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Enclosed please find a copy of my recent letter to the
Honorable Edwin Gray, Chairman of the Federal Home Loan Bank
Board. I hope it is of interest to you.

This letter expresses once again my conviction that the
Board's proposed rule in the area of PSLIC-insured
state-chartered savings and loan associations ability to
make direct investments is unsound and unwise.

If you have any comments or questions on this matter, please do not hesitate to contact me.

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Enclosed please find a copy of my recent letter to the
Honorable Edwin Gray, Chairman of the Federal Home Loan Bank
Board. I hope it is of interest to you.

This letter expresses once again my conviction that the
Board's proposed rule in the area of FSLIC-insured
state-chartered savings and loan associations ability to
sake direct investments is unsound and unwise.

If you have any comments or questions on this matter, please do not hesitate to contact me.

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SPECIAL COUNSEL

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This afternoon at 3:00 you will be visiting with Norm Miller, William Hinz, Floyd Sedlmayer, David Dinnerline, and Donald Lewis who are the Arizona delegation of the U.S. League of Savings Institutions. They will want to discuss two issues specifically, and possibly a few others in general, all of which have to do with Thursday's markup of a Senate banking bill.

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First, the issue of the FSLIC recapitalization plan will arise. The League supports the recapitalization of the fund to the tune of $5 billion, which should last about two years. The Treasury wants far more maybe as much as $13-15 billion. Senator Proxmire is likely to offer a compromise of $7.5 billion which would last two and a half years and would have to be reauthorized again at the end of that period. It is also possible that Senator Gramm offer an amendment for a higher figure.

The reason that Senator Proxmire (and Congressman Wright) support the lower figures is that they fear FLSIC will start closing S&Ls that might be savable if they have too much money. I suspect, although no one has said this to me, that the likelihood of having to readdress the issue in such a short period of time is appealing to Senator Proxmire also because it will afford him another vehicle for other banking legislation in the same way that the urgent need for a FSLIC recap is giving him the opportunity to close the nonbank bank loophole and address other issues.

Finally, my reading of these numbers is that the industry will supply the vast majority, if not all, of the funds that are required so that no federal outlays will be made. I am not one hundred percent sure of this, however.

The second issue is the "forebearance" issue which may or may not have to do with Thursday markup. There are two parts of this issue. Fist, under current accounting procedures the FHLBB appraises the value of real estate held by thrifts at market value. If you are a thrift in Texas, however, and real estate prices have fallen and you're beginning to run into trouble, the last thing you want the FHLBB to do is take the depressed current real estate values instead of their value at the time you acquired them or their possibly higher future value.

This

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procedure, I am told, is more rigorous than their usual accounting procedures, and is causing a great deal of pain, especially in depressed areas of the Southwest. The industry

would like to see this rule eased.

Second, S&Ls would like to use a Financial Accounting Standard Board rule (FASB 15 FASB is pronounced "FASBY") that allows them to take bad loans, readjust interest rates and reamortize them over a long period of time without touching the principal of the loan. The industry would like to be able to use this rule.

The FHLBB announced last Thursday that it would take care of these two issues via regulation, but this may have been done to relieve some of the pressure to accomplish them through legislation attached to the banking bill. At any rate, the S&LS have Congressmen Wright and Bartlett on their side, and may also find that Senators Gramm and Armstrong will carry their water.

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The other issues they will bring up is the rest of the banking bill such as the closing of the nonbank bank and nonthrift thrift loopholes, which Senator Proxmire will try. seems to have forced grandfather existing institutions operating under this loophole as of Thursday, the day of markup. The date he preferred is 1983. For the rest, I have heard that he will attempt various other provisions, such as delayed funds availability (checkhold) legislation, allowing regulators to help sick banks and thrifts. I don't know how successful he will be.

TO: FILE

FROM: JOHN TIMMONS

RE: ACTIVITIES IN THE SL AREA

DATE: APRIL 20, 1989

From July 1983 until January 4, 1987 I was employed as a legislative assistant for Congressman John McCain. Financial institutions were among the laces to which I was assigned.

In June of 1984, Congressman_McCain directed me to review an activity then on-going at the Federal Home Loan Bank Board (PHLBB). It is my firm recollection that he gave me this direction after his help was requested by individual savings and loans in the state of Arizona as vell as the Arizona Savings & Loan Association which was the trade association for all S&Ls in the state. My contact person was either Gordon Murphy or Norman Miller (Gordon Murphy later went on to work for the Arizona Bankers Association and was replaced by Norman Miller if he had not done so already).

On June 24, 1984, I drafted a letter for the Congressman's signature to then Chairman of the FHLBB, Ed Grey. The letter questioned whether his proposed regulation to limit S&Ls direct investments was really an appropriate remedy for an ailing industry which had gotten in that shape largely through being tied down with inflexible assets.

On August 8, 1984, I drafted a follow-up letter on the proposed direct investment regulation for the Congressman's signature. Enclosed in the letter was a copy of an 1982 study by the FHLBB's staff which suggested that liberalization of investment powers had proven successful in Texas. The letter also expressed the Congressman's interest in seeing any evidence the Board might have to contradict this study. addition, the letter requested that a full evidentiary hearing on the regulation be held by the Board.

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On January 4, 1985, I drafted a letter to then Chairman
mesting an extension of the comment period on the

stment regulation. This letter was enclosed in to White House Chief of Staff Jim Baker and cretary Don Reagan asking for their assistance in comment period on the direct investment regulation. These letters vere dated January 30, 1985.

On July 21, 1986, I drafted a letter for the Congressman's signature to then Chairman Grey. The letter expressed concern over the Board's activities in the direction of restricting the powers of state-chartered S&Ls, including the direct investment

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