A house committee considering bank reform legislation yesterday defeated a motion that would have excluded some 8,700 state-regulated banks from a significant limitation in the bill on insider borrowing.
The amendment to the Financial Institutions Reform Act first was introduced on Wednesday by Rep. Norman D'Amours (D-N.H.). D'Amours modified his original proposal yesterday, but even the less-ambitious motion was voted down 26 to 16 by the House Banking, Currency and Urban Affairs Committee.
A section of the bill limits the aggregate loans by bank insiders to themselves, their businesses, or their political campaigns to a total of 10 percent of the bank's capital accounts.
Insiders are defined as officers, directors and shareholders owning 10 percent of the bank's stock.
D'Amours said on Wednesday he would offer an amendment to eliminate this section which, in effect, would leave it to the states to set the lending limit by insiders.
State laws allow insiders at state-regulated banks to borrow up to 25 percent of a bank's capital account. And, unlike the House proposal, a banker, his businesses and his political committee each can borrow as much as 25 percent.
The proposed bill permits an aggregate of 10 percent to be borrowed by the insider and his interests.
Yesterday, D'Amours introduced an amendment that would not change the aggregate lending limit of the legislation but would leave it up to the states to set the percentage of the capital account that an insider could borrow.
Some regulators worry that, if insiders in national and Federal Reserve banks were forced to abide by the bill's tougher restrictions on insider borrowing, federally regulated banks might seek to change their charters and become state banks to take advantage of D'Amours' amendment.
At yesterday's hearing, that concern was put forward in letter by Fed Chairman G. William Miller.
In addition to defeating the D'Amours amendment, the committee voted for tougher federal regulatory authority over credit unions by creating a board to oversee the National Credit Union Administration.
The committee also gave federal bank regulators the power to disapprove changes of ownership of banks and savings and loan institutions.