The Federal Home Loan Bank Board, which regulates the nation's savings and loan industry, today is scheduled to propose formally that District-based S&Ls be permitted to branch into the Maryland or Virginia suburbs.
The proposal, which would mark the first time since the 1930s that branching would be allowed across state lines, is expected to produce a storm of protest from suburban savings and loan leaders.
In addition, if D.C.-based savings associations are permitted to begin suburban branching, there will be renewed pressure from the city's banking industry for legislation to permit them to branch, too, since S&Ls are growing competitors for a variety of financial services.
But the bank board, which has the proposal on its agenda for a meeting scheduled this morning, is expected to emphasize that the suggested relaxation on branching rules would apply only to the metropolitan Washington area.
Officers of District-based S&Ls and banks long have argued that they suffer from a disadvantage that is unique in the nation -- an inability to locate offices where the bulk of the population lives. But suburban S&L opposition is expected to create a controversy "hotter than a firecracker" for the bank board, one S&L officer said.
Although there are other cities where financial institutions cannot serve large populations in their mar ket across state lines -- metropolitan New York, St. Louis, Kansas City and Cincinnati are examples -- S&Ls in such areas may branch within their home state, which means they are not confined within city limits.
In the case of the District, S&Ls are restricted to doing business in only 26 square miles of privately owned land. The only exceptions are Perpetual Federal S&L, National Permanent Federal S & L and Guardian Federal -- which had branches in D.C. and Maryland before the new restrictions were applied.
Bank Board Chairman Robert H. McKinney conceded yesterday that a decision to permit branching here would represent a "major, major departure" from past policy, which has been to respect state prohibitions on branching by a savings association not based in the state.
McKinney said the board is expected to announce today that it will seek public comments on the proposal from Capitol Hill, the thrift industry and the public in general before making a final decision. He indicated that other members of the board support the initiative, which also would permit suburban-based S&Ls to open D.C. offices.
Informed sources said the bank board proposal would emphasize that a major factor in the decision to modify branching laws here would be the Carter administration's mandate to the savings and loan industry to provide additional mortgage money for rebuilding the nation's inner cities.
Since most area residents live in the suburbs, savings deposits at suburban S&Ls have been growing at a much more rapid rate than in the city. The S&Ls are the nation's principal source of home mortgage money and a decline in D.C. S&L resources means that fewer mortgages can be made on city properties.
According to a recent study by Michael Sumichrast, chief economist for the National Association of Home Builders, and Maury Seldin, professor of real estate and urban development at American University:
Construction spending in D. C. will grow substantially in the next two decades with the city's share of overall metropolitan building edging higher. Because of restrictions on branching into the suburbs, however, city-based S&Ls could experience a shortage of $400 million a year in mortgage money within five years.
New savings deposits in suburban S&Ls are outstripping inner city deposits by more than four to one, duplicating a national trend. In 11 of 12 cities studied, savings have been growing much faster in suburbs than central cities.
In the past decade, more than 130 new S&L locations were established in the D. C. suburbs while 33 offices were located in the city -- the lowest ratio of central city to suburban openings of the 12 cities surveyed.
Sumichrast and Seldin prepared their study at the request of Perpetual Federal, the area's largest thrift institution, which has been pushing the bank board to relax branching policies.
Last year. Perpetual filed an application to open an office at the new Lakeforest Mall in Gaithersburg -- and Perpetual's action was treated as a "hot potato" by regional Bank Board officials in Atlanta. The board officials thought they could not even accept Perpetual's bid as a formal application since it was in violation of policy.
Earlier, Columbia Federal of Washington had asked for permission to open a branch at Montgomery Mall. That petition, now more than three years old, never was acted upon, although hearings were held.
Ironically, even though Columbia has been unable to branch into the Maryland suburbs, a Baltimore-based competitor -- Baltimore Federal -- took the Montgomery Mall space. Baltimore S&Ls may enter the Washington metropolitan market freely under branches within 100 miles of the home office.
Thomas J. Owen, president of Perpetual, said in an interview last November that the Washington area is "so unique, action here could not be seen as a precedent" for relaxing branching regulations in other areas.
"Perpetual has played an important role in the suburban area's development, and its customers in the area are entitled to the conveniences that we now propose." Owen said in submitting his initial application.
With assets exceeding $1 billion, Perpetual is the 56th largest S&L in the nation. It has four Maryland offices that were open before the branching restrictions were imposed. Two major regional competitors with assets at about the same level -- Loyola Federal and Baltimore Federal, both based in Baltimore -- are branching into the D.C. suburbs.
Although these large institutions may not oppose interstate branching here, smaller S&Ls based in the suburbs have been opposed.
T. Hammond Welsh Jr., president of Maryland Federal, has said he will be among opponents to any change in "longstanding policy." Welsh does not oppose new competition from such institutions as Loyola Federal because they are "Maryland-oriented."
Although based in D.C., more than half of Perpetual's deposits come from the S&L's 90,000 Maryland customers, Owen noted.
Vincent C. Burke Jr., chairman of Riggs National Bank, the largest in the area. said yesterday he would welcome any bank board move to permit suburban branches. "It makes sense that the market area includes that (suburban offices) for all financial institutions... It's a healthy development."
Noting that banking laws would have to be changed to permit banks to follow S&Ls to the suburbs, if the Bank Board proposal is approved, Burke forecast that "de facto actions will dictate solutions" to the problem created by the D.C. border. He cited electronic transfers of money as one development speeding up moves toward regional banking.