Bill Would Allow S&Ls; to Convert to Savings Banks

State legislators are considering a bill that would allow Home Federal Savings & Loan and other California S&Ls; to escape the federal government’s troubled S&L; deposit-insurance fund by becoming state-chartered savings banks that would be insured by the relatively healthy Federal Deposit Insurance Corp.

Senate Bill 2700, introduced last month by state Sen. Barry Keene (D-Benecia), would also help certain FDIC-insured banks gain access to lower-cost funds from the Federal Home Loan Bank Board.

Home Federal, which is based in San Diego, began lobbying Keene and other legislators last year to create the savings bank charter legislation. That lobbying campaign started after the financially troubled FSLIC began assessing healthy S&Ls; for additional premiums. Great Western Financial Corp. of Beverly Hills also has lobbied for the new savings bank charter, analysts said. California law now allows only for S&Ls; and commercial banks. But 20 other states, including Oregon, Washington and Alaska, allow a third type of institution, the state-chartered, FDIC-insured “savings bank.”

Keene introduced the bill because “California institutions are at a competitive disadvantage with institutions from other states,” Keene spokesman Terry Frost said in Sacramento.

“The real benefit I see from this legislation is that institutions will have one more charter to choose from,” said Kirt L. Kicklighter, a San Diego attorney who specializes in financial-institution regulations. “Having another charter available should make regulators more responsive to the industry’s needs.”

More Commercial Loans

The proposed savings banks, like S&Ls;, would be most heavily involved in real estate lending. But the savings banks would be allowed to make a higher percentage of their loans to commercial customers than S&Ls; are allowed to do. Savings banks, which would be regulated by the California State Banking Department, would have to satisfy FDIC net-worth requirements that are much stricter than limits set by the Federal Savings and Loan Insurance Corp., the regulator of S&Ls.;

Consequently, the new charters would probably be most appealing to Home Fed and Great Western, both of which have “good, clean balance sheets and a high net worth,” said E. Gareth Plank, a vice president of research with the investment firm of Shearson Lehman Brothers in San Francisco.

About 70 S&Ls; in California, representing about 5% of the nation’s S&L; deposits, meet the FDIC’s net-worth requirements and would be able to switch to FDIC insurance now if state law permitted the move, according to Ray Mercado, a Home Federal attorney.

Home Federal’s deposit insurance premiums for 1988 would fall by at least $12 million if it were operating as an FDIC-insured state savings bank, according to a company spokeswoman. The S&L; would use those savings to provide “competitive pricing and a higher quality of service,” she said.

Warning Note

However, industry analysts suggested that the economic benefits associated with escaping FSLIC and joining FDIC could be dramatically reduced if FDIC becomes entangled in many more recapitalizations of large banks.

In the past two weeks, the FDIC has been struggling to save a $1.5-billion bailout package for Houston’s First City Bancorp that was pieced together earlier by the FDIC and private investors. The FDIC last week also made a $1-billion loan to troubled First Republic Bank in Dallas.

“We all know that FSLIC has tremendous problems, but . . . (the) FDIC is not immune to those types of problems in the future,” Shearson Lehman’s Plank said.