Two Key Senators Support Open-Bank Assistance Plan

Article excerpt

WASHINGTON - Two key members of the Senate Banking Committee endorsed on Wednesday's a controversial proposal to use deposit insurance funds for open-bank assistance.

The banking and savings and loan industries also threw their support behind the plan to merge weak institutions - those with capital ratios of 2% to 3% - with healthier ones, even if it amounts to using government funds to rescue some stock- and bondholders.

Sen. Try Sanford, D-N.C., and Sen. Christopher J. Dodd, D-Conn., said the early intervention proposal by T. Timothy Ryan, director of the Office of Thrift Supervision, is less costly to the government than waiting for banks and S&Ls to fail.

Creativity Called for

"The time has clearly come to try some bold, creative new approaches," Sen. Sanford told a packed hearing held by the Thrift Depositor Protection Oversight Board, which would have to approve the policy change.

"It is penny-wise and pound-foolish to reject early resolution out of hand," said Sen. Dodd.

The senators' support is important because, thus far, criticisms of the plan have been prevalent on Capitol Hill, especially among House Banking Committee members. One committee member testifying Wednesday, Rep. James A. Leach, R-Iowa characterized the plan as "social dynamite" and a "risky economic undertaking, with so many philosophical pitfalls."

Financial Groups Supportive

The U.S. League of Savings Institutions, Independent Bankers Association of Bank Holding Companies all said the early resolution plan would be a less costly way for regulators to deal with troubled institutions.

"This program could be effective and productive for all-sized financial institutions. …