Bankers Prepare For Another Round In Deregulation Fight

THE banking industry has lowered its expectations from Washington this year. Leaving behind dreams of broad new powers, bankers are focusing for now on easing regulatory burdens.

The banking industry has gotten "cranked up to argue it is grossly overregulated," says Robert Carlile, a Chicago banker who visited Boston recently representing the American Bankers Association.

The industry shifted its strategy after a bitter defeat in 1991. The Bush administration failed to pass legislation freeing banks to set up branches across state boundaries and to enter new lines of business such as securities. Instead of expanding bank powers, Congress expanded regulatory controls in an effort to prevent a savings-and-loan style wave of bank failures.

Bruised by this reversal, the industry retreated to set its sights on "what's possible," says Robert Litan, a Brookings Institution scholar.

The bankers' new agenda fits with President Clinton's desire to revive economic growth. In March the president moved to ease several regulations so banks can lend more. Mr. Carlile, applauding these steps, says the White House is planning further moves.

"I'm not talking about ending bank exams or ending audits," Carlile says. But "let's get rid of the frivolous stuff."

Mr. Litan says he expects such steps will modestly expand the credit supply for the nation's small businesses. But he says it is unlikely that Congress will roll back its 1991 regulations. `On my mind constantly'

The industry estimates that even before those new rules it was spending almost $11 billion a year to comply with regulations. Compliance "is something that's on my mind constantly," Carlile says. He is chief executive officer of NBD Bank. These "burdens" raise the cost of capital to customers, he says.

"The thing that really drove the banks craziest," Litan says, has been the Truth in Savings Act, which takes effect at the end of this year. The act requires banks to disclose in a uniform manner all fees and charges for deposit accounts. Litan says this treats banks more strictly than mutual fund companies.

Carlile says his bank will have to spend a lot of money this fall on video courses for this employees to prepare them to implement the act. "I'm not sure that the consumer particularly cares or will be particularly well served" by the rule, he adds.

Beyond the regulations themselves, the enforcement style of bank examiners has long been a source of anguish for bankers.

"My impression is that regulators have gone way overboard" in the last few years, says Steven Felgran, a finance professor at Northeastern University in Boston. For two years examiners have received conflicting directions from politicians: to "lighten up" so banks can lend more but also to ensure that banks don't fail. Amid fears of an S&L-style banking crisis, the latter goal won. Industry in need of larger overhaul?

James Howell, president of a Boston consulting firm that bears his name, says the concern with burdensome regulation distracts people from more important issues: The industry has too many banks, is struggling to compete with unregulated nonbanks, and is in danger of slow collapse, he says.

"We need a president with the boldness" to map out a five- to seven-year plan to encourage banks to merge or close, cutting their number from the current 12,000 to 5,000, Mr. Howell suggests. This, coupled with giving large banks new powers such as the ability to hold equity as well as debt in companies, would strengthen both the industry and America's economy, he says.

Howell notes that the nation's banks as a group have more money invested in government debt than in loans, which he describes as "unconscionable." The nation's second-largest provider of credit, General Electric Capital, is a nonbank, he adds.

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