PEOPLE : Critic Changes Tune on Crackdown on S

For years, Rep. Stan Parris badgered government regulators to crack down on widespread abuses in the savings and loan industry.

The Virginia Republican was one of the loudest and most persistent critics of accounting rules that he said allowed hundreds of S&Ls; to mask a steady decline into insolvency. He accused S&L; regulators of being captives of the industry and called for the resignation of federal officials who he said had “done nothing to fix the problem.”

“We have generated a whole bunch of phony assets that are being called assets but which are in fact not,” he told the House two years ago.

“We in the Congress must take some responsible action to put the thrift industry . . . back on its feet.”

But last week, Parris surprised some of his colleagues in Congress by taking the industry’s side when a House Banking subcommittee considered President Bush’s plan to rescue the nation’s thrifts.

Urged on by Thomas Owen, chairman of Perpetual Savings Bank, the largest thrift in the Washington area and one of Parris’ most powerful constituents, as well as by other S&L; executives, Parris backed many of the same rules that he has assailed in recent years.

24-23 Vote

He sponsored an amendment to allow the industry to continue to use permissive accounting rules that the Administration wants to eliminate. The amendment squeaked by the committee April 11 on a 24-23 vote, although some of its provisions were rescinded in a later vote.

The following day, he submitted another amendment to let S&Ls; continue to count as capital depositors’ funds put into subsidiaries that invest in such speculative areas as commercial real estate, fast-food franchises and high-risk junk bonds. That provision also passed.

Parris’ transformation was a demonstration of the clout that S&Ls; still wield in Congress even in the midst of the worst financial disaster since the Depression, one that will cost taxpayers at least $157 billion over the next decade.

But the measures he sponsored could help spur a confrontation with the White House, which has threatened to veto legislation that fails to require S&L; investors to put more of their own money into their institutions. An owner’s contribution provides the capital that serves as a cushion against loan losses. The Administration argues that S&Ls; are likely to operate prudently when the owner’s money is at stake.

“It’s insane,” fellow Republican Jim Leach of Iowa said of the accounting rules that Parris pressed.

Parris disagreed. “My name is on an amendment that would establish the only capital requirements that are accomplishable under this committee,” he said, arguing that without his proposal, the subcommittee would have weakened the Bush plan even further.

Listened to Demands

Parris said that before he cast his vote, he listened closely to the demands of Perpetual and other S&Ls; in his state, to whom he wrote letters soliciting recommendations. “I don’t apologize for that,” he said.

Owen agreed that Parris was trying to make the best of a bad situation. “What Parris was doing was an accommodation to people on the committee. I don’t think he approached it with any enthusiasm,” he said.

Virginia, although not facing S&L; problems of the scope that Texas and California are, nonetheless has a high percentage of troubled institutions, many of which could benefit from lenient capital rules. But some healthy institutions in the state such as Perpetual also favor the more permissive standards.

The problem, as the White House sees it, is that an institution that is healthy today but has little real capital in its vault might not be able to withstand an economic downturn. Owen dismisses the Administration arguments. “If they want to kill off the industry, they’re doing a great job,” he said.

Owen has walked the halls of Congress almost daily in recent weeks trying to sell congressmen, reporters or anyone else who would listen on the merits of retaining a broader definition of capital.

His vocal, highly visible lobbying effort has turned him into an unofficial spokesman for many S&Ls; across the country that have taken advantage of the relaxed rules that the government adopted in 1982 and have operated profitably.

“You couldn’t get to work in the morning without seeing Tom Owen waiting for you,” said one House Banking Committee aide.

Unfair to Change Now

In essence, Owen argues that because the government has permitted relaxed capital rules for years, it would be unfair to change them now, especially for institutions such as his that are profitable.

He is especially incensed at the idea that the government might exclude intangible assets that it allowed healthy S&Ls; to count as part of their capital in return for taking over ailing thrifts. Perpetual, for example, has $98 million in such intangible capital that the government provided when the company agreed to buy two failing S&Ls; in the Washington area.

“I think that Parris thinks the government ought to honor its obligations, and I agree,” Owen said.

Perpetual, which has diversified beyond the industry’s traditional business of making home loans, is profitable and widely considered to be a healthy institution. Nevertheless, the composition of its capital would not meet the standards the White House wants to impose by 1991.

Fifty percent of Perpetual’s $380 million in capital, as defined by the looser definitions that S&L; regulators now use, consists of long-term debt and other items that the Administration argues should not be counted as capital.

Perpetual would also benefit from the second Parris amendment because 30% of its $20 million in pretax profits last year came from subsidiaries not engaged in home lending.

$6.3 Billion in Assets

Perpetual has between $100 million and $200 million invested in those subsidiaries, which lend money or invest directly in commercial real estate ventures, Owen said. That’s not much money compared with the company’s $6.3 billion in assets, he said.

Owen said the government has no choice but to continue to allow S&Ls; to own subsidiaries that engage in such activities, which are barred to most commercial banks. If an S&L;’s investment in subsidiaries is not allowed to count as capital, Owen said, “that’s the same as saying you can’t do it . . . and then no one would ever buy an S&L.; They would go buy a bank.”

Owen dismissed the possibility that political contributions played a role in Parris’ decision. Owen said his campaign contributions to Parris are not excessive--they are within the limit of the law and no more than he gives to plenty of other candidates, Democrats and Republicans alike, he said.