Great Western opening 'real' banks in branches.

Thrift reacts to disparity in deposit insurance rates

CHATSWORTH - In what may signal the beginning of the end of the thrift industry, Great Western Bank, the nation's second largest S&L, will open branches of its new "national bank" inside existing thrift branches later this year.

The Office of the Comptroller of the Currency granted Chatsworth-based Great Western a national bank charter on Aug. 2. Great Western plans to open its new bank by setting up bank-teller stands within existing savings-and-loan branches.

Once the new bank is open, Great Western plans to entice customers to switch. The institution wants to siphon the majority of its $30 billion in deposits from the old thrift into the new bank in about a year, said Ian Campbell, a senior vice president for Great Western.

Great Western could save millions in lower deposit insurance premiums if a majority of its deposits are moved from the thrift to the bank, he said.

Savings and loans currently pay 23 cents in annual insurance premiums for every $100 in deposits, while most banks pay a flat annual fee totaling $2,000.

Great Western currently pays about $70 million a year in deposit insurance, for example, while San Francisco-based Bank of America pays just $2,000.

The disparity in premiums is caused by the fact that there are two different insurance funds. The bank insurance fund, called BIF, is over-capitalized, while the savings association insurance fund, called SAIF, is under-capitalized.

The insurance issue is a big concern at thrifts across the United States. A number of S&Ls have applied or plan to apply for a bank charter.

Ray Martin, chairman and CEO of Coast Federal Bank, said that the downtown L.A.-based thrift plans to file an application for a bank charter within the next few months. Martin predicted that the OCC's approval of Great Western's application will spur a "tidal wave" of bank charter applications from other thrifts.

Meanwhile, Babette Heimbuch, president of First Federal Bank, and Tad Lowery, president of CenFed Bank, said that Great Western's move could force Congress to fix the disparity between the BIF and SAIF.

There have been numerous plans before Congress in the past few years to merge the BIF and SAIF and allow thrifts to pay the same low insurance premiums that banks pay. But so far, those proposals have stalled.

Charlotte Chamberlain, an analyst with Wedbush Morgan Securities in L.A., speculated that Congress might decide to merge the two funds this fall, which would make moot Great Western's plans to open a national bank.

"They could be grabbing defeat from the jaws of victory," she joked.

Great Western officials acknowledged that Congress could pass a measure equalizing the two insurance funds before they are able to set up the new bank. But Campbell said that thrift officials have grown tired of waiting for Congress to act.

Joe Morford, an analyst with Alex, Brown & Sons in San Francisco, said the action by Great Western is a significant step toward "blurring the lines" between banks and thrifts.

"I wouldn't be surprised if we saw just one single industry five years from now," Morford said.

Great Western plans to set up a commercial hank subsidiary with California home offices at Great Western's former Beverly Hills headquarters, Campbell said.

Some executives may be moved from Chatsworth to Beverly Hills, but the employment impact on the Chatsworth headquarters would be minimal, Campbell said.

Using signs and barriers, Great Western will physically divide certain branches into two institutions, the savings bank and the national bank, according to Tim McGarry, a Great Western spokesman.

"We will go out of our way to make it clear what institution they are dealing with - the national bank or the savings bank."

Long-time customers with accounts at the old savings bank will be encouraged to move deposits into the new national bank.

The name of the national bank had not yet been decided, he said. Great Western officials also are working to pick the branches where the new, national bank will be launched, he said.

The company plans to roll out the new bank slowly, McGarry said.