Are S&Ls; Wriggling Free?

Debate commences today in the House of Representatives on President Bush’s proposals to rescue and strengthen the savings and loan industry with ominous signs that the weaklings of the industry may once again succeed in writing the wrong kind of rules.

Controversy centers on the sensible, tough capital requirements proposed by the President; they would force the savings and loan operations to phase in over the next four years a new standard of capitalization based on $3 in cash for every $100 in loans. That standard has the support of the financially sound and responsible savings and loan companies. It is clearly a minimum that is essential if the nation is to avoid a repeat of the outrageous events of the last few years that are now forcing taxpayers to provide billions to cover depositor insurance claims.

But a substantial number of the savings and loan companies are mounting a massive campaign to soften the requirements by allowing them to count good will, an intangible asset, toward the minimum cash requirement. They point out that some of them were authorized to do just that by federal regulators when healthier thrifts took over sicker thrifts in recent years. To change the rules now would be a breach of contract, they claim. They are wrong. The Congress has never yielded its authority to legislate appropriate standards. The savings and loans are being given a reasonable time to phase in the new requirement. If their finances are so fragile that the proposal poses a fatal threat, then it is better to know that now rather than later, when taxpayers would be confronted with yet another bailout.

A second controversy is brewing as many savings and loan associations organize to fight affordable housing requirements written into the legislation by the House Banking Committee. The requirements grew out of the historic commitment of the industry to affordable housing and facilitating home ownership. Under the program, the Federal Home Loan banks would set aside a portion of their funds to finance low-cost loans for qualified low- and moderate-income persons. This would make a modest but useful contribution to the problem of increasing housing prices that are barring increasing numbers of Americans from home ownership.

President Bush and his White House staff face a tough fight to retain the bailout provisions on capital. The challenge is coming, not from the Democrats, but from a number of Republicans who have been wooed and won by home-town savings and loan executives, long faithful supporters of political campaigns. The nation will be better served if Congress heeds the advice of two sound California savings and loan associations that have been running full-page advertisements in the Washington Post. World Savings of Oakland has admonished: “Do not be seduced by the pleadings of the weak and the noisy.” Great Western Bank of Beverly Hills has warned: “Let’s not make the same mistake again.”