WASHINGTON - A senior regulator warned Wednesday that banks' robust profits and the government's rescue of the industry's insurance fund are obstacles to gaining regulatory relief.

"If U.S. banks are being regulated to death, what a way to go," said David Mullins, vice chairman of the Federal Reserve Board.

Commercial banks in aggregate have set earnings records in three consecutive quarters, capped by $8.5 billion in the July-September period.

|Paying' for Line of Credit

But Mr. Mullins said tight regulation is a byproduct of the $30 billion line of credit Congress approved for the Federal Deposit Insurance Corp. in 1991.

The relief bankers seek is unlikely so long as that credit line remains in place, he suggested. "One wonders whether the industry would be willing to reverse the deal," Mr. Mullins said.

In a speech at a conference sponsored by the Brookings Institution, Mr. Mullins also warned that banks should not expect a reduction in capital standards, a step some have suggested to promote lending.

"We've been down that road before, and the first few miles are real enjoyable," he said, but the rest of the trip is disastrous.

The Fed vice chairman did express concern about the decline in small-business lending, however, and said the Federal Reserve has begun a study in which borrowers, rather than bankers, will be surveyed.

Mr. Mullins said banks appear to be yielding market share among small businesses to finance companies. He said regulators need to find a way to cut the paperwork required to make small-business loans.

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