Thrift executives are furiously lobbying Congress these days, pressing lawmakers to fix the hobbled Savings Association Insurance Fund. Among the most outspoken is William A. Cooper, chairman of TCF Financial Corp., a $7.5 billion-asset thrift holding company in Minneapolis.
Legislation to shore up the thrift fund was introduced this month by Rep. Bill McCollum, R-Fla. The bill would lighten the financial burden on thrifts by requiring banks to help pay off the bonds floated in 1987 to begin the first S&L bailout. It also would make the thrift fund's load lighter by using leftover Resolution Trust Corp. funds to pay for thrift failures.
Rep. McCollum has proposed combining the Comptroller of the Currency's office and the Office of Thrift Supervision, and once the thrift fund was fully capitalized, merging the thrift fund into the Bank Insurance Fund.
Finally, the legislation would require the Treasury Department to study how the bank and thrift charters could be unified.
On a recent trip to the nation's capital, Mr. Cooper stopped by the American Banker's Washington bureau to talk about what he thinks Congress should do.
Q.: How do you see the thrift fund rescue taking shape?
COOPER: I think the McCollum bill is a pretty good first step, but frankly that isn't the best solution.
Q.: How would you like to see the McCollum bill changed?
COOPER: The weakness in it, as I see it, is it doesn't combine the bank and thrift insurance funds immediately. It also doesn't define what the thrifts' premium would be in the interim until the thrift fund is fully funded. I would prefer Congress to recapitalize the fund with a one-time charge on thrifts and merge the funds and get the whole thing done.
The McCollum bill also doesn't resolve the tax issue. It just talks about coming up with a solution before the funds are merged.
Q.: Can you explain the tax issue?
COOPER: In the good old days when Congress was trying to encourage mortgage lending and thrifts, it set up a special tax-reduction plan based on the amount of mortgages you made. It was basically a credit to the taxes you had to pay. For accounting purposes, that was always treated as a permanent difference. However, if you flip to a bank charter, it does reverse.
Q.: What do you mean reverse?
COOPER: You have to pay all the taxes you saved. We were conscious of this problem a long time ago. Congress promised that it would be fixed in FIRREA, which is what makes me nervous now that they are promising to fix it again. But nobody knows how big that number is.
Q.: I was just going to ask, how big is that figure? It must be huge.
COOPER: It's big for some people and not big for others. I think it's a hard number to compute. I'm going to say that it's something bigger than a $20 million after-tax for us.
Q.: Would paying that much be a problem for TCF?
COOPER: We don't go broke if we have to pay it, but if I have to recapitalize the thrift fund and the law is reversed, it becomes a real shock. One of the solutions is, even if you flip your charter to a bank, as long as you continue to pass the qualified thrift lender test, you don't have to pay the tax.
Q.: Do you regard the QTL test as a burden?
COOPER: It's a pain in the neck, but it is not difficult to pass. It's another thing sitting on your charter basically that makes you less palatable in terms of the consolidation that's going on.
Nobody thinks it's worth anything. Who's trying to get people to book more mortgages today? There are enough people with mortgages now. Hell, it's hard to make any money in the mortgage business, period. I mean, everybody's in it, including General Motors.
QTL serves no purpose and there it sits. It's kind of an antique. It's on one of those little land mines that if you step on it the wrong way, you end up paying a lot of money.
Q.: What does happen if a thrift falls below the QTL?
COOPER: They pay the tax.
I heard somebody in government say, "Logic is for losers." And maybe it is, in the way the politics work. But the fact of the matter is that the thrift fund cannot survive as presently constituted. The laws of economics simply won't allow it.
If Congress does what it always does and decides to put this off, it will get worse. That's what created the thrift crisis in the first place.
What can happen if we put it off? Thrift deposits will shrink over time. A big California thrift goes in the tank. What's the reaction of the regulators? "Don't push it in the tank - we can't afford it."
Doesn't this sound familiar? This is what FSLIC did when they didn't have the money to fix their problem. The problem gets bigger until it's bigger than the fund.
So the time is here to fix the problem, and it's a question of whether it will get fixed incrementally or whether it will get fixed - bang. In my opinion, there is a good chance it will get fixed - bang - so they can put a fork in the thrift problem and it's over.
Q.: So your solution is a merger of the bank and thrift insurance funds?
COOPER: My solution is to have the thrift-fund-insured institutions come up with about $6 billion, about 80 basis points, to recapitalize the thrift fund at 1.25%. Pay the one-time hit, merge the funds, flip the charters, fix the tax.
No more thrift industry, no more problem. The truth of the matter is, in that scenario the premium probably goes to zero for everybody. Because if you take the $8 billion or some number like that, to move over from the thrift fund to the bank fund, one of the things that people don't realize is that the thrift fund, under that scenario, is a lot stronger than BIF. The bank fund contains a lot of old bank stuff in it. Junk assets. The thrift fund is all cash.
Q.: Can all thrifts afford such a large hit?
COOPER: There are only 60 thrifts in the whole country that don't pass capital if your recapitalize the thrift fund. I think the biggest one is $3 billion. It's not that big a problem. You can do some kind of a forbearance for those institutions.
COOPER: Call it something else. Don't use the "F word." Let them flunk and work it out.
Q.: Do other thrift executives agree with you?
COOPER: Probably the majority would. But there still are a lot of people who have a pipe dream that the RTC is going to put money into the thrift fund. Well, that's a pipe dream. It ain't gonna happen. People also think this is a negotiation, and it's not, because we haven't got anything to negotiate.
There is a solution in this thing that is good for the country and is necessary, but it isn't palatable to everybody. I talk to a lot of major institutions around the country and a lot of little ones. If you do a one- time charge, merge the funds, flip the charter, fix the tax, go to the same premiums for everybody, that scenario, that's O.K. with them.
Q.: So when do you think Congress might act?
COOPER: In my opinion, this thing is going to happen in the next few months or it's not going to happen. I think if the BIF premium is going to go down in September, I think that's when the political situation changes. How this thing works out is probably a lot different in that environment.