Q&A: Thrift-Fund Fix a Fixation For Western League's Chief

As president of the Western League of Savings Institutions, Lou Nevins represents the heart of the thrift industry. His members hold 25% of that industry's assets and include eight of the 10 largest thrifts in the country. For the past two years, Mr. Nevins and his members have been pushing legislation to capitalize the Savings Association Insurance Fund.

The measure passed Congress as part of a massive budget bill last year, but that legislation was vetoed by President Clinton in December. Regulators and the administration are still backing the fund-fix bill, but House Banking Committee Chairman Jim Leach said last week that odds of its passing this year are slim, largely because the banking industry has mounted a vigorous campaign in opposition.

In a visit to the American Banker Washington bureau last week, Mr. Nevins talked about the long road to a thrift fund fix. While he thinks Congress will not let his industry down, Mr. Nevins said thrifts can't wait forever and must begin moving money to the Bank Insurance Fund, which charges next to nothing for the government's guarantee.

Mr. Nevins also said the Western League may establish a bank to help its members avoid the higher premiums charged by the thrift fund.

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With legislation to shore up the Savings Association Insurance Fund stalled on Capitol Hill, are your member thrifts getting discouraged?

NEVINS: Of course they're disappointed. They'd rather have people say, "It's in the bag." It's been a long, hard struggle.

Until very recently it looked like this was going to happen. And I'm still optimistic it will. We're not giving up. I don't think Congress has any other decent options. Doing nothing is not an option.

We have an awful lot of support for this package. We've advanced it a very long way and despite what sounded like discord last week, we still share a lot of common ground even with Chairman Leach.

But not much common ground with the banking industry, which is opposing the rescue because it would require banks to pay $600 million a year in interest on Financing Corp. bonds.

NEVINS: If you look at this from the banking perspective, it's understandable the frustration that they have. Look at the situation that they're looking at right now. They say, "Republican Congress - what an opportunity!" But what do they have to show for it so far? A moratorium against the Comptroller's insurance regulation and maybe a tiny tax on Fico.

But there are no good answers to this. The answers are all terrible. Think about the other options. Let's tax Fannie and Freddie; that certainly has some appeal. Then again, they are pretty powerful and how do we go up against the whole housing lobby. Well, then, let's tax the taxpayer. That's a nonstarter. And so there are the banks. And, what are the banks saying? They're saying we want something for this. They're not saying no, they're saying they want something for it.

I think if the banks get something out of this - if they get Glass- Steagall repeal, if they get regulatory relief - they'll go along. I think they understand the situation that the thrift industry is in; having to pay insurance premiums of 24 cents is absolutely untenable over any length of time. It's unstable. It won't work. We're in a burning building and the doors are going to break down.

I know we're asking banks to do a lot. They say, "We didn't create this problem." We can identify with that, because we didn't create it either. So we can't get too mad at people who say we shouldn't have to pay if we didn't create it. I think we taught them how to say that.

We're going to help them get something for it, but we have to have them help us. There is no better answer.

Assuming Congress does not enact the legislation this year, what do you think the thrift industry will do?

NEVINS: I think the industry will at breakneck speed attempt to rid itself of these costly types of liabilities (thrift-fund deposits) and seek alternative types of liabilities. There are a variety of ways in which they can do it. There are already SAIF-insured institutions that have affiliations with BIF-insured institutions. There's a lot of money that has already been moved, and that's going to accelerate.

The Western League will probably help to organize a commercial bank under California law, a sort of bankers bank, for the benefit of our smaller members. This is perfectly legal under California law. Bottom line, this bank would enter into agency relationships with lots of institutions. It would get insurance from the bank fund and thrifts could avoid the higher premium by shifting deposits to this bank.

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