Industry Group Takes a Dimmer View : Bank Board Chief Paints a Bright Picture of S&L; Woes
The chairman of the Federal Home Loan Bank Board said Tuesday that before year’s end regulators “will have dealt with the worst cases” of the troubled savings and loan industry and that with $30 billion more they could tackle the others.
However, members of an S&L; trade group gave a more somber picture of the industry, saying that FHLBB Chairman M. Danny Wall might be underestimating the cost of removing the 511 insolvent thrifts nationwide.
The National Council of Savings Institutions, which represents about 500 savings banks and S&Ls; nationwide, said thrift insolvency was “one of the most pressing problems today facing the Congress and the federal financial regulatory agencies.”
The group said one solution would be to phase out the Federal Savings and Loan Insurance Corp., which insures deposits of up to $100,000 at the nation’s thrifts and is currently in red ink, and use taxpayer money toward the clean-up costs.
In a proposal released last week and outlined again Tuesday, the council said healthy thrifts should be transferred to the more stable Federal Deposit Insurance Corp., the insurer of banks and some S&Ls.; Those that failed to meet FDIC’s stiffer capital requirements would have five years to become healthy or shut down.
That was the opposite of recommendations made last week by the largest S&L; trade group, the U.S. League of Savings Institutions, which advocated preserving the current system.
Cost Set Higher
Many members of the league, though, are not healthy enough to join FDIC, which has substantially lower premiums, while about two-thirds of the council’s members already are insured by that agency. No thrifts can switch to FDIC now due to a moratorium imposed by Congress.
FDIC Chairman L. William Seidman was unavailable for comment Tuesday. However, the American Bankers Assn., the largest bank trade group, criticized the council’s proposal saying the group “wants to have its cake and eat it too; They want to leave the problems of their industry behind.”
The National Council of Savings Institutions did not provide any estimates for reaching its goals, although some members said it would cost more than the $30 billion figure tossed out by Wall at the group’s annual management conference.
“We think the problem is bigger than that,” said Keith G. Willoughby, chief executive officer of First Mutual of Boston.
Charles John Koch, head of the First Federal Savings Bank in Cleveland and council chairman, said: “If that’s the number that solves the problem, great. (But) it’s really immaterial. The cost is clearly in excess of what the industry can pay by itself.”
Estimates for dealing with the quarter of the 3,200 federally insured S&Ls; that are considered at or near insolvency lately have ranged from $50 billion to $100 billion. Wall said that while shaky thrifts continue to drag down the industry, the vast majority of all S&Ls; are profitable because more and more troubled thrifts have been restructured or merged with healthy institutions.
“There are fewer unprofitable institutions than there were last year,” he told the council.
He said that industrywide net losses totaled $1.5 billion in the third quarter, down from $3.8 billion in the second quarter and $3.9 billion in the first quarter.
