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Republicans Weaken Bush’s Proposed Penalties for S&L Embezzlers

May 24, 1989

WASHINGTON (AP) _ With Republicans taking the lead, the House Judiciary Committee voted today to cut by half the increased civil penalties that President Bush wants to impose on fraudulent savings and loan operators and embezzlers.

Voting 17-14, the committee adopted an amendment by Rep. William J. Hughes, D-N.J., to reduce the proposed new civil penalties to $500,000 for each violation and to a maximum of $2.5 million against any one individual.

As part of his $90 billion S&L bailout package, Bush had sought to raise the civil penalties for defrauding banks, thrifts and other financial institutions backed by federal deposit insurance from the current maximum of $5,000 to $1 million for each violation.

Hughes said his amendment, which was backed by the American Bankers Association but opposed by the administration, was intended to make the civil penalties ″remedial rather than punitive.″

Opponents, however, said the effect will be to reduce the government’s ability to recover billions of dollars in federal deposit insurance funds that might be lost in the future to insider loans, fraud and embezzlement - the major contibutors to the current S&L crisis.

″The taxpayers are going to have to fork up $300 billion because of a bunch of high rollers,″ said Rep. Romano L. Mazzoli, D-Ky. He referred to the interest costs over the 30 years for the taxpayer share of Bush’s bailout plan.

″I don’t think we should be worrying about remedializing them,″ Mazzoli said of fraudulent S&L operators. ″We should worry about punishing them.″

Five of the Judiciary Committee’s 21 Democrats, including Hughes, and 12 of its 14 Republicans supported the amendment.

Although Bush got all he wanted and more from the Senate and the House Banking Committee in seeking to make S&L owners put more of their own money at risk, he faced new opposition to that as well today from members of his own party.

Rep. Henry Hyde, R-Ill., said he would offer an amendment today before the House Judiciary Committee to make S&L regulators go through lengthy hearings before making thrift operators put up billions of dollars in new capital.

Robert Glauber, Bush’s No. 2 official at the Treasury Department, called Hyde’s measure ″a grave error.″

Bush’s proposal, approved by both the full Senate and the House Banking Committee, would raise from the current five years to 20 years the maximum sentence for bank and S&L fraud and embezzlement. The maximum fine would rise from $5,000 to $1 million.

Fraud has been blamed by the General Accounting Office, regulatory officials and the Justice Department as the single biggest contributor to what has become the nation’s largest financial crisis since the Depression.

The legislation is the price the administration is demanding for a $90 billion bailout of the industry.

Bush jumped into the fray Tuesday, asking House leaders in a letter ″to hold absolutely firm against any attempt to weaken those vital elements ... which protect the American taxpayer from additional costs.″

″Now is the time for the House to act,″ Bush said in identical letters to House Speaker Jim Wright, D-Texas, Democratic Leader Tom Foley of Washington, Democratic Whip Tony Coelho of California, House Republican Leader Bob Michel of Illinois and House GOP Whip Newt Gingrich of Georgia.

″Bipartisan majorities in both the Senate and House have defeated determined special interest lobbying against the tough capital standards needed to protect American taxpayers from a repeat of this tragedy,″ he said.

Hyde denied his measure is an attempt to weaken the capital standards adopted earlier this month by the banking committee.

″We’re not touching the capital requirements at all,″ he said. ″An effort will be made to provide for hearings under the Administrative Procedures Act so that S&Ls affected by the new capital structure requirements will have an opportunity to get due process.″

But Rep. Bruce Morrison, D-Conn., a member of both the judiciary and banking committees, described the proposal as a ″back-door attempt to undercut the ability of the Federal Deposit Insurance Corporation to enforce the capital standards.″

″If we create a whole scheme of appeals and litigation to prevent the FDIC from enforcing the standards, then we’ll have another run on the taxpayers because we won’t have real money representing these institutions.″

The 51-member banking committee approved the bill three weeks ago, two weeks after it was approved by the full Senate. The House Ways and Means Committee last week changed Bush’s proposal to make the $50 billion taxpayer share of the bailout part of the federal deficit over the next three years.

After the House Judiciary Committee completes its action, the bill still has to go before the House Government Operations Committee and the House Rules Committee before reaching the House floor for action there - now anticipated the second week of June.

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