House Panel Dilutes Parts of S&L; Rescue Bill

A House panel, defying a threatened presidential veto, voted Tuesday to water down tough new capital requirements contained in the Bush Administration’s savings and loan rescue plan.

But the subcommittee on financial institutions of the House Banking Committee later restored some of the capital provisions, and additional changes are expected as the panel continues its markup of the bill today.

The legislation and the capital requirements it contains are the cornerstone of the Administration’s effort to spend $50 billion to close or merge insolvent S&Ls; across the country.

By a 24-23 vote, the subcommittee diluted a requirement to force thrifts to back loans with more of their own capital. The amendment, sponsored by Reps. Frank Annunzio (D-Ill.) and Stan Parris (R-Va.), provided a much looser definition of capital by including such items as goodwill, subordinated debt, deferred loan losses and mortgage servicing rights.

The subcommittee later re-tightened the definition of capital involving subordinated debt and deferred loan losses.

Even so, the amended bill would allow institutions failing to meet the capital standard to grow by about 7% to 8% a year. The Administration wants to bar capital-deficient thrifts from expanding.

Sen. Henry B. Gonzalez (D-Tex.), chairman of the full Banking Committee, said the key amendment approved by the subcommittee Tuesday embraces “smoke-and-mirrors accounting and smoke-and-mirrors capital.”

The Senate has yet to begin work on its own version of the complex Administration bailout plan, which would raise the funds needed to shut down or sell off some 500 insolvent thrifts and restore the integrity of the federal deposit insurance fund.

Top officials have been warning for a week that any move to dilute the key provision of the plan requiring savings and loan institutions to maintain capital reserves equal to 6% of their assets beginning in June, 1991, would draw a presidential veto.

But a narrow bipartisan majority agreed to go along with the proposal by Annunzio and Parris to cut the requirement to 3% and to count as up to half of that 3% such non-cash assets as goodwill and long-term subordinated debt.

In effect, opponents of the proposal said, the amendment would cut the capital requirement to 1.5%.

The amendment, a consolidation of some 40 separate proposals to weaken the capital requirements, had been hammered out over the weekend in a series of meetings among senior subcommittee members.

Until Tuesday, it was still not clear whether the Administration would accept the amendment in its final form. But over lunch, subcommittee aides said, Richard C. Breeden, a White House assistant who specializes in the thrift industry, urged Republicans on the panel to oppose the compromise.

Even so, seven Republicans joined 17 Democrats in supporting the change. They were opposed by 11 Democrats and 12 Republicans.

The Administration’s position was supported in a letter sent to the committee by Federal Reserve Chairman Alan Greenspan. He said he would not like to see accounting tricks used to cover up the lack of adequate capital, which he defined as common stock, retained earnings and other genuine financial reserves.

“Any significant erosion of these provisions invites continuation of the conditions that have led to the present crisis,” Greenspan wrote.

Treasury Secretary Nicholas F. Brady has said he may recommend that Bush veto the measure if the S&L; industry succeeds in an effort to win amendments that would relax the capital requirements.

“There is a veto threat hanging over this bill,” Rep. David Dreier (R-La Verne) said.