WASHINGTON -- Two warning shots were fired this week in the battle over whether to merge the bank and thrift industry insurance funds.
On Capitol Hill, Sen. Alfonse M. D'Amato, R-N.Y., and Rep. John J. LaFalce, D-N.Y., asked the General Accounting Office to evaluate the impact of an expected disparity between bank and thrift insurance premiums.
The two lawmakers asked the congressional watchdog agency to consider the merits of a funds merger, and to evaluate alternatives.
Bank premiums now average 23.7 cents for each $100 of insured deposits, compared with 24.5 cents for thrifts. The rate for banks is expected to drop dramatically, perhaps as early as next year, while thrift premiums could continue at their current level for another decade.
Thrift executives say that will put them at a competitive disadvantage, and one major thrift organization, the Savings and Community Bankers of America, has said a funds merger is one of several options Congress should consider.
Leftover Bailout Dollars
However, another thrift group is preparing to argue that a funds merger is politically impractical. Instead, the Association of Financial Services Holding Companies wants the Savings Association Insurance Fund to draw on taxpayer-provided funds left over from the thrift bailout.
In a draft of a position paper, the thrift trade group contends that commercial banks hold up to 20% of the deposits now insured by SAIF, suggesting that a solution to the problem is in the interests of both industries.
"There is a community of interests here to work on SAIF funding," said Patrick A. Forte, the trade group's president. Mr. Forte said data on the percentage of SAIF deposits held by banks are available from public records, but declined to say how his organization arrived at a number.
The two documents point to the two alternatives most likely to receive attention if Congress debates the fate of the thrift insurance fund next year.
Staff Work to Begin
Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America, described the D'Amato-LaFalce letter as "the opening shot, in terms of starting the staff work on the issue."
"If the GAO comes out in favor of a merger, that would be a problem," added Edward L. Yingling, director of government relations for the American Bankers Association.
But Mr. Yingling said he doubts the GAO would reach that conclusion.
"The thrift industry's argument depends on showing that there is an impending disaster" awaiting the insurance funds, Mr. Yingling said. "And you cannot make a credible case that SAIF is in danger."
Mr. Yingling said the ABA is developing its own analysis, showing that the thrift industry can continue to pay insurance premiums at their current level.
The banking industry's recent good fortune has resulted in rapid growth in the Bank Insurance Fund's reserves. While thrifts are also enjoying good economic times, their insurance fund is still trying to overcome the burden of the industry's near collapse in the 1980s.
About $772 million a year, or more than 40% of the thrift industry's premium income, goes to repaying interest on bonds that were issued in 1987 in a failed effort to recapitalize the Federal Savings and Loan Insurance Corp. Those payments are the primary barrier to early recapitalization of the thrift insurance fund.
The Association of Financial Services Holding Companies is arguing now that the present value of the remaining interest stream on the 1987 borrowings - the so-called FICO bonds - is $8.6 billion, well within the capacity of the Resolution Trust Corp. to finance.
The RTC received $18.3 billion from Congress last year but expects to use only about $5 billion of that money, according to Jack Ryan, the agency's acting chief executive officer.
The D'Amato-LaFalce letter is likely to carry considerable weight simply because of the authors' stature.
Sen. D'Amato is ranking Republican on the Senate Banking Committee - he would become chairman if Democrats lose control of the Senate - and Rep. LaFalce may become chairman of the House Banking Committee's most important subcommittee next year.
In their letter, the two warn of serious consequences if the thrift industry is weakened.
"Unless the thrift industry remains competitive and healthy, the likelihood exists that the Treasury Department may have to use its backup statutory authority to fund SAIF and that taxpayers may have to make up any shortfall," they wrote.
