Panel Squabbles Over Dilution of S&L; Bailout

From Associated Press

A House banking panel battled today over proposals to weaken the heart of the Bush Administration’s savings-and-loan bailout plan by diluting a requirement that S&L; owners back loans with more of their own money.

In the first of a planned series of votes on proposed tougher capital standards, the House Banking subcommittee on financial institutions adopted, 30 to 17, a weakening amendment offered by Rep. Bill McCollum (R-Fla.).

The Administration wants to encourage S&Ls; to get out of areas such as real estate and insurance by requiring owners to back those investments entirely with their own capital. McCollum’s amendment exempts healthy thrifts already engaged in those businesses from the stricter standard.


Rep. Jim Leach (R-Iowa) argued against the change, saying risky areas not traditionally part of S&Ls;’ business helped push the industry into crisis.

‘Vice in the Past’

“What we’re saying with this amendment is that vice in the past is acceptable,” Leach said.

Despite the threat of a presidential veto, subcommittee members were preparing later in the day to vote on a proposal that the Administration says would gut the central reform in its bill.

President Bush wants to increase S&L; capital requirements by June, 1991, from 3% of assets to 6%, contending that the more capital S&L; owners have at risk, the less likely they will be to take undue risks.

A senior Treasury official this week reiterated the department’s threat to recommend a veto if Congress waters down key elements of the bill.

A compromise amendment on capital, worked out over the weekend by aides to committee members, would move up the deadline to June, 1990, but it would more broadly define capital, making it easier to meet the standards.

Warning From Greenspan

Federal Reserve Board Chairman Alan Greenspan, in a letter today, warned the panel that relaxing capital rules “invites continuation of the conditions that have led to the present crisis.”

“Such amendments raise the specter that additional public resources may be needed to correct the situation in the future,” Greenspan said.