WASHINGTON - The Federal Deposit Insurance Corp. Improvement Act lost some of its bite over the three years it took regulators to write implementing rules.
The best illustration: On March 22 new safety and soundness guidelines will go into effect, but no one expects them to have much impact on the way banks are run.
That wasn't the expectation in 1991 when Congress passed the law, whose section 132 demands regulations dictating how much bankers can pay top executives, what type of internal controls an institution must employ, and how tough a bank's underwriting standards should be.
But a series of factors conspired to defang the section.
Reacting to the amazing losses of the thrift industry, Congress wrote the provision without any hearings.
Regulators opposed the requirements from the start, and banking trade groups were committed to torpedoing it.
Early this month the Federal Reserve became the first of the agencies to issue final rules. The other agencies are expected to issue similar guidelines soon.
To bank advocates, enfeebling the rule proved that the American political system works.
"This is the right outcome," said Ronald Glancz, a partner at Venable, Baetjer, Howard & Civiletti. "Even though Congress passes a law in the heat of the biggest S&L debacle of our time, the regulators come out with something that is appropriate for the situation."
Richard Whiting, general counsel to the Bankers Roundtable, said regulators had no idea how to implement the law - because Congress never held any hearings.
"Things were taken out of the blue by Congress" without any explanation, Mr. Whiting said. Because lawmakers didn't specify what they wanted done, they gave regulators a long lead time to draft final rules.
"If they had to implement it in 1991, they wouldn't have had a choice," said Ira H. Parker, who was an assistant general counsel at the FDIC at the time. "The time lag gave the agencies a chance to let the political climate and bank health to change."
Also, banking advocates said the regulators, who didn't like the law themselves, were in no hurry to put it into effect.
Regulators dragged out the rule-making process. Mr. Whiting said the agencies, rather than propose rules in 1992, asked the public to answer more than four dozen questions on how they should tackle this regulatory problem.
The banking groups, after failing to fight section 132 initially, quickly mobilized, banking advocates said.
"To the credit of the banking industry, they got in there and showed not only how burdensome but also how unapplicable it would be," Mr. Whiting said.
Other factors also helped. Mr. Parker said Congress lost interest in safety and soundness issues once the savings and loan crisis ended. That made it easier for the trade groups to lobby successfully for the weakening of section 132, which happened as part of the Riegle Community Development and Regulatory Improvement Act of 1994.
But, how could Congress even pass such a law with more than a half-dozen trade groups fighting for the industry? The Bankers Roundtable's Mr. Whiting said industry advocates were enamored with other proposed parts of the FDIC Improvement Act, including Glass-Steagall reform.
"They were looking at the sexy parts and weren't looking at the faces," Mr. Whiting said. "Bankers got caught by surprise."
The industry effort, however, picked up considerably after Congress stripped the pro-banking provisions and approved section 132.
While the trade groups succeeded in weakening the law, bankers cannot afford to ignore it completely, said Karen Shaw, an industry consultant who is president of ISD/Shaw Inc. here.
The guidelines state that banks should have an organizational structure that establishes "clear lines of authority," and it said institutions should prepare "timely and accurate financial, operational and regulatory reports."
The guidelines also state that independent and objective auditors should monitor bank operations and that banks should maintain underwriting standards that account for concentration of risk.