NEW ORLEANS, NOV. 10 -- A draft of a Senate bill to deregulate banking gives the Federal Reserve Board too much new power to supervise -- and restrict -- U.S. financial institutions, Federal Home Loan Bank Board Chairman M. Danny Wall said yesterday.
If the power of the Fed, which currently supervises companies that own commercial banks, is broadened to cover any savings and loan that buys a bank or to any bank that buys an S&L, then much of the incentive healthy companies have to buy ailing financial institutions will evaporate, Wall said.
He said no investor wants to buy a sick financial institution if the purchase increases the number of federal regulators with which the investor must deal.
The bank board is the federal agency that regulates S&Ls; the Fed regulates bank holding companies. Until recent years, the authority of the two did not conflict.
But since 1980, the number of failed S&Ls has skyrocketed, forcing the bank board to allow many S&Ls to be purchased by a variety of companies outside the S&L industry, including retailer Sears, Roebuck & Co., auto maker Ford Motor Co. and commercial banking giant Citicorp. The trend has helped to blur distinctions among banks, S&Ls and other financial service companies and has raised questions about decade-old laws that attempt to separate commercial banking from securities underwriting and from industries unrelated to banking.
The draft bill by Senate Banking Committee Chairman William Proxmire (D-Wis.) "puts the Fed much more in the driver's seat" in conducting federal oversight of financial service industries, Wall said.
Wall, speaking at an S&L industry convention here, also said that the number of foreign investors interested in buying ailing S&Ls "is at least 10 percent" of all potential buyers the bank board has heard from.
He said that the falling dollar and the decline in stock prices since the Wall Street collapse Oct. 19 has made the prospect of investing in S&Ls, including those in Texas, very attractive to bidders in "Europe and Asia."
Texas has been especially hard hit by S&L failures, in part because of falling oil and real estate prices but also because of fraud and mismanagement.
Wall said the bank board expects to have completed by Jan. 1 a major study and plan on how best to rid the state of its troubled S&Ls.
Wall said the study will consider "a full range" of solutions, including merging several institutions -- both within Texas and across state lines -- into one S&L for investors to buy.
But Wall stressed that the bank board will not favor the creation of "megathrifts or mothership thrifts" alone to solve the state's crisis. "A mix of institutions -- large, medium and small -- best serves the public interest," he said.
Wall also announced a reorganization of the Federal Savings and Loan Insurance Corp., the bank board division that insures S&L deposits up to $100,000 and takes over and manages S&Ls when they fail. Three deputy directors will be added to oversee the insurance fund's six divisions, he said, and he will seek to raise the pay of top employes at the insurance fund by raising their civil service ranking. He also said the bank board is working "to reconstruct, redirect and put ... back on track" a government corporation the bank board created two years ago to help it sell and manage property and other assets from failed S&Ls.
The directors of the federal corporation, the Federal Asset Disposition Association, or FADA, have argued they are a private company and not subject to government disclosure laws.
But Wall said he will try to bring FADA under tighter bank board control.