S&L; Bill Would Expand Powers of Regulators

The Bush Administration sent Congress sweeping legislation Tuesday designed to resolve the savings and loan crisis by providing broad new powers to federal regulators. Some analysts said the move would sharply accelerate the extinction of S&Ls; as they exist today.

As already outlined by Administration officials, the plan would transfer regulation of the thrift industry to banking regulators and place future S&L; bailouts under the Federal Deposit Insurance Corp., which now handles only banks.

But the legislation spells out more starkly than officials had disclosed previously the extent to which the Administration wants Congress to go in reshaping S&Ls; to make them more like banks and in encouraging banks to buy them up.

Industry Reacts With Shock

Reaction in the savings and loan industry was one of shock--and, in some cases, anger--setting the stage for a major battle between the White House and the industry and its longtime supporters.

Barney R. Beeksma, chairman of the U.S. League of Savings Institutions, warned that the measure would “weaken even the healthiest institutions--the ones who have so faithfully stuck to the business of providing mortgage credit for the home-buying public.”

Beeksma called the bill “a counterproductive approach that would make a bad situation worse.”

In a surprise development, the bill provides for a contingency plan to enable the government virtually to quadruple the premiums S&Ls; pay for deposit insurance. The sharp hike above the modest increases now proposed would come if cash flows prove inadequate to finance past as well as future bailouts.

In another unexpected twist, the measure would allow federal authorities to renegotiate parts of the $40-billion worth of deals that the Federal Savings and Loan Insurance Corp. made with would-be buyers last year to get them to take over insolvent S&Ls.;

Under this plan, regulators would not be able to cancel contracts already signed. But they could seek, by offering other incentives, to renegotiate with buyers to obtain better terms for the government. Congress has criticized many of the deals as too generous.

The bill also would order the Treasury to conduct a full-scale review of the current federal deposit insurance program, including whether the government guarantee covering up to $100,000 per account should be limited to one account per person and to individuals, not corporations.

May Also Study Guarantee

A Treasury spokesman said that the study also “could” explore whether the $100,000 maximum should be reduced.

And, in a provision that would have a major impact in California, the legislation would empower federal regulators to override state regulations that allow S&Ls; to invest in areas outside of housing--such as shopping centers, restaurants and race horses.

It would give the FDIC’s governing board the power to order an S&L; to stop practices that the regulators believe are posing an “undue risk” to the federal insurance fund. California has been far more lax than other states in sanctioning unconventional behavior.

A major thrust of the Administration’s rescue effort would be to force savings and loan institutions to follow stricter financial procedures now required only of banks. S&Ls; traditionally have been allowed more latitude in their financial practices because they were designed to promote home purchases, considered a desirable social goal.

A thrift association spokesman, who asked not to be named, branded the plan a “certain death knell for the industry.”

And Bert Ely, president of Ely & Co., an Alexandria, Va., consulting firm, said that it is unlikely that even healthy S&Ls; could survive the proposed maximum fees.

Reaction in Congress was more muted. House Banking, Finance and Urban Affairs Committee Chairman Henry B. Gonzalez (D-Tex.) said that the Administration “is making a good-faith effort to develop a workable plan,” but he questioned whether it is being fully candid about the potential cost of the rescue.

The legislation would:

--Authorize regulators to raise the premiums charged S&Ls; for federal deposit insurance to a maximum 75 cents per $100 in deposits, compared to the 23 cents initially proposed. The current fee is 20.8 cents.

--Require S&Ls; to meet all current standards imposed on banks, including doubling the amount of capital they must have to back up their loans.

--Extend the current moratorium against S&Ls; leaving the Federal Savings and Loan Insurance Corp. for another five years, to prevent a mass exodus of healthy S&Ls; seeking to avoid the higher rates. Many S&Ls; would prefer to shift their insurance to the FDIC.

--Remove, after two years, most of the barriers that now prohibit bank holding companies and other potential investors from acquiring healthy S&Ls; as well as insolvent ones, without necessarily having to take both as a package.