VIEWPOINTS : HAVE S&Ls; OUTLIVED THEIR USEFULNESS? : Many experts question whether traditional thrift functions need to be a separate industry or just another banking option.

T he savings and loan industry was established in the United States mainly to help ordinary people save money and buy homes. Deregulation of financial services in the 1980s, however, brought consumers more savings and home finance options and blurred the distinction among banks, S&L; and, to a lesser extent, investment firms. At the same time, the S&L; industry--racked by fraud, bad management and unpredictable interest rates--has seen many of its members fall into deep trouble, and President Bush has proposed a bailout plan expected to cost taxpayers billions. Given these developments, is there still justification for a separate S&L; industry with a special status under U.S. law? Do we still need S&Ls;, or should we let them become banks and compete under the same rules that banks do? Free-lance writer Meredith Chen asked a number of authorities these questions, and their answers follow:

Robert Gnaizda, staff attorney with Public Advocates Inc., which represents the Urban League and the Latino Issues Forum:

“If the primary function of savings and loans is affordable home mortgages, then we need them. If their only function is home mortgages for the affluent, then we don’t need them.

“They must provide affordable home loans. . . . They need to go into communities that have been frozen out of the economy by banks and savings and loans and aggressively assist development there.

“The Federal Home Loan Bank data shows that a white person living in an integrated neighborhood has as difficult a time getting a loan, even if affluent, as a poor white living in an all-white neighborhood. There is prejudice even against integration.

“We basically have to consider what the function of the savings and loan industry is supposed to be. If it is to be essentially identical to that of banks or what is has been in the 1980s, then we don’t need a special institution. If it is to take on the mission that many of its leaders still believe should be its primary mission, and do it with skill and commitment, then I say we should consider special tax credits to assist the industry rather than the very onerous burden that President Bush is seeking to impose on the industry. The President’s burden will eliminate the industry. There is no question about it.”

James F. Montgomery, chairman and chief executive of Great Western Financial Corp.:

“Bad apples spoil the barrel, and they should be taken out of business. We’ve done some dumb things with deregulation that have caused some problems, but the savings and loan business is still making half the mortgage loans in America, and we don’t want to take away half the mortgage lending in America.

“I can’t believe that we can just glibly say that we can eliminate the bad and replace those loans with something else. That is just not going to happen. We need the thrift industry and we’re going to continue to make mortgage loans, and that is important to people and important to America.”

R. Dan Brumbaugh Jr., author of “Thrifts Under Siege: Restoring Order to American Banking” and a former deputy chief economist at the Federal Home Loan Bank Board:

“We don’t need savings and loans in the traditional sense. I say this because in a recent study that I did with Andrew Carron of First Boston Corp., we examined many aspects of the performance of mortgages in the portfolios of thrift institutions. What we found was that when you adjust the return on fixed-rate residential mortgages . . . and take into consideration the prepayment option that the homeowners have, they basically have not made money with those mortgages holding them in portfolio in the 1980s. This means that they can’t really make money on that aspect of their portfolio which gives them their unique reason for being.

“These institutions (should be able) to meet changing conditions in the market. Those institutions which we now call thrift institutions ought to evolve into institutions which more closely resemble commercial banks.

“Both banks and thrifts are fighting for their lives. Banks provide high-cost information, and telecommunications and computer technology are making it less expensive for borrowers and lenders to get that information themselves. And they are getting together without banks and thrifts.”

Anthony M. Frank, U.S. postmaster general and former chairman and chief executive of First Nationwide Bank:

“I think we should have two kinds of banks in this country, and I always have. There should be family banks and corporate banks, or commercial banks and retail banks, or savings banks and commercial banks--one of those three sets of pairs.

“The distinction between them should be that if more than half of your assets and liabilities are in corporations, then you are a commercial bank. If more than half goes to serving people directly, then you are a retail or a family or a savings bank. I don’t want to see that distinction lost.

“We have some systemic problems in our country. The low rate of savings is one of them. What do savings and loans basically do? They combine the savings accounts of 10 families and they lend it to another family. They aggregate little dribs and drabs of savings that nobody else is interested in. Here we have a 3% savings rate in this country compared to the high teens in Germany and 20% in Japan, and now we are going to eliminate one of the few ways people can save. I don’t think it is a very intelligent thing.

“Our proportion of home ownership is going down in this country. Home ownership is the glue that holds this country together and provides emotional and financial stability. It holds a family together. Savings and home loans are two of the most important consumer aspects of our country.”

Joe Jolson, an analyst with the Montgomery Securities investment firm:

“There needs to be an industry dedicated and regulated to providing funds for the housing industry. You need an industry that is going to have some incentive to favor housing with their funds.

“How many banks have made home loans? If you look historically at the amount of home loans that are owned by commercial banks, it is extremely low relative to the size of banks. Less than 20% of all home mortgages are owned by banks. That is not very much. Who else is going to provide this financing for home loans is the question.

“The insurance companies, the commercial banks and Wall Street, the three large investors in loans and credit, are only interested when times are good. They don’t have a firm commitment in all parts of the cycle to this business.

“If you make the funding source for homes into a cyclical beast, it is going to be volatile like the stock market. Housing values could go up and down in a couple of years by 20% and that doesn’t promote confidence in buying a home as safe investment.”

Kenneth T. Rosen, chair of the Center for Real Estate and Urban Economics at UC Berkeley:

“In California, the savings and loans have originated about 65% of home mortgage credits. If you believe that people need to buy houses, you need savings and loans because commercial banks are not going to do it on a regular basis.

“The large savings and loans in California are quite profitable and you can make good money on them. They have to be more efficient operations than they had to be five years ago because there is a lot more competition now. Seventy percent of the savings and loans in this country are both profitable and healthy. It is very important to realize that, in California, we’ve had maybe four or five major cases of fraud. Other than that, they are all doing just fine.

“The savings and loans were deregulated in 1982 in terms of assets and liabilities, and unfortunately they were allowed to have asset powers that are too broad. They have to be watched. . . . I am very optimistic that if savings and loans that are healthy are allowed to continue to function in a separate, independent fashion, they will do fine.”