Should the savings and loan industry continue to exist? Does it serve a useful function? Can it ever recover from the cataclysm of the 1980s?

The answer to all three questions is no, according to a report issued recently by the National Commission on Financial Institutions Reform, Recovery, and Enforcement.

The report, released after nearly two years of work, says one sure way to prevent another S&L disaster would be to simply do away with the industry.

It recommends forcing all thrifts to convert to commercial bank charters and suggests that all federally insured institutions come under federal rules that would supersede any state regulations. The Federal Deposit Insurance Corp. would be the sole agency charged with chartering, insuring, and regulating insured institutions.

This isn't the first time the destruction of the thrift industry has been proposed. Many have said that the secondary market and mortgage banking render savings and loans useless. The S&L disaster of the 1980s is frequently held up as proof that the industry is corrupt and hollow.

Vital Contribution

But defenders of the industry say killing S&L's is not the answer. They argue that community-based mortgage lending still provides services and loan products that no one else will. As such, the thrift industry still has a vital role to play in the country's housing finance system.

"Having a group of financial institutions interested in serving the residential real estate markets is in the national interest," said John F. Maher, president of Great Western Financial Corp., Chatsworth, Calif.

Mr. Maher asserts that thrifts, as portfolio lenders, are important because they make nonperforming loans that the secondary market would never touch. The thrift industry "has an appetite to be in the market no matter what the market conditions."

Joe Ferguson, president of Stephens Federal Savings and Loan in Toccoa, Ga., said the consolidation in the thrift industry had produced a large majority of community-focused savings and loans.

He said these institutions will continue to survive because they, serve a niche the secondary market cannot. "Until everybody is banking at Citicorp or Bank of America, there's always going to be a need for community bankers."

Darlene Dolzani, chief executive at Schuylkill Savings and Loan Association in Schuylkill Haven, Pa., said people would continue to seek out small thrifts for the service they provide.

"People come to me for loans when they've been jockeyed around by the big banks," she said. Paul A. Schosberg, president of Savings and Community Bankers of America said the industry is still important for many of the same reasons.

"They have strong capital, good management, and they subscribe to a value system supported by the American people," he said. "If you could |do something' about the 2,000 thrifts you'd just have to reinvent them."

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