Local thrifts eye creation of bank subsidiaries.

Deposit insurance cost differential becomes issue

L. A. County-based thrifts Home Savings of America, First Federal Bank and CenFed Bank may set up bank subsidiaries in order to pay the lower deposit insurance fees that federal regulators are proposing for banks, officials from those thrifts told the Business Journal last week.

However, some top local thrift industry executives, including Irwindale-based Home Savings Chief Executive Officer Charles Rinehart, were in Washington last week lobbying federal regulators and legislators for a compromise that would avoid forcing thrills to pay almost six times the deposit premiums that banks pay.

Currently, both banks and thrifts pay an annual insurance premium of 23.5 cents per $100 in deposits. That money is used to pay depositors when banks and thrills fail.

But the Federal Deposit Insurance Corp. has proposed lowering the premium to 4.5 cents for banks, while leaving it at 23.5 cents for thrifts. I

The proposal could go into effect this summer.

Thrift officials have fought back against the proposal by threatening to set up a bank in addition to the existing thrift and then siphoning deposits from the thrift to the bank.

Charlotte Chamberlain, thrift analyst with L.A.-based Wedbush Morgan Securities, explained the way it would work is thrift customers would be confronted with a bank and a thrift within the same branch.

Thrills may "paint some of the teller stands red and some blue.... You have to be able to clearly discern which is the bank and which is the thrift," Chamberlain said.

Then, longtime thrift customers will be "enticed" to transfer their deposits to the bank with the lure of higher interest rates at the bank within the thrift, Chamberlain said.

The reason for the proposed disparity is that the bank insurance fund is healthier than the one for thrifts, partly because there have been more thrift failures, regulators say.

It is not fair to penalize the survivors for the savings and loan crisis, said Louis Nevins, president of the California League of Savings Institutions, who was in Washington last week to lobby lawmakers. The surviving thrifts "did not cause those failures." he added.

Searching for solutions

Nevins said last week he believes Congress will ultimately act to find a solution which will either narrow the disparity in the proposed premiums or will make them equal.

A House subcommittee has been looking into deposit insurance problems and federal lawmakers have been discussing introducing bills in Congress to resolve the problem, Nevins said.

Chamberlain said, "We're coming to a rolling boil on this issue and Congress at this point may want to decide if we want a separate thrift industry or not."

Some options being discussed, he said, include merging the bank and thrift insurance funds or having banks pay into the savings and loan insurance fund.

Nevins said if regulators cut the premium for banks and not for thrifts, several thrifts in California and across the country will take out bank charters and move deposits to their new bank subsidiaries.

If the strongest thrifts cut back payments into the fund by reducing deposits, the burden on smaller thrifts - which cannot afford to shell out $100,000 to $200,000 to take out a bank charter - and weak thrifts, which are under regulatory restraints, would increase, Nevins said.

Chatsworth-based Great Western Bank, the second largest thrift in the U.S., started what may become a trend by announcing on March I that it had applied for bank charters for its branches in California and Florida.

CalFed acts

Last week, Miracle Mile-based California Federal Bank followed suit, announcing that it was preparing to seek a national bank charter.

In response to inquiries by the Business Journal, officials for at least three other locally based thrifts, including Home Savings of America, the nation's largest thrift, said they were also considering taking out bank charters.

Mary Trigg, spokeswoman for Home Savings of America, said applying for a bank charter is one of several options the thrift is considering to deal with the proposed premium disparity. She declined to reveal the other options.

"If the banks' premiums are dropped and ours are not, it puts us at a significant disadvantage," she said. "I can tell you that (Home Savings CEO) Charlie Rinehart just left to go to Washington today to meet with regulators and congressmen to get them to see our side of the issue."

Babette Heimbuch, president of Santa Monica-based First Federal Bank, said her thrift is "definitely looking" into taking out a bank charter.

She added that she was concerned a charter may be difficult to obtain if there is a flood of applications.

Pasadena-based thrift CenFed Bank also is eyeing seeking a bank charter and has hired lawyers to study the issue, reported Chief Executive Tad Lowery.

Campbell Chaney, an bank and thrift analyst with Chicago-based investment firm Rodman & Renshaw Inc., said announcements by Great Western and CalFed are political actions.

"I think it's a political ploy to bring attention to the disparity between the premium rates and to show that the thrifts do have some recourse," Chaney said.