Now that Golden West Financial Corp. has started moving its customers out of Savings Association Insurance Fund deposits to save on premiums, who will follow?
At least 81 other bank and thrift companies can, according to the Federal Deposit Insurance Corp. Most of those are bank holding companies with small thrift subsidiaries and relatively little incentive to shift deposits.
But at least one big thrift company acted on a strategy similar to Golden West's last year, and others - despairing of a legislative solution to the premium disparity between the thrift fund and the Bank Insurance Fund - are thinking about it.
Washington Mutual Inc. of Seattle did its deposit shifting before merging its BIF-insured and SAIF-insured subsidiaries late last year.
Deposits at its thrift unit shrank by almost $600 million, to $5 billion, in the third quarter. Meanwhile, deposits at its BIF-insured subsidiary grew $1.1 billion, to $5.4 billion.
FDIC researchers say they don't know of any other such big deposit movements - although they're still examining fourth-quarter call reports.
Great Western Financial Corp., Chatsworth, Calif., the country's second- largest thrift company (Golden West is No. 3), caused a big stir last March when it applied to the Office of the Comptroller of the Currency to charter a national bank with branches in its existing thrift branches. Six other thrifts followed suit, but the OCC hasn't acted on the applications.
Great Western owns two BIF-insured state banks, in Colorado and Utah, and chairman James Montgomery said last week he may soon try to use these banks to shift deposits out of the savings fund.
"The first choice for everybody is legislation," he said. But "banks aren't paying anything, and we're paying a lot more. We just can't stand this."
H.F. Ahmanson and Co., Irwindale, Calif., the nation's largest thrift, has applied to charter a BIF-insured state savings bank in Washington and is still awaiting an answer.
Sovereign Bancorp., Wyomissing, Pa., bought a BIF-insured state savings bank in New Jersey in November. But to get approval for the acquisition from the FDIC, the thrift had to promise it would not siphon deposits into the bank.
Also, continuing a trend begun early last year, 473 thrifts shed $14.3 billion of deposits during the third quarter, according to the Office of Thrift Supervision. Many relied on repurchase agreements and Federal Home Loan Bank advances for new funding.
All in all, it is starting to look as though the dire scenario outlined again and again last year by thrift industry leaders and regulators has begun to be realized.
Deposit insurance premiums paid by banks have dropped to near zero. Thrifts are still stuck paying high premiums as they watch legislation rescuing their deposit insurance fund remain tangled in the budget battle between Congress and the President.
And now some of the biggest thrift companies have begun fleeing the higher-cost SAIF, urging depositors to switch to accounts covered by the bank fund.
"What we're seeing ... is the very thing we've been talking about since 1994," said Joe C. Morris, senior vice president at First Bank Kansas, a thrift, and chairman of the SAIF Industry Advisory Committee. "The SAIF fund right now is not safe. It's structurally unsound."
The argument advanced by Mr. Morris and other thrift executives is that the SAIF is already too small and its assessment base too concentrated in one state, California, to insure adequately for thrift failures. As other thrifts shift deposits out of the SAIF, the fund will shrink even further - first endangering its ability to meet Financing Corp. bond payment obligations, then its very survival.
Not everyone believes this, however.
"SAIF is not in a death spiral," said Bert Ely, an Alexandria, Va., banking consultant and deposit insurance expert. "The potential impact of a thrift crisis is being diluted steadily as thrifts are being acquired by commercial banks."
The SAIF assessment base, in fact, started growing again in the second quarter of 1995 after years of decline. But deposits held by thrifts and insured by the fund kept declining; all the growth came from deposits held by banks.
These so-called Oakar banks, moreover, can't easily rid themselves of their SAIF deposits - which are simply figured as a fixed percentage of their overall deposits.
The FDIC has held that the Oakar banks' SAIF premiums cannot be used to pay the $793 million in annual interest on the Fico bonds, raising the possibility of default if thrifts' share of the savings fund assessment base keeps shrinking. But others say the agency could easily change its stance.
"That ought to be done at the very least," said Treasury Under Secretary John D. Hawke Jr., who also emphasized that, regardless of Fico or the SAIF itself, the premium disparity raises concerns.
"From a safety and soundness point of view, you have to be concerned about institutions paying 23 basis points for insurance coverage when their look-alike competitors across the street are paying nothing for the same coverage."
That was the concern voiced by executives of Golden West, said OTS Chief Counsel Carolyn Buck. "They thought, 'Why should our deposits be going across the street to a bank?'" she said.
Early last year, Golden West bought Watchung Hills Bank for Savings, a small, BIF-insured New Jersey savings bank. It changed the name to World Savings Bank and converted it to a federal savings bank charter. Then it applied to open six branches at existing branches of World Savings and Loan Association, Golden West's lead subsidiary, in California, Colorado, and New Jersey.
The OTS approved those applications in March 1995, and from March 31 to Sept. 30, World Savings Bank's deposits skyrocketed to $865 million from $58 million, while World Savings and Loan Association's deposits dropped $600 million. The agency approved 16 more branch openings Jan. 31 of this year.