President Bush will decide, probably next week, whether to back Treasury Secretary Nicholas F. Brady and reappoint Robert Clarke to a second five-year term as regulator of most of the nation's top banks or dump him as White House Chief of Staff John Sununu wants, a White House official said yesterday.
"Bush has taken a personal interest and he is the one who will decide," the official said. "This reflects a genuine difference between Sununu and Brady over how we should proceed that has nothing to do with personalities but has to do" with administration policy toward banks and the faltering economy.
A senior Treasury official said, referring to Brady, "The secretary wants Clarke reappointed and I expect the secretary to prevail."
Clarke's reappointment as comptroller of the currency is being questioned by Sununu, some bankers and some major contributors to the Republican Party who believe his office has cracked down so hard on banks that creditworthy businesses cannot get credit. This credit crunch is contributing to the nation's economic downturn, they believe.
Sununu's opposition generated a rash of public statements of support for Clarke yesterday from members of Congress, government officials and some bankers.
Also, it was learned that at meeting here last week, a majority of 87 members of the Association of Bank Holding Companies -- whose banks hold nearly three-fourths of all U.S. bank assets -- voted to keep Clarke in office.
Thomas L. Ashley, director of the association, said he had been asked by administration officials to poll the members on three questions:
First, is there a credit crunch that is hurting the economy, or is what is going on due to other forces. Second, if there is a credit crunch, is it due to the regulatory regime set in Washington by Clarke, or is it due to overzealous bank examiners working in the field. And three, should Clarke be reappointed?
Ashley said the members, generally chairmen of the nation's largest banks, were equally divided over whether there is a credit crunch. Among those who thought there are credit problems, 37 said it was due to overzealousness by individual examiners while 10 thought is was due both to that and to Clarke's policies.
"A majority said that he should be reappointed," Ashley said. "It was not overwhelming, but a majority expressed that preference."
Meanwhile, three senior Democrats on the House Banking Committee, including Chairman Henry B. Gonzalez (D-Tex.), made public a letter to Bush urging approval of the nomination.
"Although we understand the concern over the availability of needed credit, we do not believe that replacing Mr. Clarke is an effective solution to this problem," they said.
L. William Seidman, chairman of the Federal Deposit Insurance Corp., which insures deposits at commercial and most savings banks and oversees many state-chartered banks, also argued that the problem is not with Clarke, but the economic reality facing the banks.
"One of the difficulties really is that there aren't enough good loans out there, particularly in certain areas and particularly in real estate," said Seidman, who himself has been under pressure from Sununu to leave office before his term expires in October. "I did welcome Bob to the club this morning," he said.
Federal Reserve Board Gov. Edward W. Kelley Jr. also gave Clarke, a longtime friend, his backing: "He has done an outstanding job. Many of the warnings he has issued over the past two years have been well taken. We need his continued service in that job."
The Fed regulates the banks not under the supervision of either Clarke's or Seidman's agencies.
Kenneth Guenther, executive vice president of the Independent Bankers Association of America, predicted that the wrangling over Clarke will hurt the administration politically.
"It ends up tarring the administration because it indicates disarray ... at a very crucial time in the nation's banking history," he said. "We have suffered under Clarke's assault troops but we think he is a very fair and balanced man.
"If the economy goes to hell, loans go bad. If loans go bad, regulators come in. Who's the chicken and who's the egg? Regulators have to pursue bad loans; that's their job."
Senate Finance Committee Chairman Lloyd M. Bentsen (D-Tex.) also defended Clarke, saying "he has been put in an extremely difficult position. I can sympathize with his position."
Staff writers David Broder, Jerry Knight and Steven Mufson contributed to this report.