Imagens das páginas
[blocks in formation]


: Meeting with James Grogan, Vice President of Lincoln Savings

and Loan Association, Irvine, Caitfornia on Federal Home Loan Bank Board proposed regulation to restrict the direct investment authority of thrifts.


Brief History of the issue on Direct Investment

On May 16, 1984, the FHLBB published for comment its proposed
regulation limiting to the greater of 10% of assets or twice
net worth the amount an insured thrift institution may invest
in service corporations, real estate and equity securities (stocks).
Comments were due by July 16, 1984 and the myte was scheduled to
become final September, 1984. There was a great deal of opposition
to this rule from Congress. Many letters were written asking the
FHLBB to delay the final rule until next year when 'Congress would
have adequate time to review it and the Federal Insurance system.
This rule would mainly affect State chartered S&l's that have been
given direct real estate investment powers over 10% such as in
Texas, Florida, Ohio and California. However, California seems to
be the target of this regulation. While si fornit stort entreered
bache target of this regulation while California State chartered
Chrifts have had 10. investment powers for a number of years, as
of January 1st, this year they were permitted to inves: 100% of
their assests in service corporations, real estate, and equity secu-
rities. The FHL8B feels that there powers are a threat to the
safety and soundness of the insurance (FSL:C) fund because they
have concluded that these investments are riskier than making home

II. Status of the Regulation

Because of the controversy over the proposed regulation the FELBB
did not proceed in September. On December 10, they puclishes a
modified proposal for comment that requires pre-doprovai of the
FHL38 before any savings institution could ungeriake direc:
investments greater chan 10.. ine regulation as curren:!y jruited
in no way refiec:s their prior view that direc: invescents are
"unsare or risky" bu will have the same affec: as res:::8::rig
the ac:ivi:; by pro-dooroval requirements. The commen: period is
30 days on nis cogifies proposal uncil januar: :2, :983. presuming
that it wiil cake che L36 two weeks : review che comments, ne


EX. 560


proposal could become final anywhere between 4 and 6 weeks after January 12, 1985. The original fear of the interested groups was that the Bank Board would proceed to a final regulation while Congress was out of session.

Previous Actions

Attached is a letter from AC to the FHL38 dated July 11, 1984
requesting delay of final action on the original Regulation of
May 10, 1984, until Congress had an opportunity to review this
issue. AC has never taken a substantive position on direct
investments, but only that it is an issue of the nature that

Congress should review.
III. Mr. Grogan and Lincoln S&L

Mr. Grogan, is from Arizona and formerly was a constituent of
Senator Deconcint. His goup recently purchased Loncioin Savings
and Loan Association in California. Lincoln has direct investments
in real estate far exceeding 10% of their assests so their
future growth and viability will be seriously impaired by this
proposed regulation along with most other State Chartered California
thrifts. Mr. Grogin has spent a great deal of money fighting the
FHLBB on this issue including the Greenspan study to refute the
FHLBB arguments on the need for this regulation. He has also

organized California S&L's who oppose the regulation.
IV. State Charterd thrifts vs 'Federally Chartered thrifts in California

The Federally chartered S&L's in California originally supported
and pushed Ed Grey of the FHLBB to crack down on the State Chartered
S&L's in California because the State chartered S&L's have broader
powers under Stace law than Federally S&l's. This has always been
the case under the dual regulatory system.
the-sise under the dust regulatory syriem. This is the firs: time
howeve. chat a Federal regulator has attempted to direc:ly proemot
the state laws of all states to stop activities occuring in "our
states and basically oniy in California.
In any acone, this issue in the past nas separated the California
state :-:-:2re:3L's who opcosed the regulation from one Caiiio:::: 2
store carerea S&L's wno supported the reguiation.
Secause ::e 9001?ied ruie has jus: been pubiished, ne california
League ??: 1.3. Leaque do not have oficial cosi::ons as o: :e:.
i succe::e .ac: chat his nodibied regula:ion wili seming
FHL3B :: :e: .ngo che day to day ac:ivities ji ali Sil'i ay inite


the California Federal S&l's with the State chartered California
California S&L's against the FHLBB proposal. Under the rule
all S&l's must seek preapproval from the FHL38 each time an S&L

seeks to invest in real estate, or equities, etc.


1. Mr. Grogan probably wants you to reaffirm your support for
this matter being decided in the Congress. I suggest that
you do so and indicate that you will ask Sena tor Garn to have
2. Congressman Barnard in the house plans to have hearings
early next year on these issues.
3. The FHL88 backed down from its original proposal to prohibit
all direct investment over 10% because of the letters from
Congress such as yours. I met with the FHL8B staff in November
to be briefed on this regulation along with Sena te and House
staffs. Because of the anticipated opposition the FHLBB came
out with a modified approach but in my view it is doubtful that
the FHLB8 has the legal authority to preempt or modify state law
without legislation and this is what they are trying to do here.
4. During next week, while I am in Los Angeles, I will be
meeting with Dean Cannon, California League and Ernie Leff the
attorney representing those in opposition to the regulation to
get a better idea of their suggested strategies on this issue
in 1985.


Attached are some of the letters sent to the FHLBB by Congress
on this issue and the Greenspan study, refuting the FHLBB's
arguments that direct investments in real estate are unsound.
Additionally, you should be aware of the fact that the California
S&L Commissioner (Taggar:) has resigned, because of the pressure
from che FHLIB (Ed Grey) on this issue and the brokered deposit

United States Senate



Attendees for Dec 17, 1983-Meeting on Direct


1. Jim Grogan, Vice Pres and General Counsel of Lincoln Savings & Loan Association. Resides in Phoenix, Arizona. 2. Robert Kielty, General Counsel for Americañ. Continental Corporation, the parent holding company in Phoenix, that purchased Lincoln S&L in Califonria

3. Charles Keating, Chairman of the Board of
American Continental Corporation,
Phoenix, Arizona.

4. Alan Greenspan, Economist who along with George Bentson did the economic analysis of the FHLBB proposal. They found that the data did not support the FHLBB's view and direct investment actually made institutions more profitable and made more funds available for

Opinion Letter of
Dr. Alan J. Greenspan to the FHLBB

November 1, 1984

Mr. Sceven Goldstein
Departmental Director for

Financial and Quantitative Analysis
Federal Home Loan Bank Board
1700 G. Sureet, .V.W.
Washington, D.C. 20552
Dear Mr. Goldstein:

I am. writing a che request of Robert J. Kielcy, Esq.' and on behalf of Lincoln Savings and Loan Association to stare my professional opinion concerning the rule proposed by the Federal Home Loan Bank Board (the "Board") which would lirgit the amount of direct investmenes that stare chantered savings and loan associations may make (the "Proposed Rule“). Further, I am writing to express my agreement with the conclusions drawn by Professor George J. Benston on the basis of his study of associacions in eleven states chat per: mit direct invesuments and of savings and loan failures chat occurred in the period from January 1. 1981 to June 30, 198+.

I understand that Professor Benston is submining his study to the Board together with a general summary of his conclusions. Accord. ingly: I will not discuss his study in detail. but I will state chat it is the most comprehensive study of which I am aware that addresses directh the issues raised by the Proposed Rule and that I am in accord with the conclusions that Professor Bension dran's from it. The Structural Crisis Confronting the Savings and Loan Industry

The savings and loan industry in this country was created and gren' to maturin under a special sec of economic conditions. Ion in. flacion and relatively lon' and stable interest rates. These economic conditions no longer exist and are unlikely to exist for the indernice future.

The dramatic change in financial conditions during the past several years created a Crisis in the savings and loan industry in the car! eighties. Bi 1981 the average cost of funds ar savings and loans nad risen to an unprecedented 10.9°6. lields un long-term savin.g. und

« AnteriorContinuar »