Federal Reserve Board chairman Arthur F. Burns urged Congress yesterday to take its time drafting laws to regulate the kinds of banking practices that budget director Bert Lance has been accused of engaging in.
Burns, who did not mention Lance by name, cited correspondent bank relations, bank policies relating to loan collateral and bank policies relating to overdraft facilities as among the banking practices Congress is examining.
Rep. Fernand J. St. Germain (D-R.I.) already has opened hearings on such banking practices before a House Banking Committee subcommittee.
Sen. William Proxmire (D.-Wis.), chairman of the Senate Banking Committee, is expected to hold similar hearings later this month.
Burns, in yesterday's speech before the Kentucky Bankers Association, noted the hearings and said that "specific legislation directed at some of the banking practices that have recently received public attention will soon be considered."
He cautioned that Congress must maintain "a sense of calm deliberation and balance" in dealing with these practices. "We cannot remind ourselves too often that haste can easily make for bad legislation."
Lance, director of President Carter's Office of Management and Budget, has been accused, among other things of:
Using non-interest bearing correspondent balances of banks he has headed to induce other banks to make him large loans.
Having big overdrafts on his checking accounts for which he was not charged special fees.
Pledging stock for collateral on two separate loans.
Burns, in prepared remarks released here, said that the Federal Reserve Board, which is one of three federal bank regulatory agencies, "has been in the forefront of efforts to obtain added enforcement authority for federal banking agencies."
While Congress did nothing with the Fed's requests for more enforcement authority in 1975 and 1976, this year the Senate has passed "a regulatory and supervisory bill that embodies more stringent rules on insider loans, strengthens cease-and-desist as well as officer removal powers and provides a range of cash penalties for violations of banking law or regulation."
Burns said that legislative remedies beyond the ones provided in the Senate bill may be needed. "But I would urge full deliberation before wider legislative remedies are enacted."
Burns also said that the Fed continues to support legislation that would permit banks, savings and loan associations, and mutual savings banks across the country to offer interest-bearing checking accounts (called NOW accounts) even though it thinks the accounts will have an adverse impact on bank earnings.
"We think it important to bring a sense of order to a development that has the look of inevitability about it but which to date has proceeded in haphazard fashion," Burns told the bankers.
"The simple fact is that by one means or another depositors have been increasingly successful in earning interest or its equivalent" on the money they keep in banks for their daily transactions, Burns said.
Burns said he understands why commercial bankers get upset that the bill, in effect, permits thrift institutions to offer checking accounts but does not take away their ability to offer higher interest rates on deposits than can commercial banks.
In a related development, the House yesterday approved legislation requiring Senate confirmation of the chairman and vice-chairman of the Federal Reserve. The bill also set a four-year term for both that begins one year after a Presidential election.
The bill does not affect current chairman Arthur F. Burns, whose term as chairman expires in January.