The Treasury Department controls two of the three votes on the Federal Deposit Insurance Corp. board.

Ordinarily that would outrage bankers, lawmakers, and most of all the chairman of the FDIC, because the agency is supposed to be independent.

But these are not ordinary times. The FDIC has been without a permanent chairman for nearly 10 months, and acting Chairman Andrew C. Hove is taking his cues from Comptroller of the Currency Eugene A. Ludwig -- the only board member nominated by President Clinton and confirmed by the Senate.

The remaining FDIC board member is Jonathan Fiechter, another Bush administration holdover, who is running the Treasury's Office of Thrift Supervision on an acting basis. Like Mr. Hove, Mr. Fiechter would like to keep his job and is not standing in Mr. Ludwig's way.

Deaths Take a Toll

"You essentially have an acting chairman who cannot exercise an independent role because there are two Treasury votes on his board," said Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America.

The FDIC board normally has five members, but two deaths over seven months have created two vacancies, which the Clinton administration hasn't gotten around to filing. Mr. Hove stepped up to the top job when Chairman William Taylor died suddenly last August.

For his part, Mr. Hove said in an interview Tuesday that the Treasury's dominance of the FDIC's board is not a problem.

"There has not been a situation where there has been undue influence by the Treasury," he said.

Comical Contest

The new president was expected to pick an FDIC chairman right away, but that didn't happen. President Clinton, who on his first fully day in office selected Mr. Ludwig as comptroller, has left the FDIC slot empty.

There's no shortage of contenders, however. In fact, the ever-changing horse race in the four months since the inauguration has become comical.

The uncertainty has compromised the FDIC's independence, curbed its effectiveness, and hurt staff morale.

With a permanent chairman the agency also might move to bring bank failure forecasts back in line with reality, reducing fears that a banking crisis is looming.

The industry needs a strong chairman who can explain that "we've got things under control," said Joe Belew, president of the Consumer Bankers Association.

"Treasury controls the FDIC now, that's obvious," said L. William Seidman, the fiercely independent former FDIC chairman.

"Mr. Ludwig is the only regulator in sight," Mr. Seidman said, "and he has been concentrating on CRA [the Community Reinvestment Act] and discrimination and all of that - which, while it is a factor, is not the kind of thing that helps banks plan the future."

Ludwig in Charge

Mr. Hove has mainly been a caretaker during his 10-month tenure. He is well liked by staff members, and industry leaders, who understand that he has had to walk a fine line as an acting chairman under a new administration.

After the FDIC staff worked for nearly a year on new audit regulations, Mr. Ludwig stepped in at the last minute and persuaded the agency to adopt more flexible guidelines instead of hard-and-fast rules.

Mr. Ludwig also led the charge on relaxing controversial appraisal rules. Before he joined the FDIC board, the agency planned to continue requiring appraisals by licensed professionals on all loans under $100,000. The final rule, taking effect July 2, raises the threshold to $250,000.

It was Mr. Ludwig, too, who persuaded the FDIC to rebate premium payments to 700 banks that claimed they had overpaid. The FDIC staff advised against the payments.

Finally, Mr. Ludwig stunned the other agencies in May with his decision to send testers into national banks to root out discrimination. The FDIC has long opposed the practice but has set up a task force on whether to adopt it.

To be sure, most of these moves actually helped banks. But that is quite apart from the issue of FDIC independence.

Effect on Morale

William Isaac, another former FDIC chairman, said Mr. Ludwig's influence hurts morale at the FDIC and will prevent proposals from getting to the board.

"The staff doesn't want some other agency head making decisions for the FDIC," he said. "So a lot of things that would otherwise be happening are getting deferred, and the board probably has no idea how much."

FDIC officials privately confirm all this. Being dictated to by the comptroller is painful for FDIC employees who under the thrift bailout law of 1989 became the most powerful regulators.

Several staff members said it is frustrating to work up recommendations only to have Mr. Ludwig and his staff change them at the last minute.

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