Statement of Administration Policy: H.R. 5432 - Federal Savings and Loan Insurance Corporation Recapitalization Amendments of 1988

(House)
(LaFalce (D) New York)

The Administration supports enactment of the remaining $5 billion in industry self-help financing for the Federal Savings and Loan Insurance Corporation (FSLIC) and the elimination of the annual borrowing cap. The Administration first requested a nontaxpayer-financed recapitalization plan in May 1986.

The additional resources in H.R. 5432 will assist FSLIC in resolving its caseload of insolvent savings and loan associations, the majority of which are located in the southwest United States. Since Congress finally passed the Administration's recapitalization plan in August 1987, the FSLIC has resolved 142 cases in FY 1988. The public has benefitted from such action to date: insured depositors are protected; unfair competition and poor managers are eliminated; and the cost of funds for other financial institutions in local markets is reduced.

The Administration strongly opposes section 7 of H.R. 5432, which for the first time would impose rigid, statutory requirements for minimum outside capital before insolvent institutions can be merged or purchased. While the Administration has consistently supported higher capital requirements for the S&L industry and new ways to attract capital, the practical effect of section 7 is to place a moratorium on FSLIC's ability to resolve its substantial caseload in an effective and cost-efficient way.

The Administration will seek to eliminate section 7 in the Senate. If enacted in its current form, section 7 would defeat the purpose of authorizing additional borrowing authority and could force FSLIC into a legislated gridlock in terms of progress with its case resolution.