The Federal Reserve has given Interwest Bancorp permission to acquire Central Bancorp, which owns two state-chartered banks in eastern Washington.

Interwest currently operates a thrift and a savings bank, both of which have deposits in the Savings Association Insurance Fund.

Monday's order was the first Fed action on a thrift company's application to acquire a bank since the Federal Deposit Insurance Corp. ruled last month that institutions can legally encourage depositors to shift funds from thrift to bank subsidiaries.

Interwest executive vice president Clark Donnell said the $1.5 billion- asset company is not trying to reduce its insurance premiums, though SAIF members must pay 23 cents for every $100 of domestic deposits while Bank Insurance Fund members pay virtually nothing. The thrift, based in Oak Harbor, north of Seattle, merely is trying to expand its presence across the state, he said.

But the Fed noted in its order that Interwest would operate some bank and thrift branches from the same office, thus making it easier for customers to shift deposits.

"We don't believe deposit shifting is worth the risk," Mr. Donnell said. "There will be a legislative resolution to this."

When thrift holding companies acquire banks they must convert to bank holding companies, which requires Fed approval. Because Interwest is already both a bank and a thrift holding company, it did not have to shed any products or services.

However, other thrift companies would be required to relinquish powers not allowed banks, such as operating insurance agencies directly, selling title insurance, or creating mutual fund shares.

Converting to a bank holding company also socks thrift companies with tough capital requirements.

Most affected will be unitary thrift holding companies, which can own businesses varying from car dealerships to life insurance companies. A unitary thrift would have to divest all these activities before becoming a bank holding company, according to a Fed official.

But thrift executives said they don't expect these requirements to cause problems.

"We don't have many, if any, businesses that we can't be in as a bank holding company," said William A. Cooper, chairman of Minneapolis-based TCF Financial Corp., which recently got permission from the FDIC and the Comptroller's Office to establish national bank affiliates. Its Fed application is pending.

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