Costly Thrift Bailout Has Congress Eyeing Oversight Reforms

ONLY seven months after President Bush signed legislation to reform the thrift industry, the delays and spiraling costs of the rescue have led Congress to consider reforming the legislation. The bailout's pricetag, put at $90 billion when the administration announced its plan in January 1989, is now in the $150 billion to $250 billion range, some analysts say. Delays in selling the assets of failed thrifts are adding to the cost every month.

Industry losses are also mounting. Last week, the Office of Thrift Supervision (OTS) reported the total industry lost $19.2 billion for 1989, up from $13.4 billion a year ago. The bulk of the losses are from thrifts now run by the government. In the fourth quarter of last year, the government controlled 485 thrifts with a total quarterly loss of $6.52 billion.

Congress is now considering at least six bills, and more are expected to be introduced. Some lawmakers, questioning the effectiveness of the OTS, would eliminate the agency, while other bills seek to expand the authority of the Resolution Trust Corporation (RTC), which disposes of ailing thrifts.

Some members of the thrift industry itself are encouraging the lawmakers to overhaul the regulations. Kenneth Seaton, chairman of the United States League of Savings Institutions, recently testified that the law should be revisited to ``prevent the costs to the taxpayer from spiraling out of control.'' Industry consultant Bert Ely says the legislation ``was flawed from the beginning - it was a hollow effort.''

Even some administration officials are suggesting modifications to the law, known as the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989. L. William Seidman, chairman of the Federal Deposit Insurance Corporation, recently gave Congress a list of proposed modifications.

Despite the unhappiness, many members of Congress say they should give the legislation a full year before tinkering with it. ``I don't know if we will overhaul it. I don't think so,'' says Rep. Frank Annunzio (D) of Illinois, chairman of a House subcommittee investigating FIRREA. Reform, says Rep. Chalmers Wylie (R) of Ohio, ``should not take place this year - we need time.''

Time, however, costs money.

The RTC is having trouble selling many of the ailing institutions. So far, the RTC has found buyers for 51 thrifts with assets of $30 billion but still holds 350 banks worth $190 billion.

The government expected it to be easier to sell the thrifts. According to William Roelle, director of the resolutions and operations division of the RTC, the government identified 7,668 potential buyers. Some 2,454 attended bidders conferences but only 263 looked closely at the properties and 194 actually submitted bids. ``The RTC has seen many shoppers but far fewer bidders,'' says Mr. Roelle.

To speed up the process, the RTC is beginning ``Operation Clean Sweep,'' which will target the 50 thrifts with the most seriously impaired balance sheets. Clean Sweep will transfer only deposits. Assets will be sold separately. This will cut the time and expense of selling the thrift.

The government is also having difficulty liquidating $4 billion in junk bonds owned by thrifts placed in conservatorship. According to Elisabeth Spector, an RTC director, only 40 of the bonds are actively traded. So far, Ms. Spector says, the government has sold $400 million of bonds without disrupting the market. But sales of the bonds are expected to take a long time.

Further compounding the government's task is a recent court decision that found the OTS violated the US Constitution by allowing the agency's director to be appointed without Senate confirmation. Until the lawsuit is either overturned on appeal, or a new director is approved by the Senate, Roelle says the effect is to freeze the process.

T. Timothy Ryan Jr., the Bush administration's nominee to run OTS, ran into criticism from senators last week for his lack of experience in the industry.

The lack of leadership at the OTS has prompted some lawmakers to introduce legislation eliminating the federal agency. ``We cannot allow the marginal S&Ls to be supervised by a paralyzed regulator at this critical juncture,'' says Rep. Charles Schumer (D) of New York, who has introduced one of two bills to turn over the OTS's responsibility to the Comptroller of the Currency and the Federal Reserve Board. Rep. Jim Leach (R) of Iowa has introduced similar legislation.

Sen. Bob Kerrey (D) of Nebraska wants to restructure the RTC to be run by an expanded board of governors. ``Unlike the present system, this bill would give the new board of governors the authority to respond quickly and work with the RTC staff to execute the law,'' says Senator Kerrey. A similar bill has been proposed in the House by Rep. Bruce Vento (D) of Minnesota.

Sen. William Roth Jr. (R) of Delaware has introduced legislation to require only 50 percent of a thrift's portfolio to be in housing-related assets. FIRREA has a 70 percent requirement.

Rep. Henry Gonzalez (D) of Texas, chairman of the House Banking Committee, is expected to propose reforms in the federal deposit insurance system.

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