WASHINGTON - Legislation aimed at repealing the Glass-Steagall Act would also deprive thrifts of the few powers that give them an advantage over commercial banks, industry spokesmen charged last week.
The bill, introduced last Wednesday by House Banking Committee Chairman Jim Leach, R-Iowa, attacks the special powers available to unitary thrift holding companies - companies that own a single thrift.
Those powers make it possible for unitary thrifts to sell insurance, branch interstate, underwrite mutual funds, and invest directly in real estate. In addition, the special powers make it possible for industrial companies such as Ford Motor Co. to own thrifts.
Although Ford sold First Nationwide Savings Bank, the thrift's new parent, a thrift owned in part by New York financier Ronald Perelman, could be affected by the Leach provision, industry sources said.
Patrick Forte, president of the Association of Financial Services Holding Companies, said the primary impact of the provision would be on thrifts' real estate holdings.
The 1989 thrift bailout, the Financial Institutions Reform, Recovery, and Enforcement Act, barred thrifts from investing directly in real estate. Many responded by moving their real estate business into a new holding company subsidiary outside the insured thrift.
"In order to do that, they had to have substantial capital or the ability to raise capital," said Mr. Forte, whose organization represents large thrift holding companies.
"Now many of those companies that moved real estate activities to comply with FIRREA will be forced to dump real estate into a declining market," he added.
Mr. Forte said those real estate holdings are heavily concentrated in California, and warned that the Leach proposal could damage the still fragile real estate market in the Golden State.
"They would be dumping billions of dollars into the California market," he said.
It was not possible to obtain comment from Rep. Leach's banking committee staff Friday. However, other sources said Rep. Leach insisted on the provision as a means of shoring up the wall separating banking and commerce.
The Savings and Community Bankers of America, the thrift industry's largest trade group, also complained about the Leach proposal.
"Why should Congress seek to impose a host of new regulatory restrictions on savings institutions that have no basis in safety and soundness?" asked Paul A. Schosberg, the trade group's president.
Mr. Schosberg said the changes would come just as the industry was struggling to cope with the competitive disadvantage he believes will result when bank insurance premiums drop, probably later this year.
At that point, thrifts could end up paying three times as much as banks for deposit insurance.
Randall McFarlane, the savings group's chief lobbyist, said that Congress should consider extending the unitary thrift concept to banks, rather than take it away from thrifts.
"We think it is a fine model for what can be done at the holding company level," he said.
