Sens. Richard Shelby and Connie Mack are gearing up for their third attack on bank regulations.

The two Republicans, who sponsored reg relief bills enacted in 1994 and 1996, have prepared a new bill to roll back more than 50 regulations. Most of the provisions are modest, such as elimination of some branch application requirements and simplification of Truth-in-Lending Act disclosures.

But there is one big gift to the industry-a nearly $2 billion refund from the Bank Insurance Fund. The lawmakers agree with industry arguments that the insurance fund should not grow indefinitely and excess funds should be returned to banks.

Though healthy banks no longer pay deposit insurance premiums, investment income continues to fuel the fund's growth. The March 31 fund balance was $27 billion, which means reserves totaled $1.34 for every $100 in insured deposits.

That's $1.7 billion more than the 1.25% required reserve ratio set by Congress in 1991.

Under the Shelby/Mack plan, that money would be returned to banks and refunds would be made whenever the fund climbed above 1.30%.

James H. Chessen, the American Bankers Association's chief economist, applauded the lawmakers' plan.

"The Bank Insurance Fund needs to be capped at some level," he said. "With interest income pouring in and the industry extremely healthy, there is no need for the large cushion we have today."

The lawmakers have circulated their plan to regulators and trade groups, asking for comments. They plan to introduce a bill in September. A spokesman at the Federal Deposit Insurance Corp. said officials there still are reviewing the plan and were not ready to comment.

Sen. Lauch Faircloth, who chairs Senate Banking's financial institutions subcommittee, plans to hold hearings on capping the insurance fund in October.

"We will examine how much of a cushion there is and how big it should be," said an aide to Sen. Faircloth.

The North Carolina Republican also wants to add measures that would let the Federal Reserve pay interest on required reserves and allow banks to pay interest on business checking accounts. Similar legislation has been introduced in the House by Rep. Jack Metcalf, R-Wash.

To avoid controversy, Republicans won't try to roll back community reinvestment and fair-lending laws. Efforts to weaken those laws in previous regulatory relief bills crumbled after President Clinton threatened a veto.

"They don't want Democrats to turn this into a fight over access to credit and community lending," said Karen Shaw Petrou, president of ISD/Shaw Inc."Those issues have been disastrous for them politically."

But the proposal does contain some controversial provisions. For instance, one measure would exclude home equity loans from the Real Estate Settlement Procedures Act. Another would eliminate the Bank Holding Company Act's anti-tying rules.

Republicans argue those changes would cut consumer costs and allow banks to bundle loan and investment products a la Merrill Lynch and other financial firms.

Consumer activists complain those measures go too far but are trying to work out a deal.

"I'm hopeful we will have more cooperation with the Republicans," said Michelle Meier, financial services counsel for Consumers Union. "We want to find ways to streamline regulations, yet to continue protecting consumers."

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