Fearing financial reform will dilute their charter, thrift executives are asking Congress to slow down and simply merge the deposit insurance funds this year.

However, that would require lawmakers to renege on a deal they made last year to gain bankers' support of the Savings Association Insurance Fund rescue. In return for their financial help, bankers insisted that a new industry charter be created before the thrift fund could be merged into the Bank Insurance Fund.

On Tuesday, the president of the main trade group for thrifts said Congress should merge the funds quickly to eliminate taxpayers' risks.

"We don't know how long the charter modernization debate will last or how it will play out," Paul A. Schosberg of America's Community Bankers said at the group's annual government affairs conference. "But we should merge the funds and take the last step in resolving the problems of the thrift industry."

The savings association fund is considered risky by industry experts because it is dominated by a handful of large West Coast institutions.

Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America, predicted the thrift group's attempt to reverse the fund merger agreement will fail. "It appears Mr. Schosberg wants to have his cake and eat it too," he said.

American Bankers Association chief lobbyist Edward L. Yingling agreed. "Congress and the banking industry reached agreement last year and put a lot of money on the table," he said. "I don't think many members of Congress would consider it appropriate to back out."

Indeed, House Banking Committee Chairman Jim Leach told ACB later in the day that a merger of the funds must be linked to charter reform. "It would be inconceivable from a congressional perspective to have one without the other," the Iowa Republican said.

Charter reform is one piece of the broader financial modernization legislation now being debated. Banks are hoping it will produce a charter with new authority to enter insurance and securities businesses. But thrifts worry "reform" will limit their powers.

Separate financial reform bills introduced by Rep. Leach and Rep. Marge Roukema would force thrifts to divest of many businesses.

"The bottom line is ACB can't support the Leach and Roukema bills because they eliminate the thrift charter without protecting thrift powers," said Manuel J. Mehos, chief executive officer of Coastal Banc, a state savings bank in Houston.

America's Community Bankers supports the financial reform bills sponsored by Senate Banking Committee Chairman Alfonse M. D'Amato and Rep. Richard Baker because they would remove most barriers between banks and non-financial firms.

In his speech to the thrift group's members, Rep. Leach warned that proposals to mix banking and commerce could derail financial modernization legislation. "A lot of opposition will immediately develop if that is put on the table," he said, adding that the public does not want banks to own nonfinancial firms.

In an interview, Rep. Leach explained how he would mix banking and commerce could be mixed. He said so-called investment holding companies could be created, and allowed to own commercial firms and uninsured wholesale financial institutions.

The investment holding company's commercial activities would be restricted to 7.5% of its risk-based capital, he said. The uninsured bank, known as a "woofie," would be able to accept only its greater than $100,000. It would have access to the payment system and be regulated by the Federal Reserve.

While unable to buy non-financial firms, Rep. Leach said bank holding company subsidiaries would be allowed to enter the merchant banking business.

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