WASHINGTON - The American Bankers Association is on the verge of abandoning a key condition to its support for merging the bank and thrift deposit insurance funds.

Since 1996, the industry's largest trade group has demanded lawmakers abide by a compromise in the thrift bailout law that barred a merger of the funds until the commercial bank and thrift charters were combined.

The policy shift is expected to be approved by the ABA board before a House Banking Committee panel holds a hearing on the issue next month.

"Part of this is a recognition that the charters are so similar," said ABA executive director Edward L. Yingling. "The powers are so close now … .We took a good shot at trying to merge the charters. It just got to the point where it wasn't going to happen."

However, Mr. Yingling said, ABA support will be contingent on two new conditions: The Office of Thrift Supervision must be merged into the Office of the Comptroller of the Currency, and excess reserves held by the Federal Deposit Insurance Corp. must be rebated.

The ABA's new position tracks legislation expected from Rep. Marge Roukema, who heads House Banking's financial institutions subcommittee.

The New Jersey Republican has scheduled a Feb. 16 hearing to debate merging the funds, making the OTS a division of the OCC, and rebating insurance premiums when the FDIC's reserves exceed 1.5% of insured deposits. She is expected to introduce legislation early this year, but the timing and details remain unclear.

Though the ABA's softening on the thrift charter is a breakthrough, Congress is not expected to pass major banking legislation this year. That leads some insiders to conclude the trade group's move may be aimed at winning thrift members from America's Community Bankers, which tried but failed to merge with the ABA last year.

"I'm sure the ABA is looking at ways to try to sell" itself to thrifts, ACB's president and chief executive Diane M. Casey said Tuesday.

Both groups support merging the funds and rebating excess reserves, but Ms. Casey said the ABA's willingness to merge regulators as an alternative to melding the charters "oversimplifies" the issue and is "not appropriate."

ACB board members and its government affairs committee decided at a meeting last weekend in Phoenix to steadfastly defend its independent regulator, which specializes in overseeing thrifts and is sensitive to their home-lending mission, she said. "The maintenance of a separate OTS is one our priorities."

Caving in could be a slippery slope, according to officials. "Consolidating agencies is the first step toward eliminating certain competitive options that are embedded in the different charters," said Robert R. Davis, the ACB's director of government relations.

But Mr. Yingling said the policy switch has come to the fore after years of failed negotiations with the ACB about how to combine the charters. The banking industry's successful lobbying for restrictions on unitary thrift holding companies in the new financial reform law also set the stage for the change.

Mr. Yingling argued that a single regulator is necessary to maintain consistent supervision of banks and thrifts and, in turn, insure the solvency of the combined fund. But the ABA would support an OTS-like division within the OCC and other steps to prevent discriminatory treatment of thrifts compared to national banks.

Meanwhile, Rep. Frank D. Lucas, an Oklahoma Republican on House Banking, has introduced legislation that would use reserves in either fund exceeding 1.35% of insured deposits to pay interest on the Financing Corp. bonds that helped rescue the thrift industry. Though bank and thrift officials prefer a direct rebate, the Lucas approach could be part of a compromise.

The FDIC supports combining the Bank Insurance Fund and the Savings Association Insurance Fund, arguing that the thrift industry has become too concentrated to safely support its own fund.

Yet the debate over insurance funds may be academic this year. Sources said that House Banking Committee Chairman Jim Leach opposes any major banking legislation because it could be used as a vehicle to undo last year's landmark financial reform law.

And Senate Banking Committee Chairman Phil Gramm does not seem eager to act, either.

"It is something that he is going to look into, to lay the groundwork," a Gramm spokeswoman said, but it is unlikely to result in legislation this year. "It seems to make a lot of sense to see how the Gramm-Leach-Bliley Act will shake out before we put another change on top of it."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.