At first glance, it looks as if the US League of Savings Institutions is trying to make life more difficult for its members. The League is calling on regulators to crack down on the savings and loan industry which it represents, an unusual stand for any trade association.
But Gerald Levy, who became chairman of the Chicago-based organization last year, insisted that the League is not calling for re-regulation of the industry. The last thing it wants is new rules. Instead, he said, it wants the regulators to crack down on the mavericks who are thumbing their noses at the system and bringing the industry into disrepute.
"We don't want regulations and policies that burden the majority for the sins of the few while, in fact, a few institutions continue to operate irresponsibly and multiply. We'd like to take a rifle approach and deal forcibly with them," Levy told Chicago thrift managers in his first major address as League chairman last November. "We must encourage the supervisors and examiners to act quickly and deal forcefully with the institutions that continue to violate the principles of safe and sound practices."
This approach marks a departure from tradition for the League, as Levy readily admits. "In the past, the League tried to keep its members happy," he said in an interview. "For a long time it's been a consensus lobbying group; over the years it's been accused of trying to keep everyone happy. Now we're in a different period, and there will be some who don't like our tough stance."
Founded more than 90 years ago, the US League represents 3,400 savings and loan associations and savings banks. It is a powerful and effective lobbying force in Washington, as it speaks for such a large part of the industry. But, in marking some of its members for regulatory retribution, and calling for tougher standards, schisms are beginning to appear. Differences are surfacing over regional issues, while large and small thrifts are finding that their interests do not always coincide. "Yet we've held it together," said Levy, who is also chairman of Guaranty Savings and Loan of Milwaukee. "We may break apart on some issues but we come together in strength on the major ones, when necessary."
In calling for tougher enforcement of the regulations, the League is not just giving vent to a holier-than-thou attitude. The bottom line is money; money that most of its members want to keep, rather than hand over to vail out the system.
Behind it all is the financial distress of the Federal Savings and Loan Insurance Corporation (FSLIC), which is in danger of being overwhelmed by the number of thrifts that remain mortally wounded, following the sharp jump in interest rates from 1979 to 1982. The casualty list includes many of the cowboys: those who gambled on risky investments to make up past losses, and ended up losing still more.
To protect itself, the FSLIC last year levied the whole industry for an additional $1 billion contribution to its deposit fund; the US League fought off a proposal for an additional assessment that would have yielded another $8.5 billion. Last year, the thrift industry paid more in absolute terms for deposit insurance than the whole US banking system, which has two-and-half times more deposits.
As Levy said: "We're paying for those who took risks with our capital. Now we're saying 'enough'."
Healthy, responsible institutions are tired of paying for those who gambled and lost. And healthy thrifts are now the solid majority. In 1985, some 85% of the industry generated near record profits of $3.8 billion, while the number of thrifts classified as problem institutions by the FSLIC fell 11% to 656 from a peak of 738 at the end of 1984.
Levy believes that this new-found profitability should be used to strengthen the industry rather than be channelled into new growth. The League is calling for thrifts to be forced to build their net worth to 6% of total assets, compared with the 3% now required by the FSLIC. This higher level, which is comparable to that demanded of commercial banks, would be phased in over seven years.
Levy pointed out that the deregulation of recent years, which made life tougher and riskier for thrifts, was not accompanied by any increase in capital requirements. The result: thrifts could leverage up almost to infinity. "We just can't go on that way," he insisted.
Levy is also proposing a re-examination of the system that allows capital to be measured as an average over five years. It should be tallied on a current basis, he said. "Some of these proposals will cause some grumbling, there's no question about that," Levy acknowledged. "But, with the threats and challenges from the Reagan administration, Congress and other financial institutions, we're fighting for our survival."
Stronger balance sheets are vital if the industry is to craft solutions to its problems, break new ground and allow the greatest possible number to survive, he believes.
The plight of the FSLIC is perhaps the biggest single issue confronting the US League at present. The League adamantly opposes any suggestion that the FSLIC be merged with the Federal Deposit Insurance Corporation (FDIC), which insures deposits at commercial banks. To counter this, and other, proposals, it has come up with some alternative suggestions of its own.
The League has proposed a rescue plan under which thrifts would contribute $1.75 billion to the FSLIC over the next three years, through special assessments, while the Home Loan Banks would make available $1.87 billion over the next two years. After including the FSLIC's other revenue from premiums and investment income, the League estimated that its plan could provide the FSLIC with more than $20 billion over the next 10 years.
Despite its Washington emphasis, the League is more than just a lobbying group. Some 400 staff in Chicago run a host of departments and affiliates that provide a broad spectrum of services to members, from research and education to national advertising. These affiliates were reorganized last year and now include two "for profit" subsidiaries. One of them, US League Services Inc, has been instrumental in finding scarce fidelity bond insurance and directors' and officers' liability coverage. The other, US League Investment Services Inc, represents a major commitment by the League to provide a complete array of investment services to members; as of late last year, more than 600 thrifts had deposited over $1 billion into its asset management fund.
Last summer, in collaboration with Salomon Brothers, the League also launched a collateralized mortgage obligation programme that quickly attracted 30 thrifts as participants and more than $750 million in collateral.