million annual bill paid by the 12 Federal Home Loan Banks for thrift bailout bonds collapsed Tuesday. Senate Banking Committee Chairman Alfonse M. D'Amato balked at the deal, insisting that a cap on home loan bank advances to commercial banks be raised to 40% from 30%. The banking committees are negotiating this issue and many others as part of a broad budget package. The main banking-related piece of that budget bill is a rescue of the Savings Association Insurance Fund. Sen. D'Amato's demand was rejected by negotiators from the House, where Rep. Richard Baker, R-La., has been pushing reform of the home loan bank system. Currently, each home loan bank contributes 20% of its net income to pay off the Resolution Funding Corp. bonds. However, that formula has never generated the $300 million needed. The balance is covered by the home loan banks with the most thrift members. Rep. Baker last month proposed replacing the current system with a flat 23.75% tax on each bank's net income. Rep. Baker said the bond payments have overburdened the home loan banks and forced them to seek riskier investments. "This has ominous implications for the taxpayer, who stands behind the system," he said. Rep. Baker said he plans to use the more liberal 40% lending cap as leverage for his broader reform bill, which is designed to encourage the banks to provide more funds for home loans. Lawmakers working on the budget bill reached agreement Tuesday on other issues related to the thrift fund rescue. The banking committees decided to exempt 92% of banks from deposit insurance premiums, as long the bank fund remains fully capitalized. If Bank Insurance Fund reserves remain at 1.25% or above, premiums could be levied against only institutions found to have "moderately severe" or "unsatisfactory" financial, operational, or compliance weaknesses. The legislation will replenish the Savings Association Insurance Fund through a one-time fee of roughly 80 basis points on thrift deposits. It also forces banks to assume 75% of the $800 million annual interest payments on Financing Corp. bonds floated in 1987 for the first thrift industry bailout. The panels also agreed to cut by roughly $300 million the bill faced by banks that own thrift deposits, the so-called Oakar banks. The deal will allow more than 700 banks to cut their thrift deposits by 20% before calculating the one-time assessment. However, during a meeting Tuesday, lawmakers decided to deny the 20% haircut if an institution's thrift deposits exceed 50% of its total deposits. That change lowers the Oakars' savings by roughly $40 million. Some bank holding companies retained acquired thrifts as separate entities that continue to have more than 50% of their deposits insured by the thrift fund. About 50 institutions hold roughly $60 billion in deposits that will not qualify for the relief, according to Carol Van Cleef, a lawyer with Katten Muchin & Zavis here representing some of the banks. Hardest hit are First Union Corp., Amsouth Bancorp., and BankAmerica Corp. The nation's largest thrift, Home Savings of America in Irwindale, Calif., also will suffer. While most of Home Savings' deposits are insured by the thrift fund, the institution converted to a bank charter when it bought Bowery Savings Bank in New York in 1987. So it will have to pay the full 80-basis-point fee on its $37 billion in Oakar deposits. House Banking Chairman Jim Leach said Tuesday he is satisfied with the agreement. "Both the bank and savings insurance funds will be fully capitalized this year without further infusion of taxpayer dollars," he said. Rep. Leach had pushed to merge the bank and thrift funds and eliminate the thrift charter as well, but Sen. D'Amato refused. The Senate Banking Committee, however, will hold hearings on those issues soon. The bailout contributes $900 million in budget savings over the next seven years. In all, the banking committees slashed $5 billion in spending through 2002. The other savings were generated by cuts to various home lending programs. - Olaf de Senerpont Domis and Barbara A. Rehm contirbuted to this article.
