WASHINGTON - Banks may be freed from a huge audit expense under a new Federal Deposit Insurance Corp. proposal.
Last week, the agency proposed streamlining its audit rules to cut down on the number of items auditors must check for compliance.
Glen Hildebrand, regulatory liaison at First Chicago Corp., said he's pleased with the quick fixes the FDIC is offering. "It's not a fundamental change," he said; "it's a cleaning up of a few issues."
Big banks, especially, had been pushing for a change in a section of the Federal Deposit Insurance Corporation Improvement Act, requiring independent public accountants to test banks for compliance.
That provision, which took effect in 1993, added about $100 million to banks' compliance tabs that year, according to Curtis C. Verschoor, an accounting professor at DePaul University, Chicago.
Under the proposed rule, banks would no longer be required to keep lists of overdrafts of less than $1,000, as long as the bank is in compliance with insider lending rules. The FDIC had previously required those lists to be tested by auditors.
In addition, the rule would double, to eight weeks, the period for accountants to compare loans to insiders with other transactions.
The proposal also would require the FDIC to notify large banks in writing if an independent public accountant must review its quarterly financial reports.
Banks would also be able to use the most recent call reports in the auditors' tests, instead of the yearend call report used now.
Another FDIC proposal would help certain sound, well-managed banks.
Auditors of banks with more than $9 billion of assets that are subsidiaries of multibank holding companies and have either a 1 or 2 Camel rating are now allowed to file one report regarding compliance for the entire holding company.
About 70 banks qualify, saving them from filing separate reports.
Because most banks are now in the process of preparing these reports for 1994, this proposal would take effect immediately.
However, the rule is not final yet, and the agency will take comments for 60 days after the proposal is published in the Federal Register, which should happen next week.