House Panel Backs Thrift Fund Rescue _ With A Twist
WASHINGTON (AP) _ The House Banking Committee voted Thursday to tap taxpayer funds to cover $3 billion of the cost of cleaning up the savings and loan losses of the 1980s.
In an unexpected development, the panel adopted an amendment directing the Federal Reserve to devote part of its surpluses to help pay off Financing Corp. _ better known as FICO _ bonds related to the bailout.
The amendment was part of a package later approved by the committee for reviving the thrift industry’s shaky deposit insurance fund and setting the stage for S&Ls to convert themselves to commercial banks later. Thrifts are more focused on taking deposits and using the money to finance home mortgages, while commercial banks are not bound by such limits.
This proposal, sponsored by Reps. Bill McCollum, R-Fla. and Henry Gonzalez, D-Texas, also would have banks and thrifts share paying off bonds related to the S&L rescue in the 1980s, in annual payments of $790 million through the year 2019.
The thrift fund rescue package had been stalled as banks and others fought to avoid being forced to help pay off the FICO bonds.
An amendment sponsored by Rep. William H. Orton, D-Utah, would have the Fed devote $3 billion of its surplus to the FICO bond payments. The Fed sends interest on its surpluses to the federal treasury.
House Banking spokesman David Runkel said the committee staff calculates the Orton amendment would reduce the payment of banks by $100 million a year.
Prospects of the thrift fund rescue plan are now further complicated, since the Orton amendment is opposed by the Fed and its congressional allies, including House Banking Chairman Jim Leach, R-Iowa. and others.
``The Orton amendment results in the first use of taxpayer money to pay FICO and adds significantly to the cost already borne by the taxpayers as a result of the savings and loan crisis,″ said Rep. Marge Roukema, R-N.J. A Fed spokesman declined comment.
Orton defended his approach by saying he didn’t think it was fair to have banks or other institutions, such as mortgage giant Fannie Mae, pay for a problem they didn’t create.
The development is the latest twist in the proposal is to rescue the deposit insurance fund, known as SAIF, which insures S&L deposits up to $100,000. While most of the nation’s S&Ls are financially strong, the fund’s reserves have been depleted, partly due to repayment of bonds from the S&L crisis and a shrinking number of savings and loans.
Lawmakers and the Clinton Administration fear a financial crisis is looming if Congress doesn’t act to revive the fund. Healthy thrifts are beginning to covert to commercial banks to avoid the high fees charged by the SAIF, leaving more marginal S&Ls to foot the hefty payments.
``Passage of this legislation remains one of this administration’s foremost and urgent priorities,″ said Leon Panetta, the White House chief of staff, in a letter to House Speaker Newt Gingrich, R-Ga..
Under the McCollum-Gonzalez plan, thrifts would make a one-time payment, estimated at $5.5 billion, to bring the SAIF to full funding. Banks would help make the annual $790 million FICO bond payments on a rising scale from 1997 to 1999. At that point, banks and thrifts would make the payments on a pro rata basis, with banks paying an estimated $600 million a year after that point.
Earlier, the committee defeated a plan to have mortgage giants Fannie Mae, or Federal National Mortgage Association, and Freddie Mac, or Federal Home Loan Mortgage Corp., pay half of the FICO bond payments.