Conferees Agree on S & L Junk Bond Lid : Congress Panel Tries to Quicken Bailout Resolution
Congressional negotiators agreed today to limit investment by savings and loans in junk bonds, and they promised to work past midnight to resolve other differences holding up the multibillion-dollar S & L bailout.
A compromise adopted by representatives of the House and Senate would require S & Ls to sell their junk bonds as soon as possible, but no later than Aug. 1, 1994.
After that, an S & L could own junk bonds only through a separately capitalized affiliate that would insulate federally insured deposits from any risk of loss from the bonds.
The Senate also offered compromises in two other areas: capital rules governing how much money S & L owners are required to invest in their institutions and the extent to which S & Ls must finance housing.
In return, the Senate is insisting on its own positions permitting S & L regulator M. Danny Wall to continue in his job for at least two years and giving power over state-chartered thrifts to S & L regulators within the Treasury Department rather than to the independent Federal Deposit Insurance Corp.
The offer does not address the biggest issue dividing the House and Senate--whether S & L spending is included in the budget deficit. The Bush Administration and the Senate want to keep $50 billion out of the deficit. Democrats and the House would balloon the deficit but prevent S & L spending from triggering automatic spending cuts under the Gramm-Rudman law.
Sen. Donald W. Riegle Jr. (D-Mich.), the leader of the five-member Senate delegation, promised to work into the early morning hours if necessary in order to finish work this week. Congress begins its monthlong summer recess Aug. 5.
Here are details of the Senate’s latest proposal:
--S & L owners would have to come up with $1.50 in capital for every $100 in lending immediately on passage of the bill, but regulators would not be required to limit the growth of institutions violating the rule until June, 1991. The requirement would be raised in steps to $3 by 1995. S & Ls that have purchased the right to collect mortgage payments from homeowners will be allowed to count 90% of the market value of those contracts as capital.
--S & Ls would have to devote 55% of their assets to housing, including residential mortgages, home construction loans, home improvement loans, mobile home loans and home equity loans. The current standard is 60% but is much more loosely defined.
--Wall, chairman of the Federal Home Loan Bank Board, would stay in his job as head of the new Office of Thrift Supervision within the Treasury Department. FDIC Chairman L. William Seidman would also retain his position. Rep. Henry B. Gonzalez (D-Tex.), leader of House negotiators, has said Wall deceived Congress last year about the extent of the S & L crisis and has been insisting that Wall undergo a new confirmation vote by the Senate.
--The Office of Thrift Supervision would retain its power over state-chartered thrifts as well as national S&Ls.;