I believe strongly in increased capital requirements. We are going to look very carefully at the timeframe and see what kind of problems it creates. We are concerned about the ability of members to meet the test, but I think the underlying concern is to increase the level of capital to provide that extra cushion to the fund, and I think it is of such paramount importance that it is an issue that we have to deal with directly. Mr. DREIER. So you don't think that it opens a threat for any kind of insolvency for any existing thrifts? Mr. LEVY. Not insolvency. I don't think the problem is one of insolvency. I think the problem that has been suggested is one of how to deal with the public scrutiny of being suddenly placed in a category of noncompliance. Supposing an institution is at 3 percent, the level goes to 3.5 at year-end, and they have only achieved 3.4. The idea of being identified as having not reached the next level is really the problem. It is not insolvency, but it is one of being identified as being identified as being technically not in compliance. All of it, though, underscores the point that we are moving them toward higher capital levels. Mr. DREIER. Great. Thank you very much, Mr. Chairman. Mr. BEREUTER. Thank you, Mr. Chairman. Gentlemen, thank you for your testimony. I have a couple of quick questions. Mr. Rideout, briefly, you state that the ABA's position is for a 3year position versus the 5-year that is in the original bill. Briefly, what is the rationale for that period? Mr. RIDEOUT. I don't know that there is any specific rationale other than that is a comfortable timeframe we feel for reviewing the situation. Hopefully, the crisis which we have in the energy area and in the ag area will have righted itself by then, and it might very well be at the end of a 3-year period that this kind of power would not be necessary, and we think the Congress would want to look at it at that time. Mr. BEREUTER. Thank you. A few minutes ago in response to Mr. Dreier, you indicated that in some States not many banks would be over the $250-million threshold. Indeed, there apparently are four States that don't have any banks over that. The recommendation was made several days ago here that the top four banks in those States be eligible. Do you have any reaction to that? Mr. RIDEOUT. We certainly wouldn't have any difficulty with that, and in fact I think in our written statement we indicated that that could be a useful tool and a useful definition. Mr. BEREUTER. When you have an emergency acquisition, additional banks may be acquired in the three largest metropolitan areas. That sounds very arbitrary to me. That varies so much from State to State. Indeed, some States don't have three metropolitan On two previous occasions in this Congress, the has been privileged to appear before this distinguish Subcommittee and the full Banking Committee to discus problems of the FSLIC and possible legislative steps its resources and its ability to deal with problem si On October 3, 1985 I testified that to the U.S. Leagu conviction that the problems of the FSLIC are managea can be resolved without drawing on resources, whet Mr. KUTHY. We think that the one-third number is appropriate under the circumstances to provide sufficient inducement, if that is necessary, to obtain the shareholders' concurrence, but at the same time not provide a premium. Mr. WYLIE. Would the gentleman yield? Mr. BEREUTER. Have you sat down and thought about this in balance? Mr. WYLIE. Would the gentleman yield? Mr. BEREUTER. Yes, I would be pleased to yield. Mr. WYLIE. We may have reached an area of agreement here, Mr. Chairman. I have a feeling that Citicorp and Chase and some of the other big banks would like an arrangement like that. The IBAA testified in favor of it, and you are testifying in favor of limiting the amount which the stockholders can receive in compensation. I hope you get the point I am making. How would you arrive at figures like that, and how would there be any incentive for shareholders to sell to out-of-State banks if they couldn't receive some compensation? Mr. KUTHY. I think that is the rhetorical point, Mr. Wylie. We are not interested in supporting the contravention of the interstate proscriptions that many states have, and we are anxious instead to have positive inducements for an in-State acquisition so that there will be no opportunity for profit to be made on the basis of an already longstanding congressional policy. Mr. WYLIE. Thank you. Mr. BEREUTER. I understand the reason for inducement. It is just why that figure? I would just say in concluding, since my time has expired, the more I see this legislation, the less I like it. Chairman ST GERMAIN. Mr. Barnard. Mr. BARNARD. Mr. Levy, in your testimony I believe you indicated that you were operating from some disadvantage as far as the FSLIC Enhancement Act was concerned. Because the draft of no bill has been offered, we likewise are operating under that same limitation. But I did notice in the Washington Financial Reports of recent date that the White House Economic Policy Council had signed off on April the 14th on a plan to shore up the troubled Federal Savings and Loan Insurance Corporation and that they went on to say that they are hopeful that this proposal will win the support for legislation that will be submitted to Congress. But even in anticipation of that proposal-and I believe you alluded to it on page 8 of your testimony-aren't we dealing with a very, very sensitive problem here as far as the Financial Accounting Standards Board is concerned? Mr. LEVY. Well, the Financial Accounting Standards Board has been occupying more and more of their time with savings and loan issues. It comes in a number of areas. I indicated earlier that there is a concern about how the investment by the district banks would be treated. On a much broader basis, there is an exposure draft out on loan fees. There is one expected on bad debt reserves, both of which would have a substantial impact on the resolution of the problem. certificate authorities - which would contribute gre the protection of the FSLIC fund. My testimony today will highlight comments made i earlier appearance and that of Mr. Janis, which I wou the Subcommittee will find of value as its approaches legislating tasks. Permit me to say at this point that while the U.S. acknowledges that there is a need for bolstering the F its supervisory tools, we believe that media attention condition of the insurance fund and our industry has b Would you mind just elaborating briefly on that? What do you mean by that? Are you supportive of expanded powers for unitary thrift savings holding companies? Mr. LEVY. No, no, that is not what we are saying. We are saying that the expanded powers that were granted to the unitary holding companies have not produced abuses. We are not asking for that to be expanded. Mr. BARNARD. I didn't mean that, but you are talking about as those expanded powers are in place you support that? Mr. LEVY. Yes, we do. Chairman ST GERMAIN. Mr. Carper, I understand that you have a brief question that you would like to propound to the panel and that you might be asking them to reply in writing. Mr. CARPER. I do. Thank you, Mr. Chairman. Gentlemen, thank you for your testimony today. Rather than ask you to respond on the record, what I am going to do is ask each of you to please respond in writing with some comments from your organization on the advisability of our perhaps attaching H.R. 3567, the Depository Institution Examination Improvement Act, as an amendment to this piece of legislation. Let me just briefly describe what that legislation is all about. A number of us are concerned on this committee-in fact, about three-fourths of us are concerned enough to have cosponsored legislation that says in a time of deregulation we don't necessarily want to provide for less examination, less supervision. In a time faced with Gramm-Rudman, in which we may be forced to actually cut back the numbers of examiners, we should instead be increasing the number of examiners. Instead of cutting back on the quality of the training that they receive, we should be improving the quality of that training. H.R. 3567 attempts to address that problem, the dilemma that I think we face. I would welcome in writing your comments on it. Thank you, Mr. Chairman. Chairman ST GERMAIN. Thank you, Mr. Carper. Mr. Levy, in your testimony you described the thrift problem as an $8 billion to $15 billion problem. That is quite a spread. The administration seems to be talking about amounts that are much less than that—or rather much larger than that, almost twice that amount. How do you reconcile the difference between what you testify to and what the administration is telling us? Mr. LEVY. Well, our $8 to $15 billion figure of course is a- Mr. LEVY. Billion. Chairman ST GERMAIN. Billion. But that is a big difference. Mr. LEVY [continuing]. Has a lot to do with- Chairman ST GERMAIN. You are an S&L man, right? Mr. LEVY. That is right. Chairman ST GERMAIN. There is a lot of difference between- Chairman ST GERMAIN. Yes. Mr. LEVY. I think if we look at the number-I have some spread sheets out of the proposal that the Bank Board has released, and the number is not substantially larger. You have to look very care |