Thrifts may shift deposits out of the high-cost Savings Association Insurance Fund provided the moves are initiated by customers, the government announced Monday.
The precedent-setting move by the Federal Deposit Insurance Corp. is expected to prompt other agencies to act on long-lingering applications.
For example, the Office of the Comptroller of the Currency is expected to approve Great Western's application for a national bank charter "within days," according to an agency spokeswoman.
Great Western as well as a number of other thrifts plan to open bank branches at their thrift locations and then lure deposits out of the thrift fund with higher rates.
Allowing deposits to migrate to the bank fund will further weaken the thrift fund. The FDIC's action is expected to prod Congress, which is considering a $6 billion cash infusion for the thrift fund.
With the industry healthy, the thrift fund is not desperate for the money. But the fund also is on the hook for $800 million in annual interest payments on the Financing Corp. bonds until 2017. As deposits leave the fund, premium income drops. Eventually, SAIF will not have enough revenue to make the Fico payments. Congress wants to avoid a default, so policy decisions that erode the savings association's deposits puts pressure on lawmakers to act.
In announcing its decision Monday, the FDIC said there is no law barring customers from voluntarily moving their money from thrifts to banks.
Douglas Jones, FDIC deputy general counsel, explained that the congressional moratorium barring conversions from one fund to the other does not apply to a consumer-driven migration of deposits.
The FDIC decided that "there was nothing illegal" about a thrift encouraging the shift "as long as it is the customers who make the marketplace decision," Mr. Jones said.
Mr. Jones stressed, however, that the agency would not permit thrifts to automatically switch customer deposits from thrifts to banks. Regulators, he said, will be watching thrifts to ensure that customers freely choose where to place their deposits.
While the agency will permit banks and thrifts to operate in the same building, the FDIC said the two entities must have different identities and consumers must be able to differentiate.
The two state savings banks granted deposit insurance Friday are being chartered by MAF Bancorp Inc., a $3.1 billion thrift holding company in Clarendon Hills, Ill., and $5.5 billion-asset First Financial Corp. in Stevens Point, Wis.
There are a dozen or so more similar applications pending at the agency, but industry experts said Monday that chartering a bank is an expensive way for thrifts to avoid the higher premiums charged by SAIF.
"I wonder if the economics of this thing work," said Bert Ely, president of Ely & Associates, Alexandria, Va. "When thrifts sit down and pencil this out...they're going to have to ask themselves if they can make money doing this."
Still, the move irked the American Bankers Association, which may sue the FDIC. "We have strong objections," said James D. McLaughlin, ABA's director of regulatory and trust affairs. "We're going to be exploring the potential legal remedies with our board."
