S&L Premium To Stay High If Talks on Budget Fail

WASHINGTON - If politicians can't strike a deal on the budget by Jan. 1, thrifts will begin the year paying substantially higher insurance premiums than banks - exactly what the industry has been working all year to avoid.

But a key lawmaker said Wednesday that even if the hefty premiums are paid, thrifts can still get the money back.

"Dates can be made retroactive. It's inappropriate to panic at this time," House Banking Committee Chairman Jim Leach said in an interview.

But thrifts are already being undercut on rates by banks, which won an 83% reduction in August and received $1.5 billion in premium rebates.

If the budget stalemate drags on for three or four months, Paul A. Schosberg, president of America's Community Bankers, said the impact on thrifts would be severe.

"That's not a very appetizing prospect," he said Wednesday.

The thrift industry's hard-fought battle to arrange a rescue for the Savings Association Insurance Fund is tied up in the sweeping budget reconciliation bill.

Congress passed the bill last week, and President Clinton has vowed to veto it.

The plan to replenish the thrift fund would bring thrift deposit insurance premiums in line with bank rates. As of Jan. 1, the Federal Deposit Insurance Corp. will no longer assess premiums on most banks, while thrifts will continue to pay an average of 23 cents for every $100 of domestic deposits.

To raise $6 billion to rebuild their fund's reserves, thrifts will pay a one-time 80-basis-point assessment.

If Congress and the administration cannot come to terms before Christmas, the budget talks could drag on well into next year, sandbagging the thrift industry's hopes for a premium cut.

What's bad for thrifts could benefit banks, however. The bill requires banks to pay the bulk of the interest payments on long-term bonds used to finance the first thrift industry bailout. Those bond payments currently are funded by thrift premiums.

But if thrifts receive retroactive credit for premium payments after Jan. 1, banks may be asked to make retroactive bond payments too, said Kenneth Guenther, executive vice president of the Independent Bankers Association of America.

Mr. Guenther said it is too soon to react to Rep. Leach's plan. The Iowa Republican has not formalized his ideas yet, because it is unclear how the budget talks will play out, according to House Banking staffers.

Rep. Doug Bereuter, R-Neb., said if the budget talks continue into 1996, a retroactive credit for thrifts is possible. "There's no limit on that happening," he said.

Additionally, bank lobbyists are worried that Rep. Leach will try to attach an unpopular restriction on banks' insurance powers when Congress reconsiders the budget bill in the wake of a presidential veto.

Senate and House Banking aides have promised banking lobbyists terms of thrift fund rescue will not be altered, but Rep. Leach insisted the insurance restrictions could be added.

"It's unlikely, but all options remain open," he said.

The insurance restrictions are currently attached to Rep. Leach's Glass- Steagall repeal/regulatory relief bill. Bank industry opposition to the restrictions has stalled that bill. In October, Rep. Leach said he wanted to move those restrictions to another bill in order to eliminate opposition to Glass-Steagall repeal, which allows banks greater securities underwriting powers.

Separately on Wednesday, a group of bankers met with Rep. Leach and House Speaker Newt Gingrich to stress the need for financial modernization. Banks represented include Chase Manhattan, Banc One, First Union, Bank of America, and Morgan Guaranty.

If Rep. Leach tries to shift the insurance restrictions to the budget bill, banks and Democrats would oppose him vigorously. "The banking provisions are one of the few noncontroversial parts of budget bill," said Bruce F. Vento, D-Minn., a member of the House Banking Committee. "This just makes it more volatile. You don't solve problems by making them bigger."

Rep. Leach said he is hopeful the budget impasse will be solved before Christmas, because the economic and political costs of stalemate are too high.

"There are many spillover effects if we don't get an agreement," he said.

But Rep. Bereuter was more pessimistic. The budget reconciliation package may not even be completed next year because of the disagreements over deep cuts in Medicare and other social programs, he said. "There's more than just a matter of numbers; we're dealing with strongly held beliefs and ideology," the Nebraska Republican said.

If no budget reconciliation package is enacted, industry lobbyists said the thrift fund fix would likely be tackled in an independent bill. That would open the issue anew and likely lead to more industry in-fighting.

The American Bankers Association has vowed to fight the banks' obligation to cover the long-term bonds if the thrift fund fix is reopened, according to Edward L. Yingling, the group's top lobbyist.

In addition to the thrift fund rescue, the budget bill also eliminates the thrift industry's bad-debt-reserve tax deduction. But recapture of deductions taken before 1987 would not be required - a key step toward merging the bank and thrift charters.

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