WASHINGTON -- A key federal regulator raised warning flags Monday about the Federal Deposit Insurance Corp.'s new plan to overhaul the way mutual savings banks sell stock for the first time.
Jonathan L. Fiechter, an FDIC board member and the acting director of the Office of Thrift Supervision, said he had "strong reservations about various aspects of the proposal," which permit converting mutuals to give away much of their net worth. Mr. Fiechter's remarks came in a Monday speech to the Kansas-Nebraska League of Savings Institutions in Kansas City, Mo.
Mr. Fiechter's remarks signal that the FDIC board does not have a majority vote in favor of the plan's substance. Mr. Fiechter said he voted to solicit comment on the proposal despite his reservations about it.
A Call for Comment
At the May 31 FDIC board meeting, acting FDIC chairman Andew C. Hove Jr. joined Mr. Fiechter in voting to call for comment on an overhaul of conversion rules the FDIC staff designed. The FDIC's third board member, Comptroller of the Currency Eugene A. Ludwig objected to the strong language of the proposal and refused to vote for the plan.
At the time, Mr. Fiechter's vote for the FDIC proposal puzzled industry observers because his own agency's approach to overhauling mutual conversion rules differed greatly from the FDIC's more radical plan.
But on Monday, Mr. Fiechter explained his vote. "Let me emphasize that the FDIC Board's willingness to solicit comment on that concept in no way signals the Board's endorsement of the proposal." He added, "OTS staff continues to have strong reservations regarding whether such a proposal is practical."
"On the other hand, wearing my FDIC hat, I felt obliged to support soliciting public comments on a proposal that the senior FDIC staff strongly believes might solve many of their concerns regarding the present conversion process."
Recently Tightened Rules
Both the OTS and the FDIC recently tightened their conversion rules after Congress held hearings that highlighted widespread insider abuse in the spate of conversion deals over the last several years.
The thrift trade group sees the FDIC proposal facing a wall of opposition from industry, Congress, and the FDIC board itself.
Paul A. Schosberg, president of the Savings and Community Bankers of America, predicted that the plan would go nowhere fast. The FDIC's conversion overhaul, "will kind of stay on hold until the two other nominees to the FDIC board have been seated."
'Political Outery' Foreseen
Mr. Ludwig's opposition to the plan is key because, "he is the only member of the FDIC board who has been appointed by the Clinton Administration," Mr. Schosberg said.
"At tremendous political outcry is going to be raised over this," Mr. Schosberg said. Thrift executives plan to raise the matter with their home state Congressional delegations, "in no uncertain terms," he said. Mr. Fiechter said that whatever rules are eventually adopted should share two key characteristics. First, "the standards for conversions should neither encourage nor discourage either form of ownership," he said. Secondly, the FDIC and the OTS should share the same set of rules.