TCF Financial Corp. on Thursday became the first thrift to win a full national bank charter, clearing the way for the thrift industry to shift billions in deposits from its high-cost insurance fund.
The Office of the Comptroller of the Currency approved an application by the Minneapolis thrift to set up four national banks - one each in Minnesota, Illinois, Wisconsin, and Michigan. The agency is expected to approve a similar application from Great Western Financial Corp. by the end of next week.
TCF and Great Western are two of seven companies that have applied for bank charters to avoid the costly deposit insurance premiums levied by the Savings Association Insurance Fund. The companies plan to open bank branches at their thrift locations and then use higher rates to tempt depositors to shift their funds.
The Comptroller's Office has authorized thrifts to open national banks before, but those banks had limited-purpose charters and focused solely on credit card lending.
Thrift industry representatives said the OCC's precedent-setting move will increase the pressure on Congress to bolster the thrift fund. Congress, which in 1989 mandated that the bank and thrift deposit insurance funds hold $1.25 for every $100 of deposits, is now mulling a $6 billion cash infusion to bring the thrift fund up to that level.
"Allowing these thrifts to shift deposits is going to aggravate the problems with the SAIF fund," said James J. Butera, a partner at the Washington law firm Butera & Andrews.
The message was not lost on House Banking Committee Chairman Jim Leach.
"This underscores the need for the Congress to act this year on recapitalization of the SAIF," the Iowa Republican said in a statement Thursday.
As deposits leave the thrift fund, premium income drops, raising the prospect that the fund eventually would lack the wherewithal to make $800 million in annual interest payments on savings and loan bailout bonds floated in the late 1980s. Lawmakers want to avoid a default, so policy decisions that erode the thrift fund's deposit base put pressure on Congress to act.
The OCC decision comes on the heels of a related decision by the Federal Deposit Insurance Corp. On July 1, the agency ruled that thrifts may shift deposits out of the SAIF, provided the moves are initiated by customers.
William A. Cooper, chairman and chief executive of $7.5 billion TCF, said that the 23-cent premium disparity between the Bank Insurance Fund and the thrift fund forced his institution to act.
"We pay $10 million to $12 million a year in premiums on $5 billion of deposits, while Bank of America, which has around $200 billion in deposits, only pays $2,000," Mr. Cooper said. "In the absence of congressional action, we need to take the necessary steps to protect our competitive position."
The OCC is requiring TCF to keep bank and thrift operations distinct. For example, the businesses must be "conspicuously, accurately, and separately identified" to avoid customer confusion, the OCC said. Next, TCF will apply to the Federal Reserve to become a bank holding company. An application for deposit insurance coverage for the four national banks is pending at the FDIC.
