Bush’s Top S&L; Adviser Blasts Thrifts on Capital Issue
The President’s top adviser on savings and loan issues Tuesday blasted S&Ls; that are lobbying to weaken financial standards for the industry, saying: “A small group of thrifts wants to make billions of dollars in loans without a dime backing them.”
With the House beginning debate today on the S&L; rescue package, Richard Breeden said rules regarding capital are “the key issue” and insisted that the White House is not retreating from the strict standards in the version of the bill approved by the House Banking Committee.
“First and foremost, it’s a question of safety,” Breeden, an assistant to the President, said in an interview.
The House Banking Committee measure would require the owners of S&Ls; to furnish $3 in cash to their institution for every $100 in loans it makes, a safety margin designed to deter thrifts from making the kinds of risky investments that produced the industry’s current crisis.
No Restriction Now
Some thrifts have comparatively little cash invested by their owners. Instead, they count as capital the value of goodwill--the intangible worth of an institution in addition to its cash and physical assets. Much of this goodwill was obtained in recent years when healthy thrifts took over sick S&Ls;, receiving certificates of supervisory goodwill from federal regulators.
Current rules provide a 3% capital standard without any restrictions on the amount of goodwill that can be included. The S&L; industry as a whole has about $15 billion to $18 billion in supervisory goodwill, which is now counted along with cash as capital. The proposed capital standards would eventually forbid the counting of goodwill, requiring the already hard-pressed industry to raise billions of dollars in cash.
Thrifts dependent on goodwill have been lobbying Congress vigorously to be permitted to keep counting the value of goodwill. These institutions “have saved the taxpayers billions of dollars” by agreeing to acquire troubled S&Ls; during the early 1980s, said Jared Cameron, spokesman for a lobbying group, the Financial Assistance Inequity Relief Coalition.
“If they had not supplied a helping hand, the troubled institutions would have been liquidated with taxpayers’ money,” Cameron said.
The federal S&L; insurance fund, which guarantees deposits up to $100,000, did not have enough funds to close S&Ls; and pay off depositors, so federal regulators fashioned complex deals, including promissory notes and goodwill certificates, to attract healthy thrifts to buy ailing ones.
Thrifts that were active in these deals now say it would be unfair for the government to force them to give up the use of goodwill.
Among the major S&Ls; dependent on goodwill--and active in the campaign to modify the House Banking Committee bill--are Talman Home Federal Savings & Loan Assn. of Illinois, Chicago; Empire Federal Savings, Buffalo, N.Y.; Anchor Savings Bank, New York; Merabank, Phoenix, and Seamen’s Bank for Savings, New York.
But Breeden, a key architect of the Administration’s S&L; package, said counting goodwill as capital is financially worthless, the “equivalent of cold air.”
Supporters of the House Banking Committee bill have been fearful the White House is not providing sufficiently strong backing for the capital rules. But Breeden insisted that the Administration is fighting hard. “The President has spoken to members of the leadership and members of Congress, and he will continue to be active,” Breeden said. The overwhelming majority of the nation’s 2,000 thrifts will be able to meet the new capital standards, he noted.
Tough standards are vital to prevent a recurrence of the current S&L; crisis, a “national tragedy,” Breeden said. The Administration’s S&Ls; package will cost an estimated $157 billion over the next 10 years, with the funds used to close or sell hundreds of crippled thrift institutions and pay off depositors.
In other thrift news Tuesday, a survey indicated that consumers are nervous about the S&L; crisis.
“The people of California are experiencing the S&L; crisis first hand,” said Alex Sheshunoff, president of a financial information and consulting firm. “Many have seen thrifts fail and, even with insurance, Californians are concerned about their deposits,” he said.
Although deposits are insured up to $100,000, about 37% of Californians surveyed said they worry about losing money. By contrast, a national survey disclosed a lesser fear factor, with 28% of Americans worried about the safety of their deposits, according to the poll earlier this month by Sheshunoff Information Services of Austin, Tex.
