Officials of Unsound S&Ls; Should Be Forced to ‘Pay Up,’ Senator Says

Officials trying to bail out the fund that insures deposits in federal savings and loan institutions should go after executives of those institutions who contributed to the problem and should get rid of unsound institutions, the chairman of a Senate Banking subcommittee said Monday.

“We ought to be seeing to it that those people who are driving around in Jaguars and have big yachts and belong to fancy country clubs come up to the bar now and pay up,” Sen. Alan J. Dixon (D-Ill.) said on “CBS This Morning.”

“There are a lot of people that were executives of thrifts around the country that are personally liable, and we ought to be getting after them,” said Dixon, who heads the Banking subcommittee on consumer and regulatory affairs.

Regulators, in fact, have sued many former S&L; directors and officers, along with a host of professionals such as accountants and lawyers, on allegations ranging from negligence to racketeering. And the FBI has numerous criminal bank fraud and embezzlement investigations pending throughout the nation.

But recoveries are slow and incomplete. The record $35-million verdict that regulators won last month against a Louisiana lawyer isn’t likely to be collected fully even if it is upheld on appeal, regulators have acknowledged. In the past 3 years, regulators have recovered a total of $253 million in such litigation.

In Orange County, regulators have sued former operators of nearly all the dozen S&Ls; that have failed since 1985. All the cases are still pending, and recoveries have been small.

In the lawsuit against the former owners of Ramona Savings & Loan in Orange, for instance, regulators have won partial awards totaling about $12 million, including interest. But regulators have been able to collect only $2 million of that amount so far.

Often, regulators have said, the money is simply spent or the defendant doesn’t have nearly enough assets to cover a verdict.

Dixon, however, believes that more could be done.

“We ought to invoke safety and soundness rules against states that are liberalizing investment laws for thrifts and endangering the security of those institutions,” he said.

“And we ought to be putting some money into the FSLIC (Federal Savings and Loan Insurance Corp.) fund and reducing the number of thrifts in the country, getting rid of the bad ones and supporting the good ones.”

Asked if there was any chance that Congress would approve a proposal floated by the Bush Administration to charge depositors at banks and S&Ls; a fee of 30 cents per $100 deposited to help pay for insurance, Dixon said: “None whatsoever.”

“I haven’t heard of anybody that likes the idea and I think that idea is born dead,” he said.

White House Chief of Staff John H. Sununu said Sunday that the proposal remains a live option despite widespread congressional and industry opposition. He also said on ABC’s “This Week With David Brinkley” that “there are a variety of options being examined.”

Noting that financial institutions have long paid a fee for federal deposit insurance, Sununu said the plan under study was simply a matter of “taking the current fee and adjusting it to affect the reality.”

If financial institutions were to pass along such an increased fee directly to depositors, American savers still would be getting a bargain for having their savings insured by their government, he said.

Sen. Lloyd Bentsen (D-Tex.), chairman of the Senate Finance Committee, said on the same program that the “trial balloon of putting a tax on deposits was really very foolish.”

Times staff writer James S. Granelli in Orange County contributed to this report.