WASHINGTON — Federal Reserve Board Chairman Alan Greenspan on Thursday strongly endorsed proposed legislation that would convert the nation's savings and loan associations into commercial banks, signaling the impending end of a 62-year-old industry devoted exclusively to housing finance.
The S & L crisis of the 1980s wiped out hundreds of thrifts, and the drastically shrunken industry no longer needs a specially designated role to encourage home ownership, legislators and policy-makers have decided.
A single charter covering both banks and thrifts--along with a single insurance fund to safeguard deposits--"would be consistent with market trends and stronger depositories and should not reduce mortgage credit flows," Greenspan told the subcommittee on financial institutions of the House Banking Committee. He backed legislation, previously approved by the committee, that would merge the insurance funds by 1997 and require the thrifts to convert to bank charters by 1998. Similar legislation has been adopted by the Senate Banking Committee.
There may be technical and procedural problems that could delay or alter the legislation, but there is virtually universal agreement on its goal: the end of the specialized housing finance institution created by Congress in 1933.
The special thrift charter, which provided the home loans for the vast proliferation of suburbs that sprang up in the decades after World War II, has become an anachronism. Thrifts provided only 19% of the home mortgages in March, down drastically since the mid-1980s when they made more than half of all home loans.
Postwar California, with its expanses of tract homes and sprawling suburbs, was largely a creation of the thrift industry, which provided much of the mortgage money for eager buyers. The 80 thrifts in California are only a fraction of the nearly 1,200 federally chartered institutions, but they hold about a third of the industry's $750 billion in assets.
"We don't view the loss of the separate charter as anything other than evolutionary and a recognition of things that have already happened," said Louis Nevins, president of the Western League of Savings Institutions, in Los Angeles.
"There are few changes the consuming public will notice," he added, noting that many large thrifts have already evolved into "all-purpose consumer banks."
Most thrifts are anxious for a merger because they faced the prospect of having to pay much higher premiums for their insurance fund, which protects deposits up to $100,000. The bank insurance fund is in much stronger shape. The proposed legislation would merge the two funds, and the thrift industry would make a special payment of $6 billion to beef up its fund.
The banks, for their part, would share in the cost of the special bonds issued to pay for the thrift cleanup of the 1980s--a cost now being borne exclusively by the thrifts. The banking industry would pay $600 million a year for 20 years.
"We have to be sure this is the last S&L bill," said Edward Yingling, director of government relations for the American Bankers Assn.