Federal regulators offering sky-high interest rates Offerings apparently violate the agency's own policies.

July 24, 1991|By Los Angeles Times

WASHINGTON -- Federal regulators who are managing nearly 200 insolvent savings and loan associations are offering extraordinarily high interest rates to lure wealthy depositors -- apparently in violation of their own policies.

The regulators began the practice, which threatens to add billions of dollars to the cost of the government's bailout of the S&L industry, without telling Congress, which must pay for the failures.

Agency officials estimate that more than $8 billion worth of such high-rate deposits have flooded into the thrifts taken over by the government since regulators began to offer the higher rates -- increasing the costs of operating those S&Ls.

Officials at the Resolution Trust Corp., the federal agency that oversees the bailout operation, admit that they have been pursuing so-called

"hot money" from large investors in an effort to stave off the collapse of some of the S&Ls now being run by the RTC.

The interest rates being paid by these government-run S&Ls are significantly higher than those currently being offered by healthy thrift institutions and banks.

In many cases, the rates at the government-run S&Ls are nearly half a percentage point above those offered by privately held institutions and have attracted brokerage firms and other affluent investors who scan the country looking for the most favorable rates.

The move has sparked complaints from the banking industry, which contends that it is facing unfair competition. And it is angering congressional leaders, who must try to sell other lawmakers on the need for another $80 billion to help pay for the S&L bailout.

RTC officials said that they started to offer above-market interest rates to large depositors because the government does not have enough money to shut down and liquidate every failed S&L that it has seized.

The RTC's Oversight Board, a high-level panel that helps set RTC policy, has quietly agreed to let the RTC pursue "hot money" to keep

some S&Ls alive so that the agency can concentrate the bulk of its funds on thrifts that must be closed immediately.

RTC officials said that they started to offer above-market interest rates to large depositors because the government does not have enough money to shut down and liquidate every failed S&L that it has seized.

The RTC's Oversight Board, a high-level panel that helps set RTC policy, has quietly agreed to let the RTC pursue "hot money" to keep some S&Ls alive.

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