
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, January 5, 1994                   TAG: 9401050029
SECTION: BUSINESS                    PAGE: B-7   EDITION: METRO 
SOURCE: The Washington Post
DATELINE: WASHINGTON                                LENGTH: Medium

FED SEEKS REGULATORY CONTROL OF STATE BANKS

Turning a Washington bureaucratic turf fight into a battle for the nation's Main Streets, the Federal Reserve Board is floating a proposal that it take over responsibility for regulating all of the nation's nearly 8,000 state-chartered banks.

The proposal is the Federal Reserve's counterattack against the Clinton administration's plan to consolidate all federal banking regulation into a single agency, taking away most of the Federal Reserve's regulatory duties.

There should be two federal banking regulators - not just one - and one of them should be the Federal Reserve, responded Fed governor John P. LaWare in a proposal he drafted.

LaWare's plan, which was published Tuesday in the American Banker, a trade newspaper, has the backing of Fed Chairman Alan Greenspan and a majority of Fed board members, according to banking industry sources. The sources said LaWare's decision to make public the proposal reflects growing tensions between the Treasury and the Fed over the issue.

The Fed is one of four federal agencies that share the job of regulating banks and savings and loan associations, and the Fed is the primary regulator for bank holding companies and about 1,000 state-chartered banks that have chosen to join the Federal Reserve System.

Contending that the four-regulator system is duplicative and inefficient, Treasury Secretary Lloyd Bentsen is pushing a plan to turn the whole job over to a new Federal Banking Commission that would take over the duties of the Office of the Comptroller of the Currency, which now handles the 3,300 national banks; the Office of Thrift Supervision, which regulates the 2,000 S&Ls; and the Federal Deposit Insurance Corp., which oversees the roughly 7,000 state-chartered banks that are not also members of the Fed.

The FDIC would become strictly an insurance agency, responsible only for handling failing banks; and the Federal Reserve would be stripped of most of its regulatory powers.

Greenspan last week launched an intellectual counterattack against the Bentsen plan, arguing in a Wall Street Journal article that the Federal Reserve Board's ability to conduct economic policy and keep the financial system running smoothly would be badly undercut if the Fed no longer was a bank regulator.

Now LaWare is firing the second salvo, putting out a proposal that, instead of reducing the Fed's role, would give it several thousand more banks to oversee.

Bankers who would be taken under the Fed's wing generally like the idea, said Kenneth Guenther, executive vice president of the Independent Bankers Association of America, a lobbying group for the small banks. Guenther said his members strongly object to a single federal agency, subject to political influence, taking over all regulatory responsibility.

But the bankers don't like to see the Federal Reserve and Treasury Department fighting over them, he said. "The developing Treasury-Fed clash is not good for the economy and does not serve the public interest."

Treasury officials declined to comment on the LaWare proposal.

by CNB