Autonomy a Key Issue : FDIC Chief Fears S&L; Plan’s Repercussions

Times Staff Writer

The nation’s chief bank regulator, Federal Deposit Insurance Corp. Chairman L. William Seidman, complained Wednesday that his agency’s political and financial independence would be curtailed by the Administration’s savings and loan rescue plan.

Seidman, whose agency has been given supervisory authority to seize and run insolvent S&Ls; during the current crisis in the savings and loan industry, fears that the proposed legislation could interfere with the FDIC’s tough regulatory stance.

The Bush plan would combine regulation of banks and S&Ls; under a new FDIC, whose members could be chosen and removed at the President’s wish. The President now selects FDIC members, but they can only be removed for gross dereliction of duty.

Formula Cited


The presidential power to fire financial regulators without cause could “compromise significantly the independence of the FDIC,” Seidman told the financial institutions subcommittee of the House Banking Committee.

He also complained about a complex formula in the bill that would put a ceiling of $7 billion on the FDIC’s ability to provide financial guarantees and other help for buyers of failed banks. The FDIC now is limited in providing financial help only by its net worth, which totals $14 billion, he said.

The legislation was crafted in response to a history of often-lax regulation of S&Ls.; There are hundreds of insolvent thrifts, and the Bush Administration proposes to spend $90 billion in direct spending over 10 years to shut them down and pay off depositors or find outside investors to acquire the institutions.

But in drafting restrictions to prevent new S&L; problems, the Administration has proposed new fetters for bank regulators, who historically enjoyed freedom from political interference.


Seidman emphasized his firm opposition to any proposals that would “run counter to the principle of establishing an independent deposit insurer.”

He also went against the Administration by suggesting that banks be immediately allowed to buy troubled thrifts without restrictions.

For example, banks acquiring sick S&Ls; under the Administration plan are prohibited from changing the ailing thrift’s name to the name of the healthy bank. This and other current Federal Reserve restrictions would be applied to any takeovers authorized by the Administration plan. But Seidman wants the bank to be allowed to integrate the thrift into its operation without any restrictions.

The Bush plan would let banks buy sick thrifts for two years, and healthy institutions after that. Seidman, by contrast, endorsed a proposal by Rep. Frank Annunzio (D-Ill.), the subcommittee chairman, to allow a bank to buy a healthy S&L; immediately as long as it buys a sick institution of similar size.

Allowing banks into the business of buying S&Ls; will reduce the ultimate cost to the Federal Savings and Loan Insurance Corp. of disposing of crippled S&Ls;, said Seidman, who is anxious to add thrifts to his area of jurisdiction without surrendering any of the autonomy he has enjoyed while regulating banks’ financial health.

‘Deeply Concerned’

But Annunzio fears that S&Ls;, with the primary mission of promoting housing, could suffer under a bank regulator. “I am deeply concerned about the ability of the FDIC to handle its current work load and to also take on the additional burden assigned by the Bush plan,” he said. “I am concerned when I discover that hundreds of banks in this country have not been examined in the past three years by the FDIC.”

Noting that the FDIC lost money last year, its first loss in 50 years, he said, “We should not blindly transfer a whole burden of responsibilities to an agency that clearly has problems of its own.”


At the hearing’s start, Annunzio complained that Richard G. Darman, director of the Office of Management and Budget, had refused to testify before the subcommittee. OMB policy has been to restrict its director’s appearances to full congressional committees, except for the subcommittee handling the OMB’s operations budget.

“We underestimated how strongly the chairman felt about having director Darman testify,” an OMB spokeswoman said later. Darman is eager and willing to testify before the subcommittee to cooperate with the task of clearing up the S&L; crisis, she said. No appearance by Darman has been scheduled, but it is expected that Annunzio will schedule one soon.