A proposed amendment to bank reform legislation under consideration by a House committee would exclude some 8,700 state-regulated banks from the bill's stringent rules on borrowing by bank insiders.
The amendment to the Financial Institutions Reform Act (formerly the Safe Banking Act) was introduced yesterday by Rep. Norman D.'Amours (D-N.H.) as the bill was being prepared for a House vote by the Banking, Currency and Urban Affairs Committee.
D'Amours said in a telephone interview last night that his amendment will seek to eliminate the bill's stringent limit on borrowing by bank insiders and preserve more liberal limits.
The D'Amours amendment will be debated at today's session.
Yesterday, the committee voted unanimously to set rules for bank regulators who leave government for the private sector.
The bill states that a former top bank regulator cannot deal with regulatory agencies on behalf of a private employer for two years after he leaves government.
The same terms apply to members of the Federal Home Loan Bank Board in relation to state and federal savings and loan institutions.
In addition to members of the Federal Home Loan board, the strictures apply to Federal Reserve Board members, and to members of the Federal Deposit Insurance Corp. board, which includes the FDIC chairman and the comptroller.
The amendment proposed yesterday by Rep. D'Amours would exclude from the bill's section that limits insider borrowing those state-chartered banks that are not members of the Federal Reserve system.
Rep. Fernand St Germain (D-R.I.), author of the bank reform legislation, argues that weak state laws, inconsistently enforced, often make the federal legislation necessary.
According to FDIC statistics, 57 percent of the bank failures between 1960 and 1977 were brought about by reckless and illegal loans to bank insiders.
The St Germain bill:
Requires approval by the majority of a bank's board of loans larger than $25,000 to officers, directors and shareholders with 10 percent or more of the bank's stock.
Provides that the loans to these insiders not be made on preferential terms.
Prohibits overdrafts by officers and directors.
Limits lending to insiders, their businesses or political campaigns to a total of 10 percent of the bank's capital account.
Limits the aggregate loans by insiders to themselves, their businesses or their political campaigns to a total of 10 percent of the bank's capital account.
D'Amours said he wants to eliminate this final provision. If he is successful, states would continue to set the lending limits to insiders in state chartered banks, but the bill would apply to insiders in national banks and banks that are members of the Federal Reserve system.
State laws allow insiders to borrow as much as 25 percent of a bank's captial account. Moreover, state, laws provide that an insider can borrow as much as 25 percent for himself, and his business and political campaign committee - if he is running for office - each can borrow 25 percent. In effect, he and his interests can borrow as much as 75 percent of the capital account.
Some regulators are concerned that if insiders in national and Federal Reserve banks are forced to abide by the tough provisions of the St Germain bill - and if the D'Amours' amendment elminates state banks from these rules - then federally regulated banks may seek to change their charters and become state banks.