State-chartered banks in Illinois could stage "mass conversions" to federal charters if the governor's plan to raise examination fees is signed into law, according to trade group officials.

To help close an anticipated $5 billion shortfall in fiscal year 2004, Gov. Rod Blagojevich, a Democrat, has proposed doubling exam fees for more than 500 state-chartered banks. That means a $250 million-asset bank would pay roughly $88,000, said Linda Koch, executive vice president for governmental relations at the Illinois Bankers Association.

The state's two banking trade groups are lobbying fiercely to remove the provision from the governor's $52.4 billion budget, which must be approved - and can be amended - by the Legislature. Such a steep fee hike would ultimately cost the state more revenue than it generates, the groups argue, because many state-chartered banks would convert to national charters.

"I would expect that there would be mass conversions," said David E. Manning, the senior vice president of government relations for the Community Bankers Association of Illinois.

Trade groups are urging members to contact the governor's office and state lawmakers to voice their concerns, though time is running out. Illinois' legislative session is scheduled to adjourn at the end of this month.

Illinois is not the only state that has looked to its banks and other businesses to help narrow budget gaps.

In Maryland the state Legislature passed a bill that would raise taxes on companies and their subsidiaries by 10%, though the new Republican governor, Robert L. Ehrlich, vetoed it on Wednesday.

Kathleen Murphy, the Maryland Bankers Association's president and chief executive officer, said the governor will probably sign another bill into law this week that would affect the state's banks, though less severely. That legislation would allow the state's comptroller to garnish the bank accounts of people who owe back taxes.

Massachusetts recently passed a law to end a tax exemption for banks' real estate investment trust subsidiaries, allowing it to collect back taxes on those subsidiaries to 1999. That measure, championed by Republican Gov. Mitt Romney, was widely viewed by banks as an attempt to close a gaping hole in that state's budget and has wrought havoc on many banks' earnings.

Illinois, though, is the only state that appears to be in danger of losing bank charters over proposed legislation.

As Ms. Koch explained it, a $250 million-asset bank currently pays about $44,000 to be examined by the Illinois Office of Banks and Real Estate; such a bank regulated by the Office of the Comptroller of the Currency would pay about $74,000 in fees. If the governor's proposal to double fees is approved, that bank would save $14,000 by switching charters.

(The Office of Thrift Supervisions charges $125 an hour as opposed to a yearly fee.)

Illinois banks are also opposing other measures aimed at balancing the state's budget.

Gov. Blagojevich, who took office in January, has also proposed cutting 45 employees, including 20 bank examiners, from the Office of Banks and Real Estate. That means banks would get less service for their money, Ms. Koch said.

"We are opposed to any fee increase," she said, "and we are equally opposed to any reduction in the number of examiners."

The job cuts would be part of an overall streamlining of the Office of Banks and Real Estate. The current budget would set agency spending at $30.9 million for fiscal year 2004, down 10.4% from the current fiscal year, which ends June 30.

Other measures include trimming spending on travel and equipment; downsizing the financial literacy program; reducing the contingency fund for failed corporate fiduciaries; and providing less funding for special audits of real estate escrow accounts.

The Office of Banks and Real Estate currently receives no money from the state's general revenue fund, and is funded entirely through fees paid by the institutions that it regulates.

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