S&ls Want Laws Allowing Shifts to Savings Banks

By Wayne, Leslie | THE JOURNAL RECORD, November 1, 1990 | Go to article overview

S&ls Want Laws Allowing Shifts to Savings Banks


Wayne, Leslie, THE JOURNAL RECORD


By Leslie Wayne From New Jersey to Texas to California, savings and loan institutions are trying to get state laws enacted that would allow them to convert into savings banks.

Federal regulators say this is an attempt to evade strict new federal rules - laws that the savings institutions say are so onerous they can no longer do business under them.

The battle is being played out in state legislatures and in Congress, where a bill has been introduced to halt these ``charter flips.''

Three states - Illinois, Indiana and Louisiana - have enacted measures to permit the conversions and at least a dozen other states are considering similar action.

In addition, such flips have been taking place in four other states, including New York, where current laws permit the change.

``These efforts are blatant attempts to evade the reforms enacted by Congress,'' said Timothy Ryan, director of the Office of Thrift Supervision, which regulates savings and loans.

``I am greatly disturbed by the growing phenomenon of S&Ls attempting to circumvent the requirements of Congress simply by changing the form of their charter to become state savings banks.''

Ryan said he fears that switching from a savings and loan charter to a state savings bank charter will give these institutions the same freedoms that led to abuses and to the federal bailout of the savings and loan industry.

These include the ability to own interests in real estate projects, to buy risky ``junk bonds'' and to lend large amounts to a single borrower.

Savings banks can engage in such practices, which were prohibited for savings and loans by the 1989 bailout law.

Whether state or federally chartered, all savings and loans are regulated by Ryan's agency and must follow the federal requirements.

Savings banks, which trace their origins back over a century or more, have historically been similar to savings and loans in size and in mission. Both are community-based lenders, taking local deposits and primarily lending for homes and small businesses.

They differ from commercial banks, which are generally larger and lend to big business.

While savings and loan associations exist across the country, savings banks, which have about 9 percent of the total banking market, are found in only 16 states and are most prevalent in the Northeast.

For their part, savings and loan executives say they are not trying to evade legislative reforms - only to avoid dealing with Ryan's agency.

They say that the thrift office's heavy assessments make it hard for them to earn a profit and that the office represents a third and unnecessary layer of regulation.

They already come under scrutiny from state regulators and Federal Deposit Insurance Corp., which administers the insurance fund that protects all depositors.

Besides, these savings and loans say, the thrift office was created in response to institutions that went awry in the 1980s - and that they did not. They contend that Ryan's attack on their conversion effort is motivated by a desire to protect his office at their expense, a charge he denies.

``This is not an attempt to convert to savings banks to do an end run around anything,'' said Alan S. Kaplinsky, an attorney with Wolf, Block, Schorr & Solis-Cohen, a Philadelphia firm that represents several Pennsylvania savings and loans.

``What's driving this train is a desire to avoid unnecessary and duplicative regulations. My clients feel the assessments are extremely high, very expensive and unnecessary. It's like throwing good money out the window.''

Ryan has also been opposed by L. William Seidman, the chairman of FDIC, who has a strong following in Congress. In a letter to the Senate Banking Committee, Seidman opposed a bill to halt charter flips and said the motivation of those seeking to convert was to avoid ``very costly, non-competitive'' assessments rather than to circumvent the law.

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