House Panel Drafts Diluted Bailout Plan : Members Back Away From Strict S&L; Rules

A House subcommittee Thursday completed work on a plan for bailing out the embattled savings and loan industry that would weaken the strict discipline that the Bush Administration wants to impose on thrifts.

The 47-member financial institutions subcommittee of the House Banking, Finance and Urban Affairs Committee, after four days of work on the plan, backed away from proposals that would significantly toughen proposed requirements for thrifts and included a number of provisions sought by the financial industry.

However, the draft faces a review by the full Banking committee, whose chairman, Rep. Henry B. Gonzalez (D-Tex.), has opposed making things easier for the managements of troubled thrift institutions.

The Senate Banking, Housing and Urban Affairs Committee already has crafted a more stringent bailout plan, embracing many of the Bush Administration’s proposals, that will come to the Senate floor Monday for action. Senate and House versions will have to be reconciled before the legislation is sent to President Bush.

Capital Reserves

The bill sent by the Senate Banking Committee to the Senate floor accepts the Bush Administration’s recommendation that S&Ls;, which now must maintain capital reserves equal to 3% of their assets, boost their capital to 6% by 1991. The House bill, by contrast, would stick approximately with today’s 3% standard.

Treasury Secretary Nicholas F. Brady has warned that he may recommend that President Bush veto the whole package if Congress fails to adopt substantially tighter capital requirements, which the Administration hopes would reduce the likelihood of future financial crises in the industry.

Gonzalez, speaking to reporters, said Thursday that he doubts House Democrats will be able to muster the votes needed to override a presidential veto and that the House will try to reach a mutually acceptable solution.

In action Thursday, the subcommittee voted to toughen enforcement provisions in the Administration’s proposal by giving regulatory agencies and the Justice Department greater power and resources to prosecute criminal abuses.

Softening the Administration plan, however, the panel limited Treasury Department control over the salaries paid to Federal Home Loan Bank Board regulators. It also mandated increased representation for credit unions on Federal Home Loan regional boards and limited the way new proposed credit regulations would apply to credit unions.

Another proposal approved by the subcommittee would weaken the barriers between savings and loan institutions and commercial banks. The measure would make banks and credit unions that concentrate at least 30% of their business in housing loans eligible for loans from the regional Federal Home Loan Banks. The regional banks borrow on Wall Street at low, government-backed interest rates and then pass on the money to S&Ls.;