Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, March 24, 1995 TAG: 9503240088
SECTION: BUSINESS PAGE: A-9 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
The Treasury Department had been expected to present its recommendation to the House Banking financial institutions subcommittee for resolving a shortfall in the Savings Association Insurance Fund.
Instead, Assistant Treasury Secretary Richard Carnell reviewed the options, warned that inaction risked another thrift crisis and said that ``any solution should minimize the costs to the taxpayers.''
After June 30, the taxpayer-financed Resolution Trust Corp. will no longer be responsible for protecting depositors in failed S&Ls. The insurance fund, which is financed by industry-paid premiums, will take over.
However, Federal Deposit Insurance Corp. Chairwoman Ricki Tigert Helfer, whose agency oversees the insurance fund, said it is ``grossly undercapitalized.''
It has only $1.9 billion of the $8.7 billion it needs to properly protect S&L deposits. A single large S&L failure or a few medium-size failures could exhaust it, she said.
The fund's condition is complicated by the fact that the Bank Insurance Fund is nearly at full strength, and starting July 1 banks' insurance premiums, currently equal to S&Ls' premiums, will drop to about one-sixth the level of S&L premiums.
In response, several large S&Ls are threatening in effect to transfer to the bank fund, which would make it virtually impossible for the S&L fund ever to dig out of its hole.
The S&L fund is further burdened because, unlike the bank fund, it must contribute $779 million a year to paying off government bonds sold to pay for an early phase of the S&L cleanup.
All of the potential solutions, outlined by Carnell and Tigert, involve contributions from one or a combination of three sources: taxpayers, banks and S&Ls.
Banks argue that they shouldn't have to pay to help a competing industry.
The remaining healthy S&Ls say they can't afford to bring the fund to full strength on their own and shouldn't be penalized for the actions of failed thrifts that caused the S&L debacle.
The taxpayers' funds that would be used are the $10 billion to $14 billion that the RTC is expected to have left over after it finishes dismantling the more than 700 S&Ls that have failed since 1989.
Carnell said that if taxpayer funds are tapped as part of shoring up the S&L fund, the best use would be to pay for future S&L failures beyond the current June 30 deadline.
Other possibilities, presented by Helfer, include using $8.4 billion of the taxpayer money to pay off the bonds from the early part of the S&L cleanup or injecting $6.7 billion of taxpayer money to bring the fund to full strength.
by CNB