A headline in yesterday's Business & Finance section should have said that the House Banking Committee had approved a bill to aid the savings and loan industry, not that the entire House had passed the bill.
Legislation to shore up the ailing savings industry with government guarantees passed the House Banking Committee yesterday by a vote of 25 to 15.
The committee split along party lines in approving a bill by Chairman Fernand St Germain (D-R.I.) intended to curtail wholesale shrinkage of the savings industry through forced mergers by bringing the net worth of residential mortgage lenders up to 2 percent of assets. A more restrictive, less costly substitute favored by the Reagan administration was tabled.
The Republicans will have another turn at bat this week or next--this time in the Senate--when Sen. Jake Garn (R-Utah), chairman of the Banking Committee, adds the administration's version to his comprehensive package for restructuring the thrift industry.
Despite current partisan differences, there appears to be basic accord on the need for emergency aid for savings and loan associations and mutual savings banks, which lost $6.4 billion last year and continue to lose this year.
There also appears to be agreement that any assistance would be a so-called paper-for-paper exchange that would not translate into a cash outlay by the government unless the particular thrift institution under consideration were liquidated. The notes would be paid back out of future earnings. This program has been described as "a novel approach to accounting" by industry executives.
In the version passed yesterday by the House committee, the Treasury's contingent liability could go as high as $8.5 billion, in the unlikely possibility that all the assisted savings institutions were liquidated. The administration's plan would limit liability to $6.9 billion.
The House bill would allow federal regulators to provide net worth guarantees for savings institutions that now have less than 2 percent net worth and show "reasonable prospects of long-term viability." That means that hopeless cases would be merged out of existence rather than propped up. The two-year guarantee would require the recipients to earmark at least 60 percent of all net new deposits for residential housing.
An amendment to the bill would prohibit federal regulators from demanding a pledge to merge as a condition for receiving assistance, but would give regulators the ability to oust management in the worst cases. The thrift industry prefers this version, said William B. O'Connell, president of the U.S. League of Savings Associations, because it would eliminate the "demeaning and obnoxious requirement" for forced mergers in the assistance program now in force at regulatory agencies.
The other version of net-worth guarantees, originated by the Federal Home Loan Bank Board and approved by President Reagan last weekend, calls for a sliding scale of aid. Thrifts with between 2 and 3 percent net worth (2 percent is the level at which federal regulators begin to monitor an institution's operations closely to avoid future insolvency) would be eligible for income capital certificates equal to 30 percent of the average losses sustained by other thrifts in the same net worth range.
For those with between one and 2 percent net worth, the amount would be 40 percent of the average losses, and for those with zero to one percent net worth, the amount of the income capital certificates would be 50 percent.
O'Connell contends this is an unfair method of determining aid because losses vary widely throughout the country.