Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, July 26, 1990 TAG: 9007260508
SECTION: BUSINESS PAGE: B-7 EDITION: EVENING
SOURCE: Los Angeles Times
DATELINE: WASHINGTON LENGTH: Medium
In testimony before the Senate Banking, Housing and Urban Affairs Committee, Brady indicated that the administration probably would propose allowing banks to sell other financial services such as insurance and corporate equities and permitting them to operate across state lines to help make them more competitive.
He also said that he opposed suggestions that the government reduce the present $100,000 limit on federal deposit insurance for banks and savings institutions, despite contentions by some critics that it encourages irresponsible investments by bankers and thrift operators.
"I can't see a rush to lower it at this particular time," Brady said.
Brady's remarks constitute an early, if still tentative glimpse at the plan for a sweeping restructuring of the financial system that the administration is preparing to send Congress in a few months. Brady is overseeing the effort. The Treasury recommendations are expected to be made public next year.
Despite continued questions from committee members, the Treasury secretary would not divulge specifics about the administration plan. But he expressed a willingness to consider other proposed changes, although he implied that many of them would be difficult to put into effect.
Brady indicated, for example, that one reform might be to restrict federal deposit insurance to one account per person. "If you were going to start any place," he replied to a question from Sen. Alan J. Dixon, D-Ill., "that would be a place to start."
And he agreed that the idea of charging more for deposit insurance to those banks that have risky portfolios is something "we should look very closely at."
Many analysts have blamed the ceiling on deposit insurance - which was lifted from $40,000 to $100,000 in the early 1980s - as contributing to the S&L debacle by encouraging thrift owners to expand into risky ventures without worrying about potential losses.
Raising the ceiling made it far easier for thrifts to attract large depositors by promising to pay them above-market interest rates, these analysts said.
Brady, however, argued that the underlying problems with the U.S. financial system generally lie elsewhere. He indicated that he does not think the federal guarantee to protect depositors against losses is responsible for the S&L mess.
Echoing Federal Reserve Chairman Alan Greenspan, who testified on the subject earlier this month, Brady argued that the key reason for the collapse of many thrifts in recent years was a failure to require operators to invest more of their own capital.
As a result of wasteful S&L loans and investments, fraud and poor management, the thrift debacle is expected to cost taxpayers at least $150 billion.
by CNB