Reopening an interagency policy dispute, the Federal Deposit Insurance Corp. has given the go-ahead for the conversion and sale of a Pennsylvania mutual thrift.

The FDIC board voted 3-1 last week to allow the mutual-to-stock conversion of Wilbur Savings Bank, Bethlehem, Pa., and its immediate acquisition by Ambassador Bank of the Commonwealth in nearby Allentown, Pa.

The lone dissenter on the FDIC board was Nicolas P. Retsinas, director of the Office of Thrift Supervision.

The FDIC and OTS have been at odds for several years over rules for these so-called "merger conversions," which are controversial because depositors receive no shares in their converted thrift but instead are offered discounted stock in the buyer.

Lawmakers objected to these transactions in 1993 because they thought buyers were getting thrifts virtually for free and insiders were taking large bonuses at the expense of the depositors. Congress pressured the OTS and FDIC to adopt stricter rules, which were supposed to be identical but are not.

The OTS prohibits merger conversions by thrifts it supervises but will consider exceptions for institutions with less than $25 million of assets that cannot afford a standard conversion. The FDIC does not bar merger conversions, but discourages all but small institutions from applying.

Wilbur, which has $18.1 million of assets, cannot afford to offer checking accounts and commercial loans without a merger conversion, said its chairman Milton B. Riskin.

After OTS officials said they would reject Wilbur's merger conversion because Ambassador appeared to be getting a steal, Wilbur switched charters from a savings association overseen by the OTS to a savings bank supervised by the FDIC.

"We felt it was our best opportunity to look at a merger conversion going through the FDIC," said David M. Lobach, Ambassador's chief operating officer.

FDIC officials said they concluded Wilbur is properly valued, and that depositors are being treated fairly. "It was not in the FDIC's view an abusive transaction," said Jesse G. Snyder, assistant director of supervision.

The FDIC's decision is contingent on approval by a majority of eligible voters from Wilbur. A majority of Ambassador stockholders have to approve the transaction, too. The Federal Reserve Bank of Philadelphia and Pennsylvania regulators have also cleared the deal pending these votes, which are scheduled for Sept. 15.

Wilbur's is only the second merger conversion approved by the FDIC out of 10 applications filed since early 1994, while OTS has approved none.

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