One S&L; Nightmare Is Enough
Before congressional representatives recess this month to hit the campaign trail, they should vote to bolster the deposit insurance fund for savings and loan associations. If they don’t, all taxpayers could be left holding a very expensive bag, for while the S&L; industry has never been healthier, the Savings Association Insurance Fund (SAIF) is underfunded and casts an uncomfortable shadow from the 1980s over the thrift industry.
Today the House Rules Committee is scheduled to take up legislation addressing the problem. If the committee clears the plan, the full House will consider it as an amendment to another bill that would provide selective regulatory relief for banks and other financial institutions. The twinning of the two measures is a compromise that the banking industry is willing to accept to help the S&Ls;, or thrifts.
Bank deposits are insured under the Bank Insurance Fund (BIF), which is considered to be in good shape now. Banks pay only $2,000 a year for federal guarantees of customer deposits; thrifts pay a lot more--23 cents for every $100 in deposits--for insurance coverage under SAIF. Great Western Financial Corp., for example, spends $70 million a year for the same deposit insurance that costs Bank of America $2,000.
The thrift premiums are high because a portion goes to pay interest on bonds issued in the 1980s to finance the massive federal S&L; bailout. To escape the onerous premiums, a number of thrifts are now seeking federal approval to convert themselves into banks. Nearly $100 billion of the thrift industry’s $700 billion in deposits is held by institutions that have applied for conversion. The problem posed for the thrifts left behind is obvious: with fewer thrift deposits, fewer premiums will be paid, and there will be less money to pay the interest on the bailout bonds. Then, if the government defaults on the bonds, it will be us, the hapless taxpayers, who could be left holding the $793-million-a-year bill for interest on the 30-year bonds. We don’t need another monstrous taxpayer bailout.
The House proposal calls for the S&L; industry to make a $4.7-billion cash infusion to adequately capitalize SAIF. Thrifts and banks would pay a share of the bond interest, but banks would pay less. Eventually the two funds--SAIF and BIF--would be combined. Banks are willing to help in exchange for regulatory relief from some filing and reporting requirements. But it should not be at the expense of consumer protections, such as a proposal to limit the depositor’s right to sue.
There is bipartisan support to shore up SAIF. Congressional Republicans are exhibiting welcome leadership, and the White House has been urging a solution. So have the Treasury Department and several bank regulators. The cause is right, the time is now.
