Fed to Ease Purchase of S&Ls; in Trouble : Specialized Thrift Industry May Not Be Needed in Future, Greenspan Suggests

Federal Reserve Board Chairman Alan Greenspan said today that the Fed will make it easier for bank holding companies to buy troubled savings and loans, and he suggested that a specialized thrift industry may not be needed in the future.

Greenspan, in testimony to the Senate Banking Committee, also said the Fed has made arrangements to support the Federal Home Loan Bank system in the event of runs on S&Ls.;

The committee was holding its second day of hearings on President Bush’s plan to rescue the ailing industry by selling $50 billion in bonds to raise the money to close insolvent institutions.

Some analysts have said the President’s plan won’t provide enough money, but Greenspan said that “in our judgment, all things considered, the $50 billion should be adequate” to take care of 470 insolvent S&Ls.;

Investment from outside the thrift industry, from banks and other firms, probably will be needed in order for the thrift industry to meet the new capital standards that the Administration is proposing, analysts have said. Greenspan said “more than a majority of thrifts” that are not insolvent will be able to meet the new capital requirements.

‘Smooth Transition’

The central bank chairman also said he “attaches considerable importance” to a proposed Treasury Department study of the deposit insurance system. He said the study should help “ensure a smooth transition to modified insurance arrangements.”

Part of the study should include whether it is “unnecessary to provide special government-subsidized facilities for mortgage lending,” Greenspan said. In the future, it may be “possible to bring all the depository institutions under one regulatory and supervisory system,” he suggested.

Greenspan said in cases of failing thrifts the agency will reconsider the so-called “tandem operations restrictions” that prevent purchasers such as bank holding companies from engaging in non-banking business activities that are allowed thrifts under certain state charters.

He told the committee that the Bush plan will improve supervision, provide a framework for handling insolvent thrifts and strengthen the deposit insurance fund by raising premiums. The plan aims at pumping funds into the FSLIC and also calls for merging or closing troubled thrifts.