GOVERNMENT WATCH : Room to Breathe

Sometimes government really doesn’t intend to be rigid. Things just turn out that way.

Take the case of the federal government versus Glendale Federal Bank, a well-established local thrift. The aim of regulation is to protect the taxpayers, because they ultimately have to foot the bill when a savings and loan fails and depositors demand their money back under the federal deposit insurance program. This regulatory goal is inarguable; the trick is to not apply it to the wrong S&Ls.;

Glenfed was, by all accounts, a good S&L; that found itself in a serious squeeze after Congress in 1989 passed a law that overturned tax benefits it was promised after it agreed to take over a failing Florida S&L; in 1981. Suddenly Glenfed didn’t have enough cash on hand to satisfy the feds.

This newspaper has argued that Washington should give Glenfed a break: Why crack down on a thrift that through no fault of its own is sweating out a technicality? Why force an obviously eager and willing institution into federal receivership?

Apparently someone up there in regulatory heaven was listening, because Washington is now extending the thrift’s deadline for meeting a new--but suddenly reduced--liquidity requirement. This enlightened action by the federal Office of Thrift Supervision allows Glenfed some breathing room.

Southern California will benefit if the thrift is able to use this break to get a better handle on its problems. Glenfed’s struggle to avoid government seizure is surely a fight worth waging.