Did the thrift industry bow out of the financial reform debate last week?

Protests to the contrary, that's how people are interpreting a decision by America's Community Bankers to push for a merger of the bank and thrift funds.

The 1996 law that bailed out the Savings Association Insurance Fund prevents the funds from being merged until banks and thrifts share a common charter. So by going after the fund merger alone, the leading thrift trade group appears to be turning its back on financial reform.

Indeed, many thrift executives-like numerous bankers-are convinced they have nothing to gain and possibly much to lose if Congress overhauls banking laws.

"Ninety percent of banks and thrifts think financial modernization is great, but not if it means giving anything up to get it," said one thrift industry leader.

In town for the annual government affairs conference of America's Community Bankers, 300 executives went to Capitol Hill to make their case.

"To my surprise, a number of people from states as diverse as Minnesota to Massachusetts told our guys that they could understand our point, that we are correct," said the thrift trade group's president, Paul Schosberg. "The economic and political arguments for merging the funds are clear and have been for years."

He's right. For the first time in its seven-year life, the Savings Association Insurance Fund is fully capitalized; 44% of its deposits are already owned by banks.

More than 20% of the deposits it insures-$164 billion-are held by 96 institutions in California. In comparison, Bank Insurance Fund deposits are most concentrated in New York, where 221 institutions hold $304 billion in deposits, just 12% of the fund's base.

"The far-smaller SAIF is less actuarially sound than the larger BIF," according to Ricki Helfer, chairman of the Federal Deposit Insurance Corp., which administers both funds. Ms. Helfer told Congress last month that the two funds should be merged "as soon as practicable."

The idea intrigues the Independent Bankers Association of America, which is searching for allies in its fight against financial modernization. Executive vice president Kenneth A. Guenther attended a reception America's Community Bankers threw last week and discovered many of Mr. Schosberg's members no longer want Congress to revamp financial laws. "Trying to convince them why Edward D. Jones becoming more like a bank is in their interest is tough," he said.

Mr. Guenther told the group's leaders that IBAA might help push for a merger of the insurance funds if thrifts agree to oppose financial reform. A survey of IBAA members showed "surprising support for just merging the funds and leaving the charters alone," according to Mr. Guenther.

But the American Bankers Association remains adamant that no merger of the funds occur before Congress designs a new charter for all insured institutions. That deal was the industry's payback for financing a portion of the thrift fund bailout.

"I can't imagine the Congress would de-link a merger of the charters from a merger of the funds," ABA chief lobbyist Edward L. Yingling said. He said lawmakers want one deposit insurance fund, and that's why ABA plans to use the fund merger as leverage to get a better charter.

Mr. Schosberg insisted his group still backs broad reform."Our appetite for 'chartering up' has not diminished," he said. But he discounted Mr. Yingling's claim that Congress will not eventually renege on its 1996 deal. "Congress changes its mind all the time."

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