Senate Banking Committee Passes Budget Legislation to Merge Savings Institutions and Banks

The Senate Banking Committee passed budget legislation that aims to eliminate the last differences separating the nation's savings institutions and banks. This move follows a similar vote by the House Banking Committee on Tuesday night to combine the two industries' separate deposit insurance funds. The legislation also requires savings institutions to make one-time payments totaling $6 billion early next year to top up their badly depleted fund and prepare it for the merger. Savings industry executives have volunteered to pay the $6 billion to avoid higher deposit insurance premiums, which would have been unsustainable for their industry.

Key Takeaways:

• The Senate Banking Committee passed budget legislation to merge savings institutions and banks, following a similar vote by the House Banking Committee on Tuesday night.
• Savings institutions will need to make one-time payments totaling $6 billion early next year to top up their fund and prepare it for the merger.
• The merger aims to eliminate the last differences separating the nation's savings institutions and banks.
• The Clinton Administration recommended the merger of the funds in late July and is drafting a detailed plan for converting savings institutions into banks.
• The Senate bill passed without opposition on a voice vote, while the House bill passed on a party-line vote of 26 to 20.
• Senator Alfonse M. D'Amato of New York, the chairman of the Senate Banking Committee, warned that if savings institutions had to pay higher deposit insurance premiums than banks, they would be unable to compete and would eventually collapse.
• Bankers initially opposed sharing their deposit insurance fund with savings institutions, particularly because the savings industry's fund will pay $793 million a year in interest through 2019 on bonds issued in connection with the bailout of the 1980s.
• The merger of the funds would require banks indirectly to bear part of the burden of the savings industry's $793 million annual interest payments.
• Senator D'Amato expressed concerns that the merger of the funds could lead to a single objective at the Federal Reserve, which is currently required to pursue stable prices, low unemployment, and stable long-term interest rates.

Statistics:

• The one-time payments totaling $6 billion from savings institutions to top up their fund and prepare it for the merger.
• The savings industry's fund will pay $793 million a year in interest through 2019 on bonds issued in connection with the bailout of the 1980s.
• The Senate Banking Committee passed the budget legislation on a voice vote.
• The House Banking Committee passed the legislation on a party-line vote of 26 to 20.
• The merger of the funds is expected to be completed by January 1, 1998.
• The Clinton Administration is drafting a detailed plan for converting savings institutions into banks.

Sources:

• "Senate Banking Committee Passes Budget Legislation to Merge Savings Institutions and Banks" (author unknown)
• Senate Banking Committee (no date)
• House Banking Committee (no date)
• The New York Times (no date)
• Senator Alfonse M. D'Amato of New York (no date)
• Senator Connie Mack (no date)
• The Federal Reserve (no date)
• Alan Greenspan (no date)
• Alan S. Blinder (no date)