Plan Moves Thrifts A Step Closer To Extinction Quirk In Federal Budget Drives Proposal To Combine Savings And Loans With Banks

A plan to rescue the savings and loan industry’s depleted deposit insurance fund suddenly is a darling of congressional banking committees due to the obscure workings of the congressional budget process.

The House and Senate banking committees went into overdrive last week on plans to merge the insurance fund with the separate Bank Insurance Fund.

Both committees passed bills to have thrifts make a one-time $6 billion payment to bring the Savings Association Insurance Fund to full funding, then merge it with the separate Bank Insurance Fund.

Although the S&L industry is financially strong, the thrift deposit fund is in bad shape because the industry shrank following the 1980s thrift failures and is saddled with large debt repayments related to the bailout.

The House measure also merges federally chartered thrifts with commercial banks. The Senate has yet to formally propose such a combination.

Why the rush? The thrift fund plan took center stage last week when both Democrats and Republicans both realized a $6 billion payment by thrifts meant they could postpone unpopular cuts in federal housing and flood insurance programs.

The Congressional Budget Office ruled that the thrift fund payment basically would result in a net $900 million in savings over seven years.

“This was an unusually vile form of sausagemaking we saw going on,” said Bert Ely, a banking industry consultant who closely follows the committee’s workings.

Both committees raced to meet a Friday deadline to pass their budget bills, which are part of the broader federal budget deficit reduction package working its way through Congress.

House Banking Committee passed their budget bill and thrift rescue plan last Tuesday, and then held hearings last Thursday to discuss the bill’s considerable impact.

To Rep. William H. Orton, D-Utah, the committee’s GOP leadership shot first, then asked questions later.

“The committee, now two days after the markup … is here to ask the experts about the legislation we’ve already passed out of the committee,” said Orton. “The political reasons are obvious.”

Orton and other Democrats complained the committee hadn’t resolved important issues of a thrift fund merger, such as severe tax consequences and whether S&Ls could remain in businesses such as insurance if they convert into national banks.

But House Banking Chairman James Leach, R-Iowa, has defended the committee’s unusual schedule. The banking committee had held three hearings earlier this year on the thrift fund rescue.

And the committee’s rescue proposal, which followed an outline developed by the Clinton Administration, won support from Federal Reserve Board Chairman Alan Greenspan.

While the thrift fund rescue is proceeding in the budget bill, Leach allowed Rep. Marge Roukema, R-N.J., to introduce a separate thrift rescue bill, which comes up for a committee vote later this week.

The separate bill will allow the committee to fine-tune the proposal and replace it within the budget legislation at a later date. The separate bill also serves as a valuable backup, in case the Senate objects to inclusion of the thrift fund bailout as not being pertinent to the budget bill.

“Leach would have liked a tidier process, but legislation isn’t always tidy,” said David Runkel, a Banking Committee spokesman.