Government Seeks to Reverse S&L; Ruling : Thrifts: The White House also tries to speed up Senate confirmation of its choice for chief S&L; regulator.
The Bush Administration, warning that delays in seizing insolvent savings and loan associations could cost taxpayers millions of dollars, asked an appeals court Thursday to uphold the government’s takeover powers.
The Administration said a lower court action Wednesday, blocking the seizure of an Illinois thrift, “may irretrievably disrupt the government’s regulation of the thrift industry.” U.S. District Judge Royce C. Lamberth barred the impending takeover of Olympic Federal Savings & Loan of Berwyn, Ill., on the grounds that the former chief federal thrift regulator, M. Danny Wall, was not constitutionally confirmed by the Senate.
The government asked the appeals court Thursday for an emergency order blocking Lamberth’s action. The government asked the appeals court to require that all briefs be filed by Monday and that a decision be made as quickly as possible. Federal regulators fear that a swarm of other ailing S&Ls; will sue to avert takeovers.
At least one challenge to a seizure has already been mounted. On Thursday, Imperial Corp. of America, former parent of San Diego-based Imperial Savings, won a promise from regulators to delay imposition of a receivership on the thrift until a court hearing next week determines whether the takeover was legal.
Imperial Savings had been placed into conservatorship by the government on Feb. 23. But the temporary agreement with regulators means the government cannot force the S&L; into receivership, a final step that would allow regulators to wipe out ownership in the thrift and sell its assets.
Meanwhile on Thursday, the Administration officially submitted to the Senate the nomination of former Labor Department official T. Timothy Ryan Jr. as chief thrift regulator, moving much faster than expected because of the confusion generated by Lamberth’s ruling. The Ryan nomination was undergoing the lengthy clearance process required for high-level appointees. But the White House now wants rapid action to get him confirmed, thereby avoiding additional legal challenges to regulators.
The confusion and uncertainty should be temporary, predicted Rep. Henry B. Gonzalez (D-Tex.), chairman of the House Banking Committee.
“The impact of the (Lamberth) decision should not be exaggerated,” Gonzalez said. “The regulatory sky is not falling. High fliers in the thrift industry should not break out the champagne with the thought (that) the opinion suddenly frees them” from the controls of the S&L; law, he said.
The S&L; legislation gave the government the power to spend an estimated $285 billion over the next 30 years to close or sell insolvent S&Ls; and pay off depositors. Deposits are insured by the federal government up to $100,000.
The law also eliminated the Federal Home Loan Bank Board as overseer of thrifts and replaced it with the Office of Thrift Supervision. Wall, chairman of the Bank Board, was appointed OTS director without undergoing new confirmation by the Senate.
Lamberth said Wall’s appointment was unconstitutional and casts a legal shadow over the powers of his office. Wall has since been replaced by Acting Director Salvatore Martoche. But Lamberth said the unconstitutional appointment of the OTS chief means the agency can’t take control of Olympic Savings.
Since the thrift bailout became law Aug. 9, the government has seized 137 thrifts with $97 billion in assets. Twenty-two of the 35 thrifts in California operating under government supervision were seized since then. And about 65 thrifts in the state now fail at least one of the three new federal capital requirements, making them possible candidates for a federal takeover if they are unable to replenish their capital.
The largest California thrift that appears vulnerable to a seizure is Santa Barbara Savings. Its plan to raise additional capital was rejected by regulators in February, a move generally regarded as tantamount to a regulatory death sentence.
Since then, the thrift has been placed under some of the most severe operating restrictions available short of being seized, including such things as a prohibition against making new loans, a freeze on salaries of employees who make more than $50,000 a year and strict rules governing transferal of assets or entrance into leases.
A spokeswoman for the thrift’s parent, Financial Corp. of Santa Barbara, declined to comment on whether the institution plans to file a suit similar to the one filed by Olympic Federal.
One former thrift owner closely monitoring the Illinois case is the New York investment firm of Castle Harlan Inc., which owned Western Empire Savings & Loan in Yorba Linda. When the thrift was seized Feb. 23, the company threatened to sue regulators for what it called their “unconscionable abuse of power” in reneging on previous agreements and taking the thrift illegally.
“We have not filed suit yet, but we very likely will soon,” said Rob Wages, a Castle Harlan executive who was a Western Empire director. “We’re watching all the legal developments. The judge’s ruling (in the Illinois case) is important and indicative of how sloppy Congress put this (S&L; bailout) law together. Now we have an agency that has run amok.”
At the end of 1988, Castle Harlan put up $15.8 million in cash to rescue a failing Western Empire Savings without any government assistance. Regulators at the time approved the company’s business plan, which called for a heavy reliance on junk bond trading.
Robert A. Rosenblatt reported from Washington. James Bates reported from Los Angeles. Times staff writer James S. Granelli in Orange County contributed to this story.
