Rescue Plan Robs Thrifts Of Identity Gilkey Expects S&Ls; Will Become Commercial Banks
The savings and loan industry will likely trade its identity for the solvency of its insurance fund, Sterling Financial Corp. Chairman Harold Gilkey said Wednesday.
Last week, the Clinton administration proposed a one-time, $6 billion assessment on the nation’s 2,100 thrifts.
The funds would shore up the Savings Association Insurance Fund. With only $2.2 billion currently available, the fund could be exhausted by the failure of just one large thrift.
The plan may also provide for conversion of the thrifts into commercial banks. That would give S&Ls; greater leeway to broaden their focus beyond residential lending.
The insurance funds for banks and S&Ls; also would be combined.
Federal Reserve Chairman Alan Greenspan endorsed the plan in testimony Wednesday before the House Banking Committee.
Gilkey is a member of a thrift industry group that has been pushing for action that would resolve the insurance fund woes.
He said conversion into banks is probably the only way thrifts can avoid the potential repeat of a taxpayer bailout.
He said the industry is small, shrinking, and heavily concentrated in a single market - California.
But the cost to the thrifts will be painful, Gilkey said.
In the case of Sterling, the likely insurance fund assessment would be $7 million, an amount that would wipe out a substantial portion of its fiscal 1995 earnings.
“Once again, we have to bail out somebody else’s mistakes,” he said. “But if it will solve the problem, so be it.”
Gilkey said he had expected Sterling would become a commercial bank by the end of the decade anyway. The Spokane institution has expanded its personal and business lending in recent years as it has grown to become one of the state’s largest thrifts.
The downside of the changes, he said, will be less money for housing.
“That’s a policy decision that somebody else has made,” Gilkey said.