RTC Claims The OTS Overcharges Failed S&Ls
WASHINGTON - The Resolution Trust Corp. has accused the Office of Thrift Supervision of compounding the cost of the thrift bailout by charging failed thrifts too much for supervision.
The RTC may seek repayment of up to $8 million of regulatory fees collected over the past nine months. The OTS is defending its assessment policy and refusing to make the refunds, setting off an interagency squabble that shows no sign of being resolved.
The RTC, the two-year-old agency managing the thrift bailout, bases its position on a report by John Adair, its inspector general. The American Banker obtained a copy of the report, dated June 14, under the Freedom of Information Act.
A 50% Premium Charged
The report focuses on the supervisory fees that OTS charges troubled thrifts, including those that failed and moved into RTC conservatorship. These institutions pay a 50% premium on top of the standard OTS assessment, which is designed to cover its higher supervisory costs.
Mr. Adair concluded that the extra assessment on RTC-held thrifts actually comes out of taxpayers' pockets, amounting to an illegal subsidy of the Office of Thrift Supervision.
The $8 million sought by the RTC represents the 50% supervisory premiums that thrifts in conservatorship have paid since October 1990. While the amount is dwarfed by the anticipated bailout bill of hundreds of billions of dollars, it has created a stalemate between the bailout agency and the thrift regulator.
Strongly disputing Mr. Adair's charges, the OTS is balking at the payback proposal because it would have to levy extra, retroactive assessments on the remaining private-sector thrifts to correct the budget shortfall that would result.
One interpretation of Mr. Adair's report is that the OTS, despite vigorous efforts to trim its costs of regulating a shrinking industry, may not be charging healthy institutions enough.
"It seems OTS still prefers going after taxpayer dollars to cutting its own costs," said James R. Barth, an Auburn University finance professor who was OTS chief economist until 1989. "To me, it's inappropriate."
Proposal to Merge Agencies
To quiet protests of executives in the troubled industry, proposals have been floated to merge the OTS with the Office of the Comptroller of the Currency. Both are currently part of the Treasury Department. But the plans appear to have stalled in Congress.
An OTS official, asking not to be identified, said higher supervision fees are justified because thrifts now in conservatorship required intensive oversight before being transferred to the RTC. Continued collection of fees is appropriate, the official said, because assessments inevitably lag behind the agency's actual costs in overseeing thrifts that eventually landed in the RTC.
"The alternative would be to recoup our costs with a huge premium before thrifts go into the RTC," the OTS official said. "That's a little hard to swallow."
The RTC contends that thrifts in conservatorship need and get only light supervision from the OTS. The RTC maintains that the OTS's costs for supervising these thrifts is significantly less than the OTS is charging them.
"Conservatorships are under close government control through RTC, and as such, require less attention from OTS than other savings associations," the Adair report said. "We believe that it is not appropriate for the taxpayers, through increased costs incurred by conservatorships, to be funding an agency which [Congress] intended to be funded by nontaxpayer sources."
"We're talking about some serious money here," said Mr. Adair The amount in dispute, currently $6 million to $8 million, will rise as more troubled thrifts are seized, he said.
"The OTS has to fund itself through assessments," Mr. Adair said. "They're not likely to want to part with that money."
The RTC is not disputing whether the OTS should examine the institutions, Mr. Adair said. The question is, Why charge the premium rate when there's in fact less work involved?
James Grohl, a spokesman for the U.S. League of Savings Institutions, said the RTC report raises more questions than it answers.
It is not clear, for instance, whether thrifts in conservatorship could get by with less OTS supervision.
"Management by the RTC isn't synonymous with supervision," Mr. Grohl said. "We certainly don't look forward to any prospect of having our premiums raised further."