To the Editor:

You recently covered Treasury Under Secretary John Hawke's criticism of short-term proposals to address potential problems of the Savings Association Insurance Fund and Financing Corporation bonds. Apparently, however, the under secretary sees no problem with asking commercial banks and their customers to pay the tab - to the tune of about $12 billion - for a problem that they had no hand in creating. Please permit me to respond.

As president of the American Bankers Association, I spend a lot of time traveling the country talking to bankers. Wherever I go, this is what I hear:

"We asked for no taxpayer money. We rebuilt our Bank Insurance Fund at considerable cost. Now our reward is being made to pay for the rescue of our primary competitor?"

Adding insult to injury is the overlooked fact that there is no emergency in the Saving Association Insurance Fund or Fico that requires congressional action this year. Congress has plenty of time to carefully consider the complex issue and craft a comprehensive approach that address the future of SAIF and of the thrift charter.

Consider some before-and-after forecasts:

*At yearend 1995, the SAIF capitalization was almost a year ahead of FDIC projections, and the SAIF balance was nearly $1 billion higher than the FDIC expected only a year ago. SAIF could easily reach the designated reserve ratio of 1.25% of insured deposits by the end of this century. Moreover, claims on the SAIF are likely to be very low, because the S&L industry itself is healthy: S&Ls earned record profits in 1995, and capital in the S&L industry increased by more than $1 billion last year - not exactly the picture of a declining, helpless industry.

*Last year, the S&L industry told Congress that the SAIF assessment base would decline by $44.1 billion during 1995. But the numbers show that the SAIF assessment base grew in 1995 by over $20 billion.

With the actual numbers making the gloomy scenarios about SAIF less believable, the focus has shifted to Fico. The argument goes like this: SAIF-insured S&Ls, in an effort to escape their obligation to SAIF and Fico, will move such massive amounts of deposits into BIF-insured bank affiliates that a default on Fico could occur even as early as 1997.

This scenario stretches the imagination; there would have to be a $130 billion shift in deposits out of S&Ls before there is a potential for a Fico default. Draining the $130 billion Fico cushion in one year would be a feat.

One obstacle is that the BIF-insured institutions receiving the funds would have to raise nearly $11 billion in capital. Another is that only a small percentage of SAIF-insured thrifts are affiliated with BIF-insured institutions; the rest of the S&L industry - some 1,670 thrifts - would have to buy or charter a bank in order to shift deposits.

There are other costs involved in shifting deposits as well, such as paying an interest premium to induce customers to move their funds.

Any concerns about deposit-shifting in the near term can and should be dealt with by the regulators - they have the authority to inhibit shifts of magnitude that would threaten Fico. They can deny applications for BIF charters that would likely be used for cannibalizing SAIF deposits. They can put strict conditions on any new charters or acquisitions of BIF- insured institutions by S&Ls. It was clearly the intent of Congress when enacting the S&L rescue provisions that S&Ls not be able to shift deposits to avoid SAIF and Fico payments.

A technical fix stipulating that premiums paid by all SAIF-insured institutions, including Oakar and Sasser banks, be eligible to pay Fico - which Under Secretary Hawke rejects - makes sense if Congress wants to be doubly sure that no problem will occur. Such a fix, which would restore the intent of Congress, is much more than a temporary palliative. It would virtually eliminate the possibility that Fico would ever be in any danger of default. This technical clarification puts another $275 billion into the Fico assessment base, raising the Fico buffer to $405 billion.

To increase the buffer still more, have the housing-related government sponsored enterprises weigh in. No GSE obligation - including Fico - is backed by the full faith and credit of the U.S. government, but they all benefit from the subsidy they receive from their implied agency status. Any protection of the Fico bonds necessarily protects the obligations of all other GSEs. Ask them to kick in, should a need arise.

We fully understand the desire to be assured that there will be no Fico problem. Congress should urge the regulators to exert their considerable authority - and responsibility - to prevent deposit-shifting and to include premiums paid by Oakar and Sasser institutions in the Fico base.

Rarely does the government - or anyone, for that matter - do its best work under pressure. The numbers are exerting no such pressure.

There is no need to act in haste. Isn't it wiser to take the time to work with all parties to build a comprehensive package dealing with the long-term status of SAIF and merging the bank and thrift charters into a new charter designed to be competitive in the 21st century?

James M. Culberson Jr.


American Bankers Association



First National Bank and Trust Co.,

Asheboro, N.C.

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