Citing customer privacy concerns and potential burdens on small banks, Federal Deposit Insurance Corp. Chairman Donna A. Tanoue wants the proposed know-your-customer regulations to be scaled back.
"It's evident to me personally that we are going to have to do something different than what was proposed," Ms. Tanoue said in an interview.
Meanwhile, the American Bankers Association plans to ask regulators to kill the controversial know-your-customer plan outright.
The interagency proposal, issued for comment on Dec. 7, would require banks to verify the identities of new customers and monitor both old and new accounts for suspicious activity, such as money laundering.
Almost 13,000 individuals and banks have e-mailed or written the FDIC with their views. Fewer than a dozen supported the proposal.
The FDIC's growing doubts and the ABA's sudden opposition are bad omens for the Federal Reserve Board, which has been the proposal's key advocate.
Although the four bank and thrift agencies issued the proposal jointly, each published its own preamble, revealing somewhat different priorities and commitment levels.
Officials at the Office of the Comptroller of the Currency have expressed concern about the proposal's privacy implications, but Ms. Tanoue's position is the strongest to date.
According to the FDIC, 81% of the consumers who submitted comments object on privacy grounds, as did 63% of the banks. Perhaps more tellingly, more than half of the banks said the proposal would be financially burdensome.
"Ten thousand people told us they're worried about this," said Christie A. Sciacca, the FDIC's lead staffer on the know-your-customer proposal. "We had better listen to them."
One option, Ms. Tanoue said, might be to rework the proposal so that it targets higher-risk operations like private banking, and to scale back the requirements for small banks. Another might be to issue a policy statement rather than a rule.
Ms. Tanoue, who said she will not make a final decision until after the March 8 comment deadline, even suggested the effort could be scrapped.
"While it may not yet be clear what we will do, I believe this is a very real issue that must be addressed in a very timely fashion," she said.
Until now, the FDIC was relatively quiet in the know-your-customer debate. Given that it is the only agency to invite comments via electronic mail, the high tide of messages into the agency's computers raised its profile. Many of the objections have been spurred by warnings on privacy and civil liberties groups' Web pages.
Richard A. Small, assistant director of the Fed's banking division and the proposal's chief architect, said Tuesday, "It is clear that our intent has been misinterpreted by some folks. I still take the view that there is not a constitutional issue here."
It is unclear whether the Fed will go along with any major revisions. In a statement, Fed Governor Edward W. Kelley Jr. said, "The point of the comment period is that we give people a chance to make their concerns known, and then work in a good faith way to deal with the concerns."
ABA officials, who worked closely with the Fed to draft the proposal, said the trade group will send a letter today or Thursday urging regulators to withdraw it.
"We don't support the notion that we need to investigate, profile, and monitor account activity" before there is suspicion of illegal activity, said ABA senior counsel John J. Byrne.
James D. McLaughlin, the ABA's director of regulatory affairs, added, "The public outcry is, we feel, going to erode ... confidence in the banking system."
