Individuals Face Tough Sledding As Bank Owners

Baseball hero Nolan Ryan has nothing in common with Citicorp, except that they both own banks.

Soon they might also be sharing similar regulatory and capital-raising headaches, and that could be trouble for thousands of individual bank owners like Mr. Ryan.

If a proposal approved handily by the House Banking Committee this summer stays in the bank reform bill making its way through Congress, an individual who owns a bank would have to register with the Federal Reserve as a bank holding company.

Trade groups opposed to the plan say that would be a very expensive and time consuming process that would cut into earnings.

But that's not the end of it. Laws that prevent big banking companies from owning or affiliating with commercial enterprises would also apply to the individual bank owners.

Diversity Heading for Trouble

To stay in the deposit-taking business, the individual owners would have to divest the local car wash, dry cleaner, or grocery store. Nolan Ryan would have to divest any of his corporate interests, perhaps his ranch. Joe Allbritton, the owner of Riggs National Bank of Washington, would have to get rid of his race-horses and television stations -- or his bank.

Opponents, including the major banking trade groups, say the proposal -- by scaring off potential investors -- would have a devastating impact on the ability of small banks to raise capital.

In addition, it might hurt existing investors by forcing them to sell assets like real estate firms or insurance companies into depressed markets.

Loopholes Under Scrutiny

Steve Verdier, a lobbyist for the Independent Bankers Association of America, estimates that half of the nation's 10,000 community banks would feel the negative impact.

He cites the case of a Louisiana bank owned by three members of the same family. As he reads the proposed law, each owner would have to become a bank holding company.

Rep. Doug Barnard, D-Ga., who sponsored the amendment, says he is just closing a loophole. But the amendment really amounts to a doomsday device that could blow up in the face of small bankers who oppose an administration proposal to permit commercial corporations like General Electric Co. and AT&T to own banks.

Mr. Barnard, whose state is headquarters to several large holding companies, supports the administration reform proposals. He is being rooted on by one of the industry trade groups, the Association of Financial Holding Companies.

"If we're going to have a level playing field, the rules should be the same for everyone," says association president Patrick Forte.

The American Bankers Association opposes the amendment, however, as does the independent bankers' group.

Barnard Amendment Opposed

Recently, both trade groups persuaded a subcommittee of the House Energy and Commerce Committee to leave Mr. Barnard's amendment out of its version of the reform bill. That improves the chances of the amendment being defeated later when the House Rules Committee tries to cobble together a bill from the pieces emerging from various panels.

The ABA also has written a letter to Rep. Barnard asking him to reconsider the idea.

"It would be a terrible hardship on individuals. They'd have to file out forms and do legal work . . . there are significant regulatory costs here," says Ed Yingling, the ABA's congressional lobby.

Mr. Barnard has also received protest letters from the Ford family's private trust, which owns shares of stock in First Nationwide Bank and might be forced to sell them if it wanted to retain a stake in the auto company.

Small-Bank Focus Perceived

The IBAA believes the Barnard proposal is a political gibe aimed at the small-bank lobby -- and key banking committee staff people agree.

IBAA opposes lifting the ban on big banks in other lines of commerce, but it sees no contradiction in permitting small bankers to own a variety of other enterprises. It accused congressmen who support ending the cross-ownership restrictions on big banks of being anti-Main Street.

Mr. Barnard, however, denies that his proposal is a barb aimed at the independent bankers. He says he feels strongly enough about the issue to wage a fight for its inclusion in the final version of the bill.

"I have seen a lot of abuse by owners of banks with auto dealerships, funeral homes, ad infinitum," he says. "If we have reason to guard against it with corporations, we ought to be just as concerned with individuals."

|Company' May Be Expanded

He is not certain how many individuals would be affected by the change, but he knows it is "a lot of folks."

"I haven't made many friends," he chuckles.

Under Mr. Barnard's proposal, the definition of "company" is expanded to include individuals, nonbusiness trusts, and other unincorporated entities that may, under current law, control one or more banks and not be deemed a holding company.

"If an individual owns a bank, then the individual would have to apply to become a holding company. If that individual also is involved in activities that would be impermissible for a bank holding company, then that individual would either have to divest of the bank or the other activities," explains Mr. Barnard in a prepared letter defending his proposal.

"It's difficult for me to understand why individuals should not be subject to the same activity restrictions as corporate owners," the letter continues. "Corporations did not invent the type of greed and stupidity that results in the abuses that holding company legislation is designed to prevent."

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