The chairman of the Senate Banking Committee yesterday unveiled a long-awaited bill that would ban limited-service banks, broaden the power of commercial banks to underwrite securities and boost regulators' ability to deal with problem banks and thrift institutions.
Sen. Jake Garn (R-Utah) introduced his bill as colleagues at the House Banking Committee suspended action for the second time in two weeks on legislation to ward off bankruptcy at the Federal Savings and Loan Insurance Corp., the federal fund that insures deposits up to $100,000 at thrift institutions.
The House panel halted its work because the Congressional Budget Office has concluded that the bill, which would keep FSLIC in operation by infusing new cash into the fund, would increase the federal deficit by as much as $15 billion. The Treasury and the Office of Management and Budget have said the plan would not increase the deficit.
The House decision yesterday came as the General Accounting Office issued a report indicating the gap between healthy and non-healthy thrifts is widening, putting further pressure on the beleaguered FSLIC. The fund has about $6 billion in reserves and needs as much as $22 billion to solve more than 200 S&L failures federal regulators say they expect in the next few years.
Garn, whose bill contains a provision to re-fund FSLIC that is similar to the one in the House, yesterday urged the budget committees in both houses to disregard CBO's ruling.
Consumers, regulators and several major bank and thrift industry trade groups generally reacted favorably to Garn's bill, though no group got everything it wanted.
Garn admitted, however, that getting the bill through Congress will not be easy. "Congress likes to deal with short-term solutions rather than setting policy," he said.
Nevertheless, he said he thinks he may be able to get the bill through in the 40 or so legislative days left before this session of Congress ends.
The House has considered FSLIC re-funding, expanded regulator power and consumer issues such as check holding in three separate bills and has resisted efforts to combine them into an expanded banking bill.
But as long as such issues remain "alive," Garn's chance of using them to pass other banking legislation is "fair to pretty good," said one top House banking committee aide.
Garn said he plans no committee action until at least mid-July, so that his colleagues on the panel will have time to study the measure.
Besides the recapitalization of FSLIC, key provisions of Garn bill would:
Define a bank as any institution insured by the Federal Deposit Insurance Corp., and thus ban all limited-service banks, so-called nonbank banks, formed after an as yet undetermined date.
The bill would require owners of nonbank banks established prior to the cut-off date to buy an ailing S&L or convert their nonbank banks to S&Ls.
Allow bank holding companies and thrift holding companies to underwrite municipal bonds, mortgage-backed securities, municipal bonds and mutual bonds by setting up affiliates regulated by the Securities and Exchange Commission.
Require simpler and more complete disclosure by financial insitutions of check-holding policies and costs of short-term leases and credit cards.
Allow companies from a greater range of industries, including securities firms, to buy ailing financial institutions.
Allow bank holding companies to sell and market products of one subsidiary through its other subsidiaries.
Give thrift holding companies more leeway in letting subsidiaries do business with each other.
Give regulators greater authority to remove management from ailing institutions and the power to take over and sell institutions before they actually fail, and lowers to $250 million the amount of assets a bank must have to be eligible to be sold to an interstate bidder.