Government banking regulators yesterday declared their support for a five-year phase-out of interest rate ceilings and federal pre-emption of state treasury limits on mortgage rates.
Federal Reserve Governor Charles Partee told a House subcommittee that interest rates are rising so fast that the Senate's proposed 10-year deregulation plan, which the Fed previously had packed, would prove ineffective in providing relief for banks, thrift institutions and their customers.
At the same time, he urged that the Fed be enpowered to pace the deregulation process and reimpose controls after five years should emergencies arise, a provision the House version doesn't include.
Although he doesn't want the Fed alone to hold this power, Federal Deposit Insurance Corp. Chairman Irvine Sprague also backed the five-year plan. So did Comptroller of the Currency John Heimann and National Credit Union Administration member Harold Black. Jay Janis, chairman of the Federal Home Loan Bank Board, already had given his agreement.
Deregulation is a key element of massive banking reform legislation now coming down to the wire. Also included in the package are nationwide NOW (checking with interest) accounts, share drafts and membership of banks in the Federal Reserve system.
The legislation is designed to offer savers higher interest rates, in exchange for which thrift institutions would be allowed to improve their earning power by offering new services such as credit cards and consumer loans. Thrifts also want to make mortgage loans with changeable rates.
As for federal pre-emption of usuary laws -- a sensitive constitutional issue involving states' rights -- the regulators agreed it is necessary to keep mortgage money from drying up in some states. Heimann explained, "These (state) ceilings reduce the incentive to make certain types of loans and further distort the flow of funds by encouraging out-of-state investments. This injures the very people usury laws were intended to protect."
Partee favors a "floating ceiling" based on the rate for five-year government securities plus a premium, currently about 16 percent.