WASHINGTON, June 7 — Comptroller of the Currency James E. Smith issued Friday for comment a disclosure regulation to tighten controls on self-dealing by officers and directors of national banks. It will require bank managements to list outside business interests for bank examiners.
The affiliations would still be kept from the public and there would be no requirement for management to make the list available outside the bank.
A spokesman for the Comptroller said the reasoning behind the regulation was that it should function like an office account. He said the list would be obtainable by subpoena.
The move to tighten control on outside business interests of bankers follows directly from a Comptroller-Federal Deposit Insurance Corporation investigation into the collapse of the $933.8 million deposit United States National Bank, San Diego, last October, which revealed that the bank's chairman, C. Arnholt Smith, had made hundreds of millions of dollars of loans to companies in which he had sole or partial ownership without detection by national bank examiners.
Reaction to the collapse has spurred the Comptroller and other regulators to seek tighter regulation in several areas. In January, the Comptroller, the Federal Reserve Board and the FDIC joined in proposing that banks be made to classify standby letters of credit as liabilities and account for them under lending limits. That rule, which is still pending for revisions, resulted from a finding that letters of credit were widely used by Mr. Smith to secure loans for his companies.
The self-dealing regulation would take effect Jan. 1 and would require that business interests of any type be disclosed. Transactions between the bank and the business that would be listed include loans, check, cash or other advances, sale of notes between the company and the bank and the issuance of acceptances, letters of credit or other obligations benefiting the company.
A banker or bank director would have a legal interest in a business if he or his immediate family owned 5% or more, or could influence the management of the company indirectly. Bankers borrowing $100,000 or more from a company would also be considered to have an interest.
Another section of the regulation would require the reporting of a material change between the bank and the business. A business increasing its deposits with a bank by 25% or more would fall in that category, according to the regulation.
Banks were given 30 days to comment on the rule. They would be required to provide management and directors with a new Federal form, Form CC 8013-06 for keeping track of affiliations. The reports would be updated annually, and kept on file for two years after an official left his position.
Self dealing is not a crime under banking regulations now and it would not necessarily be with the new rules although it frequently leads to abuses. A copy of the regulation said that "unsafe and unsound banking practices frequently are associated with self dealing by the bank's managing officials," however, and that it commonly results in "the extension of credit on an unsound basis."
