State-chartered banks will face a faster and easier approval process for investments in real estate or insurance under a plan put out for comment Tuesday by the Federal Deposit Insurance Corp.
The FDIC is trying to standardize what has been a case-by-case system since 1991, when Congress barred state banks from activities not permitted national banks - unless the FDIC approved.
Under Tuesday's proposal, the FDIC will have 60 days to rule on real estate and insurance investments if the bank's home state permits the activity and the bank shows it has complied with FDIC standards.
Current rules require banks to send a letter of application and wait for FDIC board approval. That process has taken as long as a year, regulators said.
But while agency officials praised the proposal as significant regulatory relief, industry experts doubted it would have much impact on any but the smallest banks.
According to the FDIC, of the 173 banks that have sought agency approvals, only nine were trying to make new real estate or insurance investments. The rest simply wanted to hold the investments they had made prior to 1992.
Interest in real estate development has largely been confined to Arkansas, California, and Texas, regulators said. The insurance investments are mainly policies banks buy and hold for senior managers.
Comptroller of the Currency Eugene Ludwig, who sits on the FDIC board, suggested postponing the proposal because his office soon will revise its restrictions on the life insurance products that national banks may purchase for key managers and as employee benefits.
"There's an awkwardness in timing," he said. "It would simplify things for state banks if this rule were coordinated" with the Comptroller's Office ruling, Mr. Ludwig said.
But the FDIC board voted to put the proposal out for comment anyway. Mr. Ludwig did not vote against it.
Under the FDIC's proposal, which will be out for comment for two months, a well-capitalized bank could make or continue to hold insurance investments provided the investment doesn't exceed 30% of its equity capital. And a bank's investments from any one insurance issuer can't exceed 15% of its equity capital. Taken together, all the institution's insurance investments could not exceed 50% of its capital.
In addition, the insurance or annuity products must receive top ratings from independent firms, said Carey Hiner, the agency's associate director for policy.
A well-managed bank that wants to own real estate must have adequate capital after deducting the amount of its real estate investment. Real estate must be owned through a subsidiary that has directors with property experience, and at least one director must be independent.
Overall real estate investments must be limited to 20% of a bank's equity capital and 10% of any one subsidiary's capital, according to the FDIC plan.
Institutions also would have to submit a detailed business plan to the agency and agree to comply with certain anti-tying and insider-dealing restrictions.
In other action at Tuesday's board meeting, the FDIC approved revisions of its 1979 policy statement on offering circulars for advertising sales of bank securities. The board also approved a final interagency rule on risk- based capital standards and market risk.
