William A. Cooper, chairman and chief executive of TCF Financial Corp., is pushing a sweeping plan to consolidate bank and thrift charters, regulators, and deposit insurance funds.
TCF, a $7.5 billion-asset federally chartered savings bank holding company, is based in Minneapolis, with 67 branches in Minnesota, 24 in Wisconsin, 29 in Illinois, 54 in Michigan, and five in Ohio.
Faced with paying five times more than banks for the government's backing, Mr. Cooper is shopping his plan among Washington policymakers. He answered some questions posed by the American Banker's Washington bureau.
Q.: Do we need thrifts?
COOPER: Those of us in the industry, and most other knowledgeable business people, know that there is no longer a reason to have a separate thrift charter. Home mortgage money is plentiful and cheap. Furthermore, regulations requiring a concentration of residential loans in a financial industry, thus mandating low returns and significant risk, are outdated.
Q.: But we needed them in the past?
COOPER: Congress originally created the thrift industry for the specific purpose of promoting home ownership by providing low-cost mortgages to the American public. To accomplish this goal, thrifts were required by law and regulation to concentrate their assets in home mortgages.
Thrifts were also given certain advantages; i.e., lower capital requirement, lower taxes, less stringent supervision, branching activities, etc. Eventually, our government expanded thrift powers in a vain attempt to make this fundamentally low-profit business more competitive.
Like most roads paved with good intentions, this led to a 15-year thrift crisis and huge losses to the taxpayers. Today, the vast majority of home mortgage lending is done by commercial banks, mortgage companies, and government agencies. The thrift industry now originates only about an estimated 25% of the home loan business.
Meanwhile, almost 25% of the Savings Association Insurance Fund's insured deposits are owned by commercial banks. Total thrift assets have shrunk from $1,283 billion to $773 billion in the last five years. There are now fewer than 1,500 thrifts left, and the number shrinks each quarter.
Q.: Is a crisis looming for the SAIF fund?
COOPER: Under present law, the commercial bank premium will soon fall to a fraction of the savings and loan premium. The primary cause of this premium difference is the requirement that SAIF pay off the money the government borrowed to bail out the customers of the failed thrifts. Current laws that mandate low profitability and high risk will be compounded by a law requiring higher cost of funds in the thrift industry.
As thrift deposits inevitably shrink, the premium on what is left will increase. Furthermore, under present law, premiums paid on bank-owned thrift deposits are not available to fund the Fico bonds. It should be clear to anyone who understands the law of economics that we are heading for another crisis in the FDIC fund.
It is time to end this thrift crisis saga: Government and the industry have bungled the problem time after time, at great cost to the taxpayers. The solution is simple: It is time to do away with the thrift industry.
Q.: What are the specifics of your proposal?
COOPER: First, I would eliminate the thrift charter and require all thrifts to convert to commercial banks. The tax law would have to be amended to permit the conversion of thrifts to commercial banks without a tax penalty.
I would charge a special one-time premium to all thrifts to bring SAIF to a fully funded status (1.25% of deposits). I estimate this special premium to be about 80 basis points, or about $6 billion. For my own company this would result in a one-time pretax charge of $42 million, which would be recaptured through future lower premiums.
Then I would merge the Office of Thrift Supervision into the Comptroller's office. This combination will result in significant savings. The Bank Insurance Fund and the fully funded SAIF fund should be merged. You could pay off the Fico bonds on schedule with an estimated 2-basis- point annual levy against all insured institutions.
Then, I would reduce the premiums for all FDIC-insured institutions. It is possible that the premium could even go to zero because of the earnings off the investments of the combined funds.
Last, I would amend the Bank Holding Company Act to permit activities for banks that are now permitted only for thrift holding companies.
Q.: Would any government money be needed?
COOPER: Under this proposal, no new government money would be needed. The new combined FDIC fund would be fully funded at unprecedented levels. Banks and thrifts would operate under one regulator and one set of regulations. Banking regulation and deregulation would be addressed for the entire industry, and a future deposit insurance crisis would be headed off.
Q.: Why is action needed now?
COOPER: It is time for the thrift industry, the banking industry, the regulators, and Congress to get together and do the right thing. Attempts to get a slight advantage for one industry or another will simply result in another crisis with further bad legislation for everyone.