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STATEMENT BY EUGENE A. LUDWIG OF COMPTROLLER OF THE CURRENCY BEFORE HOUSE BANKING SUBCOMMITTEE

 WASHINGTON, June 29 /PRNewswire/ -- Eugene A. Ludwig, comptroller of the currency, made the following statement before the Subcommittee on Financial Institutions Supervision, Regulation and Deposit Insurance of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives:
 Thank you, Mr. Chairman, and members of the subcommittee.
 I appreciate the opportunity to discuss with you the steps we are taking to implement the program that the president announced on March 10 to improve credit flows and reduce regulatory burden.
 We have prepared detailed written testimony describing our progress under the program. I would like to submit that written statement for the record.
 In the next few minutes I will put the program into context and briefly discuss our progress.
 When he announced the program on March 10, the president left no doubt that he was firmly committed to reducing regulatory burden. He made clear that regulatory burden relief was a priority. Why? Because regulatory burden was an impediment to credit flow -- credit flow needed to foster economic growth -- and an impediment to a strong financial system.
 At the OCC we have been pleased to work vigorously to achieve the president's goal of burden reduction. This burden reduction can be achieved without sacrificing all-important safety and soundness goals.
 As the oldest federal financial services regulator, with regulatory responsibilities dating back to 1863, the OCC well understands the need for sound regulation and supervision to protect the U.S. financial system.
 However, we are also well aware that banking regulation imposes costs.
 When the regulation clearly adds to the safety and soundness of the banking system -- and through that safety and soundness, to the stability of the economy -- or contributes to other policy goals -- such as ending discrimination -- the price of regulation is both justified and necessary.
 At the same time, unnecessary and unnecessarily burdensome regulations can impose unjustifiably high costs on banks and their customers.
 Government has layered on banking a mountain of regulations -- regulations that are often duplicative, superfluous, or otherwise wasteful.
 As a result, the banking system we have today finds it difficult to perform its intended function -- and the entire economy suffers.
 In coming to grips with this problem, we have largely talked past each other and missed the point.
 On one side of the debate are the people who want to build a fail- safe, risk-free regulatory system for banking.
 On the other side are the people who are willing to sacrifice safety and soundness to achieve a climate of credit availability.
 Both sides seem to assume that these objectives -- safety and soundness on one hand and credit availability on the other -- are mutually exclusive -- that we must choose one or the other.
 We can do better than that.
 We can aim for more.
 We can achieve both safety and soundness and an acceptable level of credit availability.
 But to do both will require a top-to-bottom review and restructuring of our regulatory framework.
 We have begun that review.
 Regulatory reform means taking a hard, disciplined, meticulous look at everything we do and asking the questions:
 -- What problem does it address?
 -- How important is it?
 We are trying to identify what is nonessential -- and eliminate it.
 At the same time, we want to make it easier for banks to comply with what is essential.
 I've brought along an example of what I'm talking about.
 This document is Regulation DD -- Truth in Savings, including amendments. It is 68 pages of tiny print in triple columns. Several pages consist of mathematical computations of a complexity that would delight any high school algebra teacher. These computations of annual percentage yields are the heart of the regulation.
 We made all that simpler by developing a microcomputer program for use by bankers. The program on this disk was written by one of our national bank examiners -- a program that provides an efficient, computerized tool for doing the calculations that Regulation DD calls for.
 We have sent the disk to the chief executive officers and compliance officers of all national banks.
 The program is in the public domain and may be copied -- free.
 Mr. Chairman, from the Day I arrived at the OCC, we have sought to eliminate the regulatory burdens that don't demonstrably contribute to safety and soundness or other public policy goals.
 We have been phasing in elements of the president's programs over the last 90 days.
 The concrete steps that we and other bank regulators have taken -- and are taking -- will allow banks to lend more.
 We reduced documentation requirements for loans to small- and medium-sized businesses and farms.
 Well-managed banks can make and carry a basket of loans to small- and medium-sized businesses and farms with only minimal documentation.
 The basket gives well-managed banks flexibility they never had before to address loan demand from small business.
 We've published proposals to lessen the burden of real estate appraisals and of a bank's accounting and appraisal treatment of Other Real Estate Owned.
 And we've made it clear that real estate loans that depend on collateral for repayment need not be reported as foreclosed -- unless the lender has actually taken possession of the collateral.
 We've made it easier for banks to return restructured nonaccrual loans to accrual status.
 We've made it easier for buyers to come up with minimum down payments on sales of foreclosed real estate.
 We've reaffirmed that it is not our regulatory policy to value the collateral underlying real estate loans as if the collateral was being liquidated.
 We've made it clear when the use of the "Special Mention" loan category by examiners is improper -- improper use may have inhibited lending to small business. And we've enhanced our ability to detect lending discrimination and strengthen enforcement of fair lending laws.
 An important part of the program is a new appeals process.
 Disagreements between bankers and bank examiners are a normal part of the supervisory process.
 In most cases, such disagreements can be resolved through informal discussions.
 When they cannot, banks have a right to a fair and prompt review of the disagreement -- and to relief when its justified.
 I am creating a new office -- the office of the Ombudsman -- to consider appeals from national banks throughout the country.
 And I have encouraged bankers and examiners to see that the process is used.
 Now let me mention our on-going initiative to reduce regulatory and paperwork burden -- a serious effort to come to grips with a serious problem.
 I cannot overstate my commitment to this initiative.
 We are examining every single one of the regulations we have on the books to see where we can minimize burden.
 At present, we have our regulations on lending limits, corporate activities and applications, and international banking under review.
 Further, we have formed a working group to identify and recommend options to eliminate unnecessary reporting and recordkeeping requirements resulting from our regulatory activity.
 And we are soliciting the advise of bankers, community groups, and others with an interest in the banking system.
 Mr. Chairman and members of the subcommittee, in closing I want to say that as comptroller of the currency I want to see how much, not how little, credit banks can extend to America's businesses, particularly small and medium-sized businesses.
 I want to see how many, not how few, layers of duplicative and burdensome regulation we can strip away, while maintaining the highest standards of safety and soundness.
 I want to see us modernizing bank supervision, so that we can maintain safety and soundness while lowering regulatory cost.
 I welcome your questions.
 -0- 6/29/93
 /CONTACT: Barbara Loefler of the Office of the Comptroller of the Currency, 202-874-4970/


CO: Office of the Comptroller of the Currency ST: District of Columbia IN: FIN SU:

IH-KD -- DC014 -- 6787 06/29/93 14:53 EDT
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Date:Jun 29, 1993
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