U.S. Hopes to Pump Funds Into Sick S&Ls; This Week
The government, acting quickly to staunch thrift industry losses of $20 million a day, hopes to start pumping money into some of the nation’s sickest 250 savings and loans later this week, a Treasury official said Tuesday.
The $166-billion bailout bill passed by Congress over the weekend and due to be signed by President Bush today requires the Administration to spend $20 billion before the end of September.
Most of the initial chunk of money will be used by the Federal Deposit Insurance Corp. to replace high-cost deposits, an important reason for the thrifts’ continuing losses. But some could be spent to merge or liquidate insolvent institutions, the official said.
“They’re prepared to move on some of them as early as this week,” the official, who spoke on condition he not be identified, told reporters.
Rates Higher
The first candidates for sale or closure are on the list of more than 250 thrifts, with combined assets of $100 billion, that government regulators have taken over since Bush launched his bailout plan in February.
Buyers have been found for only two of these S&Ls;, which the official said are losing between $10 million and $15 million a day.
A total of 500 savings and loans are insolvent because of reckless lending and, in some cases, fraud.
Until the S&Ls; can be sold or closed, the government will try to curb operating losses by reducing the thrifts’ dependence on expensive sources of funds such as deposits obtained through brokers.
Ailing thrifts, especially in Texas, have been offering to pay between 9% and 10% on average for such funds--well above last week’s national average of 8.32% for six-month deposits.
Out of the Starting Gate
Other, healthy associations have been forced to jack up their own rates in order to compete--a phenomenon called “the Texas premium”--and this put an extra strain on the entire industry.
“There should be a reduction in borrowing rates and a reduction in the Texas premium,” the Treasury official said.
Ironically, deposit rates should come down more quickly under the financing compromise reached by Congress than they would have done under the Bush Administration’s plan, which envisaged spending only $10 billion by Sept. 30.
In addition to the $20 billion to be spent this quarter, which the Treasury will raise mainly by selling short-term bills, a new quasi-government body, the Resolution Financing Corp., will float $30 billion in bonds starting with the sale of $5 billion to $6 billion next quarter.
