On Tuesday, May 6, in the boardroom of the Federal Reserve Board building, a newly created body called the Depository Institutions Deregulation Committee met for the first time.
Its mission: to strip away layers of federal regulation from the ailing banking industry. Among other things, the panel was to open up competition by ending artifically low, government-imposed limits on the rate of interest a bank can pay a depositor.
And on that first day, members of the committee, made up of heavies such as the chairman of the Federal Reserve Board and the secretary of the Treasury, surveyed their awesome task and immediately focused their attention on the burning issue of -- toasters.
They voted to consider prohibiting banks and savings and loan institutions from giving gifts -- such as toasters, electric blankets, pots and pans -- to new depositors. In short, the committee which had been created for the purpose of deregulating proposed a new regulation.
The committee members had their reasons, of course.
Indeed, they were demonstrating one of the crustier principles of today's bureaucratic stew: any attempt to diminish government regulation leads to at least one new government body and a bunch of new regulations -- to regulate the deregulation process.
In this case, the toaster proposal -- still under consideration -- was an attempt to close a loophole that enables banks and savings and loans to compete more aggressively for peoples' money, sometimes exceeding their legal limits on such competition -- limits that Congress has decreed must be phased out.
Under current rules, the value of a gift is not supposed to exceed $5 for a deposit of $5,000 or less, $10 for a deposit of $10,000 or less. Any amount above that is counted as part of the interest paid.
It is often difficult to define the value of toasters and electric blankets and such, and therefore difficult to decide whether they are within the government's limits on such bonuses, a committee spokesman said. And because the values are so hard to define, he added, bank examiners have had to spend an inordinate amount of time investigating charges of possible abuses.
Some institutions have managed to "fuzz over" those values by attributing much of an item's cost to shipping and packing, regulators said.
But the most imaginative variations, by all accounts, have occurred in a giveaway variation sometimes called "bring a friend" or finder's fee programs, especially intense now in the New York area.
This week in The New York Times, in a typical ad, Republic National Bank of New York offered "fabulous free gifts" for anyone who can talk a friend into depositing $4,500 in the bank. The gifts? Choice of an RCA XL100 25-inch color TV, a Whirlpool washer-dryer or no-frost refrigerator and freezer, or a grandfather clock. There were lesser gifts for smaller deposits.
The friend with the $4,500 gets a Timex watch.
But too often with this system, the gift or finder's fee ends up in the hands of the "friend" who deposited the money, officials said, becoming in essence a way of getting more than the maximum interest allowed.
The committee staff at the Federal Reserve building has received more than 2,500 letters reacting to the proposed new rule. The response became so intense that the deadline for comment was moved from June 9 to June 16 and then to July 15.
One of the surprises that has popped up in the toaster debate, to the muttered consternation of some policy-makers, is a vociferous but previously unremarked lobbying group: the toaster pushers.
In fact, selling toasters, crocks, TV sets, watches and whatnot to bankers is about a $400 million a year industry, by the industry's own estimates. It involves mostly relatively small businesses or independent sales representatives.
For a small businessman such as Neil Kanny, of Kanny Marketing Services, a vote against toaster giveaways is a vote against his livelihood, he explained. Based in New York and South Florida, he has been in business for 17 years, peddling plates, glasses, knives and forks, pots and pans and luggage to some 80 to 100 banks around the country.
But business is already off now, he said, bacause of confusion among bankers and "reluctance to do business with us" until the ban is voted up or down.
Bank officials and other lenders generally agree that they would rather stick to competitive interest rates as a lure for depositors. Indeed, institutions in many parts of the country manage without the giveaways, a bank industry spokesman said: "Some have got a back room stacked with old china."
But until six years from now, when the limits on interest rates are phased out under the new law, some say they need the edge that giveaways provide.
In areas where competition is high between banks and savings and loan institutions, some bankers see the toaster gambit as a device to offset the 1/4-percent interest rate advantage S&Ls have over them in competition for new deposits, according to the American Bankers Association.
Spokesmen for some savings institutions, not suprisingly, criticized the move to reduce their advantage, indicating they will fight it in the courts, and accused the committee again of adding to rather than subtracting from the complexity of regulations.
As for the ban on toasters, the U.S. League of Savings Associations will probably take a stand in favor, according to league counsel Ray Gustini, "but with some modifications to permit limited use."
"We have long felt the use of such premiums only moves savings around from one institution to its competitor up the street, rather than helping to add new savings," he said. "Also it is an administrative nightmare setting up warehouses for dishes, plants and Bibles."