IT'S NOT NEARLY good enough. The savings and loan rescue bill, as it has come out of the House-Senate conference, is far, far short of the mark -- a monument to high-powered meddling by the S&L lobby. President Reagan needs to veto it and tell Congress to do the job over again.
The S&L industry is in bad shape. Many institutions are well-run, profitable and entirely safe. But hundreds are not. The public is protected by federal deposit insurance. But the federal deposit insurance fund is itself insolvent by $6 billion as of last Dec. 31 and, apparently, a much larger amount today. The losses are continuing.
A thorough cleanup is urgently required. Adequate legislation would do three things. It would tighten the basic rules for running an S&L, to force the bankrupts and cripples into mergers or out of business. It would curb the loose and speculative lending that is steadily increasing the losses of the failing S&Ls. And it would provide enough money for the deposit insurance fund to enable it to close down the bankrupts promptly. That will take $25 billion or more.
The conference committee's bill does none of those things. It doesn't come close. The S&L lobbyists have seen to that. They have a formidably effective operation, and Congress has caved in to them. The lobbyists keep saying that the industry will strengthen by itself, if only the regulators are prevented from interfering. Should you believe that? A few days ago the Financial Corporation of America, parent of American S&L Association, the country's largest, announced that it lost $150 million in the past three months. With that, its net worth shrinks to the vanishing point.
Far from raising standards, the conference committee's bill would permit an S&L to operate with so little capital, under such rubbery accounting conventions, that it could keep going legally with no capital at all. That's dangerous, and creates enormous liabilities for the taxpayer -- because, if a run starts, it will be the taxpayer's money that bails out the industry. As for refinancing the deposit insurance fund, the bill provides hardly enough money to restore the fund to solvency let alone enable it to proceed with its job of shutting down the failed S&Ls. Why? Because the healthy S&Ls don't want to pay higher insurance premiums, and the bankrupts don't want to be shut down.
To let insolvent institutions continue to accept deposits, under an insolvent deposit insurance system, is a prescription for financial disaster. If the two congressional banking committees can't see that, it's time for the president to explain it once again, more forcefully, in a veto message.