WASHINGTON - Some of the $30 billion loan Congress authorized last year for the Federal Deposit Insurance Corp. may have to be diverted to the thrift industry cleanup, Comptroller General Charles Bowsher warned Tuesday.
Since FDIC-insured banks are supposed to be on the hook to repay those borrowings, banks might then end up paying for thrift failures - exactly that they had dropped to avoid by maintaining a separate thrift insurance fund.
Banking industry lobbyists were up in arms at the possibility raised by Mr. Bowsher, but FDIC officials tried to calm the waters.
Taylor: Scenario Possible
FDIC Chairman William Taylor acknowledged in an interview that Mr. Bowsher's scenario is possible but said it would be "patently unfair" if banks had to foot the bill for such a use of the borrowed funds.
And Alfred J.T. Byrne, the FDIC's general counsel, added that even if there were a diversion, banks would not have to subsidize the thrift bailout. "The corporation will effectively run separate sets of books for the separate funds," he said.
Mr. Bowsher, head of the General Accounting Office of Congress, did not comment on who would pay for any diverted FDIC funds.
He told the House Banking Committee at a hearing Tuesday that the FDIC may have to tap its line of credit when the Resolution Trust Corp. turns over its bailout responsibilities to the Savings Association Insurance Fund in October 1993.
"If SAIF faces a backlog of failed institutions on Oct. 1, 1993, FDIC could be forced to use some of the $30 billion in borrowing authority provided under the FDIC Improvement Act to cover SAIF's losses," Mr. Bowsher said. "This, in turn, would reduce the level of loss funds available to the Bank Insurance Fund."
Banks Have the Money
"It would be a de facto merger of the funds," complained Doug Kidd, a lobbyist for Bankers Trust New York Corp.
John Rippey, senior vice president at the Association of Bank Holding Companies, called the potential burden "a very big challenge for the banking industry.
"We've got something they don't have," Mr. Rippey said. "It's known as money."
Bert Ely, a Virginia-based banking consultant, said the shrinking savings and loan industry would generate much less insurance-premium revenue than the banking industry and, therefore, would be unable to repay sizable borrowings. "The S&Ls don't have that kind of money," he said.
Congress' 1991 Action
Mr. Bowsher was referring to the congressional action last year that allowed the FDIC to borrow up to $30 billion to cover losses at insured institutions and another $40 billion to cover working capital borrowings.
It was assumed that the $30 billion would be used for bank losses, since the RTC was in place to cover thrift losses. But Congress cut off the RTC's funding in April, and many experts expect the bailout agency to get no more money this year.
If the RTC is not refunded next year, then the SAIF would have to step in and finish the job. Regulators are predicting that about 155 thrifts with $150 billion in assets will fail in the next two years, at a potential cost of $25 billion.
A Bleak Prospect
Come September 1993, the GAO estimates, the SAIF will have less than $1 billion on hand. The FDIC is expecting net premium payments from thrifts of $1.6 billion in 1993. The SAIF has another source of income - up to $2 billion a year from the Treasury - but this money was merely authorized by Congress and must be appropriated to become available.
Getting Congress to approve these transfer from the Treasury could prove just as hard as enacting an RTC funding bill.
The FDIC has not yet touched its $30 billion loan but has borrowed $15.1 billion for working capital - to be repaid through seized-asset sales. Bank insurance premiums are being increased to an average of 28 cents per $200 of insured deposits to help rebuild the Bank Insurance Fund. Thrift premiums are also scheduled to rise Jan. 1.
The Bush administration's regulatory reform bill, unveiled last week, also came under heavy fire at Tuesday's hearing.
Mr. Bowsher warned that abandoning the regulations required by last year's banking law would be "setting the stage for another serious financial crisis." He attacked bankers who complain about the "regulatory burden," saying, "there should be no burden for well-run banks."
Rep. Henry B. Gonzalez, D-Tex., chairman of the banking committee, said that, if bankers want deposits insurance and a line of credit to the Treasury, they must abide by government rules.
"When you're on relief, there are lots of rules," he said. "Just ask the poor folks on food stamps."