Senators turn up the heat over pullback in lending.

WASHINGTON - Taking up where House members left off the day before, members of the Senate Banking Committee on Wednesday blasted the industry for investing more money in government securities than in business loans.

"I don't believe banks are being banks when more than half their assets are in government securities," Sen. Pete Domenici, R-N.M., told Treasury Secretary Nicholas Brady during a contentious hearing on the Resolution Trust Corp.

"I think strong businesses are being turned down" for loans, Sen. Domenici said.

The Federal Reserve reported last month that banks were holding more government securities (607.3 Billion worth) than business loans ($598.5 billion) for the first time in 27 years. At a congressional hearing July 22, Fed Chairman Alan Greenspan said bank lending levels, particularly in New England, were unacceptable.

Brandy Defends Bankers

As Mr. Greenspan did in his recent economic reports to Congress, Mr. Brady came to the industry's defense, saying excessive regulation had made lending unattractive. "It's just not a profitable business," he said.

Sen. Donald Riegle, D-Mich., chairman of the banking panel, dismissed Mr. Brady's explanation as "far too narrow and simple."

"You have your opinion; I have mine. We disagree," Mr. Brady answered, trying to end the testy exchange.

Both sides agreed that more bank credit recovery. And Mr. Brady did say that administration officials have been meeting with bank examiners in an effort to curb the overzealous application of regulations.

Disagreement on Tight Rules

Nonetheless, he insisted, "when the cost of making a loan comes down, you'll see" an increase in bank loans.

Mr. Brady used his Senate appearance to make a pitch for the administration's recently introduced regulatory reform bill.

Sen. Riegle, who opposes the bill, said the banking industry deserved all the rules imposed on it in recent years. He reminded Mr. Brady that Congress last year was forced to set up a $70 billion line for credits to prop up the Federal Deposit Insurance Corp.

In the politically charged atmosphere, Sen. Riegle announced that he will put off a confirmation hearing on California Banking Commissioner James Gilleran's nomination to be Comptroller of the Currency until the nominee details his involvement in civil litigation involving Peat Marwick, where he once was a partner.

Hope's Renomination Backed

C.C. Hope's renomination to the Federal Deposit Insurance Corp. board was supported unanimously by the committee.

Also at the hearing, the Office of Thrift Supervision was criticized for letting the financier Ronald Perelman "upstream" to a holding company the tax breaks he received in taking over a failed Texas Thrift, First Gibraltar.

Sen. Howard Metzenbaum, D-Ohio, said the government's stake in the thrift would have been worth more if the holding company had been forced to pay the thrift for the tax advantages.

Sen. James Sasser, D-Tenn., accused the RTC of wasting $1 billion by securitizing loans rather than selling them whole. RTC President Albert Casey defended the agency's practice of selling interests in pools of like loans.

Lawsuits Against Directors

And several senators complained that the RTC is suing too many directors and officers of failed thrifts. Mr. Casey said just 32% of the directors and officers have been sued.

The Senate approved new funds for the RTC in March, but House Republicans have blocked the measure. Mr. Brady assured the senators that he personally is involved in an effort to get the House members to change their minds and approve the funding.

Sen. Riegle announced that the committee will hold a hearing Aug. 11 on the RTC's decision to reorganize its legal department. Sure to come up is the agency's request that it be given an exemption from statutory deadlines to file civil suits against directors and officers of failed thrifts.

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