Regulators Barred From Seizing Thrift
A federal judge today extended an order that effectively bars regulators from seizing an Illinois savings and loan in a decision that could compound the problems of the government’s thrift bailout program.
In issuing an injunction, U.S. District Judge Royce Lamberth agreed with arguments by Olympic Federal Savings & Loan of Berwyn, Ill., that the U.S. Office of Thrift Supervision lacks authority to act because its current and former director were not confirmed by the Senate as the Constitution requires.
A temporary order issued by Lamberth on March 7 had barred the agency from making a surprise seizure of Olympic Federal through Wednesday.
In his most recent ruling, Lamberth stressed that his injunction barring the seizure of Olympic Federal does not invalidate every action taken by the OTS.
“The court stresses that it is neither closing the door on OTS nor making any finding beyond the specific facts of this case,” he said.
But in a hearing last week, OTS attorney Aaron Kahn warned the judge that a ruling against the agency would be “an invitation to chaos” that would add billions to the $159-billion thrift bailout cost that Administration officials have already suggested may not be enough.
He noted that even since Lamberth issued a temporary order two weeks ago, another court in Kansas City took similar action barring the government from taking steps to sell or liquidate Franklin Savings Assn. of Ottawa, Kan., one of 342 thrifts with government-insured deposits under the control of the Resolution Trust Corp.
Many of those thrifts and hundreds of others, including Olympic Federal, that are on the verge of being seized have been generally profitable, but are unable to meet the more rigorous capital requirements of the savings and loan bailout law enacted last August.
Private attorneys say these thrifts, whose managers believe that they can return to profitability or capital compliance if they were just left alone, will be the ones most likely to challenge the government’s authority to seize them.
Despite the court setback, a top regulator said in Washington today that the government plans to dramatically increase the pace of President Bush’s savings and loan bailout by selling or closing 140 institutions by the end of June.
L. William Seidman, chairman of the Federal Deposit Insurance Corp. and the Resolution Trust Corp., dubbed his plan “Operation Clean Sweep.”
Fifty of the 140 institutions will be closed and the rest sold, he told the National Press Club, answering Democratic critics who have complained about the sluggish pace of the 7-month-old rescue effort.
If realized, Seidman’s plan would represent a sharp acceleration from the pace of the bailout so far. Since its creation in August, the RTC has sold or closed 52 of the 402 institutions seized by the government in 40 states.
