The problem facing the Savings Association Insurance Fund really boils down to how to handle the Fico bonds, says consultant Bert Ely. These obligations, authorized in 1987, have become an intolerable burden for thrifts, he said, especially after the Federal Deposit Insurance Corp. decided that SAIF-insured banks need not help pay. Mr. Ely says he believes banks must share the cost of the Fico bonds. In an interview with American Banker editors and reporters, he outlined what he saw as a path toward a "win-win" solution. The longtime thrift industry observer also suggested that thrifts that are chartering national banks in an effort to avoid high insurance premiums may be thwarted.
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Q.: Is the move by some thrifts to charter national banks going to run the SAIF out of business?
ELY: I wonder what kind of operational issues there are. How do you actually run two institutions inside a branch? My sense is that this, as a practical matter, is more difficult and more expensive than maybe has been indicated so far. This raises question of whether the Comptroller's office may find a reason not to grant these charters.
Q.: What do you think Congress could do?
ELY: In the short term, with a quick-fix, very narrow bill, they could do two things. They could nullify the FDIC's opinion and say that, in fact, all SAIF premiums can be used to pay Fico interest, and they can block those charter conversions.
Those are the two things they could do to freeze the issue. It's comparable to when Congress would whip through a quick bill to stop a railroad strike.
Q.: How quickly does Congress have to act?
ELY: I don't think they have to act that quickly, because it takes months to process the turnaround. I think they could easily wait two or three months on this. How long does it take to get a national bank charter? All the questions that get asked - it takes months. All they have to do is block it before the charters get issued.
What I think the charter conversions are going to do is force the issue to the table to be dealt with in a comprehensive fashion, simply because merely freezing deposits into SAIF and allowing all the premiums to be used to pay the Fico interest doesn't deal with the underlying consequences of a premium differential.
Q.: As part of a longer-term solution, what can Congress do about the premium differential?
ELY: As Ricki Tigert Helfer has said, the SAIF problem is a Fico interest problem. You've got one of two places to look if you don't look to the savings and loans: You look to the taxpayers or you look to the banks. It's pretty easy to see how that's going to work out.
I think that as this issue ripens, it's going to become increasingly evident that the banks are probably going to get stuck in some way with some portion of the cost of resolving this problem.
Of course, there is extremely strong opposition to an outright fund merger, but there are various ways in which the banking industry could help out.
The one that is talked about the most and is less of a black hole to the banks than a fund merger is to shift some of the Fico interest obligation over to the BIF and have the BIF make some payments into the SAIF, and couple that with a stretch-out on recapitalization for the SAIF and a narrowing of the premium differential.
Q.: Wouldn't the American Bankers Association oppose that?
ELY: Without question, but I think the real issue is how do you convert what now looks like a zero-sum game - thrifts win, banks lose - into a win- win game. This to me is the real political question.
The challenge is how can banks get something in return for picking up some of the Fico interest obligation.
It has to be something that benefits banks of all sizes. This really comes down to regulatory cost reductions. What I'm suggesting is to find areas where banks can be given the opportunity to reduce some regulatory cost, so that it's at least a wash.
Let us say that some proportionate sharing of the Fico interest obligation would shift $600 million a year of cost over to the banks, which is about 2.5 basis points of premium cost.
The question is: Is it possible to relieve the banks of regulatory cost burdens of at least $600 million a year beyond the cost reductions they're probably going to get anyway?
Q.: Which regulations should Congress look at to cut costs for banks?
ELY: One area that needs to be looked at very closely is the Community Reinvestment Act.
