Paul Fritts concluded a 34-year career with the Federal Deposit Insurance Corp. last week.

During his impressive rise from bank examiner in Wichita, Kan., to the agency's highest staff position, Mr. Fritts saw it all.

He is a confident man with nothing to prove. The two words most often used to describe the retired executive director of bank supervision and resolution are "tough" and "fair."

He speaks his mind, and that was valued when blunt-talking L. William Seidman was his boss. But times are changing and Mr. Fritts' straight talk has gotten him in trouble with Comptroller of the Currency Eugene A. Ludwig, who is the new leader among bank regulators.

Pulled Off Key Committee

Mr. Ludwig had Mr. Fritts thrown off an interagency committee set up to devise the administration's solution to the credit crunch, according to FDIC staffers who were surprised that their acting chairman, Andrew C. Hove, conceded to yank Mr. Fritts.

Mr. Fritts disagreed with Mr. Ludwig's premise: that overly tough examiners were scaring banks away from making sound loans. Mr. Ludwig's message is perceived to be that examiners should ease up, which is the reverse of what examiners were told a few years ago.

"If you push examiners in opposite directions often enough, eventually they are just going to say, What is the lowest common denominator?" Mr. Fritts said. "You stand the risk of examiners going out and not calling it the way they see it, but calling it the way they think someone else wants them to see it."

This threat is particularly real now because more than half of the exam force is relatively inexperienced, he said.

"Those people are striving to get ahead; they have something to prove, and they are much more susceptible to a change in direction."

If he weren't retiring, Mr. Fritts would likely butt heads with Mr. Ludwig again over his plans to reform the Community Reinvestment Act. Mr. Ludwig is rushing to meet President Clinton's Jan. 1 deadline for transforming CRA so that it emphasizes performance over process.

But Mr. Fritts said this move is likely to prod bankers into making bad loans.

Numbers Game

"The move toward actual performance, to |show us how many loans you've made,' will cause some banks to overreact and make bad loans, and I don't think CRA was ever intended to do that."

Mr. Fritts said CRA was supposed to get banks to offer loans to low- and moderate-income individuals and businesses. "CRA just says you have to offer to make the-loans, not actually make them," he said.

Asked what he thinks about the comptroller's increasing clout, Mr. Fritts starts off carefully. But within minutes, he is talking about how the FDIC's independence has been ruined now that two of its three board members work for the Treasury Department.

"You have two Treasury people on our board. How in the world can it be independent? It can't be. You've got three votes, and you've got two people who owe their allegience to the administration. I don't know whether it can be resurrected without some real congressional involvement. If they truly want the FDIC to be independent, they need to appoint some independent directors that are not litmus-tested at Treasury."

Whew.

FDIC Given Short Shrift

Mr. Clinton appointed Mr. Ludwig the day after taking office, but has left the FDIC to limp along under Mr. Hove, who has been acting chairman since William Taylor died in August 1992.

"If this agency isn't independent in good times, it won't be independent in bad times," Mr. Fritts added.

If he could reconfigure the regulatory agencies, Mr. Fritts said he would whittle the existing five agencies to two that report to Congress, not to the executive branch.

One independent agency would oversee national banks while the other regulated state banks and provided deposit insurance to all institutions. He sees no need for a separate thrift charter.

Mr. Fritts expects that calm times have finally come to the banking industry.

|Bankers Are Smarter'

"I think the outlook for banking is very good for the next five to six years," he said. "In fact, I think it will be rather boring around the FDIC. I think bankers are smarter. I think they have learned their lesson. I think regulators are smarter, too."

The number of banks will bottom out at 8,500, over the next 20 years, he said.

Mr. Fritts cleaned out his office on Sept. 3 and the next day moved to southern Illinois, where he grew up, He won't retire completely; he has some jobs in mind that will fill about about half his time.

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