Date: 1982-05-20
Speaker: ST GERMAIN (democrat)
Chamber: H

Mr. Chairman. I rise in opposition to the substitute offered by our colleague. Mr. WYLr. As you know. the bill reported by the committee establishes a temporary program to bolster the net worth of depository institutions. expecially that of the Nations thrift institutions which have done so much to provide vital mortgage credit for our citizens. The bill fashions a program which balances our need to avoid major cash outlays by the Government and which realistically helps those institutions which are suffering from the devastation caused by high and volatile interest rates. Mr. WYLIE has offered a substitute for the program provided under the committee bill. At the outset. I want to commend Mr. WYLIE for his efforts over the last 2 years in seeing that the committee addresses the problems evident in our financial system today. The committee has benefited from the bipartisan spirit of cooperation in trying to develop proposals which affect our Nations depository institutions. I do. however. have serious reservations about the specific proposal offered by Mr. WYLIE. and I would like to take a few minutes to talk about some points which all of you should consider as you make your decision on how to vote on the substitute. First. the committee bill provides a limitation on the amount of guarantees which may be outstandir.g as a result of providing assistance to quallflied institutions. and this limitation is coupled with an authorization to appropriate such sums as might be needed to make required payments under the act. The committee. however. does not anticipateand the Congressional Budget Office cost estimate supports this viewany cash outlays under the program. Thus. the committee bill provides a real backing for the guarantees issued under the provisions of the act. but it avoids direct cash outlays. The substitute. on the other hand. because it relies on a program established earlier by the agencies. would entail an estimated $1.2 billion in actual cash outlays by the FSLICcash outlays which show up in calculating the budget deficits. Second. the committee bill directly addresses the need for a temporary backup of the insurance funds to make the guarantee program believable. The substitute does not and instead relies on a funding by the existing deposit insurance funds. which many fear are inadequate. For example. the FSLIC fund has liquid assets composed of cash and investments. The latter are Government securities. The market value of those securities is estimated to be $3.0 billion. Those funds provide the backing for any guarantees which might be issued by the FHLBB under the Wylie substitute. They also must provide the backing for the existing contingent liabilities of the FSLIC fund. Those contingenciesprimarily losses which will result from assistance plans already operatingwill rise very rapidly over the next 2 years. Given present interest rates. those contingencies alone will use up the entire amount of the securities in the fund. How can we realistically expect that the public and the investing community will accept that those funds can also support almost $7 billion in income capital certificates to be Issued by the FHLBB under the Wylie substitute? And. of course. the outlays required under the Wylie plan must come from the FSLIC fund. The committee bill addresses this issue. It provides a separate account to back up net worth guarantees. It also responds more forthrightly to the concerns evidenced. by the Chairman of the FHLBB about the need for a backup of the insurance fund. Chairman Pratt has proposed as early as March of this year that the FSLIC fund needs additional support. He suggested that language be added to the FSLIC act providing that the full faith and credit of the United States stands behind the fund and language increasing the Treasury borrowing authority of the fund. This was opposed by the administration. He reiterated this concern when he testified before the Banking Committee. and in response to a question stated: A line of credit sufficient to cover FSLIC securities issued in conjunction with an assistance program would largely eliminate the default risk likely to be associated with such a program instituted with a more limited line of credit. This would help both assisted institutions and the thrift industry generally to continue to hold and secure deposits and to tap money and capital markets in their efforts to restructure through enhancing the confidence of the financial community in the ability of the FSLIC to carry out its basic insurance function. The committee bill answers these concerns by providing a separate guarantee account in the Treasury sufficient to back up the net worth guarantees issued pursuant to the act. Third. the committee bill recognizes the value of locally organized and managed institutions and is designed to provide a breather for those institutions which. given some time. can be viable providers of financial services for their communities. Under the substitute. many viable institutions would. because the assistance provided by the substitute is not sufficient to prevent a continued reduction in net worth. be forced to merge with other institutions. many of which are not even in the same State let alone community. We have all heard about the interstate mergers putting together institutions in California. New York. and Florida and other combinations. I would want to know how the owners in California will really know the needs of local communities to be served in New York. Florida. or Missouri. The substituteusing the numbers on which the proponents base their argumentsshows that almost 1.700 institutions would be subject to forced merger by the end of 1985 under that program. I want to emphasize that.number: 1.700. That is 1.700 out of 3.700 savings and loans in the country today. Fourth. I feel compelled to address concerns that have been raised by a document produced by the staff of an accounting organization. As previously noted. the committee bill provides that the full faith and credit of the U.S. Government is behind the guarantees authorized by the act. That backing is. I believe. of greater value than the backing provided by the substitute and will provide ample assurances to depositors and the investing community that the net worth guarantees provided by the act are real. If those individuals wish to rely on a "green eyeshade" opinion of a staff of an accounting organization. then I say. "So be it". I would rather believe that the full faith and credit of the U.S. Government means exactly what that phrase statesthe money will be paid if needed. As I understand the objections raised by the accounting staff. any guarantees. whether they are provided by the Net Worth Guarantee Act or another program like the substitute or the existing ICC program. must provide probable future economic benefits that contribute directly or indirectly to future net cash inflowsof the firm. must provide that the firm have control over the assets. and must provide that the assets are in fact of value to the firm. I submit that the net worth guarantee program meets these -criteria because the guarantees will provide confidence in assisted institutions and the industry. they will provide indirect economic benefit through an improved cash flow. and more importantly. without those guarantees. the firm might not exist in the future. In addition. the substitute and the existing ICC program may be lacking in essential criteria. The "green eyeshade" types have not provided to date an opinion on the existing ICC program or that of the substitute. The existing ICC program only has the support of individual accounting firmssupport which may not be the most enthusiastic that I have ever known. It also does not provide an asset which the entity receiving the assistance can control. The FSLIC promissory notes issued to buy the ICCs may state that they are transferable to third parties. In reality the agency requires the institution to immediately use the note as collateral for FHLBB advances. In addition and most importantly. the existing promissory note and that envisioned by the substitute is backed. as I mentioned. by extremely limited resources and thus may be viewed as having limited value. The committee bill relies instead on the Treasury of the U.S. Government. In conclusion. I urge you to support the committee bill. It is a better approach to the problems of the industry. The substitute is lacking.