Bush Mulls Decision on S&L; Rescue, Admits No Plan 'Will Be Popular'

By JAMES GERSTENZANG

Feb. 4, 1989 12 AM PT

Times Staff Writer

WASHINGTON —

President Bush, seeking to prepare Congress and the public for the plan he will recommend next week to rescue the nation’s ailing savings and loan industry, told congressional leaders Friday that whatever solutions he offers “will not be popular.”

Grappling with the first major problem of his presidency, Bush consulted with members of Congress for one last time before settling upon a plan to stem the crisis and set the thrift industry on a road to long-term recovery.

After meeting with Bush, Sen. Jake Garn of Utah, the top-ranking Republican on the Senate Banking, Housing and Urban Affairs Committee, declared that a fee on checking and savings accounts--a Treasury Department proposal that received early attention--”is not a live option.”

But, reflecting an approach apparently favored by the Bush Administration, Garn said “there would have to be an increase” in the premiums paid by thrift institutions for federal insurance of their deposits up to $100,000. He said premiums paid by commercial banks should be left untouched.

Garn argued that an increase in the premiums paid by the savings and loan firms would not necessarily be passed along to depositors in the form of lower interest rates on their savings. A more secure S&L; system, he explained, would attract more deposits and enable the institutions to pay the higher premiums without resorting to reductions in interest rates.

He also said “structural change” in the savings and loan industry would be a part of Bush’s rescue plan.

Bush, opening the meeting with congressional leaders at the White House, declared: “We’ve got a big problem. There are no easy answers, and no worrying about the blame; there’s plenty to go around. We need ideas, and if we’re overlooking something, we want to know what it is. I think we all agree that it’s time to get on with the problem.

“Whatever we come up with will not be popular,” he told the congressmen. “I expect . . . whatever you come up with will not be popular.”

The members of Congress and White House press secretary Marlin Fitzwater said after the meeting that Bush disclosed no specific course that he is likely to choose.

But Bush emphasized that whatever course he chooses, “the safety of these deposits is guaranteed, will continue to be guaranteed. There should be no feeling around the country that some solution will do anything to diminish the credit of the United States being behind the deposits.”

The Administration has approached the S&L; issue gingerly since its missteps of a week ago, when sharp criticism greeted a proposal for a depositors’ fee after it was discussed publicly by Treasury Secretary Nicholas F. Brady and other senior officials close to the President.

Bush’s consultation with congressional leaders and industry executives the previous day reflected his strategy of soliciting support even before he announces his proposal for an S&L; rescue.

He scheduled a working session today at Camp David, the presidential retreat in the Maryland mountains, with Treasury and White House officials to thrash out the proposals that have been advanced so far. Decisions are expected early next week, White House officials said.

Bush’s goal is a program that will make billions of dollars available to liquidate or sell insolvent savings associations and to rebuild the federal insurance fund that guarantees S&L; deposits up to $100,000. Congress’ General Accounting Office has estimated the price tag at $85 billion.

Long-Term Solution Sought

The Administration is thought to favor a bond issue that would raise the necessary funds. 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 the taxpayers.

Thrift institutions already contribute a significant share of their profits to the federal insurance fund. S&Ls; pay $2.08 a year for every $1,000 that they hold in deposits, and banks pay 83 cents a year.

Senate Banking Chairman Donald W. Riegle Jr. (D-Mich.), talking with reporters after the meeting with Bush, stressed the need to reach a long-term solution and said, “We’re going to look for every conceivable funding source within the industry, within the assets of the business itself (and) try to recover any money that’s been misappropriated.”

Taxpayers, Riegle insisted, would be called upon only as a “last resort.”

He said that any federal program would be aimed at rescuing depositors. “No management is going to be bailed out,” he said.

TROUBLED S&LS;

Ten worst thrifts ranked by ratio of net worth to assets (Sept. 30, 1988)

Meridian Savings Assn. -491.2%

Arlington, Tex.

Twin City Savings**-196.4%

West Monroe, La.

Hi-Plains S&L;* -156.3%

Hereford, Tex.

Commodore Savings Assn.-136.0%

Dallas