No law in recent years has aroused the industry's ire quite like the 1991 banking act.

From new disclosure rules to tougher auditing and underwriting standards, the legislation is heaping red tape on institutions.

And as each provision is phased in, banks large and small are growing increasingly bitter about soaring compliance costs.

"It seems like we're about to be regulated to the point where we won't be able to conduct our business and be competitive," complains Jack Dickey, president of the First National Bank of Thomas in Oklahoma (assets: $34 million).

Indeed, the law's mandates are regarded as so onerous that the industry has dramatically adjusted its legislative agenda.

For years the top priority was pressing for broader authority to offer securities and insurance products. The new No. 1 goal: rolling back what bankers sourly refer to as the "regulatory burden."

That switch has been one of the most noticeable impacts of the Federal Deposit Insurance Corp. Improvement Act in the first year since its enactment. And there are plenty of others, which will be examined in this five-part series.

Among them: New capital rules have fueled a surge in debt and equity offerings and extended the credit crunch. Regulatory heat is being turned up on troubled banks. And stricter liability rules have made it harder to attract directors.

That's not to say bankers object to every element of the law, commonly referred.to by its acronym FDICIA (pronounced fuh-disha). The recapitalization of the industry's deposit insurance fund, to name one provision, is seen as a crucial step.

But the paperwork needed to comply with all the new rules is, in the eyes of the industry, overwhelming.

The law is likely to add $4 billion to the $11 billion already spent each year on compliance, according John LaWare, a member of the Federal Reserve Board. That total would have equaled 83% of the industry's profits last year.

It's "not so much that any one regulation is that bad by itself," says Edward L. Yingling, director of government relations for the American Bankers Association. "But when you add them all up, you have a huge regulatory burden."

And that leads to the gist of the industry's complaint: The law is overkill and will prove counterproductive.

"The regulations are getting so micro that in some cases, like the Community Reinvestment Act, it is less important whether you serve the community and more important whether the numbers in certain categories add up," says Thomas G. Labrecque, chief executive of Chase Manhattan Corp.

The backlash has grown to the point where some community bankers are grumbling about switching careers, says Mr. Yingling.

"There have been times sitting in a roundtable session, one banker will say he's giving serious thought to getting out of the business. And then you hear others pipe up and say, |Yeah, me too.'"

Activists Unsympathetic

How do such complaints play outside the industry? To mixed reviews.

Organizations that represent consumers are particularly unsympathetic. They maintain that the regulations are needed and that the cost of compliance is far outweighed by benefits to consumers and the Bank Insurance Fund.

Bankers whose institutions are well run shouldn't be complaining at all, says Deepak Bhargava, the lobbyist for the Association of Community Organizations for Reform Now, an advocacy. organization for low-income people.

"Safe and sound banks should endorse most of what's in FDICIA because it will lead to lower premiums overall," he says, arguing that the law's primary thrust is to crack down on the unsafe institutions that hurt the insurance fund.

And House Banking Committee Chairman Henry B. Gonzalez, who helped shepherd the legislation through Congress, doesn't buy the industry's arguments either. The Texas Democrat says the complaints are reminiscent of the arguments bankers used in the 1980s, when they sought additional powers.

"And look what happened," he adds, alluding to the collapse of the insurance fund.

Still, many in the industry think they will be able to scale back some of the provisions next year. Bankers have been hammering away at the regulatory burden theme for most of the year, and there is some evidence that they are making converts on Capitol Hill.

Deregulation Effort

To even be in such a position, though, frustrates many in the industry who had high hopes for banking reform last year. FDICIA began as an effort by the Bush administration to deregulate the financial services industry. And with the need to bolster the insurance fund, there was momentum to pass legislation.

The original Treasury Department proposal would have permitted interstate branching and broken down the barrier between banking and commerce. It also would have permitted banks and nonfinancial companies to own each other.

But turf battles developed quickly. Small banks opposed interstate branching as well as a proposal to limit the scope of deposit insurance. Insurance and securities interests saw an opportunity not just to block deregulation, but to roll back some existing bank powers. And consumer organizations had hopes of expanding the Community Reinvestment Act, which requires banks to lend in local markets.

While banking interests were occupied fighting major battles to protect existing powers and levels of deposit insurance, opponents were slipping in new rules.

So when Congress finished its work just before Thanksgiving Day, the President was given a bill that did little more than recapitalize the insurance fund and add layers of regulations.

As lawyers read through the final legislation, they found provisions that horrified them.

Support from Clinton

A measure added at the last minute by Sen. Carl Levin, D-Mich., directed regulators to issue guidelines governing executive compensation. A similar mandate governed loan underwriting standards and another covered asset growth. Even a bank's stock price was to be the subject of regulatory guidelines.

The industry's hopes for roll-backs have been buoyed by supportive words from President-elect Bill Clinton. During his campaign, Gov. Clinton criticized overly stringent regulation as an impediment to lending.

And just last week, the economic adviser to his transition team, Harvard professor Robert Reich, reiterated that point, saying the President-elect's advisers are eager to cut regulation.

Although President Bush was notably unsuccessful in his efforts to do so, Democratic members of Congress might be more inclined to go along with a President from their own party.

The industry won its first victory last month, when Congress made a few changes in FDICIA.

Guidelines on executive compensation were restricted to abusive situations. Massive new disclosure requirements for savings accounts were postponed for three months and will no longer apply to signs in bank lobbies.

Still, the industry is complaining about many provisions, particularly:

* The Truth-in-Savings Act: Many industry representatives believe that this section, which mandates added disclosures for savings account customers and a standard method of calculating interest on account balances, represents the most onerous compliance demands. Their evidence: It took 2167 pages of regulations to implement the law.

"It fundamentally redoes the liability side of the balance sheet," says Diane Casey, executive director of the Independent Bankers Association of America.

"One sign of its odious nature is the number of conferences and workshops that have been held on how to comply with it," says Joseph Belew, president of the Consumer Bankers Association.

Mr. Belew and other bank industry representatives are particularly concerned about the civil liability clauses, which he says give customers the right to sue for damages even "for very minor technical errors."

* Brokered Deposit Regulations: The law restricts banks from offering interest rates above the local standard, raising the fear among some that bank officers and tellers could be subject to penalties for violations.

* Prompt Corrective Action: Beginning Dec. 19, supervisory agencies lose much of the discretion they now have in dealing with institutions that fall on hard times. The measure requires closer scrutiny of under-capitalized banks, including limits on growth and dividend payouts. As capital positions weaken, regulators are required to imposed increasingly tough sanctions. Once equity capital slips below 2% of assets, regulators in most cases must promptly close an institution.

* Audit Rules: Bankers say the cost of accounting services is going to rise significantly, not so much because annual audits are required for all banks with more than $150 million in assets, but because the scope of the annual exam has been broadened.

* Operational and Managerial Standards: Bankers are hopeful that the guidelines implementing the law will be vague. But with a whole new set of senior regulators expected to take office next year, nobody can be sure. this provision calls for guidelines on asset quality, executive compensation, underwriting standards, and asset growth.

* Disclosure of Lending Volumes: Bankers say this requirement, which applies on credits to small businesses and small farms, is likely to be costly and burdensome. They also object to itemizing it on the call report, where errors might trigger a fine or other supervisory action.

Jitters over Cost

Many executives, particularly community bankers, are worried about the costs of complying with the law. The First National Bank of White Sulphur Springs in Montana will spend at least $15,000 on just getting ready to meet the requirements of the Truth-in-savings Act, says president Mike Grove. That's equal to nearly 7% of the $220,000 earned by the $20 million-asset bank last year.

Bankers argue that consumers will end up being hurt because compliance costs will ultimately be passed on to customers, outweighing any benefits.

Allan Schott, the former general counsel for the Office of the Comptroller of the Currency, says banks will undoubtedly raise service fees to cover the new regulatory costs.

"Most of the costs will be spread around" various services, says Mr. Schott, a partner with Brown & Wood in Washington. "Truth-in-savings will probably lead to lower rates on deposit accounts. And some banks will take a hit to earnings" to cover part of the cost of regulation.

Apart from the cost of the bill, bankers are also steaming mad over what they see as inequities and inanities in the law.

Take the reporting requirements for loans to small businesses and small farms. At a community bank, "all of our loans are to small business," says David Ballweg, president of Community State Bank in Union Grove, Wis.

Reporting on loans to small businesses probably adds an extra half-day of work per quarter for the average community bank officer, says Ms. Casey of the Independent Bankers.

Making matters worse, banks feel they are being singled out for extra regulation while their non-bank competitors are being left alone.

"Truth-in-savings does not even remotely affect the mutual fund industry," says the Consumer Bankers' Mr. Belew.

And bankers wonder too about the unintended consequences of FDICIA. Even simple provisions, such as a requirement that banks give 90 days' notice before closing a branch or an automated teller machine, are potentially troublesome, says Mr. Dickey of the First National Bank of Thomas.

"We had one ATM, and the darn thing was malfunctioning," he says. "We couldn't get it to work and we finally decided it was better to pull it out than to keep on irritating our customers."

In the new world of FDICIA, though, it may not be so easy to fix a problem, he says.

"If it happened now, would we have to ask permission and wait 90 days?"

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