In 1989, when Congress was writing the thrift bailout law, it seemed like a good idea to exempt commercial bank members of the Federal Home Loan Bank System from any responsibility for paying for the rescue operation. Today, though, the Clinton administration and some key legislators are coming to a very different conclusion. If they have their way, some district Home Loan banks that have encouraged commercial banks to join the system could soon be paying a larger share of the bailout's cost.

Like all good thrift stories, this one is heavily influenced by geography. It is, in part, a story of California and Texas thrifts against savings institutions from New York, New England, and elsewhere.

At issue is the "RefCorp allocation formula," the mechanism devised in 1989 to divide part of the bill for interest payments on the bailout bonds.

Under the law, the thrift industry is on the hook for $300 million a year of interest payments on the bonds sold by the Resolution Funding Corp., or RefCorp - the agency created to fund the bailout.

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Ideally, the tab would all be paid through an assessment on the 12 district banks of up to 20% of their earnings. However, when that assessment falls short of raising $300 million - as it has in each of the last five years - the allocation formula comes into play.

Each district is then hit with an additional levy based on advances issued to members backed by the Savings Association Insurance Fund. Advances to institutions covered by the Bank Insurance Fund are not counted.

That distinction didn't make much difference in 1989, before commercial banks had been authorized to join the bank system. But it makes a big difference now.

The allocation system favors districts like New York and New England, which are top-heavy with BIF-insured savings bank members, and districts that have worked hard to recruit commercial banks.

The district bank most heavily penalized is San Francisco's, the system's largest bank, which has relatively few BIF members. Close behind it is Texas. Not surprisingly, California thrifts are leading efforts to end the distinctions between banks and thrifts.

Supporters of the current system say California has created its own problem by failing to recruit commercial bank members. Although such institutions are joining the San Francisco bank, a number of industry sources said the reality of the situation is that banks won't join without a substantial marketing effort.

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Among those expected to support changing the allocation formula is Rep. Richard Baker, chairman of the House subcommittee that oversees the Home Loan Bank System. He has been a longtime advocate of system modernization.

An aide to the Louisiana Republican said no final decision has been made. However, a recent draft of Rep. Baker's bill calls for an end to the distinction.

Lou Nevins, president of the Western League of Savings Institutions, said prospects for change are good.

"People are reaching a consensus that the current system is out of whack," he said. "To allocate any of these taxes on the basis of your charter is inequitable and increasingly unworkable."

Rep. Baker may have an edge in this battle.

Last year, with New Englanders holding down key roles in Congress - including Senate Majority Leader George Mitchell, D-Maine, and House Rules Committee Chairman Joe Moakley, D-Mass. - Rep. Baker's legislation probably would have been dead on arrival.

With Republicans in control of Congress, however, New England thrifts don't have as many allies in key posts. And the Treasury appears likely to weigh in on the side of Rep. Baker. Also backing repeal of the exemption for BIF institutions is America's Community Bankers, the big thrift trade group.

On the other hand, New York legislators may play a pivotal role. New York holds 10 seats on the 50-member banking committee, and if the state's delegation is willing to fight, it could make this battle interesting.

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