William J. Ottey is worried he has seen this before.
Congress tries a home repair on the banking industry, and before you know it the pipes leak, the doors stick and the windows don't fit.
It happened just a couple years ago, when Mr. Ottey, president of Irvington Federal Savings and Loan Association in Baltimore, saw new accounting rules suddenly force a big loss on his $45 million thrift.
Now, like other bankers and thrift executives in Maryland, Mr. Ottey is waiting to see what fixes the new federal banking bill has in store. One provision could force regulators to take over undercapitalized banks and thrifts whether they want to or not, and that's why he is worried.
"I think Congress is continuing to hamper the ability of the regulators to work with savings and loans that were not criminals what I call 'high-fliers' but are strictly in trouble because of new laws," said Mr. Ottey, whose thrift is working under a capital plan signed with regulators. "They are taking away the regulators' ability to work with those thrifts."
The new bill, which was passed by Congress the day before Thanksgiving and is awaiting President Bush's signature, has bankers and thrift executives both relieved and fearful. They are thankful that a number of provisions, such as a cap on credit-card interest rates, were removed. But they haven't had time to examine the law's final version and they don't know how regulators will interpret it.
Major provisions of the 436-page Comprehensive Deposit Insurance Reform and Taxpayer Protection Act are well-known. The bill did not give banking companies the broad new profit-making powers some, including MNC Financial Inc., wanted, but it did add to the industry's cost of regulation.
The bill strengthened the regulatory system but weakened the power of individual regulators.
It gave some institutions, such as Standard Federal Savings Bank in Gaithersburg, new breathing room. But it also confronted others, such as Irvington Federal, with new restrictions.
It bolstered the insurance fund that protects depositors' money and outlawed the practice at Sovran Bank/Maryland and elsewhere of allowing interest to be paid on just a portion of deposits. But it also promises to raise the cost of banking for those same depositors.
The most important aspect of the proposed law was the refinancing of the Bank Insurance Fund. "If they didn't do that, the whole economy would collapse," said David S. Penn, banking analyst with Legg Mason Inc. in Baltimore.
The bill would allow the Federal Deposit Insurance Corp. to borrow up to $70 billion from the Treasury to replenish the nearly exhausted insurance fund. Of that amount, $40 billion is expected to be repaid from the sale of assets that the government obtained from failed institutions. But the rest is to be paid back within 15 years from the industry's coffers -- meaning it will probably come from depositors' pockets.
"It is definitely a cost of doing business, and I think certainly some of it would be passed along to consumers," said Michael C. Middleton, executive vice president at MNC Financial, parent of Maryland National Bank and American Security Bank in Washington. "You can only afford to absorb costs for so long."
FDIC Chairman William Taylor already has suggested that banks' insurance premiums will rise in the middle of next year to 30 cents for each $100 in deposits from the current 23 cents.
Two years ago, the premium was 8.3 cents for every $100 in deposits.
Moreover, the bill could increase the cost and frequency of bank examinations. Such additional costs also are expected to be passed along to consumers.
Costs aside, the bill could help consumers.
A key provision would force lenders to more fully describe the terms of checking and savings accounts. Regulators have until early 1993 to establish the rules, which should force banks to provide customers with a clearer understanding of the fees charged and interest paid on their accounts.
That's "the heart of the bill," said Michelle Meier, counsel for government affairs at Consumer's Union, publisher of Consumer Reports magazine.
The bill also would require banks to pay interest on 100 percent of an account's balance. Some banks and thrifts, including Sovran Bank/Maryland and Chevy Chase FSB, pay interest on 88 percent of their customers' NOW accounts, arguing that Federal Reserve requirements do not allow the bank to earn money on the other 12 percent. The effect of that policy lowered an advertised 5 percent rate, for example, to 4.4 percent.
The bill's most controversial provision dictates regulators' actions toward a troubled institution. Even that, however, leaves many questions unanswered.
The provision was aimed at ending the forbearance that regulators have been accused of granting, leading to higher bailout costs. The guidelines could strip regulators of some discretionary power, forcing them to act when banks or thrifts show signs of trouble.