WASHINGTON - Seeking support for his Glass-Steagall repeal bill, Rep. Jim Leach proposed lifting a $16 billion obligation from banks and thrifts and placing it on the shoulders of Fannie Mae and Freddie Mac.
The House Banking Committee chairman surprised bank lobbyists Friday with the new plan for rescuing the thrift insurance fund. Though industry representatives praised the move, a number of lobbyists said it would be very difficult to stick the politically powerful government-sponsored enterprises with the tab.
"This will set off a royal war," said Kenneth Guenther, executive vice president of the Independent Bankers Association of American. "Fannie Mae and Freddie Mac are very powerful in Washington, and bankers have a historic fight on their hands."
"Around here we call them the 800-pound gorilla," said another bank lobbyist, referring to Fannie Mae. Agency representatives could not be reached for comment.
It was not possible to obtain comment from Sen. D'Amato's office Friday.
Both the House and Senate banking committees have approved similar plans calling for banks to pay $12 billion for bonds issued in a 1987 effort to rescue the thrift insurance fund. Thrifts would pay the remaining $4 billion.
The measure is included in the huge budget bill, which is nearing final passage in both chambers. As a result, the only opportunity Rep. Leach may have to change the financing mechanism is in the negotiations between the House and Senate. In that environment, Sen. D'Amato's views will be critical.
However, aides to Rep. Leach speculated that the banking committee chairman may no longer feel compelled to deal with the Savings Association Insurance Fund issue in the context of the budget package.
New budget calculations show that the banking committees have exceeded their revenue targets by $2 billion, making it possible for Rep. Leach to drop the S&L provisions from the package altogether.
If that happens, Rep. Leach would have considerably more leverage to fashion a rescue package to his liking, which would be a major plus for banks.
The American Bankers Association's top lobbyist, Edward L. Yingling, pledged a vigorous fight.
"I think bankers will be very enthusiastic about generating support for this issue," said he said.
In a speech at the University of Northern Iowa, Rep. Leach explained his rationale for levying the payments on the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corp., or Freddie Mac.
"No approach is fair to all parties," he said. "But this new approach avoids a government bailout and calls for a modest sacrifice for the housing GSEs, which enjoy a 30-basis-point government-provided advantage in the market and the privilege of being exempt from state income taxes."
Bankers have argued that GSEs, or government-sponsored enterprises, benefit from the package, since a default on the Fico bonds would roil the markets for all institutions that benefit from government backing.
Though the Fico provisions are not part of the Glass-Steagall package, bankers have linked the two issues. The industry is angry over a proposed moratorium on new insurance powers that is part of the Glass-Steagall bill, and has argued that it is unfair to impose that restriction on banks at the same time they are being asked to pay $12 billion to help the thrift insurance fund.
The industry's vocal opposition is a key reason that a planned vote next week on the Glass-Steagall package was canceled.
Virtually all of the ABA's state affiliates oppose the Glass-Steagall package, and on Friday ABA president James M. Culberson Jr. informed Rep. Leach that the national organization would oppose the bill as well.
Mr. Culberson cited the insurance restrictions and the budget bill requirement that banks help finance the thrift fund rescue.
The insurance restrictions, wrote Mr. Culberson, turned the Glass- Steagall repeal package into a vehicle for protectionism that is "the very antithesis of the economic principles of the House leadership."