Everyone appeared to be claiming victory yesterday after congressional conferees voted to deregulate the nation's banking industry.
While the measure approved late Wednesday night would boost interest rates for small savers, it also won praise from both banks and thrift institutions who will be able to compete against each other on more even terms in the years ahead.
Savings and loans would be allowed to tread into many of the domains reserved for and cherished by commercial banks, bringing their functions closer together. But the American Bankers Association said yesterday that it was pleased, so far, with the conferees' plan.
The measure also provides the Federal Reserve Board with more control over the nation's money supply by granting the board power to set reserve requirements for all banks, not just those that belong to the federal system.
The legislative proposal, which must be approved by the House and Senate, would:
Phase out interest rate controls on deposits at banks and thrift institutions with a target of raising the rate by 2.25 percentage points within the next six years. That would remove the current 5.5 percent ceiling on passbook interest rates that the measure's proponents said penalize small savers.
Remove state-imposed usury ceilings on mortgage interest rates. It also would remove usury ceilings on business and agricultural loans exceeding $25,000 for three years. States would have the right to reimpose mortgage ceilings.
Allow all banks as well as thrift institutions to have interest-bearing checking-type accounts.
Permit savings and loan institutions to invest up to 20 percent of their assets in consumer loans, commercial paper and corporate debt securities, as well as issue credit cards.
Increase from 1i percent to 15 percent the current ceiling on interest rates on loans made through credit unions, but the National Credit Union Administration would have the authority to raise the ceiling further.
The conferees' proposal relieves some pressure on the savings and loan and banking industries which in recent years have been losing deposits to more lucrative investments such as money-market funds which offer market-level interest rates.
The phase out of interest rate controls on deposits would take place within six years and would still allow savings and loans during the time, to offer interest rates 0.25 percent above those charged by banks. The differential was instituted long ago to give savings and loans an advantage in attracting funds to help them carry out their main function which is making home mortgage loans.
"That will give us time to put into place a broad set of new services which will help provide the funds that we need to increase interest rates for savers," said Edwin B. Brooks Jr., president of the U.S. League of Savings Associations.
Details for the phase-out program would be made by a five-member board consisting of the Treasury secretary and four other banking regulators.
The conferees, rather than legislating a phase-out plan, set targets to increase the ceilings 0.25 percentage point within the next 18 months, 0.5 point during the following 18 months and 0.5 point a year after that.
All thrift insitutions and credit unions would be permitted to offer interest-bearing checking-type accounts beginning Jan. 1. Those accounts are now only allowed in six New England states, New York and New Jersey.
The decision to override state usury laws relieves state legislature of the politically sensitive burden of allowing interest rates to rise to make more mortgage money available through lenders.
The usury ceiling would be eliminated permanently unless reinstated by state legislatures within three years. Ceilings would be abolished for business and agricultural loans exceeding $25,000 but that would last only three years unless state legislature decide to get rid of it themselves.
A major feature of the legislation would give more authority to the Federal Reserve which has complained that it has been powerless to stop the flight of banks from its membership. Many of the banks have left because of the Fed's reserve requirements which force them to put aside some of their funds as reserves which could be earning interest elsewhere. The measure is expected to help the Fed control monetary policy particularly during a time when it is trying to use its authority to fight inflation.
The conferees voted to set uniform reserve requirements for all banks and is expected to bring in about 8,900 nonmember banks under the Fed's control.
The measure would require banks to hold reserve equal to 3 percent of their first $25 million in deposits of checking-type accounts and 12 percent of those deposits exceeding $25 million.
The board would have the authority to modify rates on deposits above $25 million within a range of 8 percent and 14 percent. In addition, a 3 percent reserve requirement would be set on nonpersonal time deposits, usually large commercial accounts, and give the board the power to increase it up to 9 percent or eliminate it.
An added feature for the Fed would give it more control over monotary policy, but only under the most dire circumstances. The provision would require banks to maintain supplemental reserves equal to as much as 4 percent of all their checking-type deposits. Those additional reserves would earn interest at the same rate that the board receives on its investments.
The conferees also agreed to increase from $40,000 to $100,000 the amount of savings covered by federal insurance, place limits on the amount of bank stock foreigners can acquire until July 31, simplify certain truth-in-lending disclosure forms and allow savings and loans into the trust business.