Industry Wants U.S. Funds for S&L; Rescues
The U.S. League of Savings Institutions, arguing that the savings and loan industry has paid “all it prudently can” to the depleted federal insurance fund, called Tuesday for the use of government-guaranteed notes to finance the shutdown or sale of hundreds of insolvent institutions.
The league, a politically powerful trade organization, said the cost of resolving the S&L; crisis would reach $92 billion over 10 years and should be handled by a new government “resolution corporation.” The new agency would raise money to close or merge S&Ls; by selling notes guaranteed by the U.S. Treasury.
The Federal Savings and Loan Insurance Corp., the agency that guarantees S&L; deposits up to $100,000, is financed with premiums paid by S&Ls.; The FSLIC fund has obligations far in excess of its assets despite a special assessment on healthy S&Ls;, which pay $2.08 for every $1,000 in deposits, compared to 83 cents for every $1,000 paid by commercial banks for their insurance fund, which is operated by the Federal Deposit Insurance Corp.
The league said its members could not absorb the massive costs of disposing of the ailing S&Ls.;
“Saddling healthy institutions with the entire burden is not only unrealistic, but it unfairly handicaps their future prospects in the highly competitive financial service marketplace,” the U.S. League said in a statement issued Tuesday. The premiums on S&Ls;, it said, should be cut to the same level paid by banks.
May Cost Taxpayers
The organization’s desire to reduce the S&L; industry’s financial burden is sure to draw a skeptical reaction from Congress, which is grappling with ways to finance the biggest government-paid financial bailout in U.S. history.
Taxpayers will probably be forced to shoulder the biggest share of the multibillion-dollar burden. Under such circumstances, Congress will be extremely reluctant to ease the strain on the S&L; industry itself.
The new corporation proposed by the league would take control of all insolvent institutions and their assets and would have power to liquidate the S&Ls; or arrange mergers. The proposed agency “provides a funding mechanism which can deal with the . . . problem, whatever its size, and spreads the cost over a number of years,” said Barney R. Beeksma, the league’s chairman.
The proposal also calls for creation of a “new, clean and independent” insurance agency to guarantee deposits at solvent S&Ls.;
Both new agencies would be independent of the Federal Home Loan Bank Board, which regulates the nation’s federally insured S&Ls;, under the trade group’s proposal.
By keeping a separate insurance fund for S&Ls;, the plan would preserve “the savings institution system as a vital instrument in national housing policy,” Beeksma said. “This approach benefits home buyers, all those associated with homeownership and the nation as a whole.”
