S&Ls;’ Deposit Drain Reaches Near-Record $9.4 Billion in Month

The heavy drain of funds from the nation’s savings and loan associations persisted during February, with total withdrawals of $9.4 billion, federal regulators announced Thursday.

The month’s outflow was only a slight improvement from the record withdrawal of $10.6 billion during January, the Federal Home Loan Bank Board said.

The discouraging news came as a congressional subcommittee moved to strengthen the federal government’s powers to override state regulators, who have been blamed for costly S&L; failures in California and Texas.

The Federal Deposit Insurance Corp. will become the principal regulator for state-chartered S&Ls; under an amendment adopted Thursday by the financial institutions subcommittee of the House Banking Committee. The panel is working on a bill proposed by President Bush for the multibillion-dollar rescue of the federal fund that insures deposits at S&Ls.;

FDIC, already a key regulator for banks, will assume the same role for S&Ls; as part of the legislation.

In 1982, the California Legislature gave S&Ls; virtually unlimited authority to make investments outside their normal business of home mortgage lending. Some S&Ls; suffered big financial losses on such diverse ventures as restaurants, horse breeding farms, apartments, condominiums and shopping centers, and windmills to generate electricity.

“We destroyed our financial institutions during a boom,” said Rep. Richard H. Lehman (D-Sanger), a Banking Committee member. The S&L; industry was given total investment freedom through passage of a bill in the waning days of the 1982 Legislature, Lehman said.

“The state of California was completely derelict and to date has not changed one law,” he added. He expressed hope that the Legislature will act to limit outside investment powers given to thrifts.

The amendment approved Thursday, if included in the final legislation, would give FDIC a free hand as a regulator, able to deny federal deposit insurance if a state allows its S&Ls; to engage in relatively risky practices.

The amendment, approved by a 27 to 12 vote, was sponsored by Rep. Jim Leach (R-Iowa), a vociferous critic of California’s action in removing limits on S&L; activities.

The subcommittee disposed of 47 amendments Thursday but has not yet grappled with the most controversial issues unresolved between Congress and the Bush Administration. The legislators still must decide whether to give the S&Ls; additional time to meet tough new capital standards proposed by the Administration and whether to include the full cost in the federal budget deficit.

Under an ambitious schedule, the subcommittee hopes to dispose of more than 150 amendments and complete work next week on the complex bill to rescue the savings and loan insurance fund, which protects deposits up to $100,000.

The Administration has proposed a plan to spend $157 billion over 10 years for closing or selling more than 500 insolvent S&Ls.; The money would be used to pay off depositors, whose accounts are insured, or to provide financial incentives to outside investors to buy ailing thrifts.

The Senate Banking Committee will begin work on the S&L; legislation next week. The steady erosion of S&L; deposits gives a special impetus to Congress’ hopes to deal quickly with the legislation. Withdrawals during the first two months of the year, totaling $20 billion, are dramatically larger than the outflow of $8.6 billion for all of 1988.

Higher interest rates offered by money market funds, combined with some nervousness over the financial health of thrift institutions, are the major reasons for the steady loss of funds.

In other action Thursday, the financial institutions subcommittee rejected an amendment proposed by Lehman to allow 31 financial institutions, including some of California’s biggest S&Ls;, to leave the S&L; regulatory system and obtain bank charters. Under the Bush Administration plan, the S&Ls; would be blocked from becoming banks for five years.

MORE THRIFT SEIZURES

Federal regulators seize 38 more troubled S&Ls.; Page 11.