S&L; Deposits Safe, President Assures Public
President Bush, trying to quell savers’ fears about the thrift industry crisis, said Friday that deposits in savings and loan associations “are backed by the full faith and credit of the government and they are sound, they are good.”
Meanwhile, a tentative Treasury Department proposal to levy a charge on savings deposits drew a flood of protest calls to S&Ls; throughout the country and to federal regulators, the Federal Home Loan Bank Board said.
The President said that he was not upset by the excitement. “It doesn’t bother me for a lot of ideas to be considered and debated,” he said at a White House news conference.
Bush Reserves Comment
“There seems to be some controversy around (the proposal). But I’m going to reserve comment until I actually have it presented to me. And I suspect this is the first of many such things that’s going to happen of this nature,” Bush said.
Bank board spokesman Karl Hoyle said there has been no surge in savings withdrawals.
“Other than the fact people are venting their spleen, nothing substantive happened,” he said after officials queried regional home loan banks about the public reaction.
The furor over the Treasury idea was the first direct hit that the week-old Administration has suffered on a policy matter as it drafts its strategies for a range of tough domestic issues.
The universally hostile reaction in Congress to the proposal, which would impose an annual 25- to 30-cent levy on each $100 of deposits, appears to have doomed any chance that it will be enacted.
Bush said that, no matter what method is eventually devised to bail out the battered S&Ls;, savers should not worry about their insured deposits.
“I just want to assure the American people” that their money is protected, Bush said, referring to the federal insurance fund that guarantees deposits of up to $100,000. “Nothing is going to change in that regard.”
However, Rep. Henry B. Gonzalez (D-Tex.), chairman of the House Banking Committee, assailed the Administration as having been “extremely careless” in handling the S&L; crisis.
S&Ls; “are receiving a heavy run of calls from depositors who are confused and concerned about the reports of a new tax on their deposits,” Gonzalez said.
“The Congress stands behind the insurance funds, and no individual with deposits under $100,000 will lose money,” he said. “But this does not provide an excuse for the Administration to allow its officials to create chaos that will only raise the cost of the savings and loan bailout.”
Thrift executives in California said there had been no unusual deposit withdrawals at S&Ls.; But many institutions said that customers were asking questions about whether charges would be imposed on deposits.
“We have not had any unusual withdrawal activity, but a lot of our customers are telling us that they will take their money out if they are charged any sort of fee,” Barbara Burch, vice president for savings at Security Federal Savings & Loan in Garden Grove, said.
“People are definitely asking questions,” said Lynn Taylor, a spokeswoman for Great Western Savings of Beverly Hills. “They are concerned. Many of the questions are from older people who have time to come in and ask questions.”
However, most customers seem to realize that there is little chance that such a levy will be imposed, Peter Summerville, a spokesman for Coast Savings & Loan, said.
Leonard Shane, the outspoken chairman of Mercury Savings & Loan in Huntington Beach and a former president of the U.S. League of Savings Institutions, blasted the proposal as “preposterous.”
“I have done an informal survey of my own, and I can’t find anybody who is really even paying any attention to it,” he said. “I don’t think it is even being taken seriously by the people who proposed it.”
Carol Salinas, an account holder at the Gibraltar S&L; branch in Santa Ana, said that she keeps her money in a savings account “to draw interest. But if banks are going to start charging you to save money, you might as well leave it at home.”
Salinas, like others, said she thinks that it is unfair to make customers pay for problems in the industry.
“It’s not the people’s fault, it’s the management,” echoed another Gibraltar customer, 69-year-old A. H. Rodier of Santa Ana.
Administration officials have said that they are exploring a number of options for raising money to replenish the S&Ls;’ federal insurance fund, which has been wiped out by soaring industry losses in the last few years.
Federal officials have estimated that the cost of honoring depositors’ accounts and closing and consolidating crippled institutions may range from $60 billion to more than $100 billion, making it the biggest federal bailout in U.S. history.
Congress and the Administration are expected to approve a bond issue to rescue the fund. The fee on deposits would have raised $5 billion to $9 billion a year to help pay the interest on the bonds. Now, the President and Congress apparently will be forced to find another approach.
“President Bush has made it graphically clear there is no easy answer,” said Rep. Jim Leach (R-Iowa), a member of the House Banking Committee.
“This was the first idea out of the box; the next one will be harder to shoot down,” Leach said. “Now, people will realize they can’t duck from the issue, as did Ronald Reagan and the last Congress.”
Negligence by independent accounting firms that audited S&Ls; contributed significantly to some of the thrift failures, according to federal regulators. The bank board has filed 11 lawsuits against accounting firms, charging that they failed to detect wrongdoing by management that should have been brought to regulators’ attention.
The cases include a suit against Touche Ross & Co. for its work as auditor of Beverly Hills S&L; of Mission Viejo, which was recently acquired by Michigan National Corp. Another Big 8 accounting firm, Deloitte Haskins & Sells, also is being sued.
Pasadena Firm Sued
In addition, federal regulators have brought related suits in connection with the failure of two other Orange County savings and loans. They are suing the Pasadena accounting firm of Jeffrey & Palazzola in connection with the failure of North America Savings & Loan in Costa Mesa and Tustin accountant Mike Sage as a result of the failure of Ramona Savings & Loan in Orange.
Since suing Sage in September, 1986, regulators have been unable to find him.
Other suits are expected to be filed, targeting many of the nation’s largest accounting firms.
Although most of the complaints allege negligence, there were also incidents in which auditors themselves were corrupted, M. Danny Wall, chairman of the bank board, said.
“In some cases, it is clearly individuals who happen to be employees of some of the (accounting) firms . . . who were involved in these undertakings with the management of the institution, all of them setting out to do wrong,” Wall said in a broadcast interview.
” . . . We have had some settlements in terms of the allegations where people have admitted to involvement,” he said.
Thomas Kelley of the American Institute of Certified Public Accountants said in a broadcast interview that “the accounting profession is not responsible for the savings and loan crisis. . . . Auditors don’t give clean bills of health. Secondly, what they do is report on the fairness of the financial statements.”
Staff writers James S. Granelli, Kim Jackson and John O’Dell in Orange County and Linda Williams and Carla Lazzareschi in Los Angeles contributed to this story.
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