Prospects for reinforcement of the sagging Federal Savings and Loan Insurance Corp. have improved with amendment of a plan to inject $15 billion into the federal fund, which insures deposits in savings institutions.
The Congressional Budget Office, which had contended that the rescue plan as originally drafted would have added $12 billion to the federal deficit, said Friday the plan would not add to the deficit at all as a result of the amendments. The position of the CBO, whose objections had halted progress in Congress to recapitalize FSLIC, means that passage of legislation to bail out more than 200 troubled thrifts is no longer in jeopardy, according to Mark Clark of the U.S. League of Savings Institutions.
The amendments made by the Treasury Department would remove FSLIC from the government financing process; it would be financed instead by a new corporation created by Congress. Therefore the $15 billion debt would not appear as a liability on the U.S. balance sheet.
"We're glad to see a new approach develop in that it might get recapitalization back on track," said John H. Rousselot, president of the National Council of Savings Institutions.
FSLIC will need an additional $16 billion to $22 billion over the next five or six years to take care of insolvent savings and loans, according to the General Accounting Office. At the end of last year, FSLIC had just $4.6 billion in assets, or $1 billion less than than in 1984.
The plan devised by federal regulators calls for creating a financing corporation that would use a three-step process to raise money. It would receive cash from the 12 Federal Home Loan Banks, use it to buy zero-coupon Treasury bonds and then use those bonds as collateral to issue $15 billion in bonds on the open market.
The financing corporation would have the power to levy a cash assessment on savings and loans to pay interest on the corporation's bonds. Under the original proposal, the savings industry would have passed on its money to FSLIC, which would have sent it to the financing corporation, which would have distributed it, in turn, as interest to buyers of its bonds. The revised plan calls for the industry to send money directly to the financing corporation, which then would pay investors.
The financing corporation will have the power to charge the savings and loan industry one-twelfth of 1 percent of its deposits, or about $800 million. It also will be authorized to extract another eighth of 1 percent, or $1.5 billion, if it cannot find money elsewhere to pay bond interest.
One other source of funds is a portion of the $3 billion that the Federal Home Loan Banks have pledged toward the rescue effort. The majority of that -- $2.2 billion at most -- is earmarked to purchase the zero-coupon bonds that will back the financing corporation's $15 billion in bonds. But the financing corporation could use the other $800 million, or more if necessary, to pay interest costs.