Senate Panel Backs Bush in Approving S&L; Rescue Plan

The Senate Banking, Housing and Urban Affairs Committee completed work late Wednesday on a savings and loan rescue plan that in most respects would impose the strict discipline the Bush Administration is seeking for the faltering thrift industry.

In a significant victory for President Bush, the committee voted, 11 to 10, to drop a proposal by Chairman Donald W. Riegle Jr. (D-Mich.) to fund the $50-billion cost of the industry bailout by including it in the deficit-burdened federal budget for the 1989 fiscal year.

The panel instead accepted an Administration proposal that would reflect the cost over a period of 30 years.

In the showdown vote, three of the committee’s 12 Democrats broke ranks to support the Administration plan, which was supported by eight of the panel’s nine Republicans. Each of the three Democrats--Alan Cranston of California, Alan J. Dixon of Illinois and James R. Sasser of Tennessee--said they were swayed by Administration threats to veto the bill if its funding plan did not prevail.

In the House, meanwhile, a strong stand by the S&L; industry Tuesday persuaded lawmakers to dilute tough new capital requirements that the Administration considers to be the cornerstone of the bailout package.

In the Senate version, which has been worked out in bipartisan, closed-door meetings over the past few weeks, the new capital standards were fully accepted and even toughened in some respects.

Those standards would require S&Ls; to increase capital to a level of 6% of assets by June, 1991, up from 3% now. The 6% standard is currently required of nationally regulated banks.

There was no attempt by the Senate banking panel to dilute the requirement that a thrift’s capital must consist of tangible capital, or real money, instead of accounting artifices such as good will and subordinated debt.

A subcommittee of the House Banking, Finance and Urban Affairs Committee Tuesday cut the ratio back to 3% and changed definitions so that intangible items such as good will could be counted toward half of the capital requirement. In effect, that meant that only 1.5% of assets would have to be tangible capital.

Unwilling to Sign

The panel later restored some of the tougher requirements proposed by the Administration, but Treasury officials continued to warn that the House was developing a bailout bill that the President would be unwilling to sign.

In the Senate, however, earlier threats of a presidential veto over the bailout funding issue were muted Wednesday.

In a brief letter to Riegle, Treasury Secretary Nicholas F. Brady praised the emerging Senate package as “on balance meritorious.” He repeated the Administration view that the cost of the bailout should be put “off budget” to avoid increasing the deficit. Under the Administration plan, the cost would be absorbed over the next 30 years.

The letter did not repeat the veto threat, but Riegle, Cranston and Sasser agreed separately that Brady was adamant the bill would be rejected by the President if it did not contain the 30-year funding plan.

Cranston and Sasser cited the mounting cost of delaying the S&L; bailout and said that the probability the Administration would force the legislation, in Cranston’s words, “back to square one” was the main reason they voted for the Bush plan.

White House assistant Richard C. Breeden praised Riegle’s management of the Senate bill, declaring the intense Administration-Congress struggle to hammer out an acceptable compromise the most fruitful such exercise in recent memory.

In public statements, however, Riegle stuck to his guns on the funding issue. He declared that his plan would avoid the “accounting and budget gimmickry” of Bush’s proposal by reducing the interest costs of financing the bailout through direct Treasury borrowing at a savings of $4.5 billion to taxpayers over the next three decades.

Utah Sen. Jake Garn, the committee’s ranking Republican, said he still has a “fundamental disagreement” over allowing the bailout costs to swell the federal deficit in apparent violation of the mandatory Gramm-Rudman law’s budget reduction target.

In addition, the Treasury Department consistently has disputed Riegle’s projected savings, arguing that the higher deficit would force up interest rates that the government must pay on its debt, thereby wiping out most of the projected savings.

Garn was joined by Sen. Phil Gramm (R-Tex.) in offering a showdown amendment to strike out the Riegle funding proposal in the committee’s draft bill and substitute instead the Administration’s initial proposal.

In the House, the unwieldy 47-member subcommittee struggled through a list of hundreds of proposed amendments. During the day, the subcommittee:

- Voted 27-16 to further allow S&Ls; to continue to invest in risky areas such as commercial real estate development, fast food franchises and junk bonds and count those investments as capital. The Senate version of the Bush proposal would phase out such practices over five years. The Bush plan would end the practice immediately.

- Voted 26-18 to require thrifts to concentrate 80% of their lending on housing, up from the current requirement of 60%. But the amendment, by subcommittee Chairman Frank Annunzio (D-Ill.), sets forth a broad definition of housing to include consumer, education and small business loans and provides that no S&L; failing to meet the 80% requirement could be penalized if its current mix of loans falls short of the requirement.