WASHINGTON - Making good on its promise to protest defections from the thrift insurance fund, the American Bankers Association this week attacked Great Western's application to charter two national banks.

The 11-page objection blitzes the nation's second-largest thrift on five fronts and asks the Comptroller of the Currency to hold a hearing on Great Western's plans to piggyback bank branches on its 400 thrift offices throughout California and Florida.

"The only object of the new banks is the evasion of legitimate deposit insurance premiums," wrote Edward L. Yingling, the ABA's executive director of government relations.

"It is not even clear that the banks will have any employees of their own. Until Great Western Bank is phased out of existence, it appears that these banks will be essentially shell - or to put it more bluntly 'sham' - banks."

In early March, the $42 billion-asset Chatsworth, Calif., institution proposed chartering two banks that would pay higher interest rates on deposits to entice customers to shift their funds out of the thrift. The more money Great Western lures to its new banks, the less it would have to pay in deposit insurance premiums.

Because the banking industry has nearly rebuilt the Bank Insurance Fund, the government is planning to lower bank premiums to 4 cents per $100 of domestic deposits later this year. Thrifts would continue to pay the current rate of 23 cents because the Savings Association Insurance Fund is still about $6.6 billion shy of recapitalization.

What happens to Great Western's application is important because five other large thrifts have said they plan to charter banks.

Great Western's application, filed in the Comptroller's San Francisco office, will be decided on in Washington, according to an agency spokeswoman.

Most applications for start-up banks are processed within 90 days; however, the spokeswoman said the policy questions raised by Great Western's application may require more time.

The thrift also must gain approval from the Federal Reserve to charter a bank holding company and file for insurance for the new banks from the Federal Deposit Insurance Corp. The ABA will file protests at those agencies as well, Mr. Yingling said in an interview Tuesday.

The ABA's chief argument is that Great Western's application violates the federal law that has barred thrift conversions to banks since 1987. The moratorium will not be lifted until the SAIF is recapitalized, or 2002 at the earliest.

Congress imposed the ban to ensure that thrifts pay for part of the industry's bailout.

"Evasion of the costs imposed on savings and loan by Congress is the fundamental reason these national bank charters are being sought," Mr. Yingling wrote.

The National Bank Act, the ABA noted, allows the Comptroller to reject applications if a bank is being chartered for any reason "other than the legitimate objects contemplated" by the law.

The ABA said Great Western's banks clearly fall under that exception because they will not have their own chief executive, offices, vaults, or financial and account processing and record keeping.

The Comptroller also may reject the charters, the ABA claimed, because Great Western does not meet the National Bank Act's standards for earnings or capital and it will not satisfy the convenience and needs of its community.

Finally, the ABA said Great Western's customers will be confused over whether their deposits are insured by the bank fund or the thrift fund.

"What logo will be on the branch door, the BIF or the SAIF logo?" the ABA asked.

Gil Schwartz, a partner with Schwartz & Ballen law firm in Washington representing Great Western, said ABA's legal analysis is inaccurate.

"I think as a matter of law it's wrong," he said Tuesday. "The Congress was very specific in what they said was a conversion transaction . . . and Great Western was very careful."

Mr. Schwartz added that the ABA could be arguing against the practices of its own members as banks with thrift deposits are also trying to siphon them off.

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