Government spends record $1.35 billion to close two S&Ls

Federal banking authorities yesterday announced a record $1.35 billion cash payout to shut down two insolvent savings institutions. The Federal Home Loan Bank Board said it will start paying off deposits today up to the insurance limit of $100,000. The two savings institutions are the North America Savings and Loan Association and the American Diversified Savings Bank, both in Costa Mesa, Calif.

M.Danny Wall, chairman of the bank board, which regulates 3,150 savings and loans, said it was the largest cash payout ever for the agency.

But bank board officials expect the cost of several previous bailout packages eventually to be higher than the Costa Mesa closing. Both institutions share the same headquarters and have been insolvent for some time.

Mr. Wall said the bank board prefers to pay a healthier institution to take over insolvent thrifts because it is cheaper for the insurance fund. But in this case, he said, the two S&Ls had little value as going concerns because they lacked retail deposits and branch offices. Instead, they relied on high-cost, short-term deposits arranged through brokers.

Wall called the closings the part of the board's drive to remove institutions that have been driving up interest rates paid by all institutions.

In order to attract money, North America, for example, had to offer an average deposit rate of 8.53 percent, 1.45 percentage points above the average for all thrift institutions.