The long-discussed consolidation of the nation’s banks and savings and loans into one industry is slated to move a step closer to reality next week.
The U.S. Treasury Department faces a March 31 deadline for delivering its recommendations on how to combine the federal banking and S & L; charters into one, a consolidation that would eliminate thrifts as a separate industry.
The requirement for the Treasury Department to prepare the report was part of federal legislation adopted last year that requires the bank and S & L; industries’ deposit insurance funds, which are now separate, to be merged into one fund as of Jan. 1, 1999.
In ordering the merger of the two insurance funds, Congress stipulated that the fund merger can occur only if no S & Ls; exist as of Jan. 1, 1999.
What that means, according to officials of both industries, is that Congress must adopt a new, unified charter for banks and S & Ls; between now and the 1999 deadline. That unified charter is a prerequisite for the nation’s S & Ls; to be melded into the banking industry.
“What Congress is saying is that we’re going to merge the two insurance funds, but as part of that merger we’re also going to merge the two charters,” said Louis Nevins, president of the Western League of Savings Institutions, a regional industry trade group.
In general, the consolidation has the support of both industries, which formed a task force in November to make recommendations for a new charter.
Barry Rubens, principal California Research Corp., a Santa Monica financial industry consulting firm, said it’s unclear how long it will take to combine the charters because Congress may decide to overhaul the entire financial industry.
“It’s definitely going to happen, but there’s some confusion about the timetable because the charter may be tied to the whole modernization of the financial system,” Rubens said.
Rubens and officials from the banking and thrift industries agreed, however, that when Congress does combine the two charters, it will probably be “business as usual” for both banks and S & Ls.;
“Washington is simply catching up to what has already happened. There has already been an enormous coming together of the two industries,” Nevins said.
He added that banks and S & Ls; have become so similar over the past 30 years that the combining of the charters amounts to little more than Congress changing the law to reflect reality.
“There are nuances that are different, but the charters are very much alike,” Nevins said. “Most of the customers in both industries today don’t know or care whether they’re dealing with a bank or an S & L.;”
The typical thrift of today bears little resemblance to its counterpart of the 1960s. Formerly required to keep nearly all of their assets in home mortgages, S & Ls; now maintain much less of their assets in mortgages and are allowed to make a much broader range of business and consumer loans.
Meanwhile, many community banks have gotten into home mortgage lending and have balance sheets that more closely resemble those of a traditional thrift.
Rubens said the shift is evident in mergers and acquisitions in the two industries, as well as in the similarity of services they now offer.
“Most major S & Ls; have already bought banks and have a great deal of checking accounts, credit card accounts and other banking-type accounts and services,” Rubens said. At the same time, he said, more banks are making long-term home loans.
David Burgess, vice president at the California Bankers Association, said one reason the industries already resemble each other is that some regulations have already been changed.
For example, S & Ls; were formerly required to keep 80 percent of their assets in “qualified thrift investments,” which in the past were defined almost exclusively as home mortgages.
But the test has since been changed to require that only 65 percent of an S & L;’s assets must be in qualified thrift investments, Burgess said, and the definition of qualified thrift investments has been broadened to allow thrifts to include small business loans, auto loans, and certain other consumer and commercial loans.
Burgess said that before Congress can agree on a single charter, it will probably hammer out details about which provisions of each of the two charters should be included in the consolidated version. While that’s happening, Rubens said, the number of S & Ls; will continue to shrink because the overriding trend is for banking to be the surviving industry.
“At one time, there were 200 S & Ls; in California, but today there are about 55, and I expect that to drop down to about 50 within the next year,” Rubens said.
Besides recommendations on how to merge the bank and S & L; charters, the Treasury Department’s report is expected to include proposals for legislation and other changes required to consolidate the two industries.
That includes a proposal on how to merge the OTS with the Office of the Comptroller of the Currency, which regulates banks, according to spokesman Bill Fulwider of the Office of Thrift Supervision.
Fulwider said the two other primary agencies that regulate banking, the Federal Deposit Insurance Corp. and the Federal Reserve, are expected to remain intact.
These changes will hardly be noticed by banking customers, according to industry officials, who believe the impact of merging the two insurance funds and the two charters will be negligible from a customer’s point of view.
“If anything, the public will be able to get banking services and products more readily than ever before,” Nevins said, adding that the consolidation probably won’t affect the pre-existing pace of mergers occuring among banks and S & Ls.;