It seems ironic that the nation's oldest form of savings institution, and at one time its only form of savings institution, is periodically criticized by one or two so-called banking experts who believe that mutual institutions are no more part of a modern banking industry than the covered wagon is a part of the transportation industry.
As the chief executive officer of a healthy, well-capitalized mutual institution, I can assure you that today's mutual institutions are at the heart of the nation's community banking business.
That's why I was disappointed to read in the April 4 edition of the American Banker yet another attempt to bludgeon mutual savings institutions into wholesale conversion. The article ("A Plan for Fixing Thrift Fund: Take Over Mutuals' Net Worth," page 3) cites Paul Bauer, the principal of Bauer Financial Reports Inc., as advocating a "novel" idea for the recapitalization of the Savings Association Insurance Fund - nationalizing mutual savings institutions and confiscating their capital.
This idea, though a bad one, is not new. Suggestions along these lines have surfaced off and on for years. Indeed, this scheme was debated during FIRREA and as recently as last year during the congressional hearings on the mutual-to-stock conversion process. Each time this misguided idea pops up it has been given the consideration it justly deserves - none.
Confiscating the value of mutual institutions would not only be illegal and unconstitutional, it would also be impractical - and would not solve the basic problem: ensuring the future of a strong and safe deposit insurance system. In fact, the opposite would occur. If healthy, well- managed mutual institutions were coerced into converting to meet Mr. Bauer's objectives it would be tantamount to confiscating their capital.
As a practical matter, under those circumstances no right-minded mutual institution would ever convert. Nor would any depositors or investors risk their funds by purchasing conversion stock if the prior value of the underlying company is skimmed off by the federal government.
Strange, but I thought the reason to convert to stock would be to raise capital, not eliminate it. It would be counterproductive and highly illogical to impose a deposit insurance tax on transactions that help protect the insurance funds by raising capital.
Further, targeting one segment of the universe of insured institutions to single-handedly solve the problems of Fico repayment and recapitalization of the SAIF is completely unjustified. This would result in mutual institutions paying an extra premium - yet receiving no more benefit from deposit insurance than stock forms of depositories.
This merely adds a further inequity to an already imbalanced premium structure. In any actuarially sound insurance system, equal risks should be charged equal premiums. In fact, mutual institutions have had a lower failure rate than stock-form depositories.
The mutual charter is a vibrant and viable choice that has a long history of community service that should be encouraged. Mutuals are generally conservative, well-run institutions that are active members of their communities. Because they are not subject to shareholder pressure, they have an ability to "pay dividends" to their communities by providing services and programs that may not be as profitable to the institution but that are of vital importance to the well-being of the community.
My own institution is an active participant in two city partnerships - one that provided low-income residents with lower-rate loans to purchase homes, and another that is rehabilitating a long-vacant department store as part of Hazelton's continued community development. Our institution sponsors scholarships for local students, our board is active in community affairs, and I chaired the United Way effort in our area. We are not just a community lender, we are a community leader. And we are not unique.
I have learned both as a board member of America's Community Bankers and as chairman of the group's Mutual Institutions Committee that I am not alone in my strong belief in the vitality of mutual institutions. ACB, as the only national trade association representing the concerns of mutual institutions, understands the crucial role that they play in their communities and actively advocates public policies that allow these institutions to determine their own destiny.
Despite the vast publicity given to mutual-to-stock conversions, today's mutual institutions still make up 52% of the savings industry. Nationwide there are about 1,100 mutual institutions, both BIF and SAIF insured, with 3,097 branches providing 59,459 jobs. Mutuals have an average ROA of 0.81% - higher than the 0.68% average ROA of stock institutions. Mutuals are generally smaller institutions - the average asset size is $191 million - and as such are highly attuned to the needs of their customers. Far from being condemned, these institutions should be commended for their homegrown commitment to their communities and their customers.
The face of the banking industry has changed dramatically since I have been in the business. But commitment to community and caring about customers is a constant. Some institutions may decide to modify their business or even their charter as the marketplace changes, but those decisions should be made based on the unique circumstances of each institution, as any other business would make them.
Yes, Washington, there is mutual savings industry, and it is alive and well - in Hazelton, Pa., and in a thousand other Hazeltons across the country.
Ms. Beard, chief executive officer of First Federal Savings and Loan Association of Hazelton, Pa., heads the committee on mutual institutions of America's Community Bankers.