IN A SPECTACULARLY dangerous example of misguided sympathy, Congress is hard at work on legislation to make S&L regulation weaker than ever. It has nothing to do with Reaganite enthusiasm for deregulation. The impetus is coming from Democrats and mainly from Texas. The House has passed a bill that would make it harder for an S&L to foreclose on delinquent loans, of which there are many in Texas, and very much harder for federal regulators to close an S&L that is insolvent. The chief regulator says that the bill, if enacted, "will shut down effective enforcement." The S&Ls keep arguing desperately that, if they are left alone by the government, things will shortly get better. But the evidence is running strongly the other way.
Out of the nearly 3,200 federally insured S&Ls, some 450 are now bankrupt but still in business and still taking deposits from the public. If they were banks, they would have been shut down long since. But the S&L regulators can't afford to close down these bankrupts because there isn't enough money in the federal S&L deposit insurance fund to pay off the depositors.
The General Accounting Office audited the fund and reported last month that it too is bankrupt. It had net losses of nearly $11 billion in 1986 and was $6 billion in deficit by the beginning of this year. Its caseload of institutions in serious trouble nearly doubled during the year. Its cash and securities on hand, $4 billion at the beginning of the year, was below $1 billion by last month.
Meanwhile, the Federal Home Loan Bank Board, which oversees the S&Ls, has reported that April, the last month for which figures are available, was the eighth consecutive month in which withdrawals from the S&L system nationwide were greater than new deposits. That doesn't amount to a run on the system. But if a run were to begin at one of the bankrupts, there's very little in the insurance fund to stop it. Congress would have to use taxpayers' money from the Treasury.
The administration wants to shut down the bankrupts. It wants to raise the deposit insurance premiums that S&Ls pay and shore up the insurance fund. It wants to crack down on the loose practices that got those failed S&Ls into trouble. But the Senate's bill is inadequate, and the House's is a positive menace.
The conference on the two bills is about to begin, at a leisurely pace. If the final result looks anything like the House version, with its anti-enforcement language, President Reagan will have little choice but to veto it.