Critic Tells Panel the Costs Are Mounting Rapidly

WASHINGTON - A persistent critic of the savings and loan bailout told a House subcommittee Tuesday that the Office of Thrift Supervision is costing taxpayers money by not closing troubled institutions fast enough.

R. Dan Brumbaugh Jr. said that, as of Dec. 31, 282 S&Ls with $176 billion in assets were operating despite a negative return on assets of 1.46%. Another 552 with $201 billion in assets and returns on assets of from zero to 0.50% could suffer large losses if interest margins shrink, he said.

"Leaving institutions open and insolvent is a reliable summary measure of forbearance," Mr. Brumbaugh told the House Banking Committee's subcommittee on general oversight and investigations. "In the process, taxpayers are exposed to greater risk of higher future costs."

The Case of HomeFed

Mr. Brumbaugh cited HomeFed Bank of San Diego, which was closed July 6, as an example of regulatory procrastination.

The $12.4 billion-asset thrift could have been seized in early 1991 after failing to meet its risk-based capital requirement, Mr. Brumbaugh asserted. HomeFed also failed to meet its core capital requirement in June 1991, he said, and three months later fell below its tangible capital minimum.

OTS Director T. Timothy Ryan defended his agency, saying "great progress has been made" in the cleanup. The government has transferred 700 failing thrifts to the Resolution Trust Corp., he said, and only 48 S&Ls remain on the critical list.

Regulators were prudent in their treatment of HomeFed, Mr. Ryan argued. The OTS required HomeFed to file a capital plan in April 1991, replaced its management last July, restricted its operations, and tried to arrange a sale through the accelerated-resolution program. A sale became impossible after Congress failed to authorize new RTC funding, he said.

Cleanup Costs Rising Fast

If Congress had acted, Mr. Ryan said, HomeFed could have been sold at an estimated cost to the government of $2 billion.

William H. Roelle, the RTC's chief financial officer, testified that, without additional funding, the cleanup bill would rise by an estimated $2.5 million a day.

If the funding crisis continues, continuing losses at the S&Ls could drive the cost as high as $6 million a day, he said.

"The checks we are now writing to depositors resulted from losses on loans that were made throughout the 1980s," Mr. Roelle said.

"We have postponed paying this bill long enough. It is a bitter pill to swallow, but we can avoid the castor oil chaser."

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