New Thrift Ads Fuel Confusion About Bank, S&L; Dividing Line

It’s hard enough to tell a bank from a savings and loan institution these days, what with so many major thrifts calling themselves banks.

Now, some thrifts are making it even more difficult to tell the difference by advertising that their deposits are insured by the same agency that insures bank deposits. And the banks are upset.

The dispute stems from a loophole in the government’s new thrift bailout legislation that allows savings and loans to advertise that their deposits are insured by the Federal Deposit Insurance Corp.

FDIC is the healthy fund that has insured bank deposits since the Depression of the 1930s. Its savings and loan counterpart on the other hand, the now-defunct Federal Savings and Loan Insurance Corp., ran out of money amid the savings and loan debacle of the 1980s.

But under the new law, two new insurance pools were established to insure deposits up to $100,000. They are the Savings Assn. Insurance Fund for thrifts and the Bank Insurance Fund for banks. Both funds are administered by FDIC, and that is why some savings and loans claim the right to say their deposits are insured by that agency.

“The law explicitly says that both savings and loans and banks are insured by ‘the corporation,’ and the corporation is the FDIC,” said Richard A. Fisher, senior vice president with First Federal Savings & Loan in Salt Lake City, which advertises “FDIC insured” in big, bold letters in ads for certificates of deposit.

FDIC spokesman Allan Whitney said FDIC lawyers, in an initial review of the new law, tentatively concluded that the thrifts advertising FDIC insurance are on solid legal ground. Still, the banks are angry and have turned the issue into a financial industry turf war, vowing to mount a lobbying campaign to force thrifts to stop.

Banks believe that FDIC is their agency and that they kept it solvent through responsible banking practices. At the same time, FSLIC was being run into the ground by some of the wheeler-dealers who got into the thrift industry in the early 1980s and, through bad management and--in some cases--fraud, forced massive and expensive government intervention.

American Eagle Logo

To make their point, the banks lobbied hard while the bailout legislation was being written earlier this year for a provision to prevent thrifts from posting decals in their branches featuring the FDIC logo.

“This is our Good Housekeeping Seal of Approval,” said Mary-Liz Meany, spokeswoman for the American Bankers Assn., the bank industry’s main trade group.

So a decal showing an American eagle was created that says a thrift’s deposits are “backed by the full faith and credit of the United States government.” And bankers thought they had won the war.

Meany said the American Bankers Assn. believes that FDIC references in thrift advertising are a “sneaky, backdoor” move by the thrift industry and its main trade group, the U.S. League of Savings Institutions. The league has advised thrifts that they can legally claim that FDIC insures their deposits.

Some Withhold Reference

Among the Southern California thrifts known to be including the FDIC reference in its ads is Fidelity Federal Savings & Loan in Glendale.

Charles Braden, a Fidelity Federal executive vice president, said the thrift took its cue from the U.S. Savings League’s advisory. Braden said Fidelity believed that other thrifts would use advertising claiming FDIC insurance and wanted to be consistent in its ads with the rest of the industry.

But some thrifts are declining to make reference to FDIC in their ads.

John C. Kaufman, a spokesman for California Federal Bank in Los Angeles, said his company believes that making reference to FDIC in ads would be misleading. He said California Federal is planning to put pamphlets in branches soon explaining how the Savings Assn. Insurance Fund works.