WASHINGTON - The Federal Reserve's inspector general has launched an investigation into how the agency handles bank holding company applications.

"What we are looking at is the internal procession of applications just to see if there is something better we can be doing," said the official, Brent Bowen.

His office will examine processing policies and procedures, compliance with legislative and regulatory requirements, timeliness, cost, and consistency of review.

The investigation is part of his office's broader review of the central bank's operation, he said. It is scheduled to be completed this year.

The audit received warm reviews from banking industry advocates. "It is definitely something that is needed," said Karen Thomas, director of regulatory affairs at the Independent Bankers Association of America. "We frequently get complaints from bankers. . . . Any area where the Fed could streamline the process would be very welcome."

"I think it is a great idea," agreed Mike Greenspan, a partner at Thompson & Mitchell who was contacted by Mr. Bowen's office.

Mr. Greenspan said the holding company application process is a perfect area for the inspector general. He said that whereas staffers might become too defensive to seriously consider suggested changes, the inspector general can issue a report and not worry about hurt feelings.

But, other attorneys were less sure. "I would be reluctant to complain to the IG about people on the other side because they could find out," said Gil Schwartz, a partner at Schwartz & Ballen.

Mr. Greenspan said he raised two major concerns. First, he said he didn't believe bankers should have to show how a merger increases the convenience and needs of the public. Rather, bankers should just show that a transaction doesn't decrease convenience and needs.

Also, he said the Fed needs to scrutinize community group protests. The inspector general should recommend that the staff have more power to disregard frivolous protests, he said.

The current system allows a meritless protest to push an application from a 30-day to a 60-day approval track, he said.

Finally, he said he urged the Fed to stop accepting protests after the comment period has closed.

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