Taxpayers Face New S&L; Costs Billions More Needed To Bolster Fund That Backs Deposits

The Clinton administration raised the possibility Thursday of asking taxpayers to contribute billions of dollars more to the savings and loan cleanup but held off on endorsing the option.

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 S. 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 and a single large S&L failure or a few medium-sized failures could exhaust it, she said.

The situation 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 to ever 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: the taxpayers, banks and S&Ls.

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.