Banks Seek Relief From Big S&L; Bill Lobbying Blitz Aims To Lower Insurance Fund Assessments

Big banks that bought savings and loan deposits in the last six years now face the prospect of paying a large chunk of a $6 billion bill to revive the S&L industry’s deposit insurance fund.

These banks have launched a lobbying blitz at members of the House and Senate banking committees, pleading to reduce their burden. The issue will be a focal point of a House Banking subcommittee vote today on the fund rescue legislation.

Committee staff and industry officials say lobbying by affected banks has been intense.

“Their people are lobbying like hell to get relief,” said a House aide, who spoke on condition of anonymity.

The subcommittee chairwoman, Rep. Marge Roukema, R-N.J., hadn’t decided as of Tuesday afternoon whether to give some 760 banks relief from the special assessment, a spokesman said.

At issue is Roukema’s plan to rescue the ailing Savings Association Insurance Fund, or SAIF, which could fold if one major thrift collapses. The fund insures deposits at S&Ls up to $100,000.

While many of the nation’s 1,500 S&Ls are healthy, the industry’s fund has been depleted because there are fewer thrifts left from the industry’s crisis in the 1980s to pay into the fund. And the remaining S&Ls are burdened with major debt repayments related to the government’s S&L bailout.

Bills sponsored by Roukema and Senate Banking Chairman Alfonse D’Amato, R-N.Y., call for thrifts to make a one-time $6 billion payment to bring the SAIF to full funding. Then the thrift fund will be merged with the Bank Insurance Fund.

The House bill also provides for conversion of thrift charters into commercial bank charters.

Washington Trust Bank President Peter Stanton said commercial banks are not happy with the fund bailout, but have accepted the deal as part of the broader change ongoing in the banking industry.

“It’s probably inevitable,” he said, adding that many of the reasons for creating a separate industry to finance home mortgages have disappeared over the years.

Stanton is also president of the Washington Bankers Association.

A central question before Congress is whether or not to divide up the $6 billion charge.

Banks that bought deposits from ailing thrifts after 1989 agreed to continue paying premiums to the thrift fund. These 764 banks, which own about 27 percent of all SAIF deposits, are known as “Oakar” banks, so-named by legislation by former Rep. Mary Rose Oakar, D-Ohio, that addressed treatment of the sold thrift deposits.

There’s big money at stake: their collective share of the thrift fund bailout is estimated at about $1.6 billion, according to interviews. First Union Corp. of Charlotte, N.C., described by several staff members as a bank aggressively lobbying this issue, faces an estimated $125 million assessment to revive the thrift fund.

These banks are coming under harsh criticism for failing to shoulder their fair share of the thrift fund rescue.

“We see no principled basis on which the petitions of the Oakar banks can be given any credence,” said John D. Hawke Jr., the Treasury Department’s under secretary for domestic finance.

Hawke told the House Banking subcommittee last week many of these banks bought the thrift deposits cheaply and their businesses grew as a result of the purchases.

Yet these banks argue they deserve a break because some of the thrift deposits have migrated to other banks or that they haven’t owned the deposits long enough to make a profit.

Thomas M. O’Brien, chairman and president of Northside Savings Bank of Floral Park, N.Y., said these banks “fully understood the risks” when they bought the thrift deposits and they should not receive special treatment.