WASHINGTON - The American Bankers Association rallied its troops Friday to fight off pleas for help in recapitalizing the Savings Association Insurance Fund.
"There is no near-term, imminent problem," argued Illinois banker R. Scott Grigsby, who represented the ABA during a daylong hearing before the Federal Deposit Insurance Corp.
The FDIC held the rare hearing to gather opinions on what, if anything, should be done about the coming gap in bank and thrift deposit insurance rates.
Mr. Grigsby urged the FDIC to stop savings and loans from chartering banks as a way to siphon deposits from the higher-cost thrift fund.
"Avoidance techniques by S&Ls should not be used as an excuse for pushing the S&L obligation onto others like banks, bank customers, or taxpayers," said Mr. Grigsby, who is president and chief executive of Union Bancorp, Ottawa, Ill.
The FDIC's four board members questioned the 19 witnesses, searching for some common ground. The regulators are convinced that SAIF is underfunded and that default threatens the Financing Corp. bonds sold in an effort to shore up the now-defunct Federal Savings and Loan Insurance Corp.
Led by FDIC Chairman Ricki Tigert Helfer, the FDIC board tried to convince Mr. Grigsby and the other bankers who testified that they need to negotiate with the thrift industry.
But the bankers were not biting.
"We are particularly distressed when regulators and others imply that bankers should be part of the solution of the SAIF issue or things will not go well for them," said Harold Stones, executive vice president of the Kansas Bankers Association. "We perceive some degree of coercion is at work here, and we do not accept that."
Richard L. Mount, representing the Independent Bankers Association of America, conceded that SAIF's troubles should be addressed and even that the banking industry should help fashion a solution. But Mr. Mount, president and CEO of Saratoga National Bank in Saratoga, Calif., firmly opposed using any banking industry money.
"The thrift industry is still the enemy," he noted in opposing a merger of the insurance funds.
James F. Montgomery, chairman and CEO of Great Western Financial Corp., countered that there only two other sources of funds beyond thrifts: banks and taxpayers.
"We recognize we have to pay the lion's share of this proposal," Mr. Montgomery said. "But banks own one-third of SAIF deposits anyway. At some point, they are literally going to own the problem."
Mr. Montgomery put forth two plans, one endorsed by America's Community Bankers and another, more sweeping solution by the Western League of Financial Institutions.
The league wants Congress to merge the bank and thrift charters, their regulators, and their insurance funds.
"This is where the world is heading sooner or later," Mr. Montgomery predicted.
America's Community Bankers' plan envisions banks sharing the $779 million annual Fico payment, which would add about 2.5 basis points to bank premiums. In return, thrifts would recapitalize SAIF by paying 5 cents more for insurance. Leftover Resolution Trust Corp. funds would be used to absorb the cost of future thrift failures under ACB's plan.
Stephen J. Trafton, chairman, president, and CEO of Glendale Federal Bank, had a more direct solution. The California thrift executive said all of the RTC's surplus funds should be used to recapitalize SAIF.
The thrift fund is about $6.7 billion shy of the congressionally mandated 1.25% reserve level. The RTC is expected to have $8 billion or more left when its responsibility for failed thrifts ends this July.
Thrift executives testified that SAIF would not be in a bind today if the government had followed through on promises to buck up the fund.
"The government has abrogated commitments it has made to the thrift industry and has misappropriated thrift assets because short-term political considerations made it expedient to do so," Mr. Trafton said.
Banking industry witnesses urged reversal of the FDIC's legal opinion that premiums paid on SAIF deposits that are owned by banks - so-called Oakar deposits - may not be used to pay interest on Fico bonds.
But Mr. Montgomery called that plan a "typical Washington-type Band-Aid solution." Ms. Helfer also downplayed the idea, noting that reversing the opinion would only make it harder to recapitalize SAIF.
The thrift industry executives urged the FDIC to forge a solution and present it to Congress. FDIC officials would like banks' support, but industry leaders appear unlikely to cooperate.
"We are not just being asked to come to the table," Mr. Grigsby said. "We are being asked to come with our wallets open."
