WASHINGTON -- The Office of Thrift Supervision set the stage last week for a membership competition with a fellow regulatory agency by finalizing a rule that invites credit unions into its fold.

The new regulation generally streamlines the merger process for transactions involving thrifts and commercial banks.

But the rule also explicitly states that thrifts may merge with depository institutions not insured by the Federal Deposit Insurance Corp. Credit unions are insured by the National Credit Union Share Insurance Fund.

In addition, the regulation makes thrift mergers with credit unions and commercial banks easier by allowing them to merge directly into OTS-regulated thrifts. The rule sets out the steps a nonthrift must take to become an OTS-regulated thrift.

One requirement: The convening institution must be eligible for Federal Home Loan Bank membership. All federally chartered savings institutions must join the system.

The new rule is likely to draw the interest of credit unions and their regulator, the National Credit Union Administration.

NCUA has taken a hard line against credit unions' converting to thrifts, and it is preparing a rule that would give it the final say over any such transaction.

It has stepped up supervision of Newark, N.J.-based Lusitania Federal Credit Union, the first credit union to apply for a thrift charter. And during the summer, the regulator seized an Oklahoma credit union which considered becoming a thrift. In both cases, the agency denied it was trying to hamper charter conversions.

"The NCUA is just taking the position that we want credit union members to know what's going on," NCUA spokesman Bob Loftus said. He said the NCUA does not object to the new OTS rule. "As long as the members know what they are doing and they do have the right to vote on any conversion - that is fine with us."

A number of credit unions have explored converting to a thrift charter in order to later sell stock in their depositor-owned institutions, Washington lawyers say.

Over the past several years, mutual thrifts completed a wave of such deals, which often allowed thrift executives to pocket large profits.

The NCUA does not want to see that repeated, Mr. Loftus said. "We are concerned that in some of these instances, there may be an effort on the part of a small group to enrich themselves at the expense of the general membership."

The new OTS rule also makes it easier for most thrifts to choose another charter and regulator. Well-managed, well-capitalized thrifts need only notify the OTS if they want to change charters.

Thrifts with Camel ratings of 3, 4, or 5, Community Reinvestment Act rating of

less than "satisfactory," or if thrifts fail their capital requirements won't be able to take advantage of the new rules.

Federal mutual thrifts may combine with stockholder-owned institutions, but only if a mutual savings association survives, under the new OTS rule.

The rule, which takes effect Sept. 29, implements a provision of the 1991 banking law which allows thrifts to combine with any institution insured by the Federal Deposit Insurance Corp.

The OTS has been approving such cross-industry transactions since 1989, but the regulation will codify and streamline current OTS practice.

The thrift trade group praised the OTS move.

"We would like to make sure that credit unions have the freedom to choose the charter they want," said C. Dawn Causey, regulatory counsel for the Savings and Community Bankers of America.

James B. Arndorfer contributed to this story.

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