The Super NOW account approved Monday by federal regulators will reduce the chances of a return to profitability next year for mutual savings banks, according to George Hanc, chief economist of the National Association of Mutual Savings Banks.
Hanc told the group's midyear meeting that a projected profit of $2 per $1,000 in 1983 -- after three years of losses -- will be wiped out by the new checking accounts, which can carry unlimited interest rates.
Both the Super NOW accounts and new money market deposit accounts that banks and savings associations soon will begin offering have been created to make these institutions more competitive with money market funds. Ironically, they also are expected to raise banks' cost of funds as depositors switch their passbook savings to the higher-yielding accounts, Hanc said. "They will be lucky to break even," he said.
The new money market deposit accounts make their debut Dec. 14, while the Super NOW accounts will be available Jan. 5.
At the same conference, William M. Isaac, chairman of the Federal Deposit Insurance Corp., announced the eagerly awaited terms of the government's capital assistance program for troubled banks. Authorized by Congress last October, it was officially launched today.
At present interest-rate levels, approximately 40 to 60 of the country's 425 mutual savings banks will be eligible over the next three years for the cashless bailout. Most of the first applicants are expected to be from this city.
Hanc predicted that the mutual savings banks, which have suffered net deposit outflows for the past five years, will see the hemorrhage cut in half next year. They still can expect depositors to withdraw $6 billion more than they put into their accounts, however. "A return to strong growth is not an immediate prospect," he told the delegates.
Consequently, the industry can anticipate further consolidation in the form of voluntary mergers, he added. "Everyone in this room is a candidate for a merger," one delegate responded in an aside.
In the past 14 months, the FDIC has engineered 11 assisted mergers for savings banks. These often were accompanied by industry criticism because the management and trustees of failing institutions were forced to resign and their banks ceased to exist. Noting that the most seriously troubled institutions already have been merged out of existence, Isaac today signaled a change in policy to one of capital assistance coupled with "voluntary mergers."
The capital assistance program aims at buying time for troubled thrifts until the yields on their loans again match the interest rates they pay on deposits. New "net worth" certificates issued by the weakened banks and bought by the FDIC will offer no additional boost to income.
Isaac put some rather stringent conditions on the aid package: The FDIC reserves the right not to buy certificates from banks with unsound management. Reductions in senior-level officers will be required. Interest on the notes will not be paid in cash. To get aid, a bank must submit a business plan for FDIC approval.
The second element of the package is voluntary mergers. "We continue to have a strong preference for proposals in which weak institutions are merged into stronger ones," Isaac said. As an incentive, the FDIC plans to "shop" such proposals. This means that if, after a bank has found a partner, the FDIC can find one that costs it less, the bank will be expected to go with the FDIC's choice.
One banker commented that accepting assistance would cost banks "an arm and a leg," but most seemed to go along with the terms. There are now 340 savings and commercial banks on the FDIC's problem list, up from 320 at the start of 1982. Isaac said he expects the number to climb next year.