A House Banking subcommittee will hold hearings next month on legislation to prohibit the kind of controversial loans that Office of Management and Budget Director Bert Lance obtained from major banks in New York and Chicago in 1975 and 1976.
Subcommittee aides said the hearings were planned before the budget director's financial problems became the subject of investigations this summer. But they said the Lance affair has given new impetus to the regulatory legislation.
The bill before the subcommittee, whose chairman is Fernard J. St. Germain (D-R.I.), would forbid or restrict a number of activities by bankers.
One is the making of loans in certian cases involving so-called correspondent balances. These are interest-free deposits placed by smaller banks as payment for services provided by large ones. The bill would forbid the big bank from making a loan to an officer or other "insider" - a director, for example - of the small one.
The idea is to make sure that bank executives and directors don't step up correspondent accounts just so they themselves can get loans - that they don't spread around the assets of their banks for personal gain.
One of the issues in the Lance case is that National Bank of Georgia established correspondent relationships with two banks - Manufacturers Hanover in New York in 1975, and First National Bank of Chicago in 1976 - at the same time those banks were making sizable personal loans to Lance. He used those loans to buy stock and gain partial control of the Georgia bank.
Lance has denied any connection between the correspondent accounts and his personal loans.
The comptroller of the currency, in a report made public Thursday, said he found no violations of banking laws in Lance's behavior. But Comptroller John G. Heimann also said Lance's case raises "unresolved questions as to what constitutes acceptable banking practice."
Lance and President Carter both said Thursday that the comptroller's report vindicated the budget director. But various critics in Congress still have some reservations. The St Germain hearing is one place these will come to the surface. Another is the Senate Governmental Affairs Committee, which plans hearings on the Lance case next month.
Yesterday Sen. Bob Dole (R-Kan.) urged either that the investigation be shifted to another committee - because he thinks Governmental Affairs is tilted in Lance's favor - or at least that the Republicans on Governmental Affairs hire a "prestigious counsel" of their own to look into the case.
While the St Germain subcommittee plans to look at a number of quite specific regulatory areas, chairman Henry S. Reuss (D-Wis.) of the full Banking Committee said yesterday the Lance revelations also raise broader issues.
Reuss said the "ridiculous structure" of banking regulatory law while it in effect rules out personal dishonesty, does very little with issues of impropriety or questionable morality, or even to assure that the public interest is protected.
"I think that the misuse of a position of power by a banker is something that we've got to look at," he said. But Reuss echoed the caution expressed by a spokesman for William Proxmire (D-Wis.), chairman of the Senate Banking Committee, who said Congress must move slowly, exploring carefully just how prevalent are some of the questionable practices spelled out in the Heimann report.
Reuss said that by using the correspondent balance technique, "major big city bankers grubstake smaller ones to getting control of other bank properties. Manufacturers Hanover in New York and the First National of Chicago are doing some credit allocation of their own - taking money out of their own city neighborhoods, which ought to get first crack at it.
"What's more, this tends to bid up the price of existing bank assets, increase the cost of credit, and raise interest rates."
In Chicago, A. Robert Abboud, chairman of First National, told Associated Press that if he had it to do again, he probably would not approve the $3.4 million loan to Lance.
"We've been subjected to a barrage of doubtful allegations," Abboud said.
Reuss also said that, by establishing ties smaller banks through correspondent relationships, big city banks "have established a vehicle for a nationwide financial chain of enormous financial power." He said this effectively bypasses present law that bars (with some grandfather exceptions) interstate banking.
"Maybe this is not all bad," Reuss said, "but if so, it ought to be approached directly by Congress." Reuss and others in both the House and Senate said yesterday that "the climate" created by the Lance case might foster corrective legislation, which various congressional committees have for years been trying to enact.
In addition to correspondent balances, the St Germain subcommittee intends to take up these five subjects, all bearing on Lance's dealings:
Insider loan limits. Presently, a bank officer or other insider may not borrow more than 10 per cent of his bank's capital account.The subcommittee is considering shaving that limit to 5 per cent and installing an aggregate ceiling, for all insiders, at 50 per cent.
Bank control. The Federal Deposit Insurance Corp. presently receives after-the-Fact notice of any change in the control of an insured bank; a change being considered would require FDIC approval in advance.
Margin requirements. Only bank stocks listed on registered stock exchanges, or on the Federal Reserve's margin list, are now subject to margin requirements. A proposed change would make all bank stocks subject to margin requirements. When Lance and his associate acquired control of NGB, its stock was traded over the counter, not subject to margin requirements.
Disclosure requirements. Only some banks (and all bank holding companies) are subject to Securities and Exchange Commission requirements for disclosure of insider stock transaction; many smaller banks are exempt. Under consideration is a flat requirement subjecting all banks to these requirements.
Supervisory powers. The three federal regulatory agencies (Comptroller for national bank, Federal Reserve for state banks, and the FDIC) have only limited ability to punish offending bank officials. Under consideration are heavy fines for violations of bank officials. Under consideration are heavy fines for violations of bank codes, authority to apply "cease and desist" orders to individuals as well as institutions, and less severe requirements that would permit a regulatory agency actually to remove a banking official.