A legislative proposal that would authorize emergency assistance for troubled financial institutions failed to win solid backing yesterday from representatives of banking and thrift trade groups.
While some trade group representatives said they could support the legislation in a slightly different form, others flatly rejected the package, contending it won't cure the problems faced by financial institutions.
A House Banking subcommittee began hearings on the emergency measure yesterday, hoping for quick passage of a temporary measure that would broaden the authority of regulators to aid problem institutions.
The bill, which was introduced by House Banking Committee Chairman Fernand St Germain (D-R.I.), would expire Dec. 31, 1982.
Although the bill has bipartisan support within the committee, one member, Rep. Frank Annunzio (D- Ill.), served notice he and possibly the entire Illinois delegation would oppose it.
Annunzio cited strong opposition from constituents and said the bill won't lower interest rates or build more homes.
A key and controversial section of the measure would authorize interstate and cross-industry mergers and acquisitions to save failing financial institutions.
"I don't see any overnight emergency that would require passage of this bill," declared William B. O'Connell, executive vice president of the U.S. League of Savings Associations.
Despite serious problems among the more than 4,000 savings and loan associations that are members of the U.S. League, O'Connell told the subcommitee: "We do not understand why it is necessary that savings and loan associations are in this bill."
O'Connell maintained that the Federal Home Loan Bank Board, which regulates the nation's thrifts, and the Federal Savings and Loan Insurance Corp. have recently demonstrated an ability to deal with problem situations.
The biggest problem facing financial institutions is interest rates, said Sidney A. Bailey, vice president of the Conference of State Bank Supervisors.
"I don't see anything in the bill to address that problem," observed Bailey, who is also commissioner of financial institutions in Virginia.
Bailey said the bill is "fundamentally flawed" in several respects.
He said the provision for cross-industry acquisitions by bank holding companies of failing institutions should be eliminated. Besides reducing state authority, he continued, cross-industry acquisition "threatens to upset competitive balances by granting to a few acquiring institutions the power to engage in activities denied like institutions."
Although the National Association of Mutual Savings Banks is concerned that the bill might lead to forced mergers, the organization is troubled more by the measure's expiration date, said its president, Saul B. Klaman.
Klaman added, however, that the bill would be more acceptable if it provided for acquisitions along intrastate and intra-industry lines.
In addition to being drawn too broadly, the bill opens the door for bank holding company takeovers of failing institutions, regardless of size, complained Robert L. McCormick Jr., first vice president of the Independent Bankers Association.
While the American Bankers Association doesn't oppose the bill, it wants all possibilities for intrastate mergers and acquisitions to be exhausted prior to any consideration of the interstate alternative, said Emily H. Womach of the ABA's government relations council.
Womach, who is also chairman of Women's National Bank of Washington, said the ABA prefers mergers or acquisitions of institutions in contiguous states rather than on a nationwide basis.