S&L Bid Turned Down
WASHINGTON (AP) _ Federal regulators on Monday rejected a bid by one of the nation’s most profitable savings and loans to switch its insurance coverage from the fund that backs thrifts to the more healthy one that insures bank deposits.
The application by Great Western Bank of Beverly Hills, Calif., was denied by the Federal Home Loan Bank Board, which rejected the institution’s claim that it was exempt from a temporary ban on defections from the Federal Savings and Loan Insurance Corp.
Great Western, the nation’s second-largest FSLIC-insured institution, had filed an application claiming it was eligible to convert from coverage by FSLIC to insurance with the Federal Deposit Insurance Corp.
The application was seen as a test case on whether regulators would allow widescale defections from the FSLIC, although several smaller S&Ls already have been allowed to leave the thrifts’ insurance fund.
The FDIC is considered the more attractive insurance fund because it retains big assets while the FSLIC has been largely depleted by the losses and failures plaguing the thrift industry.
Legislation enacted in 1987 prohibited thrifts from leaving FSLIC until Aug. 10, 1988, and Congress has since extended the moratorium until Aug. 10, 1989. Thrifts that had already converted to FDIC or announced their intention prior to March 31, 1987, to covert by merging with an FDIC-insured bank were exempted.
Under President Bush’s $157 billion proposal to restructure and rescue the thrift industry, institutions would be barred from leaving the FSLIC for another five years. The provision is designed to help the fund recuperate and to ease the costs of the bailout.
Regulators and some members of Congress had been concerned that widescale defections from FSLIC could cut the fund’s intake of insurance premiums and make the S&L rescue even more expensive.
Great Western applied to leave FSLIC based on its October 1988 application to merge with the smaller Great Western Savings Bank of Bellevue, Wash., an FDIC-insured institution. The California thrift also cited its March 1987 memorandum of intent to merge with Great Western Thrift and Loan in Salt Lake City, Utah.
The bank board rejected Great Western’s application to merge with the Washington thrift and said the Utah memorandum was not valid because no further steps to combine with the Utah thrift had been taken since the agreement was signed.
Great Western, which had assets of $30.8 billion as of Dec. 31, issued a statement saying it was disappointed with the bank board’s ruling.
″We are confident that under existing law and regulation, Great Western’s program for FDIC membership meets every test and we intend to vigorously pursue all options available to us,″ said James F. Montgomery, chairman and chief executive.
The company did not elaborate on what its options might be.