There is no shortage of solutions to what ails the thrift industry's insurance fund. While government officials struggle to come up with a plan, bankers, thrift executives, and others are weighing in.
What follows are eight reactions to the question: What should be done to prop up the undercapitalized thrift fund.
For the acronym-challenged, here's some help understanding the responses.
The thrift fund is called the Savings Association Insurance Fund or SAIF. The Bank Insurance Fund is BIF.
The RTC is the Resolution Trust Corp., the government agency created in 1989 to resolve failed thrifts. Slated to close in December, the RTC has not spent up to $14 billion authorized by Congress. Many people are advocating rebuilding SAIF with these unused funds. Congress fears, however, that such a move would be labeled another taxpayer bailout for thrifts.
In addition to being $6.6 billion shy of its target reserve level, SAIF is responsible for paying $780 million in interest on the Fico bonds every year until 2017. Fico stands for the Financing Corp., which floated about $8 billion in bonds to begin the thrift industry's cleanup in 1987.
The Federal Deposit Insurance Corp. also has ruled that premiums paid on SAIF deposits owned by banks may not be used to fund Fico. These deposits are called Oakar and Sasser deposits after the lawmakers who created the loopholes allowing banks to buy thrifts. KAREN SHAW President, ISD/Shaw Inc.
They should permit a merger of the two industries allowing banks all the powers in the thrift charter including immediate interstate branching, insurance powers, and Glass-Steagall repeal.
Then, Congress should merge the insurance funds and the industry's regulators. The difference between commercial banks and savings associations is increasingly artificial and irrelevant to consumers. It is a regulatory fiction that ought not to be reflected in the legal charter or deposit insurance fund. L. WILLIAM SEIDMAN FDIC chairman, 1985-91
The best solution involves using the excess RTC funding as it was originally intended, which is to provide reserves for the SAIF fund.
If that's done, there should be sufficient income with premiums to handle the Fico bond requirements.
This is pretty straightforward, pretty easy, and not likely to affect the federal budget because the funding SAIF would get would be put back in the Treasury. It would be a wash under federal budget standards.
The Fico payments would be made from the interest on reserves plus whatever additional amount might be needed from the premiums paid by those in the SAIF fund.
The government appropriated and promised, as part of the thrift cleanup, to fund SAIF. And the government reneged.
I think as Congress studies it and understands that they made a commitment and that this will not increase the deficit . . . there's a chance that this could go through. DAVID E.A. CARSON Chairman, America's Community Bankers
All insurance premiums should be lowered as much and as quickly as possible. While a merger of the funds is an appropriate solution, a merger would not be necessary if SAIF and BIF members would share the cost of meeting the Fico interest payment obligation on a pro rata basis, which amounts to roughly 2.5 basis points initially.
Excess RTC funds, at a minimum, should remain available in an amount sufficient to cover potential insurance fund losses at SAIF-insured institutions identified by their primary regulators as problem institutions as of Dec. 31, 1997.
SAIF members also could pay a premium differential of 5 basis points relative to BIF-insured institutions until the SAIF fund reaches the required reserve ratio.
Doing nothing to address the growing weakness in the SAIF fund will mean that SAIF reserves will reach their zenith in two to three years and then begin an inexorable decline to bankruptcy. REP. FLOYD FLAKE New York Democrat
You can't pretend that a problem doesn't exist. You have to assume the worst and then try to work out a procedure that everyone can feel is in the best interest of the overall financial industry.
You have several options. One, which is not appealing, would be to hit thrifts with a big assessment. That is not the most tenable alternative because it means that you lose a number of institutions.
Using RTC funds is totally unattractive. If you have to deal with making taxpayers pay again, that's an area you really want to avoid if at all possible. The other option becomes trying to create a mechanism that allows you to level the process, i.e., you would give some assessment to BIF institutions and a portion, probably greater, to SAIF institutions.
The average citizen does not make a distinction between insurance funds. If there is a problem in any part of that industry, it's a problem for the whole. HOWARD L. McMILLAN JR. President, American Bankers Association
We are not convinced that there is a crisis situation or even a problem that needs to be addressed immediately. The SAIF fund has $2 billion and another $400 million in reserves. It will probably grow $1 billion this year. There is about $65 billion in thrift capital, which is the first resort against losses.
Yes, there will be some competitive differences . . . But thrifts have had advantages over banks for years. I'm not all that concerned about this small competitive differential.
There is some concern about the FICO bonds. We think premiums paid on Oakar and Sasser deposits should be available to pay for FICO bonds. There is a simple technical correction that could fix that.
The big problem is one that the thrift industry itself is creating as these major thrifts try to set up parallel bank charters. If these charter changes are not allowed, there won't be a problem. Nobody will have to bail out anybody. MARGIE MULLER Maryland banking commissioner
If there are leftover funds when the RTC closes down, it seems to me that would be the least painful way to beef up SAIF and continue to pay off the FICO debt.
I think the fact that Congress has been reported as having used billions of dollars of U.S. money already to solve the crisis, I think most Americans are pretty well hardened to the fact that sometimes the government has to do that.
It's money that wasn't earmarked for anything else. It should be applied to the thrifts as a continuation of that assistance.
I also feel very strongly that I would hate to see a lot of large thrifts convert to banks. It just does in the industry as far as its insurance fund is concerned. If the big guys go, I don't think there is a enough clout to sustain the fewer smaller institutions.
I think the thrift industry serves a purpose and I think if it weren't there, we would have to invent it. RICHARD L. MOUNT President, IBAA
We have to recognize that there certainly is a problem with regard to the FICO bond issue. And I feel that that problem can be solved by making use of the excess RTC funds in a number ways. One is to invest those funds and use the interest to pay for the FICO bond interest. Number two, we should extend the time period that SAIF has to recapitalize. Number three, we very definitely should look at the Oakar-Sasser deposits, which would contribute roughly $190 million toward that $780 million obligation.
The two things that I would absolutely, vehemently oppose would be a merger of the funds and any money coming from the banking sector. EDWARD J. KANE Finance professor, Boston College
I can't remember a time when S&Ls were not pleading for sympathy. The higher premiums thrifts are facing are best understood as dividends being paid to taxpayers whose support saved the jobs of these shameless lobbyists by financing the recovery of their crippled industry. Because thrifts can avoid premiums, the government ought to tax profits earned by thrifts.
Far from showing gratitude to taxpayers, S&Ls are trying to weasel out of what was an extraordinarly generous deal in the first place.
Asumming Congress will not cave again, the banking agencies become the arena to watch. Regulators may solve the problem by facilitating transfers from S&L to bank charters. In the meantime, if the SAIF fund should become deeply insolvent, a merger of BIF and SAIF will loom like a statesman-like act that banks will be unable to block.
If the merger of funds results in a single financial services charter for retail deposit institutions, society would benefit.