WASHINGTON -- Federal regulators proposed yesterday that savings and loan institutions be permitted to convert to state-chartered savings banks.
The measure, which has been pushed hard by savings and loan lobbyists, would further blur the lines between different kinds of savings institutions.
It was viewed by some experts as another step in an industry consolidation that would inevitably lead to the demise of savings and loan associations.
The proposal was made by the Federal Deposit Insurance Corp., which insures deposits at the nation's banks and savings institutions.
The proposal appears to narrow a rift between regulators over an issue that has been hotly debated in state legislatures that are also considering measures to enable savings and loan associations to convert to state-chartered savings institutions.
The new regulation has the support of FDIC Chairman L. William Seidman. In recent weeks, however, T. Timothy Ryan Jr., director of the Office of Thrift Supervision and a member of the FDIC board, has strongly opposed easing the current rules and blocked applications by 14 savings and loan associations to convert.
Mr. Ryan has maintained that the savings and loan industry was merely seeking to avoid the requirements of the federal law adopted last year that imposed stringent restrictions on savings and loan institutions, increasing their capital requirements and limiting the types of speculative investments they can make in areas such as "junk" bonds.
Savings and loans, for instance, must invest 70 percent of their assets in home mortgages, which in many parts of the country are becoming less profitable as real estate values decline.
State-chartered savings banks in many states have only a 60 percent mortgage lending requirement.
The conversion measure is expected to have little effect on consumers. Institutions that convert would no longer pay annual fees to the Office of Thrift Supervision.
Savings and loan officials have cited the fees as a principal reason for converting. But those costs typically have been passed on to customers.
Mr. Ryan stopped short of outright endorsement yesterday but said he was satisfied that the proposal addressed many of the concerns he had about the power of converted institutions to make risky investments.
Industry executives applauded the proposal and predicted it would be adopted shortly after the 30-day comment period ends.
"Today's action should clear the way for well-capitalized, well-managed S&Ls to change charters and get away from the burdensome and unnecessary fees associated with being an S&L regulated by the Office of Thrift Supervision," said Mark J. Riedy, president of the National Council of Savings Institutions.