Commentary: It's A Wonderful LoopholeGary Silverman
Forethought Federal Savings Bank of Batesville, Ind., isn't a traditional savings and loan. As anyone who has seen the Frank Capra film It's a Wonderful Life knows, thrifts used to funnel savings into housing. But Forethought doesn't want to build communities; it wants to bury them.
The bank is owned by Hillenbrand Industries Inc., the nation's leading coffin maker. And its sole purpose is helping people save for their funerals. Forethought's federal thrift charter is simply a convenience, enabling it to operate nationwide without getting state approvals. "It was far easier than setting up 50 banks in 50 states," says Mark R. Lanning, Hillenbrand's treasurer.
Capra must be rolling over in his grave. The federal thrift charter has become the loophole of choice for all kinds of companies with a financial arm or ambition. Because the federal charter preempts state laws, it provides cover for companies looking to offer consumer banking services anywhere in the country.
Last year, of the 43 charters approved by the Office of Thrift Supervision, more than a third went to such nonbanks as Hillenbrand and State Farm Mutual Automobile Insurance Co. And the Office of Thrift Supervision is weighing dozens more applications from outfits as varied as Ford Motor Co. and the Farm Bureau, a trade group.
AFTERTHOUGHT. There is a better way to promote nationwide banking services, of course. Congress could pass a financial-services modernization bill that sets out what companies can offer which products. And it must be said that the folks in Washington have been working on it--for decades, now. In the meantime, the OTS is filling the void, thanks to a 1996 legislative overhaul that gave thrifts more leeway in offering consumer loans.
And to be fair, the OTS has been vigilant in vetting applications, prodding savings and loan aspirants to produce detailed business and fair-lending plans. No less a heavyweight than Goldman, Sachs & Co. withdrew its application because of all the work. "Easy, we ain't," says Office of Thrift Supervision Director Ellen S. Seidman.
Still, the OTS could be getting in over its head. Although the agency has hired its first new examiners in seven years, its staff has been cut to 1,200, from 3,600 in 1990 at the height of the S&L crisis. "I can't imagine they have enough manpower," says Catherine A. Ghiglieri, Texas banking commissioner. "You have traditional bank products being sold through nontraditional means by people who haven't been in the business before. Is that a recipe for disaster? I think it is."
The danger is that as the financial-services business becomes more complex, the regulation of it is growing more haphazard. These newfangled nonbank thrifts are a diverse lot. Hillenbrand, for example, is only offering trust funds; State Farm wants to take deposits and make loans. There's promise in all this complication--and peril, too. That's all the more reason for Congress to get our financial house in order.