Commercial Banks Prove Clear Winners in S&l Rescue Plan

Article excerpt

Commercial bankers may not want to gloat about it, but they may well turn out to be clear winners in the government's rescue plan for the savings and loan industry.

After months of worrying that they would be asked to pay for the bailout of hundreds of troubled savings institutions, commercial bankers were relieved to learn that the rescue plan leaves them largely unscathed financially and in a good position to expand.

``Looking ahead a couple of years, the government's plan is a big plus,'' said Thomas Hanley, chief banking analyst at Salomon Brothers, a securities firm. ``The banks should gain a greater share of the consumer market and become more and more interested in buying healthy thrifts.''

Key aspects of the plan would impose the same financial standards on savings units as on banks in two years.

It would also remove obstacles to purchases by banking companies of insolvent savings units, and after two years would allow the purchase of healthy institutions as well.

Other parts of the plan require banks to increase the deposit insurance premiums paid to the healthy Federal Deposit Insurance Corp., which still has $16.3 billion in its fund, but would keep that fund separate from the insolvent Federal Savings & Loan Insurance Corp.

Robert H. Smith, president of Security Pacific National Bank, in Los Angeles, said the plan ``answers a long-term concern we have had about a level playing field'' for banks and savings units.

By imposing the same standards on the two groups, he said, neither one would have an unfair opportunity to grow.

In the case of the savings industry, rapid growth in the last decade was accomplished by lending on real estate projects that have lost value.

``The lending limits imposed by capital standards will make for a more rational financial market with better judgment,'' Smith said.

Besides the 350 insolvent institutions over which federal regulators expect to assume control, analysts said the plan would put pressure on hundreds of other savings units to find healthy merger partners.

The impetus for mergers may come if regulators enforce a proposed rule that savings units meet the same capital standards as banks within two years. The capital is there as a cushion to carry companies through lean times.

The bank capital standards are so far beyond the reach of many savings units ``that you have a situation where unhealthy but not yet insolvent thrifts will have no choice but to either reduce their size dramatically or else be merged,'' said Walter G. Jewett, senior vice president at Booz, Allen & Hamilton, a management consulting firm.

Booz, Allen recently estimated that an additional 1,000 institutions with assets totaling $400 billion were so weak that they could easily become insolvent if interest rates rose a few percentage points or the economy entered a recession. …

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