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 GarnSt Germain Depository Institutions Act of 1982, is often cited as a contributor to the S&L 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 S&L 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 S&L industry to close zombie thrifts and clean up the resulting real estate mess. The Federal Deposit Insurance Corp. estimates the
St Germain was subject to a
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
The other co-author of the Garn-St Germain Act, Senate Banking Committee Chairman Jake Garn, R-Utah, retired from Congress in 1993. Charles Keating, another prominent S&L crisis figure,
— Additional reporting by Austin Kilgore.