SAN FRANCISCO - Comptroller of the Currency Eugene A. Ludwig urged bankers to resist a moratorium on insurance powers because they will need the income to shore up their profitability.

Speaking at the American Bankers Association's annual convention, Mr. Ludwig said curtailing his agency's power to allow banks into the insurance business would hurt their fee-generating potential at a time when traditional loan margins are shrinking.

"Bankers today are operating in a difficult environment," Mr. Ludwig said. "Your traditional deposit and credit business is under siege from the capital markets. Increasingly aggressive competitors that are not restricted or regulated like banks are enticing away your customers.

"In this environment, fee income from a broad range of business opportunities is critical to the continued safety and soundness of your banks and the banking system as a whole."

Looking at the balance sheet, Mr. Ludwig said banks are unable to attract enough core deposits, forcing them to record high loan-to-deposit ratios as they turn to the credit markets for financing.

The comptroller also warned bankers not to be fooled into complacency by a strengthening economy. Consumer debt has shot up during the past two years while delinquencies and personal bankruptcies are unusually high, he said.

Mr. Ludwig did point to some good news, saying the slide in credit underwriting standards has come to an end. But, he warned, banks are compensating by cutting rates and points, especially on commercial and industrial loans, which is reducing their profitability.

"You can't have profits if you don't have revenues," he said in arguing against a proposed moratorium on the comptroller's authority to expand bank insurance powers.

"No amount of cost-cutting can ever make the banking industry competitive and healthy over the long term if it cannot offer the products its customers demand," Mr. Ludwig said.

The comptroller was speaking two days after Federal Reserve Board general counsel J. Virgil Mattingly said the central bank would support a temporary moratorium in exchange for repeal of the Glass-Steagall Act's separation of commercial and investment banking.

"We are not happy with a moratorium," Mr. Mattingly said. "But there is a balance. In the scheme of things it might be worth it."

The moratorium would have to be for a set period and last only a few years, he said.

Mr. Mattingly said he expects Rep. Jim Leach, chairman of the House Banking Committee, to include the moratorium in the final version of the regulatory relief bill that he expects to pass within a month.

The Fed official also said he expects that Congress will allow small banks to underwrite municipal revenue bonds directly, while larger banks likely would have to create subsidiaries.

In his speech Monday, Mr. Ludwig argued the benefits of Glass-Steagall repeal and regulatory relief do not justify a moratorium.

But the comptroller, who got a harsh letter from Rep. Leach last week blasting him for "personally intimidating" bankers in his fight against the moratorium, stopped short of urging his audience to oppose the legislation.

"It's really important that you read these bills," Mr. Ludwig said.

Reiterating comments made last week to the Association of Banks-in- Insurance, Mr. Ludwig said bankers can't be certain that a moratorium would be temporary. The Regulation Q cap on savings account interest rates was supposed to expire in 1967 but lasted until 1980, he pointed out.

Also, the bills now pending would give the Securities and Exchange Commission the power to regulate some banking activities and allow nonbank competitors to open wholesale banks that don't have to pay deposit insurance.

In a question-and-answer session after his speech, Mr. Ludwig reassured bankers who have been critical of proposed Community Reinvestment Act examination guidelines. He said he agreed that the draft circulating among the regulatory agencies was too burdensome and paperwork-heavy. "They are trashed," he said.

Mr. Ludwig, the chief architect of the revised CRA rules adopted earlier this year, said he welcomed bankers' complaints. "If these aren't materially reducing your burden, then I want to hear about it," he said.

Separately, Mr. Ludwig voiced concern that reports of high delinquency rates in loans to low-income and middle-income borrowers may cause lenders to shy away from these markets.

Mr. Ludwig said that while a recent study by the Federal Home Loan Mortgage Corp. found high delinquency rates in some affordable housing programs, these problems could be solved if banks counseled customers before and after making the loans.

"We know that all loans - and particularly affordable home loans - must be based on solid underwriting principles and must be supported by strong, often innovative customer service techniques," Mr. Ludwig said.

Mr. Ludwig also announced a new educational program, created by the ABA, the National Foundation for Consumer Credit, and the Neighborhood Reinvestment Corp., to help prepare consumers for purchasing homes.

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