There may be an absence of innovation and self-confidence in some of America's business community as the nation celebrates its 205th birthday.
But not in all sectors of the financial community, when it comes to finding ways of attracting your money. The tired practice of marching on Washington to get special benefits when business is bad has not died, to be sure. The savings and loan industry has proved that by trying to convince a free-enterprise administration and a submissive Congress to launch special tax-free, one-year savings accounts under a badly named All Savers Act.
The title of the proposed act is misleading, since all savers won't benefit.
The major beneficiaries would be persons in relatively high income brackets. The big loser would be the U.S. Treasury. There is no way of knowing if savings institutions really will benefit.
In contrast to this approach, look at what Government Services Savings and Loan of Bethesda is doing.
Like many firms in the savings industry, Government Services faces enormously complex financial difficulties. With assets of $350 million, the Bethesda institution is one of the largest S&Ls in Maryland. In the fiscal year ended March 31, the stockholder-owned institution posted a net loss of $2.3 million.
Faced with quarter after quarter of net losses and the prospect of more losses to come (but adequate reserves from previous operations to support losses for a long time), Government Services President Alex Boyle has been spending most of his waking hours in recent months trying to avoid the nightmare that could befall his institution if something isn't done to attract savings deposits.
Before settling on the proposed All Savers Act, financial industry leaders devoted much of their time to bitter complaints about how money market mutual funds have been able to attract so much money. In March and April, federally insured S&Ls suffered a $4.3 billion outflow of funds. The money market funds haven't been the inflation-war refuge of most small savers, however. Large institutional deposits have caused the money market assets to balloon to $127 billion in the week ended July 1.
Still, some small savers have moved into the money funds, and this is particularly true in a market such as Washington, where most residents have the benefit of relative affluence and where there is more investing per capita than in any other urban center.
So Boyle and his colleagues concluded that the best way to keep more Government Services funds from flowing to money market funds was to duplicate their earning power.
Starting last week, the Bethesda S&L became the first in the nation to offer an insured savings certificate with a yield based on the average yield of all major money market funds. This new account has a minimum denomination of $5,000 (with no limit on any amount over this base) and a guaranteed term of 91 days.
Government Services will base the yield each week on the prior week's average yield for the money market funds, as published in the press. The Donoghue Money Market Fund average, published in Washington Business, is one such index; last Wednesday, as reported in today's paper, the Donoghue seven-day-yield average was 16.73 percent. Thus the yield at Government Services this will be close to 17 percent.
"The money fund certificate is an exciting new concept . . . . We feel that the account offers the safety of an insured savings account [Maryland Savings-Share Insurance Corp., not federal insurance], the protection of a guaranteed yield for 91 days, and a return which is competitive with the money market funds," Boyle said.
Based on the first few days that the S&L offered this innovation, "we are optimistic that it will be successful in drawing funds back to the thrift industry from the money market funds," he added.
At this time, there could be a particularly attractive feature of the new Government Services certificate -- or a money market mutual fund investment, for that matter. Although the new world of interest rate volatility is evident practically every day, the general trend of interest rates is downward despite short-term ups and downs, such as the boost to 20 1/2 percent in the prime rate last week at some banks.
And money market fund yields will be behind the return on Treasury bills as those rates fall because, initially, portfolios of the funds become more valuable for the higher returns. Thus, as general rates head lower, the money fund yields will lag and decline later.
By having this account on the books, Government Services also is protecting its deposit base against the inevitable withdrawals that would take place as money market funds hold a temporary advantage because of the lagging rate decline characteristic.
The unique aspect of the Government Services offering is possible because of legislation enacted by the Maryland General Assembly last year. It ended a previous requirement that interest rates at state-chartered S&lS be pegged to federal rate ceilings. Officers of federally chartered S&Ls here are quite bitter about this freedom for Maryland S&lS. Or, as Boyle describes it, "suddenly we are at 1986 compared with federal S&Ls, in terms of deregulation, with a wide variety of new certificate options."
Earlier this year, a competitor of Boyle's in the Maryland suburbs sent similar shock waves through the local savings business by offering a negotiable order of withdrawal (NOW) account, basically interest on checking, with rates exceeding 16 percent.
Community Savings & Loan of Gaithersburg was able to do so because of the same Maryland laws. But federally chartered S&Ls are limited to interest rates of 5 1/4 percent on their NOW accounts, and most Maryland-chartered S&Ls have been paying up to 7 percent.
Also, to be fair, Boyle of Government Services is among enthusiastic supporters of the proposed All Savers Act. "A lot of people would deposit money at the S&Ls. It's a very helpful development since it will alow us to attract lower-cost funds," Boyle said of the proposed tax-free savings (which would provide a return of 70 percent of 52-week Treasury bill rates, allowing up to $1,000 in tax-free interest per saver, or $2,000 for a couple, over the life of the plan).
Boyle said if the proposal is enacted, he expects a lot of savers with money to invest $10,000 immediately. But he expressed concern that the legislation may end up being defeated. "I'm keeping my fingers crossed," he said.
Some other news about Government Savings, of interest more to investors than savers: The S&L is moving ahead with plans for a joint-venture development of its 95,000-square-foot headquarters site at Wisconsin and Bethesda avenues in downtown Bethesda. This transaction, which is expected to produce pretax profits of $6 million, should be closed in 60 to 90 days, Boyle stated.
Because of the continued uncertain outlook and the need to retain capital at this time, however, Government Services has abandoned the idea of distributing proceeds of the real estate transaction to stockholders under a tax-free transaction.
The S&L will retain an interest in the new building that will be constructed, and its headquarters will remain at that location. Grosvenor Properties Ltd., a private real estate firm with large holdings in the D.C. area, earlier was identified as the partner of Government Services in development of the site.
One final item: Boyle says his institution currently is not engaged in merger or consolidation discussions with any other financial institution