Now Is the Time for S&L Regulatory Reform

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Now is the time for S&L regulatory reform

Recent steps by the Federal Home Loan Bank Board to improve the regulation, supervision, examination, and accounting procedures of FSLIC-insured thrifts arrive in the wake of two decades of weak supervision and regulation. These efforts come much too late to help with the hundreds of thrifts that have gone--or are about to go--belly up.

The ABA's FSLIC Oversight Committee has released its second white paper, Savings and Loan Association Regulatory Reform: Action Recommendations and Historical Perspective. The latest effort focuses on reforms most needed in the regulation and supervision of thrifts.

The committee's first white paper--released last September (ABA BJ, November 1988, p.31)--presented a broad action plan for dealing with the current FSLIC crisis. The second report is more detailed, but the message is clear. Steps taken now to prevent a future crisis must include a commitment to adequate capitalization of FSLIC-insured thrifts and effective supervision by Congress, regulators, and the industry itself. Corrective action should be comprehensive--and it should be ongoing, including a regular reporting mechanism so the public and Congress will be kept fully informed.

Specific steps. These are the ABA committee's nine basic recommendations: (1) The Bank Board's statutory mandate should be revised to focus its attention solely on safety and soundness. Any languages in the law that appears to impose a "cheerleader" role on the FHLBB should be deleted. (2) Accountability for effective regulation and supervision of FSLIC-insured thrifts should be established. Specifically, the committee says: . The FHLBB should publish, and update, a three-year plan for strengthening regulation and supervision. . The Federal Financial Institutions Examination Council should establish quality-control standards and review mechanisms. . Congress should hold annual oversight hearings on the FHLBB's progress with its plan. . The Government Accounting Office should continue to test for compliance with statutory requirements and good management and accounting standards. (3) Supervision and examination of FSLIC-insured thrifts should be integrated. …