Congress will not rescue the thrift insurance fund this year, House Banking Committee Chairman Jim Leach predicted Tuesday, prompting alarmed industry officials to forecast an exodus from the Savings Association Insurance Fund.
"If Chairman Leach is correct and nothing is done, we're going to start moving money big time," said James F. Montgomery, chairman of Great Western Financial Corp., Chatsworth, Calif.
"This is an open invitation for institutions that have the option to move their funds from the thrift fund to the Bank Insurance Fund," agreed Richard L. White, president of Washington Federal Savings Bank, Washington, Pa.
Mr. Montgomery and Mr. White were among 250 thrift executives who heard Rep. Leach's prognosis at an America's Community Bankers conference here.
Alerting the crowd that deposit shifting had already begun, Federal Deposit Insurance Corp. Chairman Ricki Helfer said two institutions moved $5.8 billion out of the thrift fund in the fourth quarter.
Rep. Leach said President Clinton doomed the thrift fund rescue in December's budget battle. "I am here to tell you what your administration did to you," the Iowa Republican said, his voice rising. "When the President vetoed the reconciliation bill ... he may well have struck the death knell to BIF-SAIF resolution."
Anticipating a drop in bank insurance rates, the thrift industry last year began arguing that charging different rates for the same government guarantee will cause a market crisis.
On Jan. 1, banks began paying next to nothing for deposit insurance while thrifts still pay 23 cents for every $100 of domestic deposits.
Rep. Leach told the executives that he is not convinced a disparity between thrift and bank insurance premiums is a problem.
"You are looking at an industry that will be put at a competitive disadvantage, but not a life-threatening one," he said. "I do not accept the precept of crisis."
To capitalize the fund, the legislation would raise nearly $5 billion through a one-time fee on thrift deposits. Bankers have been fighting the rescue bill in Congress because it would require the industry to pay about $600 million a year to cover interest due on Financing Corp., or Fico, bonds issued in the late 1980s to fund the first thrift industry bailout.
In pronouncing the thrift fund fix dead, Rep. Leach said the banking industry had made its point.
"There are a lot of people who don't want the burden put on them," Rep. Leach said. "I have probably in my office 500 letters from BIF-insured institutions that don't support this."
But Ms. Helfer warned that banks will help finance the thrift fund's recovery - one way or another.
During the fourth quarter, the FDIC said Golden West Financial Corp., Oakland, Calif., moved $2.6 billion from its thrift unit, World Savings, into an affiliate insured by the Bank Insurance Fund. And roughly $3.2 billion was shifted out of the Savings Association Insurance Fund when Home Savings sold its New York branch network to bank-fund member Greenpoint Savings.
As money moves in, the bank fund's reserves are diluted, which eventually will mean higher premiums for banks. "This is a problem not only for SAIF but also for BIF members," Ms. Helfer said. "So bankers must pay, if not now, then later."
Clinton administration officials tried to put the best spin on Rep. Leach's comments.
"I think he is more pessimistic about the prospects than the substance of the legislation," said John D. Hawke Jr., Treasury under secretary for domestic finance.
He agreed with thrift executives that legislation could still be enacted this year. "I'm still optimistic," Mr. Hawke said. "It has bi-partisan support, it's the right thing to do, and negotiations are not yet over."
Paul A. Schosberg, president and chief executive of America's Community Bankers, said House Speaker Newt Gingrich told him Feb. 29 that capitalizing the thrift fund was a priority for Republican leaders.
"It's puzzling that (Rep. Leach's) dark view of the world is so dramatically different than the message we received from the Speaker of the House," Mr. Schosberg said. "I'm puzzled by this attitude of standoffishness when the road map has been clearly laid out."
Bill McConnell contributed to this story.