How troubles of banks differ from thrifts'

Financial deregulation has blurred the outward distinction between banks and thrifts. Both have woes, but the woes differ according to the orientation of the two industries. A bank basically lends to the business community. Thrifts (savings and loans, mutual savings banks, and credit unions) deal mostly in home mortgages and auto loans.

The big problem at big banks: loans to shaky businesses or fickle foreign governments. The big problem at thrifts: interest-rate differentials. Even with adjustable-rate mortgages, thrifts usually have a lag of one year before they can adjust the rates upward - and there is usually a 2 percent-per-year cap on the amount of ARM increase. If interest rates drop, the thrifts will be fine. If they rise, their problems could worsen.

A particularly distressed thrift is the Los Angeles-based Financial Corporation of America, where aggressive lending locked in mortgages that are now below prevailing interest rates.

But mortgages have low default rates, and it is easier to seize the collateral of a mortgage - a house - than of a loan to a foreign land. So troubled thrifts are generally on a sounder base than troubled banks.