Fernand St Germain, Lawmaker Who Led S&L Deregulation, Dies

Mortgage & Real Estate









Congressman Fernand J. St Germain, who spearheaded efforts to deregulate the savings and loan industry as chair of the House Banking Committee, died Saturday of kidney failure at his home in Newport, R.I. He was 86.

Legislation co-named for the Rhode Island Democrat, the Garn–St Germain Depository Institutions Act of 1982, is often cited as a contributor to the SL crisis of the 1980s.

St Germain was first elected to Congress in 1960 and served 14 terms. He was a dominating chairman of the House Banking, Finance and Urban Affairs Committee (now known as the House Financial Services Committee) from 1981 to 1989, and had close ties to thrift and banking trade groups.

As a chairman, St Germain was a “master” at running the committee, said Steve Verdier, a former House Banking Committee staffer and later, banking industry lobbyist. “He was completely dominating” in directing legislation through subcommittee and full committee markups, and would “crush” any amendment he didn’t want, Verdier said.

His work as principal author of the Garn-St Germain legislation helped deregulate the then-struggling savings and loan industry. Until passage of the bill, thrifts basically borrowed money at 3% and made single-family loans at 6%. However, the Federal Reserve, under Chairman Paul Volcker, pushed interest rates up into the high teens, which squeezed the thrifts.

“What this legislation does is expand the powers of thrift institutions by permitting the industry to make commercial loans and increase their consumer lending. It reduces their exposure to changes in the housing market and in interest rate levels,” President Ronald Reagan said in signing the SL deregulation bill. “This in turn will make the thrift industry a stronger, more effective force in financing housing for millions of Americans in the years to come.”

Unfortunately, the Garn-St Germain Act opened the door for undercapitalized thrifts to engage in reckless lending, eventually leading to a federal bailout of the collapsing SL industry to close zombie thrifts and clean up the resulting real estate mess. The Federal Deposit Insurance Corp. estimates the combined total direct and indirect costs associated with the government’s intervention 1986-1995 in the SL crisis was $152.9 billion, of which $123.8 billion was borne by taxpayers.

St Germain was subject to a House Ethics Committee inquiry in 1986 over allegations that he used his influence as Banking Committee chairman to increase his personal wealth. The 14-month investigation was prompted by a Sept. 1985 Wall Street Journal report that claimed St Germain used his post to help build up real estate holdings worth millions of dollars. The congressman denied the allegations and the Ethics Committee inquiry concluded in a 1,405-page report that there was evidence of only minor infractions committed by St Germain.

The Justice Department would later investigate St Germain in 1988 on allegations he accepted food, drink and entertainment from lobbyists for the U.S. League of Savings Institutions, and other financial industry lobbyists.

While the Justice Department said it had found “substantial evidence of serious and sustained misconduct,” it declined to prosecute St Germain, instead referring the matter to the House Ethics Committee for review. St Germain again denied the allegations, but after a federal judge unsealed records from the Justice Department’s investigation just eight days before the 1988 election, St Germain was not elected to a 15th term.

The other co-author of the Garn-St Germain Act, Senate Banking Committee Chairman Jake Garn, R-Utah, died in 1993. Charles Keating, another prominent SL crisis figure, died earlier this year.

— Additional reporting by Austin Kilgore.

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