AFTER A MONTH'S unnecessary delay, a congressional conference is to take up the legislation today to rescue the savings and loan deposit insurance system. Both the House and Senate have passed bills, but both are clearly inadequate. Both houses have let themselves be swayed by the vociferous S&L industry. It doesn't want to pay higher deposit insurance premiums, and those S&Ls that are currently bankrupt -- one out of every eight in the country -- don't want the regulators to shut them down. They keep pleading that they are just going through a temporary slump and there's sunshine just ahead, etc. Congress is making a dangerous mistake in accepting that line. Every indicator points in the other direction.
At the latest accounting, last December, the federal S&L deposit insurance fund was already $6.3 billion in the red, and it has suffered further losses since then. It is having increasing trouble borrowing, as its lenders raise their collateral requirements. In an emergency -- a run, for example on a large S&L -- the U.S. Treasury would have to come to the rescue with taxpayers' money. To use tax money to bail out the S&L industry would be outrageous.
The administration calculates that it will take about $25 billion to close down the bankrupt S&Ls and pay off their depositors. That's a matter of great urgency, because the bankrupt institutions' debts -- and the liability to the federal government -- are rapidly rising. The administration's plan is to raise the insurance premiums paid by S&Ls to cover part of it and, for the rest, to borrow $15 billion.
The House bill would provide only $5 billion, not enough even to restore the insurance fund to solvency. It would also add a lot of language, out of a misguided sense of sympathy for the bankrupts, to make the present regulations all but unenforceable. The Senate bill would authorize $7.5 billion, also far too little.
The House-Senate conference needs to do two things, and do them quickly. It needs to authorize a larger amount of money -- substantially larger -- than either of the present bills contains. And it needs to take another look at that House language making the traditionally weak regulation of the S&L industry even weaker. The presence of those 450 bankrupt S&Ls, still in business, is casting a shadow over the sound institutions as well. Until the bankrupts can be cleaned up, and the deposit insurance fund returned to a sound financial standing, the whole S&L industry will be at risk