Treasury's Hawke: More Harm than Good In Leach Plan for Quick Fix of

Treasury Under Secretary John D. Hawke Jr. Monday criticized a short-term plan to shore up the ailing thrift insurance fund.

The stopgap proposal made last week by House Banking Committee Chairman Jim Leach is meant to stave off a default on thrift bailout bonds. But the plan would not help end the high premiums that may cause thrifts to flee the Savings Association Insurance Fund, Mr. Hawke told a National Bankers Association conference.

"It's simply temporizing (on) the problem," Mr. Hawke said. "We don't think that that's a solution to the problems of SAIF at all."

The Leach plan for a quick fix to prevent default on Financing Corp., or Fico, bonds would permit revenue from so-called Oakar and Sasser deposits to be applied toward the $780 million due every year on the bonds.

Currently, a large portion of deposits in the thrift fund is owned by Oakar and Sasser banks, but premiums on these deposits may not be used to pay off Fico bonds.

If Congress passed the Leach plan, Mr. Hawke warned, the thrift industry would begin a serious effort to move deposits out of SAIF.

"It runs the risk of sending a message to the thrift industry that Congress is trying to duck this issue and is not going to step up and deal with it forthrightly," Mr. Hawke said. "There will be a rapid acceleration and migration of deposits if that message is sent."

Mr. Hawke is to testify today at a House Banking Committee hearing on the thrift fund.

Last week, Rep. Leach predicted that legislation bailing out the thrift insurance fund would not pass this year. In response, a number of thrift executives said they would begin moving deposits from the thrift fund to the Bank Insurance Fund because of the deposit insurance premium differential.

As of Jan 1, banks began paying next to nothing for deposit insurance. Thrifts still must pay 23 cents for every $100 of domestic deposits.

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