Great Western S&L; Loses Bid for Bank Insurance

Federal regulators, anxious to avoid further depletion of the crippled savings and loan insurance fund, turned down on Monday an application by Great Western Bank to switch to the deposit insurance system for commercial banks.

Great Western, based in Beverly Hills, is a healthy institution with $30.8 billion in assets and was eager to join the Federal Deposit Insurance Corp.

But the Federal Home Loan Bank Board ruled that Great Western cannot be allowed to defect from the thrift system.

Both federal insurance funds protect deposits up to $100,000. But FDIC charges banks 83 cents per $1,000 of deposits, compared to the $2.10 per $1,000 paid by thrifts to the Federal Savings and Loan Insurance Corp.

Great Western, the second-largest thrift in the insurance system, pays about $45 million a year in premiums.

75% Paid by Taxpayers

The largest institution, Los Angeles-based Home Savings of America, also has an application pending to switch to the bank insurance fund.

The departure of either institution would be a heavy blow to the thrift fund precisely at a time when Congress is preparing to rescue the system with the biggest financial bailout ever.

The S&L; insurance fund is insolvent, and the legislation being developed by Congress would raise billions of dollars to close hundreds of insolvent S&Ls; and pay off their depositors.

About 75% of the cost of the plan, estimated at $157 billion over 10 years, would be paid by taxpayers, with the rest coming from the S&L; industry through insurance premiums.

If regulators allow the big, healthy S&Ls; to switch to the bank system, the thrifts left behind would face a tremendous financial burden in keeping the insurance fund healthy.

Great Western sought to combine the Beverly Hills-based thrift with an identically named subsidiary, Great Western Bank in Bellevue, Wash.

The bank board approved the Bellevue bank’s conversion from a state to a federal charter, thus providing FDIC insurance for its deposits.

But the regulators Monday denied the last step, the merger of Great Western of Beverly Hills with the Washington thrift.

Upset at Decision

Great Western expressed disappointment and insisted that it still believes that the insurance fund transfer should be allowed.

“We are confident that under existing law and regulation, Great Western’s program for FDIC membership meets every test, and we intend to vigorously pursue all options available to us,” said James F. Montgomery, chairman and chief executive.

Having been rejected by the bank board, Great Western’s next step presumably would be a lawsuit against the agency.

There is a temporary ban on thrifts leaving the FSLIC insurance fund, a prohibition scheduled to expire Aug. 10.

Great Western claimed that it was eligible to switch under a grandfather clause covering thrifts that gave notice of intention to switch by March 31, 1987. But the bank board said Great Western did not meet the grandfather test.

Could Be a 5-Year Wait

Home Savings is also trying to qualify under the grandfather clause. Home’s application is under study by the bank board, which has asked Home for additional information.

The bank board’s action Monday may be the final chance for five years for institutions seeking to leave the thrift system.

Opportunities for departing the fund will be non-existent under the bailout legislation being written in Congress. The bill already approved by the Senate provides a five-year ban on departures from the S&L; insurance fund, and there are no loopholes or grandfather clauses.