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Bush, House Banking Chairman Trade Barbs Over Banking Regulation

December 19, 1991

WASHINGTON (AP) _ President Bush signed legislation Thursday boosting the Federal Deposit Insurance Corp.’s borrowing authority by $70 billion, but he sharply criticized Congress for its ″short-sighted″ response to banking industry woes.

The measure was a stripped-down compromise rushed through Congress after lawmakers spurned the president’s earlier plans for wider banking reforms.

It props up the fund that insures depositors’ accounts up to $100,000, but Bush said, ″it does nothing to restore the competitiveness of the banking industry.″

On Capitol Hill, meanwhile, the chairman of the House banking committee took swipes at the president, saying the administration is risking repeating the mistakes that preceded the $2.5 billion collapse of a Massachusetts bank by promoting relaxed bank oversight.

The comments by Rep. Henry Gonzalez, D-Texas, accompanied a 326-page report released by the House Banking Committee that concluded Bush administration regulators sat on their hands while the Bank of New England reeled toward collapse in the late 1980s.

The Federal Deposit Insurance Corp. took over the Boston-based banking company and its three banking subsidiaries in Maine, Massachusetts and Connecticut last January. Its profitable remnants were sold to Fleet-Norstar Financial Group of Providence, R.I.

″The report is a classic case-study of a management that placed billions of dollars of publicly insured monies on the gaming table while the Office of the Comptroller of the Currency stood around wringing its hands and hoping for a good roll of the dice,″ Gonzalez said.

Gonzalez was particularly critical of a speech by Treasury Secretary Nicholas Brady to a convention of banking regulators in Baltimore earlier this week. Brady urged regulators to make sure they don’t crimp bank lending and economic growth by sticking to rigid, legalistic approaches to bank oversight.

Gonzalez said Brady’s statements were ″clearly designed to reduce the political heat from the credit crunch and the sagging national economy.″ But he added, ″credit problems cannot be solved by bad loans and weak regulation.″

Bush complained that the bill he signed forces banks to increase their capital reserves and pay high deposit insurance premiums, but ″it gives no additional tools to banks to meet those demands.″

″This shortsighted congressional response to the problems we face increases taxpayer exposure to bank losses,″ he said.

He also warned that it would exacerbate ″the credit crunch that has restrained banks from lending to even their best customers.″

Bush previously signed a separate, $25 billion bailout for the savings and loan industry. Both were among the last measures passed by Congress before it adjourned for the year in late November.

Bush had little choice but to sign the banking bill or risk leaving the government without the money to protect more than 100 million depositors.

Unlike the S&L bill, the banking measure is not a direct taxpayer bailout. It requires the FDIC to repay borrowing within 15 years by collecting insurance premiums from banks and by selling assets inherited from failed banks.

However, Sen. Donald W. Riegle Jr., D-Mich., chairman of the Senate Banking Committee, and others have warned that banks likely will be too weak to repay the loan and taxpayers will be stuck with the tab.

More than 1,000 banks have failed since 1985.

Bush wanted to allow banks to enter the securities and insurance businesses and permit commercial corporations to own banks, but Congress refused to go along.

At one point the Senate added a provision that would have slashed credit card interest rates, but it was jettisoned after it precipitated a drop in stock prices on Wall Street.

Other provisions of the banking bill would:

-Require regulators in most cases to seize weak banks before they fail.

-Forbid the FDIC from protecting deposits over $100,000 in most cases. The fund has paid off jumbo depositors in some bailouts of banks considered too big to fail.

-Give regulators new authority to monitor and control the operations of foreign-owned banks.

-Oblige banks to clearly and uniformly disclose the interest rate, fees and other terms of savings and checking accounts.

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