The chairman of the Federal Home Loan Bank Board confirmed yesterday that the agency will soon propose regulations to expand the powers of service corporation subsidiaries of savings and loan associations.
Bank Board Chairman Richard T. Pratt told a group of S&L officials meeting here that "under the law of the United States today, we believe we have the authority to grant such powers."
Pratt did not elaborate on the proposed regulations while stressing the importance of new powers for S&Ls in comments to a legislative conference of the National Savings and Loan League.
The group also learned that the bank board soon will also publish regulations for comment on methods to expedite conversions of mutual or depositor-owned S&Ls to stock associations.
In the long run, Pratt said restructuring of the industry is "absolutely imperative" and that institutions must have more flexibility and a greater ability to compete and "choose their own destiny."
As reported last week in The Washington Post, the board is expected to propose the controversial service corporation regulations at its meeting tomorrow and issue them for public comment.
The new regulations, which are designed to enhance earnings of the struggling S&L industry, are expected to contain authority for S&Ls to offer money market funds, make commercial loans, invest in real estate and lease equipment.
S&Ls would have authority to exercise those powers through service corporations. Service corporations were established originally to permit S&Ls to conduct such activities as data processing.
Although it had been widely expected that the bank board would propose the regulations, officials of the agency have declined comment both on the substance and timing.
Nonetheless, indications that the bank board will move to broaden the authority of the service corporations have prompted threats of legal challenges by the banking community.
Meanwhile, bank board officials said the Independent Bankers Association has filed suit against the agency for its approval of interstate mergers designed to save failing S&Ls.
The practice of allowing associations to acquire troubled institutions in other states has become a concern of several S&L officials, as some indicated during the meeting with bank board officials yesterday.
Under a policy adopted late last year, the bank board and its insurance corporation, the FSLIC, have allowed out-of-state S&Ls to bid for failing institutions when in-state merger partners can't be found.
One S&L official expressed concern yesterday that FSLIC is "subsidizing these conglomerates," which he suggested present unfair competition by their size and presence.
But he was assured by FSLIC Director H. Brent Beesley that "we don't subsidize knowingly where an association will have an advantage."
Beesley described subsidies given thus far to acquiring institutions as "very small and not a lot of fat for them to carry out aggressive competition."
Beesley said the FSLIC fund has about $700 million in cash and about $7 billion in reserves. He added that if the FSLIC followed a practice of injecting funds into failing institutions instead of seeking mergers the fund would "ratchet down $500 million a month."
"I am absolutely determined to keep the FSLIC strong, regardless of how many toes I step on," Beesley declared.
At one point, he told the group that the FSLIC is trying to "find solutions in our price range," although he added, "I don't think our resources are going to be seriously strained over the next 24 months."
Thomas Vartanian, the bank board's general counsel, cautioned S&L officials that they shouldn't be advocating restraints while seeking deregulation. "I don't think you can hamper competition by putting some kind of restrictions on mergers," Vartanian said.