Federal regulators reportedly are planning an end run around Congress to give troubled savings and loan associations broader functions.
The Federal Home Loan Bank Board is expected to propose regulations next week enabling S&Ls to offer customers mutual funds--including money market funds--make commercial loans, invest in real estate and lease equipment through service corporations or subsidiaries. With the exception of real estate, these same asset powers are contained in a bill now stalled in the Senate Banking Committee because it is so controversial.
The bank board declined comment on the substance or the timing of the regulations. However, at a meeting of state savings and loan commissioners in late January, general counsel Thomas P. Vartanian told them the proposal would be put out for comment in mid- or late February. And Banking Committee staffers said they expect to be briefed on the regulations today by a bank board staff member. The bank board meets next Thursday.
The stalemate on the Hill is caused by disagreement among different financial institutions over which one should be given what powers in the omnibus bill for reforming the financial industry. The functions for savings and loans are part of Congress' revision of laws that in some cases have been on the books for nearly half a century.
While calling for a level playing field, each industry wants to make sure his competitor does not secure an advantage. The players include mutual savings banks, savings and loans, large and small commercial banks, money market firms, insurance companies and securities brokers.
Banking Committee Chairman Jake Garn (R-Utah) has said repeatedly that no legislation will be forthcoming until and unless the industries reach a consensus. No such agreement seems to be developing, a staff member said yesterday. Although hearings have concluded, no date has been set for a mark-up of the bill.
Rumor of the bank board's intended action has been circulating for several weeks and has triggered a strong reaction. Carolyn Jordan, minority counsel to the Senate Banking Committee, called it "unprecedented for a regulatory agency to set policy" in that way. Another aide termed it "a quantum leap from the statutory authority and terrible public policy to boot." While the bank board's aim would seem to be to break the stalemate, both staffers predicted that the bank board's action would lead to more controversy and litigation. Meanwhile, no savings and loan would dare to take advantage of the new functions under those circumstances.
Service corporations originally were conceived to allow S&Ls to carry on such activities as data processing. Currently, an S&L may invest no more than 3 percent of its assets in its service corporation, a figure the bank board would raise to 5 percent. But if numbers of large S&Ls were to band together to form large service corporations, they could set up large brokerage services or mutual funds.
A spokesman for the American Bankers Association said the trade group will challenge the bank board's action, which it called "of questionable statutory authority." David Silver, president of the Investment Company Institute, a trade group for mutual funds, said he thought it would contravene the Glass-Steagall Act, which separates commercial and investment banking, for savings and loans to sell mutual funds. He did not rule out a suit against the bank board.
Silver quipped, "Why focus on these asset powers now? There is no rational connection with the S&L crisis. Cloaked in the new powers, the S&Ls will be the best-dressed corpse in the cemetery."
The bank board has maintained that these asset powers are needed for the future health of S&Ls, but that it can deal adequately with the current crisis caused by high interest rates and low-yielding mortgages. In its budget projections, the administration said it expected there would be 483 fewer S&Ls by 1983, a drop of about 12 percent. However, Kenneth Thygerson, a Denver savings and loan executive who was formerly chief economist of the U.S. League of Savings Associations and who recently served on the President's Commission on Housing, said 1,000 or 1,500 could disappear.
The budget shows that expenses of the Federal Savings and Loan Insurance Corp. exceeded income by $373 million in 1981, and will exceed it by $35 million in 1982. The lower figure may be based on more negotiated mergers, in which large S&Ls accept a smaller amount of government assistance in exchange for a chance to acquire troubled S&Ls in other states. Or it may be based on fewer mergers. The Wall Street Journal this week quoted S&L executives as saying they believe the government will cut back on costly mergers and let more technically insolvent S&Ls continue to operate provided they still have income from mortgages being paid off. (Technically insolvent means no net worth or liabilities equal to assets.)
Meanwhile, concern again is mounting in the House for the viability of thrift institutions. Last year, the House passed emergency legislation to facilitate mergers, but it did not come up in the Senate. Last week, House Banking Committee Chairman Fernand J. St Germain (D-R.I.) said he is considering another form of emergency legislation to bail out sick S&Ls. That could take the form of an appropriation for the FSLIC or a program to have the government warehouse or buy up low-yielding mortgages. Both ideas have been opposed in the past by the Treasury.