Bankers Tell Bush They Cannot Kick In More to Bail Out S
Officials of the thrift and banking industries, fearful of higher costs, told President Bush on Thursday that their business cannot afford to contribute any additional funds to help bail out failing savings and loan associations.
The healthy S&Ls; are not to blame for the crisis, and it is not fair to ask them “to shoulder any further burden,” said Theo Pitt, chairman of a special federal insurance committee of the U.S. League of Savings Institutions.
Bankers likewise insisted that banks are not responsible for the failure of hundreds of S&Ls.; C. G. Holthus, president of the American Bankers Assn., said he told Bush of “our grave concern that the solution should not impose costs on commercial banks and their customers.”
Executives from the S&L; and banking industries met at the White House with Bush, Treasury Secretary Nicholas F. Brady, Budget Director Richard G. Darman and other Administration officials.
Bush and the other officials listened intently and asked questions, industry officials said. But they did not provide any hints of the final form of the S&L; bailout plan they will soon present to Congress.
The challenge facing the Administration is to raise huge sums of money--Congress’ General Accounting Office on Thursday pegged the figure at $85 billion--to liquidate or sell insolvent S&Ls; and rebuild the federal insurance fund that guarantees deposits up to $100,000.
The Administration is thought to be leaning toward a bond issue that would raise the cash. The annual interest cost would range as high as $9 billion a year, and the Administration and Congress would have to divide the burden between financial institutions and taxpayers.
Healthy S&Ls; are already contributing a significant share of their profits to the federal insurance fund. S&Ls; pay $2.08 a year for every $1,000 they hold in deposits, contrasted with the 83 cents per $1,000 that banks pay.
Industry leaders told Bush that any additional increase could threaten to drive some S&Ls; into insolvency at a time when they badly need more capital.
“We talked about the need to attract capital to the business and to improve the position of already healthy and marginally solvent institutions,” said Pitt, immediate past chairman of the U.S. League of Savings Institutions and president of the Pioneer Savings Bank of Rocky Mount, N.C. Fred Webber, president of the league, also attended the White House meeting.
The bankers said the financially crippled S&Ls--there; are about 350 nationally--should be promptly liquidated or merged. And they want their S&L; competitors to meet the stricter rules that federal regulators now apply to banks.
“I urged that the capital, accounting and regulatory standards of the savings and loan industry be brought quickly to the rigorous levels of the banking industry,” said Holthus, president of First National Bank of York, Neb.
Meanwhile, the General Accounting Office recommended to the Senate Banking Committee that federal regulators seize control of insolvent S&Ls; to prevent them from offering above-market interest rates in competition with healthy S&Ls; for investors’ funds.
Comptroller General Charles A. Bowsher, the GAO’s director, said the ailing S&Ls; should be placed under government control and then quickly liquidated or sold to minimize the eventual cost of restoring the federal insurance fund. The “sense of urgency is very important,” Bowsher said.
Senate Banking Committee Chairman Donald W. Riegle Jr. (D-Mich.) said the committee will move quickly on a package of legislation that combines a financial solution to the crisis with some major changes in regulation and supervision for the thrift industry.
“We need a combined package, not a new infusion of money without controls,” said Sen. Jake Garn of Utah, the committee’s top-ranking Republican.
Riegle said he also wants to pursue the billions of dollars that disappeared from S&Ls; into bad loans.
“Where did all the money go?” Riegle asked. “A lot of people got rich. The money just didn’t vanish into thin air.” The committee will question Justice Department officials next week about the pursuit of former S&L; executives who may have profited from illegal activities.
Sen. Alan Cranston (D-Calif.), praising last year’s transaction in which the Robert M. Bass Group bought American Savings & Loan of Stockton, said it should not be lumped together with the flurry of year-end sales in which federal regulators found buyers for 75 crippled S&Ls.;
The Bass group will operate a “good bank” with the sound loans from American Savings and a “bad bank” to manage the thrift’s money-losing investments. This arrangement, Cranston said, should help reduce the ultimate cost to the the insurance fund.
Will Caution S&Ls;
During Thursday’s hourlong meeting at the White House, Chief of Staff John H. Sununu told the financial industry participants that he was irritated by “irresponsible” advertisements by banks in Texas, Arkansas and Kansas encouraging S&L; depositors to shift their savings. “We are going to call the banks and inform them of the concern in Washington and the sensitivity that they might not be aware of,” said Mary-Liz Meany, a spokeswoman for the American Bankers Assn. “We made a promise to the Administration that we would certainly monitor it, and we agreed with their concern.”
White House Press Secretary Marlin Fitzwater said the President did not respond directly to any of the points raised at the meeting by bank and S&L; executives.
Separately, the House Banking Committee released a GAO report that said accounting firms “did not adequately audit and . . . report” the financial condition of some S&Ls; that later failed.
Some of the nation’s leading accounting firms were “derelict in their responsibility to sound early alarms,” committee Chairman Henry B. Gonzalez (D-Tex.) and Rep. Frank Annunzio (D-Ill.), chairman of the financial institutions subcommittee, said in a written statement.
