In Brief: Clarification Sought on Recapitalization

Bank trade groups are asking federal regulators to clarify a provision in regulatory-relief legislation that could hold bank directors responsible for recapitalizing troubled banks.

The provision, which was included in bills passed by the House and Senate, would give regulators more power to force bank directors to use their personal assets to bail out their banks if capital falls below certain levels.

In a letter dated June 2, the American Bankers Association, the Independent Community Bankers of America, and America's Community Bankers asked the Federal Deposit Insurance Corp., the Office of Thrift Supervision, and the Office of the Comptroller of the Currency to clarify the agencies' understanding of the powers they would receive under the provision.

The trade groups wrote the letter in response to an article in the May 18 American Banker that said bank directors were concerned that the provision, should it become law, could hurt in the recruitment of new bank directors and stifle the creation of start-up banks.

Since that time, banking lawyers have contacted bank trade groups seeking a better understanding of what had been a little-known provision in the regulatory-relief legislation.

"All the bank trade groups became concerned and we decided that we would seek clarification jointly," said Robert Davis, an executive vice president at ACB.

The House and the Senate bills aim to ease regulations on banks, thrifts, and credit unions. Differences between the two bills must be reconciled in conference before the legislation can be signed into law.