Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, September 24, 1995 TAG: 9509220120
SECTION: BUSINESS PAGE: F1 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Long
Despite approval last week by banking committees of both the House and Senate, passage of the legislation this year is considered iffy.
The idea before lawmakers calls for abolishing the separate charters for banks and thrifts - a broad term that includes savings banks and savings and loan associations. If such a law is adopted, customers would no longer choose between banks and savings banks.
Even lacking a congressional fiat, the two types of institutions are looking more and more like each other every year. The still-to-be-written charter would blend the powers of the two industries.
The banking and thrift industries have both told Congress that they favor the proposal.
Lest you think this would lead to quick approval, two stumbling blocks impede the path to the plan becoming law.
One is the desire of banks that the new charter would give them the clear power to sell insurance. This has brought into play the heavy guns of the powerful insurance lobby.
The second is congressional inertia. Congress has the ability to solve the quandary of paying for the $100 million 1987 bailout of the thrifts without the necessity of enacting a complex change in the industry. But Congress began serious hearings last week after budget writers discovered the plan would raise $5 billion in additional revenue for next year through abolition of the Office of Thrift Supervision and other savings.
And, naturally, there are two versions of the plan, one in the Senate and the other in the House. Resolving this conflict would be a problem.
Bert Ely of Alexandria, a former Roanoker who is an expert on the thrift industry, said the proposed law is "in a state of flux." Passage is still not a certainty, he said, although he believes there is a high probability that Congress will enact the merger that he favors.
Even though banks favor the change, several Virginia banks declined requests for interviews for this column. First Union, NationsBank, Signet and Crestar all punted, referring questions to their trade associations that speak for the industry generally.
"It's a toughie," said Walter C. Ayers, executive vice president of the Virginia Bankers Association, which represents both banks and thrifts in the state.
Congress, he said, wants to merge the funds that insure customer deposits - the healthy one financed by the banks and the ailing fund supported by the thrift industry.
Banks, in return for helping to pick up the tab for the thrift fund, want "the whole ball of wax," Ayers said. They want "a comprehensive solution" through merger of the industries.
"Everybody pays, and nobody escapes the pain - except credit unions," he said.
He explained that the Senate or "quick fix" proposal would require thrifts (and banks such as First Union and Crestar that have purchased thrifts) to pay a heavy one-time premium of 85 cents per $100 of deposits to replenish the thrift insurance fund.
That is the equivalent of one whole year's profit for the average savings bank, Ayers said.
For a savings bank the size of Charter Federal of Bristol, the tax would mean a one-time, pre-tax payment of $4.3 million based on its deposits of $520 million, according to Chief Financial Officer Douglas Deppen.
It would bring the thrift insurance fund up to $1.25 for every $100 of deposits while the banking fund is estimated to reach $1.31 for every $100 of deposits by year-end. Under both Congressional proposals, then, the two funds would be merged.
Commercial banks, which also support their own fund at a recently reduced rate of 4.4 cents per $100, would have to ante up about 2.5 cents per $100 to help pay for the bonds that financed the thrift bailout.
The House plan also would tax both industries the same amounts to refinance the thrift fund, but that bill is referred to by bankers at the "comprehensive" solution. Once the funds were financed and merged, Ayers said, the remaining thrifts would be converted to banks and come under supervision of bank regulators.
Although it's difficult to "cozy up" to having to pay for retiring the thrifts' debt, Ayers said, "hard realities seem to have taken hold." Merger of the industries along with merger of the insurance funds would be "a win-win situation."
The national trade association representing thrifts, Americas Community Banks, has endorsed the heavy one-time special assessment, Ayers said. Banks that have acquired thrifts "seem resigned" to sharing in that hit.
The American Bankers Association, Ayers said, has abandoned its fight against merging the insurance funds and helping to pay for the bailout. But, in return, the ABA wants the so-called comprehensive solution adopted.
"In this regard, the ABA is lobbying hard to derail the Senate 'quick fix' plan, and for the House plan to convert remaining thrifts to banks as a part of the process that merges the funds," Ayers said.
The new charter should pick up the best features of both industries and include insurance powers, Ayers said. And the industry, in return for financing the bailout, would like some relief from regulatory burdens, such as "streamlining" of the Truth in Lending Act.
"Nobody is thrilled with any of the potential solutions put on the table," Ayers said, but it is clear that Congress is going to impose the financial burden and should also provide a solution to industry problems.
And Congress is unwilling to do what the Virginia Bankers asked, Ayers said. That was to use budgeted, but unspent, funds from the Resolution Trust Corp. to finance the bailout. The RTC, which no longer exists, was established to liquidate repossessed properties of failed savings and loans.
Charlotte Birch, spokeswoman for the American Bankers Association, said the legislation is difficult to follow and keeps changing.
Thrift charters, which require them to take deposits and primarily finance home mortgages, caused the crisis of several years ago, Birch said. She called it "unfair and totally irrational" for banks to be subject to that liability.
But if Congress makes banks liable, she said, it should fix the charter to rule out another crisis. This should be enacted at the same time, she said, because "later means never."
The Senate bill, she said, is merely "a financial fix" that bails out the government from the costs of the thrift crisis. It would merge the insurance funds on a sound basis.
The House version, on the other hand, would fix the charters as well. Birch said it's unfair for Congress to avoid dealing with the comprehensive problem now.
Ely said distinctions between banks and savings banks have largely disappeared over the last six years.
Customers, therefore, would notice very little difference in thrifts if charters are merged. Because of their separate histories, Ely said, "they're certainly not going to change overnight. It will not affect most thrifts that much, if at all."
But merger of the two industries is inevitable in the long run, no matter whether the legislation passes this year, Ely said, because that is the long-term trend. The sooner it happens, the better off everyone will be, he added.
by CNB