Shackleford Says Lender Test For Thrifts Increases Risks

Donald Shackelford, chairman of the U.S. League of Savings Institutions, doesn't see banks or thrifts when he looks into his crystal ball. Mr. Shackelford, who is also chairman of State Savings Bank in Columbus, Ohio, sees financial service organizations. The future, however, depends on Congress' excising some of the punitive features of the 1989 savings and loan bailout bill. Mr. Shackelford tells Washington bureau chief Jim McTague he thinks Congress is finally in a forgiving mood.

American Banker: Don't you believe that Congress' intent in 1989 was to dismantle the S&L industry over time? Don Shackelford: I don't think that's what happening. Some people think that if some institutions can make it in the existing structure, well that's fine; and those that can't make it will fail.

AB: So the S&L industry won't be swallowed up by banks? DS: We do need shrinkage to a reasonable capital base. The Office of Thrift Supervision sees a residual of 1,700 S&Ls. One also could see between 1,000 and 1,200. A more logical dichotomy is to have a single financial industry made up of large organizations in international trade and consumer institutions focused on housing.

AB: How would the laws have to change to get there? DS: One problem is the existing Qualified Thrift Lender Test [which requires S&Ls to keep 70% of their assets in housing related investments]. It's not sound public policy to be 70% in all markets. Housing finance is a cyclical business, which means there are times when you can't seem to make enough loans and times when there are far too many loans.

AB: What do you think of the bank reform bill in Congress? DS: They're not attacking "too big to fail" in any meaningful way. That will make depositors more nervous.

AB: Are you getting frustrated by this seemingly never-ending reform process? DS: I don't feel like the guy in "Old Man River" who gets weary. They are doing a lot of things [on the Hill] that seem driven to no particular improvement. One big notion is that the U.S. has overcapacity in banking and that the answer is consolidation. I would question if that's a real reduction in overcapacity.

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