WASHINGTON -- Key members of the House Banking Committee have sponsored legislation aimed at reducing management profits when state-chartered, mutually owned thrifts convert to stock institutions.

The bill would require the Federal Deposit Insurance Corp., which is the primary federal regulator for state-chartered thrifts, to adopt rules similar to those the Office of Thrift Supervision uses on stock conversions. The rules would be retroactive to Nov. 22.

House Banking Committee Chairman Henry B. Gonzalez, D-Tex., Rep. Stephen L. Neal, D-N.C., and Rep. Jim Leach of Iowa, the committee's ranking minority member, co-sponsored the legislation, called the Mutual Bank Conversion Act.

Called a |Free Lunch'

"While these conversions, and the state laws that allow them, have been defended as consistent with the free market, the more apt description is free lunch - for the insiders and big bank acquirers," Rep. Gonzalez said in a statement.

The bill applies existing Office of Thrift Supervision standards, "to ensure that account holders are adequately informed, that institutions are properly valued, and that insiders and acquirers don't benefit at the expense of the institution and its account holders," Rep. Gonzalez said.

Mutual thrifts have been converting to stock ownership in droves since 1989, when federal law first allowed state-chartered savings banks in any state. The states often do not set limits on the amount of stock that can be given or sold cheaply to thrift insiders.

Typically, mutual thrifts first convert to state charters. They then either sell stock on their own. or merge with a bank as they go public.

195 in Conversion Process

Since January 1992, over 195 institutions with over $39 billion in assets have converted from federal to state charters - the first step of these mutual-to-stock transactions, Rep. Gonzalez said.

Thrift lawyers said the bill would create problems for pending and future deals under state laws that diverge from the thrift agency's stock conversion rules.

"It will cause everyone to review their plans, and because of the uncertainty, I'm sure there will be changes made to bring them in line with the OTS standards," said Timothy B. Matz, senior partner at Elias, Matz Tieman & Herrick, a Washington-based law firm.

FDIC spokesman Alan Whitney said conversion rules already are "at the top of the list" for consideration by the FDIC board.

"It is certainly possible that this will be taken up by the end of the year," Mr. Whitney said. But he cautioned, "It is unclear whether it is appropriate for the FDIC to adopt rules in an area that has traditionally been governed by state laws."

Warning Sounded

Lawyer Kip A. Weissman of Silver, Freedman & Taff in Washington, D.C., warned that the proposed legislation might miss the mark.

"Since many of the most important aspects of the OTS' regulations of stock conversions are based on unwritten guidelines, the requirement that the FDIC regulations be substantially similar to the OTS regulations may allow room for continuing regulatory disparities," he said.

Rep. Neal's state has some of the most liberal conversion laws in the country. He called for Congress or the FDIC to stop managements of state-chartered mutual thrifts from "reaping unfair profits."

"State laws permitting the conversion of state-chartered mutual savings banks to stock ownership may be providing insiders at these institutions opportunities to profit from the conversions to the detriment of the institutions' depositors," Rep. Neal wrote in a Nov. 17 letter to Andrew Hove Jr., acting FDIC chairman.

Rep. Neal announced that the House Banking Committee's subcommittee on financial institutions, which he chairs, will hold hearings soon on the issue. In the meantime, he said, the FDIC "should crack down on these abuses as quickly as possible."

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