'Constructed' Net Worth Plan Is Needed to Ease the Thrift Crisis

By Willax, Paul A. | American Banker, February 6, 1985 | Go to article overview

'Constructed' Net Worth Plan Is Needed to Ease the Thrift Crisis


Willax, Paul A., American Banker


"Constructed' Net Worth Plan Is Needed to Ease the Thrift Crisis

While many savings industry lenders have been heartened by the fact that interest rates are falling, others--like Chicken Little and I--are still worried that the sky is falling.

While dropping rates might offer a brief respite for some institutions, they are not going to solve the savings industry's long-lingering problems.

To the contrary, a problem generally tends to compound itself when attention that should be focused on its resolution is diverted by seemingly good news.

Falling rates threaten to lull a growing number of savings institution executives into a false sense of security, causing them to ease off in their efforts to press for a real, long-term, once-and-for-all solution to the industry's crisis.

The warm and fuzzy feeling that comes with short-term relief from long-term problems is a particularly frightening phenomenon. To borrow a odoriferous analogy, it's lot loke putting a tub over a skunk. You can sit on it for a while, but sooner or later, you have to figure out what to do in the way of a permanent solution.

More than anyone, savings industry thinkers should be painfully aware of the fact that when interest rates tire of dropping, they tend to go up--and, frequently, with a vengeance. As a consequence, we should be giving a lot of thought to what's going to happen when the tub is lifted.

It's pretty clear that the industry is far from ready to face the skunk. Only a very few have de-pewed themselves from the last encounter, and the little bugger could be a heck of a lot meaner than he was the last time.

Now is when we must look beyond the SPCA for more and better help from organizations like the FHLBB, FSLIC, FDIC, FRB, FASB, USL, and NCSI--not to mention Congress, which defies acronymation--for some real reformation before the skunk hits the fan again.

The leaders and thinkers in these organizations already have toiled long and hard to develop solutions to the thrift industry crisis. But, alas, an effective, enduring, and workable solution has eluded discovery.

No approach, no matter how ingenuous, has been universally acceptable to regulators, legislators, trade groups, and legal and accounting professionals, all of whom condition the condition of the industry.

Most surprising is the fact that, to date, no one has been been able to forge a consensus among the independent savings and loan associations and savings banks within the industry. Regrettably, these kinds of differences tend to arise and prevail when competitors see a chance to fatten their ox, while goring someone else's.

Unfortunately, while our industry "veterinarians' continue to debate the cure, patients continue to die. By trying to find a professionally proper panacea that pleases all, we run the risk of prompting a pandemic that could have devastating effects on our economy and our free-market, consumer-oriented, business system.

Our inability to field a workable remedy for the thrift's ills already has levied devastating consequences. More than one-fourth of an industry that took great pride in serving noncorporate savers and investors, and the communities they were building, already has disappeared.

Some managers of other institutions that have fought valiantly to hang on under impossible odds are being pushed, increasingly, to business strategies that are imprudent or unnecessarily risky, simply because there are no other alternatives open to them.

Savers' insurance funds are being depleted at an alarming rate. Competition has been reduced through mergers and consolidations, and the important "community banks' of this nation are being gobbled up or trampled down by a growing network of megabanks, nonbanks, near-banks, along with hardware stores and supermarkets that have decided to dabble in finance.

Panic legislation has emerged to "level a playing field' when no one can even describe the game being played. …

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