THE HEAD-SPINNING SPLIT OVER BANKING
Bankers are having a hard time figuring out what Washington wants from them these days. The Bush Administration, fretting that tight-fisted bankers are hobbling economic recovery, wants more aggressive lending. Congress, worried that another savings and loan mess is about to land on it, has ordered tighter regulation to cut risk. The result: "There's absolute schizophrenia in Washington," complains Edward L. Yingling, chief lobbyist for the American Bankers Assn. "The banking industry feels like the wishbone at Thanksgiving." And bankers should not expect relief any time soon.
The pulling and hauling is an inevitable consequence of last year's Federal Deposit Insurance Corp. Improvement Act (fdicia). The law began life as an Administration effort to deregulate healthy banks while clamping down on weaker ones. By the time it emerged from an s&l-panicked Congress, the fdicia imposed new restrictions on all banks without offering them any new business opportunities.
REGULATORY HELL. The new law is starting to squeeze the industry: On May 20, the Federal Deposit Insurance Corp. put limits on the use of "brokered deposits"--large certificates of deposit sold to savers through a third party, such as a stockbroker. Banks whose demand for loans will force them to offer higher rates to attract deposits will face an unpleasant choice. They'll either have to keep more capital than required by normal regulatory standards or get an fdic waiver.
These rules are the first step in tying banks' activities to a multitiered set of capital requirements that Kenneth A. Guenther, executive vice-president of the Independent Bankers Association of America, describes as "the five regulatory circles of hell." Even such solid institutions as First Union Corp. in Charlotte, N.C., and San Francisco-based Wells Fargo & Co. may be forced to alter their capital structures, transferring equity from the parent holding company to individual banks as new rules kick in over the next few weeks.
There's more to come. Rules required by the fdicia will boost banks' paperwork and limit everything from who can sit on their boards to how much their officers can earn. To carry out the law, agencies must write some six dozen new regulations--including one setting up a study on how to eliminate unnecessary rules. "If you just look at fdicia, it's conflicting in itself," grumbles fdic Vice-Chairman Andrew C. Hove Jr.
Bush aides, by contrast, have been pounding on banks for months to pump money out to borrowers, even if it means taking more risk. Now, Administration officials are pushing the regulators to give financial institutions powers that Congress refused to grant. Timothy Ryan Jr., director of the Office of Thrift Supervision, has boldly issued regulations allowing thrifts to branch nationwide. The Federal Reserve is studying ways to expand banks' ability to underwrite securities. And while Congress rejected an Administration plan to consolidate banking regulation in one superagency, the White House has ordered all four federal regulators to use common rules and examination standards.
Not content to stop there, the Administration may try a frontal assault on the new law. The Treasury Dept. is quietly looking for congressional allies to sponsor repeal of some of the more extreme micromanagement imposed by the fdicia.
But a gun-shy Congress isn't about to take banks off the hook. Money is still pouring down the s&l rathole. And lawmakers know that some big banks remain in jeopardy because they dumped billions into speculative real estate deals. Memories of bankers' recent stupidity have lawmakers in no mood to loosen the new regulatory shackles.Mike McNamee and Tim Smart Edited by Stephen H. Wildstrom