Ten years ago today, as he leaned over to sign the Financial Institutions Reform, Recovery, and Enforcement Act into law, President George Bush said, "I'm proud to sign this monster."
With 14 titles and nearly 400 pages, the law known as FIRREA is remembered mostly as the first definitive attempt to deal with the hundreds of failed savings and loans. But it did much more and had implications that continue to reverberate.
For instance, FIRREA's "miscellaneous provisions" gave a huge boost to fair-lending and community reinvestment.
Amending the Community Reinvestment Act of 1977, the S&L law established the four-grade rating system in use today. It dramatically changed CRA compliance by requiring regulators to provide written evaluations of a bank's reinvestment record and to make the grades public.
The Home Mortgage Disclosure Act of 1979 was also changed, requiring lenders for the first time to report race, gender, and income data on the people applying for mortgages.
"FIRREA definitely put the teeth in CRA and HMDA," said Jo Ann S. Barefoot, a partner at KPMG LLP in Columbus, Ohio. "Public disclosure meant every institution had to consider its reputation was at stake."
The S&L bailout law also began the homogenization of the banking and thrift industries. It let bank holding companies buy thrifts, and opened the Federal Home Loan Bank System to banks.
According to the Federal Deposit Insurance Corp., banking companies have bought 219 thrifts with $252 billion of assets, or 23% of the industry's total.
Banks account for more than 5,000 of the 6,975 Home Loan bank members.
Still, the bulk of FIRREA was devoted to fixing what ailed the thrift industry.
The insolvent Federal Savings and Loan Insurance Corp. was abolished. To take its place, the Savings Association Insurance Fund was created and handed over to the FDIC. To distinguish SAIF from the bank fund, the Bank Insurance Fund was born.
The FDIC board was expanded to five members from three, and the agency gained the right to examine any bank or thrift-a power it has rarely used.
The Federal Home Loan Bank Board had until Oct. 8, 1989, to wrap up its affairs. Its regulatory responsibilities passed to the new Office of Thrift Supervision.
The Federal Housing Finance Board was created to oversee the 12 Home Loan banks.
Finally, the Resolution Trust Corp. was established to liquidate some $250 billion of assets seized from 400 failed thrifts. To keep an eye on the cleanup and dole out its funding, the RTC Oversight Board was set up.
The RTC-in effect, an extension of the FDIC, with L. William Seidman chairing both agencies-was originally scheduled to complete its work by Aug. 9, 1992. A subsequent law extended that deadline to Dec. 31, 1995.
For the thrifts that survived, FIRREA imposed strict limits on diversification, higher deposit insurance premiums, and tough new capital standards. (Prompt corrective action, however, was not legislated until the FDIC Improvement Act of 1991.)
Harsh penalties were authorized for derelict executives or directors, including fines of up to $1 million a day.
Today, with the S&L cleanup an expensive memory, it is the law's peripheral provisions that stand out. CRA is one of the central controversies in the financial reform bill pending in Congress this summer, and the latest HMDA data on minority-borrower rejection rates were released July 29.
In like fashion 10 years from now, one of the legacies of the current structural-reform bill known as HR 10 may be prohibitions on banks' sharing customers' personal information without their permission.
"The privacy provisions will end up having more impact on the banking industry than anything else in HR 10," predicted veteran lobbyist James J. Butera of Butera & Andrews.