Reagan Asks Bank, S&L; Insurance Cut but Bush Official Says ‘No Way’

Associated Press

The Reagan Administration today recommended curtailing deposit insurance for bank and savings and loan accounts and said the public will have to bear much of the estimated $100-billion cost of restoring the S&L; industry to health.

The White House Council of Economic Advisers, in President Reagan’s final economic report, said that reducing protection for depositors would cause them to more closely “monitor the financial health” of the institutions holding their money.

But Treasury Secretary Nicholas F. Brady, who is working on an S&L; plan for the Administration of President-elect Bush, said in a statement that “curtailing deposit insurance is not an option and will not be considered.”

‘Very Serious Matter’


Banking Committee Chairman Henry B. Gonzalez (D-Tex.) said a gradual reduction in the $100,000 insurance limit may be considered as part of the overall solution to the thrift crisis. However, he added, “lowering the amount of deposit insurance is a very serious matter, not a matter to be thrown out as a trial balloon.”

Although Reagan’s report did not address the question, Beryl W. Sprinkel, his chief economic adviser, said that as part of the insurance curb, institutions should be required to publicly disclose more information about their financial condition.

The Administration also sharply criticized S&L; regulators for “postponing the day of reckoning” in their rescues of failed institutions.

But the top regulator, M. Danny Wall, chairman of the Federal Home Loan Bank Board, defended his agency’s year-end spree of savings and loan bailouts as cheaper than closing the failed institutions and paying off depositors.

$16.3 Billion Spent

Wall, a Reagan appointee, said at a briefing outlining his testimony today before the House Banking Committee that his agency rescued 75 institutions in December at a cost of $16.3 billion, to be spread out over 10 years.

Tax benefits arising from the deals will cost the government an additional $4 billion over 10 years.

The alternative to the rescues--liquidating the S&Ls; and shutting them down--would have required $47 billion in “up-front cash,” far more than is available immediately to the Federal Savings and Loan Insurance Corp., Wall said.

The Federal Home Loan Bank Board supervises nearly 3,000 federally insured S&Ls.;

Both banks and S&Ls; are failing in numbers not seen since the Great Depression. Reagan’s report noted that the problems will be “one of the major challenges for the next Administration.”

Administration Faulted

While Reagan placed much of the blame on regulators, the Administration’s own record has come under fire as well. Critics point out that the Administration refused to pay for additional S&L; examiners while the problem was developing.

In the final Reagan budget, released Monday, the Administration called for spending $64 billion on S&Ls; through 1994 and acknowledged for the first time that it does not have enough money coming in to handle the cleanup.

Citing the 1980 decision by Congress to boost the limit on deposit insurance from $40,000 to $100,000, Reagan’s economic report said reducing the ceiling “would restore much-needed discipline to the system.”