A fascinating legislative drama could unfold in 1995 or perhaps 1996.
The coming debate on thrift deposit insurance premiums presents great challenges and potentially great opportunities for the banking industry.
* Fact No. 1: The bank deposit insurance fund will reach 1.25% of insured deposits in 1996, at which point, barring any legislative change, bank deposit insurance premiums will decline to roughly 5 cents per $100 versus 23 cents today.
* Fact No. 2: The thrift deposit insurance fund will not reach 1.25% of deposits for at least a decade, which means that, barring any legislative change, thrifts will pay roughly four times as much as banks for deposit insurance.
* Fact No. 3: Thrifts will be very unhappy about Fact No. 2 and will lobby hard to put banks and thrifts on the same footing with respect to deposit insurance costs.
* Fact No. 4: Bankers will be very unhappy about Fact No. 3.
The thrift institutions will argue that they are having enough trouble competing and attracting capital as things now stand. They will conjure up images of further disaster in their industry - just as things seem finally to be settling down - should they be required to pay four times as much as banks for deposit insurance.
Temptation to Tap Banks
Congress could pass legislation lowering thrift premiums to 5 cents or so per $100 of deposits when bank premiums fall to that level. But lowering taxes is a most unnatural act for a politician and, besides, a premium that low would not fix the financial problems the thrift fund faces.
Congress would likely find it more palatable to raise bank premiums than to lower thrift premiums. Before blood pressures skyrocket, let me make clear I am not advocating that course of action. I am merely attempting to describe the political landscape.
Congress could decide that the best course is to merge the bank and thrift insurance funds and set the premium for banks and thrifts at, or close to, the same amount, say 10 cents per $100, until the combined fund reaches 1.25% of insured deposits. Both banks and thrifts would get the benefit of substantially reduced premiums, compared with the current levels.
Possible Quid pro Quos
What would Congress need to do to induce the banks to go along? That's the $64,000 question that should be on everyone's mind. It's what I had in mind when I said earlier that there are potentially great opportunities for the banking industry in this coming legislative drama.
How about authorizing banks to underwrite and sell insurance products? Or repealing the Glass-Steagall Act? Or eliminating and simplifying a great deal of the regulatory buren? Or reforming the deposit insurance system, including eliminating the too-big-to-fail doctrine? Or imposing equal taxation on credit unions? How about all of the above?
Other intriguing possibilities suggest themselves. If thrifts and banks are going to have a single deposit insurer, it's hard to imagine that the long-heralded merger of the Office of Thrift Supervision and the Office of the Comptroller of the Currency would not be consummated.
If the two types of institutions were insured by the same agency and regulated by the same agency, and since many banks are already members of the Federal Home Loan Bank System, would it make sense to retain material differences in the powers of banks and thrifts?
Blurring of Distinctions
Which charter - bank or thrift - should we use as the model, and what should we do about the qualified thrift lender test?
Thrifts can be and are owned by nonfinancial companies. If thrifts and banks have the same insurance, charter, and regulator, does it make sense to have different rules on ownership and affiliations? Does that suggest we should examine whether there is a rationale to continue the Bank Holding Company Act?
Yes, indeed, 1995 and 1996 could be very interesting.