by U.S. taxpayers.
At the urging of the Treasury, Congress last year authorized $10.8 billion in bonds with the repayment of principal and interest both the responsibility of the regional banks.
Arriving at realistic estimates of how many S&Ls; are in trouble--the number ranges from 500 to 1,000--and of how much it will cost to resolve each case.
“Those are very subjective areas,” the official said.
Government and industry estimates of the cost range from $50 billion to $100 billion. The accuracy of each depends on varying assumptions, the official said.
For that reason, the Treasury’s plan will probably offer a base outline of the problem with a cost of about $50 billion and will include several options to cover variable factors such as interest expenses and the amount the government recovers from the sale of real estate it has inherited from failed S&Ls.;