An idea circulating on Capitol Hill would use the Federal Reserve Board's excess earnings to pay some of the annual interest due on Financing Corp. bonds.
Rep. Barney Frank, D-Mass., was expected to introduce legislation Tuesday that would divert part of the Fed's $4 billion surplus toward paying off the Fico bonds. A recent General Accounting Office report sparked the bill by publicizing the Fed's revenues and expenses.
If enacted, Rep. Frank's bill would reduce the banking industry's cost of shoring up the Savings Association Insurance Fund by about 25%.
Under pending legislation, banks would have to pay about $600 million a year for the next 21 years to retire the thrift bailout bonds. Rep. Frank's bill would reduce that cost by about $150 million a year.
The American Bankers Association supports the bill. Edward L. Yingling, the group's chief lobbyist, said lawmakers should examine Rep. Frank's plan as a way to pay off the Fico bonds without "ramming a tax down the throat of the banking industry."
While regulators would not comment on Rep. Frank's bill Tuesday, they are unlikely to support it because they are pushing a broader plan to raise $6 billion through a one-time fee on thrift deposits to capitalize SAIF. This legislation also spreads the Fico obligation to banks.
Bank regulators are urging Congress to tack this solution onto a spending bill that must be passed by April 24.
The Fed's surplus was publicized in a March 26 GAO report criticizing management practices at the central bank. While Fed officials would not comment on Rep. Frank's plan, they argued in a response to the GAO report Tuesday that eliminating or reducing the surplus could be harmful.
Without a sufficient surplus, the Fed asserted, it might have difficulty maintaining its collateral while conducting monetary policy.
Trade groups besides the ABA were not jumping on the bandwagon. Kenneth A. Guenther, executive vice president at the Independent Bankers Association of America, predicted the plan would die because neither the administration nor Republican leaders support it.
"It's very attractive, but it's not in play," he said.
Paul A. Schosberg, president of America's Community Bankers, said the Fed surplus is taxpayer money and should not be used to solve a private- sector problem.
Fico bonds were floated in the late 1980s to finance the thrift industry's first bailout. Regulators, led by Federal Deposit Insurance Corp. Chairman Ricki Helfer, have warned that the bonds could go into default next year unless banks pitch in.