[Congressional Record Volume 141, Number 181 (Wednesday, November 15, 1995)]
[Senate]
[Pages S17092-S17096]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. D'AMATO:
  S. 1415. A bill entitled ``Thrift Charter Conversion Act of 1995''; 
to the Committee on Banking, Housing, and Urban Affairs.


                   the thrift charter conversion act

 Mr. D'AMATO. Mr. President, I am introducing today the Thrift 
Charter Conversion Act. I am introducing the bill exactly as it was 
reported out by the Subcommittee on Financial Services and Consumer 
Credit of the House Committee on Banking and Financial Services. I am 
doing this in the spirit of cooperation exhibited during the House and 
Senate collaboration during the reconciliation process, particularly in 
recapitalizing the Savings Association Insurance Fund--an action which 
will increase public confidence in our Federal deposit insurance system 
and avoid any further costs to the taxpayers.
  This bill would eliminate the specialized Federal thrift charter, 
merge the Federal thrift industry into the banking industry, and 
consolidate the federal thrift and bank regulatory agencies. It would 
create a safer and sounder and more rational framework for depository 
institutions. While I do not endorse all of the provisions of the House 
bill, I am committed to its basic goal of merging the thrift and bank 
charters. The Senate Banking Committee will commence its consideration 
of this bill immediately, and I am committed to completing this 
legislative task as quickly as possible consistent with the other 
obligations of the Banking Committee.
  Mr. President, I am committed to the goal of minimizing--and 
eliminating to the extent possible--the risks to the taxpayer that will 
inevitably result from the continued existence of the thrift industry. 
Earlier this year, I took the first step toward this goal by 
introducing legislation to merge the separate federal deposit insurance 
funds for banks and thrifts. The introduction of the Thrift Charter 
Conversion Act is an important final step toward that goal.
  I want to commend my colleagues in the House for their leadership on 
this essential next step of merging the thrift and bank charters. The 
House 

[[Page S17095]]
and Senate Banking Committees considered including charter merger 
provisions in the budget reconciliation legislation, but Senate 
procedural rules prohibited us from including such provisions. The 
House reconciliation bill contained the text of the measure that I am 
introducing today. I want to commend Representative Marge Roukema, 
chairman of the Subcommittee on Financial Institutions and Consumer 
Credit, and full committee Chairman Leach for their work on this bill.
  Mr. President, our Nation's thrift industry has helped Americans 
finance their homes for over 160 years--with remarkable success. As we 
have witnessed during the past two decades, however, it has also 
experienced serious financial difficulties. These difficulties 
eventually led to the industry's collapse during the 1980's--a collapse 
that has cost the American taxpayers more than $150 billion.
  Despite the massive bailout and the numerous laws enacted to 
stabilize the thrift industry, serious problems continue to plague our 
Nation's thrift industry. Congress cannot ignore these problems. 
Congress must act now before our Nation's taxpayers are asked to pay 
for another bailout of the thrift industry.
  I am pleased that under the leadership of the House and Senate 
Banking Committees, Congress is already taking action to protect the 
American taxpayer and to avoid another thrift industry crisis. Last 
week, the House and Senate Banking Committees agreed to a proposal to 
recapitalize the ailing Federal deposit insurance fund for thrifts--
called the Savings Association Insurance Fund [SAIF]. The SAIF is now 
so undercapitalized that the failure of one large thrift could bankrupt 
it. The proposal agreed to last week will recapitalize the fund-using 
industry--not taxpayer--money. Because the proposal saves the American 
taxpayers some $900 million, it has been included in Congress' budget 
reconciliation package--a package designed to eliminate the budget 
deficit in 7 years.
  Mr. President, despite the recapitalization of SAIF, the thrift 
industry continues to pose serious and chronic safety and soundness 
risks to our Nation's Federal deposit insurance system. In an October 
31, 1995 letter to me, Ricki Helfer, Chairman of the FDIC, explained 
why thrifts pose a greater safety and soundness risk of the Federal 
deposit insurance system than do banks, even with a recapitalized 
insurance fund:

       Relative to the Bank Insurance Fund [BIF], the SAIF faces 
     risks related to the size of its membership, geographic and 
     product concentrations, and inherent structural problems in 
     the industry. The SAIF has fewer members than the BIF and 
     faces greater risks with the failure of any one member. The 
     SAIF also has a geographic concentration on the West coast. 
     The eight largest SAIF-insured thrifts operate predominantly 
     in California, and they hold 18.5 percent of SAIF-insured 
     deposits. By contrast, the eight largest holders of BIF-
     insured deposits are located in five different states and 
     hold 10 percent of BIF-insured deposits. SAIF members' 
     assets are concentrated in residential real estate . . . 
     to realize certain tax benefits. While traditional 
     residential real estate lending can be managed in such a 
     way as to present relatively little credit risk, 
     substantial concentrations in the area make SAIF members 
     susceptible to interest-rate fluctuations.

  In an August 29, 1995, report, entitled ``The Thrift Charter: Should 
It Be Eliminated?'' the Congressional Research Service also noted that 
their specialization in housing finance makes thrifts more vulnerable 
than banks to an economic downturn:

       Support for a more flexible [thrift] charter stems from 
     interest in protecting the Federal deposit insurance system. 
     . . . Lending and deposit options for thrifts have been 
     broadened over the past several years, nonetheless, thrifts' 
     deposit and lending base is still less diversified than banks 
     because of their specialization in housing finance. There is 
     concern that this lack of diversification could cause 
     institutional weaknesses in an unfavorable economic climate.

  Thus, an important goal of charter merger legislation is to decrease 
the significant safety and soundness risks posed by thrifts to the 
Federal deposit insurance system.
  In addition, fundamental changes in the marketplace have called into 
question the need for a specialized thrift industry. The role played by 
thrifts in the housing finance market has declined significantly. 
Testifying before the House Subcommittee on Financial Institutions and 
Consumer Credit on August 2, 1995, Alan Greenspan, chairman of the 
Federal Reserve Board, summarized this development as follows:

       So far this decade, savings and loans and savings banks 
     have originated 25 percent of residential mortgages--as 
     compared to 50 percent over the previous 20 years--and hold, 
     on average, only 28 percent of outstanding residential 
     mortgage debt, compared to two-thirds during the earlier 
     period. Currently only 2 thrifts are among the top 15 
     mortgage services and none are among the top 10 originators. 
     Over the last decade, when thrifts' participation in the 
     residential mortgage market receded, the aggregate supply of 
     housing finance was unimpaired and mortgage rates apparently 
     unaffected.

  The decreased dependence on a specialized thrift industry to 
originate and fund mortgages is primarily due to the development of 
mortgage-backed securities and a secondary mortgage market.
  Mr. President, while the role of thrifts in housing finance is 
receding, thrifts do continue to provide niche financing that is 
important to the housing market, including adjustable rate mortgages 
and mortgages that do not conform to secondary market underwriting 
criteria. Thrifts could still specialize in this type of financing 
under current charter merger proposals, however. In this regard, I 
believe that, as a business matter, many institutions will want to 
focus on housing finance, despite any charter changes mandated by 
Congress.
  To summarize, the continued safety and soundness risks posed by the 
thrift industry and the receding role of the thrift industry have 
resulted in proposals to eliminate the thrift charter. Federal banking 
and thrift regulators have expressed support for these proposals. At a 
September 21, 1995, hearing held by the House Subcommittee on Financial 
Institutions and Consumer Credit, Federal Reserve Chairman Greenspan 
noted:

       Two conclusions are clear. First, the nexus between thrifts 
     and housing largely has been broken without any evident 
     detriment to housing finance availability. Second, a public 
     policy that induces--let alone requires--thirfts to 
     specialize in mortgage finance threatens the continued 
     viability of many of these entities--particularly those 
     without wide and deep deposit franchises, tight cost 
     controls, and the ability, when necessary, effectively to 
     originate and sell standard mortgages that cannot profitably 
     be held long-term. A broader charter for thrifts--such as a 
     commercial bank charter that lets them hold a wider range of 
     assets--thus would seem to be good public policy. . . .

  At that same hearing, FDIC Chairman Helfer also expressed support for 
the elimination of the current thrift charter:

       The FDIC is not opposed to eliminating the distinctions 
     between bank and thrift charters--far from it. The FDIC 
     believes that the current charter distinctions no longer 
     match economic reality. Moreover, forcibly concentrating a 
     class of institutions--thrifts in this instance--into a 
     limited range of activities with low profit margins is a 
     prescription for trouble, as the savings and loan crisis of 
     the 1980's and early 1990's amply demonstrated.

  These statements from our Nation's top bank and thrift regulators 
cannot be ignored by Congress.
  Mr. President, industry representatives have also recognized the 
inherent problems of the thrift charter and expressed support for 
eliminating or reforming their current charter. In a September 12, 
1995, Wall Street Journal article, entitled ``Time to Kill the Thrifts 
for Good,'' a leading thrift industry executive stated:

       The thrift industry charter is inherently flawed, and the 
     resulting vulnerability of the industry has been demonstrated 
     repeatedly over the past 25 years. . . . These numbers are 
     trying to tell us something--namely the thrift charter is 
     obsolete. Today, a separate thrift industry cannot be 
     justified either by standards of the market or public policy. 
     . . . In formulating public policy, we should not seek to 
     maintain an industry charter that impairs the viability of 
     its institutions, strains the banking system and threatens 
     the American taxpayer. We need to integrate thrifts into the 
     banking industry.

  It is difficult to imagine a stronger statement in favor of 
eliminating the thrift charter, and the statement is even more forceful 
coming from a thrift industry executive. In a September 20, 1995, 
letter to me, America's Community Bankers, the national trade 
association for thrifts, also noted that it ``is fully prepared to work 
. . . toward--thrift--charter reform and modernization.''

       Finally, one of the strongest statements in support of 
     eliminating the thrift charter has 

[[Page S17096]]
     come from the editorial board of a leading national newspaper. In a 
     September 20, 1995 editorial, the Washington Post stated that 
     ``S&Ls have lost their special purpose--all kinds of 
     institutions now make mortgage loans--and in some respects 
     have become a danger.'' The editorial concluded: ``S&Ls were 
     work horses in their day. The day is gone, and so--as a 
     separate kind of entity--should they be.''

  Mr. President, the bill I am introducing today would eliminate the 
specialized Federal thrift charter, and would force all federally 
chartered thrifts to convert to banks. It also would require that all 
State-chartered thrifts be regulated like State-chartered banks. It 
would also allow some converted institutions and qualified thrift 
holding companies to engage in certain activities not permitted for 
banks. These grandfathered activities would be permitted only under 
strict constraints. Finally, it would create a new Federal charter, 
called a national mutual bank.
  This bill also would rationalize the Federal regulation of banks and 
thrifts. It would merge the Federal banking and thrift regulators, 
saving taxpayer money, and reducing bureaucratic redtape. There is a 
broad consensus in favor of this initiative. As Under Secretary of the 
Treasury for Domestic Finance John Hawke stated, in an October 27, 
1995, letter to House Banking Chairman Leach, there is ``broad 
agreement on the logic of merging the Federal regulation of banks and 
thrifts.''
  Mr. President, resolving the thrift industry's remaining problems 
will not be an easy task. This is not a project that can be completed 
overnight. There are numerous, complex legal and public policy issues 
that must be addressed in a careful, thoughtful way. Congress will need 
to collaborate with industry representatives, Federal thrift and bank 
regulators, and the administration. Decisions made today on these 
issues will have lasting consequences on the shape of our Nation's 
financial services industry well into the next millennium.
  I ask unanimous consent that a brief description of the complex legal 
and public policy issues that must be addressed as we move forward with 
consideration of this bill be printed in the Record. Some of these 
issues are addressed by the House bill. Others are not.
  Mr. President, every process needs a beginning. I believe this bill 
is an appropriate place for the Senate to start its consideration. I 
look forward to working with my Senate and House colleagues to address 
the very important issues raised by this bill. Working together, I 
believe we can create a safer and sounder and more rational framework 
for depository institutions.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

           Issues Raised by the Thrift Charter Conversion Act

       Transition Period: The House bill may not provide an 
     adequate transition period. The bill requires federal savings 
     associations to convert to banks or liquidate in two years. 
     In other cases where entire classes of financial institutions 
     have been subject to major statutory change, a longer 
     transition period was provided. For example, when one-bank 
     holding companies became subject to Federal Reserve 
     Regulation by the Bank Holding Company Act Amendments of 
     1970, a transition period of 10 years accompanied such change 
     to allow for proper corporate planning.
       Continued Existence of State Thrifts: The House bill 
     eliminates federal thrifts, but not state thrifts. If the 
     reasoning of the House bill is that the thrift charter is 
     inherently risky, it is unclear why federal deposit insurance 
     should continue to be made available to state thrifts. Many, 
     perhaps even most, federal thrifts may elect to become state 
     thrifts under the House legislation, thereby frustrating 
     whatever purpose underlies the House bill.
       Grandfather Period for Savings Institutions Powers: Under 
     the House bill, thrifts that become banks would have two 
     years in which to terminate any activities or investments not 
     permissible for banks. Regulators could grant two one-year 
     extensions of that deadline, on a case-by-case basis. This 
     two-year period may be too short and may create needless 
     uncertainty for institutions. The case-by-case extension 
     procedure could create needless administrative costs for 
     institutions and their regulators.
       Branching: All thrift branches established after September 
     13, 1995, would be subject to federal and state laws 
     applicable to banks under the House bill. Tying 
     grandfathering to this date could unnecessarily disrupt the 
     operations of thrifts pending enactment of legislation. 
     Moreover, the public policy rationale underlying the House 
     provision prohibiting former thrifts from branching within a 
     state in which the thrift had already established a branch 
     should be carefully reviewed. Limiting branching by an 
     institution in a state where it already has a presence could 
     harm institutions heavily invested in existing branch 
     networks.
       New Rules for Thrift Holding Companies: The House bill 
     completely changes the rules that apply to companies that own 
     savings institutions. But there has been no evidence that the 
     current thrift holding company framework has been a source of 
     strength to their thrift subsidiaries. Obviously, the public 
     policy rationale and consequences of these changes must be 
     carefully reviewed.
       Grandfather for Thrift Holding Companies: the House bill's 
     requirements for maintaining grandfathered holding company 
     status may be too rigid and need adjustment. Even a minor 
     infraction of an investment limitation could trigger 
     forfeiture of grandfather rights. These provisions must be 
     carefully reviewed.
       Regulation by Federal Reserve: The financial impact and 
     uncertainty of regulation of grandfathered thrift holding 
     companies by the Federal Reserve has not been thoroughly 
     analyzed and considered.
       Elimination of Commonly Used Indices: Certain indices 
     commonly used for adjustable rate mortgages (e.g., cost of 
     funds indices (COFI) likely will be lost under the House 
     bill. While the bill recognizes the need to address this 
     loss, the uncertainty surrounding their replacement could 
     have a significant impact on the mortgage market and COFI-
     based mortgage related securities.
       Federal Home Loan Bank Membership: The House bill would 
     permanently prohibit federal savings associations from 
     withdrawing voluntarily from the Federal Home Loan Bank 
     System. It is unclear why national banks that once were 
     thrifts should be singled out for mandatory membership.
       Prohibition on New Federal Savings Association Charters: 
     The House bill would prohibit the OTS from issuing any new 
     federal thrift charters. A prohibition against issuing new 
     thrift charters between the date of enactment and the date on 
     which the federal thrift charter expires may not allow for 
     exceptions needed to facilitate conversions and mergers 
     (including resolution of troubled thrifts) that will not 
     result in the creation of a new federal thrift.
       Loans-to-One Borrower (``LTOB'') Rules: The House bill 
     would grandfather for 3 years after the date of enactment any 
     loans or legally binding commitments made by a thrift that 
     converts to a national bank on or before January 1, 1998. 
     Thus, thrifts with significant investments in housing loans 
     authorized pursuant to the special real estate exception 
     available to thrifts under the LTOB rule would be forced to 
     liquidate existing loans made under this exception. It is 
     unclear what purpose is served by requiring liquidation of 
     loans that were lawful when made. It is also unclear what 
     impact revocation of the exemption would have on a going 
     forward basis on funding for housing.
       Elimination of the OTS: The House bill provides for a 
     complicated three-way merger of the Office of Thrift 
     Supervision (OTS) into the other federal banking agencies. 
     The bill omits the ``standard'' FIRREA employee protections. 
     Treasury, OTS, and the Office of the Comptroller of the 
     Currency have discussed agency merger transition provisions, 
     but have yet to produce a comprehensive proposal for 
     disposition of OTS. Adequate transfer rules for OTS employees 
     are essential to ensure the retention of skilled and 
     experienced personnel to supervise institutions during a 
     period of significant economic strain on the thrift industry. 
     They are also necessary for the smooth transition of 
     oversight functions, and the fair treatment of existing OTS 
     personnel.
                                 ______