Ricki Helfer, chairman of the Federal Deposit Insurance Corp., Jerry Hawke, under secretary of the Treasury, and Jonathan Fiechter, acting director of the Office of Thrift Supervision, sent a letter recently to Newt Gingrich, speaker of the House. They urged Mr. Gingrich to support legislation to strengthen the Savings Association Insurance Fund by taxing banks.
Mr. Gingrich hasn't asked for my thoughts on the subject, but if he were to do so my letter might go something like this:
Dear Mr. Speaker:
I noted with interest the suggestion that banks be taxed to bail out the Savings Association Insurance Fund. Before giving my views, I will provide some background.
*Banks didn't contribute in any way to the S&L crisis that cost taxpayers some $150 billion and left the SAIF without sufficient funds. Indeed, banks were victims of the S&L crisis. They had to compete against reckless thrifts paying excessively for deposits.
*Bank and S&L premiums were raised to 23 cents per $100 of deposits in 1991 in order to strengthen the Bank Insurance Fund and the SAIF. Congress provided that when the bank fund or the thrift fund reached 1.25% of insured deposits, premiums would be set at whatever level would be necessary to maintain that percentage.
The bank fund reached 1.25% last year thanks to a strong recovery by the banking industry. Banks kept their end of the bargain, and Congress should do likewise.
*The burden the thrifts are facing is unfortunate. They didn't create the S&L crisis, they survived it. The S&L crisis resulted largely from massively failed public policies. In recognition of these realities, Congress promised in 1989 that it would recapitalize the thrift fund. Congress, to its great discredit, reneged on this promise in 1993.
*Both banks and thrifts have been losing huge amounts of market share in their traditional services continuously for two decades. Both banks and thrifts should be allowed to diversify and offer a full array of services to their customers. The marketplace, not regulations, should determine the viability of banks and thrifts.
The banking industry prides itself on good citizenship. Banks might be willing to be part of the solution to the SAIF problem if Congress treated them fairly. Congress should move forward with an agenda to modernize our nation's financial system. I recommend that you consider a package containing these four elements:
*The thrift fund should be brought to 1.25% of insured deposits through a one-time assessment against the thrifts. The bank fund and the SAIF could then be merged. Banks would thus contribute toward servicing the Fico bonds Congress authorized in 1987 to recapitalize the SAIF's predecessor. The cost to banks would be some $12 billion spread over a number of years.
*There's a bill pending in Congress to reduce the burden of regulation on banks. It's in the public interest and should be enacted.
*There's a bill pending in Congress to reform the Glass-Steagall Act. It's pro-competitive and in the public interest. It should be enacted.
*Banks and thrifts should be granted identical charters and be regulated by the same agencies. There are some transition issues that must be resolved, possibly through temporary grandfathering, but I see no insurmountable obstacles.
Lobbyists for insurance agents are holding hostage the banking industry's priority legislation - regulatory burden relief and Glass- Steagall reform. They seek to limit competition in insurance, something clearly contrary to both the public interest and the philosophy of the Republican Party. The agents should be told to step aside - unless, of course, they are willing to come up with $12 billion to rescue the thrift fund.
While I can't be sure a package containing all four elements set forth above would be acceptable to the banking industry, the chances are decent it would be.
Mr. Isaac, a former chairman of the Federal Deposit Insurance Corp., is chairman and chief executive officer of Secura Group, a financial services consulting firm based in Washington.
