Leach Turning to Budget Bill for Thrift Fund Fix

WASHINGTON - Reversing course, House Banking Committee Chairman Jim Leach has decided to use budget legislation to fix the thrift insurance fund and reform the Community Reinvestment Act.

The Iowa Republican agreed during a meeting with committee Republicans last Thursday to pursue a thrift fund fix via the budget. Using the budget imposes a strict deadline, because the congressional committees must complete work on the measure by Friday.

After the meeting Rep. Leach said a comprehensive reform package merging the banking and thrift industries can pass.

"We're near consensus on the process issues, and we've got a package that, while controversial, will have large support on the Republican side," he said.

House Banking will vote on its portion of the massive budget package Tuesday.

Last week Rep. Leach was saying he did not want to bog down the budget deal with major banking issues. But J. Denis O'Toole, vice president of federal government relations at Household International, said Rep. Leach needs to include the thrift fund rescue in the budget package to gain leverage when the House and Senate compromise on a final package.

"It's positioning for the ultimate conference," he said. "Leach is better off to have his comprehensive approach as a bargaining chip."

Senate Banking Committee Chairman Alfonse M. D'Amato, R-N.Y., has made it clear he wants to include the thrift insurance issue in the budget resolution, but he's pursuing a narrower bill that focuses on financial issues. Sen. D'Amato's plan would levy a one-time fee on thrift deposits to rebuild the fund. The thrift fund would be merged into the bank insurance fund by Jan. 1, 1998, and banks would pay the bulk of the interest due on the Financing Corp. bonds.

Rep. Leach's plan does that and much more.

Under Rep. Leach's "fresh start" plan, the 8% bad-debt reserve tax deduction now enjoyed by thrifts would be eliminated. Thrifts would not, however, have to pay back taxes on the bad-debt reserves they have accumulated over the past 42 years.

Rep. Leach's budget deal also would force all thrift holding companies to become bank holding companies by Jan. 1, 1998, and require them to be regulated by the Federal Reserve Board.

The Office of Thrift Supervision would be abolished. The Federal Deposit Insurance Corp. would regulate state-chartered thrifts.

Unitary thrift holding companies would be grandfathered, but with limits. Once a holding company or its thrift was sold, the grandfathering protections would end. These thrifts, which could not be called national banks, would have to comply with the current 10%-of-assets limit on commercial lending.

A new mutual national bank charter would be created for mutual thrifts.

The banking committees in both houses are required to design a budget reconciliation package that will cut government spending by $2.4 billion by 2002. A merger of the funds is expected to save $900 million, and CRA reform is expected to kick in $31 million.

Rep. Leach's plan for CRA would exempt banks under $100 million in assets from almost all certification requirements, and banks from $100 million to $250 million in assets would be allowed to escape compliance examinations by certifying themselves.

Anticipating that the budget package may be vetoed by President Clinton, Rep. Leach also is backing a broad bill being prepared by Rep. Marge Roukema, R-N.J.

Unlike Rep. Roukema's bill, Rep. Leach's proposal establishes a special reserve from any surplus funds generated by the one-time assessment on thrifts.

Finally, Rep. Leach's proposal does not include rebate authority for the FDIC, while Rep. Roukema's bill would give the agency the power to return to banks any premiums collected above the 1.25% reserve ratio.

Rep. Roukema also would bar the FDIC from setting assessments "at a higher level than needed to maintain the designated reserve ratio." Rep. Leach's measure is silent on this issue.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER