WASHINGTON - The government cannot stop thrifts from chartering banks to siphon high-cost deposits out of the Savings Association Insurance Fund, the thrift industry's lead regulator said Wednesday.
Jonathan Fiechter, acting director of the Office of Thrift Supervision, noted that banks and thrifts already own each other.
"It's not a new phenomenon," he said at a Women in Housing and Finance luncheon. "Rolling back the clock will be very difficult.
"Regulators can't beat the market."
Great Western Bank FSB sparked this controversy last month when it filed applications to charter national banks in California and Florida. Five other thrifts have followed suit.
Great Western has admitted that it wants to avoid paying six times more for deposit insurance than its banking competitors. Establishing the banks would allow Great Western to bleed deposits from the thrift.
Mr. Fiechter applauded Great Western's ingenuity, adding that regulators would question thrift executives who are not working on ways around paying more for insurance.
The American Bankers Association has protested the applications, claiming that Great Western is violating a congressional moratorium on defections from SAIF. ABA, in a letter to regulators this week, argued that Great Western merely wants to duck its responsibility to rebuild the thrift fund.
The Bank Insurance Fund is nearing recapitalization while SAIF is still years away from its target reserve level. Once an insurance fund is rebuilt, the Federal Deposit Insurance Corp. can lower premiums.
Of the $9.3 billion the thrift industry has paid in premiums since SAIF was established in 1989, almost 75% was diverted for other purposes, explained Mr. Fiechter. The government also reneged on a promise to provide SAIF with funding, he noted.
The FDIC, the OTS, the Clinton administration, and some lawmakers will unveil a solution for SAIF in "the next couple of months," Mr. Fiechter said.
Congressional leaders, he said, want a remedy in place before summer. But Mr. Fiechter admitted there are several factors working against the thrift industry.
First, thrifts are hardly loved on Capitol Hill, having already cost the U.S. taxpayer $140 billion. Second, the solution won't be cheap; SAIF needs about $6.6 billion. Third, the acronym-laden issue is complicated. Finally, Mr. Fiechter said it is tough to get people to focus on preventing, rather than solving, a problem.
"This is not a popular issue and it's not a crisis," he said.
