State-Thrift Regulation Battle Shifts to Congress: Legislation Introduced by Bank Board Would Curtail a Wide Range of State-Granted Powers
Easton, Nina, American Banker
WASHINGTON -- For more than a year, Frederal Home Loan Bank Board Chairman Edwin J. Gray has sought to rein in high-flying state-chartered thrifts with regulations that restrict the activities of all federally insured savings and loans.
And for more than a year, state thrifts and their regulators have leveled complaints at Mr. Gray, in some cases threatening to go to court.
Now the front in that battle is shifting to Congress -- and picking up in intensity.
On May 3, the Bank Board sent to Congress legislation that would bar state-chartered federally insured thrifts from any activity not open to federal institutions. If passed, the legislation would substantially curtail a wide range of powers, such as real estate and commercial lending, that numerous states have granted their thrifts, industry analysts say.
The proposed legislation also would require the Federal Savings and Loan Insurance Corp. to reject a thrift's application for federal insurance if there is not showing of "community need." Since the collapse of Ohio's private insurance fund earlier this year, a number of privately insured thrifts have applied to the FSLIC for federal insurance.
To many state thrifts and their regulators this bill smacks of federal bullying. But congressional sources say that Mr. Gray -- who has made protection of his dwindling insurance fund a top priority -- is likely to attract a solid core of supporters for his proposal on Capitol Hill.
Rep. Richard Lehmna, D-Calif., a member of the House Banking Committee, said the legislation will draw support even from Texas and California, where state thrifts have a much wider range of powers than federal institutions. "You can make states rights an issue, but you're also forcing the federal government to insure these thrifts," said Mr. Lehman. "And you want to insure sound institutions that are making sound investments."
Mr. Lehman was in California's Legislature when it passed some of the most liberal thrift laws in the country. In California, where nearly one-quarter of all S&L assets are located, state thrifts now may invest up to 100% of their assets in service corporations that can move into businesses not traditionally open to thrifts.
"That was done because the industry was in a very difficult crisis," Mr. Lehman said. "But now it's gone a little too far. Some of the new S&Ls are really developers."
Rep. Buddy Roemer, D-La., another member of the House Banking Committee, said he has not taken a position on the legislation, but noted that "there is a genuine feeling out there that the S&L industry has both fundamental and high interest rate problems."
Risky Ventures Cause Drain on FSLIC
Mr. Roemer said that the drain on the federal insurance fund caused by failed thrifts, many of which had engaged in risky ventures, is yielding a Congress more sympathetic to Mr. Gray's concerns. "You've got two principles running head to head," he noted, "how to avoid putting the national taxpayers at risk, and the desire to give states flexibility. …