WASHINGTON -- The Congressional Budget Office is warning that the Savings Association Insurance Fund may default on the bonds issued to pay for the thrift industry's cleanup.

In a memo to the House Banking Committee, the budget office flagged a potential funding "crisis," explaining that the Federal Deposit Insurance Corp. is limiting which monies the thrift fund may use to pay interest on the bonds.

The banking panel requested the budget office's input as it lays the groundwork for legislation that may be needed next year to head off a problem at the thrift fund. Committee Chairman Henry B. Gonzalez is concerned about the future of the thrift insurance fund, a committee staffer said Wednesday.

"This is going to be the major work of the committee next year," he said. "Our immediate job is to get underneath all of these guesstimates."

Thrift industry leaders have been campaigning for a merger of the insurance funds because the FDIC is expected to drop banks' rates next year while thrift premiums remain at record highs.

The budget office memo, dated Oct. 14, downplays the impending rate disparity, focusing instead on the FDIC's assertion that money flowing into the insurance fund from thrifts owned by banks may not be used to pay interest on the bonds.

In its "moderately pessimistic" scenario,-the budget office predicted these bank-owned deposits will comprise 50% of the thrift fund's base by 2001, making it impossible for the insurer to fund interest payments on the cleanup bonds the next year.

These bank-owned thrifts are called "Oakar banks" after Mary Rose Oakar, the former Ohio representative who sponsored an amendment to the 1989 thrift bailout law. Her provision gave banks buying thrifts a break on certain fees but required them to continue paying insurance premiums to the thrift fund.

The percent of the thrift fund's deposit base held by Oakar banks has grown steadily since 1989. At midyear, there were 652 Oakar banks holding $154 billion in deposits, or 22% of the base. Income from Oakar banks likewise is increasing. Last year, these banks ,paid $261 million to the thrift fund, up 66% from 1990.

"The fraction of the SAIF deposit base held by Oakar banks directly affects the fund's continued ability to cover FICO's interest payments," the budget office said. "Such a continued shift of the SAIF deposit base into Oakar banks could precipitate a 'FICO crisis.'"

Thrift insurance fund revenues are used to pay the interest on bonds issued by the Financing Corp., or FICO, to clean up the savings and loan crisis.

This is the first time FDIC's position on Oakar banks has been made public. Called about the memo Wednesday, FDIC officials said the agency is reviewing its policy.

"We're reviewing the reasoning behind that decision to see if that's still correct," said Valerie Best, an FDIC lawyer.

The FDIC originally staked out this position in 1992 in a letter to the General Accounting Office..The agency reasoned that FICO payments should be made by thrift insurance fund members and defined that to mean savings associations belonging to the fund. Such a definition excludes thrifts acquired by banks.

In its memo, the budget office laid out several other possible scenarios.

The most optimistic predicts the thrift fund will be recapitalized in 2004, or two years after the FDIC foresees it reaching the 1.25% ratio of reserves to insured deposits.

The budget office's "moderately pessimistic" forecast shows the thrift fund becoming insolvent by 1999 as failed thrifts produce losses of $1.5 billion a year and the deposit base shrinks 1% a year.

The House Banking Committee staffer said the panel has asked the budget office for more information.

"We've asked them to go back and give us a better understanding of their assumptions," he said.

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