Kansas community bankers want to derail a proposed overhaul of the state Banking Department.
Under a system proposed by state Sen. Don Steffes, the governor would appoint a banking secretary who would have power to overrule decisions made by the banking commissioner, such as closing insolvent banks or issuing cease-and-desist orders.
Sen. Steffes, who said he plans to introduce the proposal in January, said a change is required because Kansas is one of only two states-Iowa is the other-that permit the banking commissioner also to work for the industry.
W. Newton Male, who has remained chairman of Prairie State Bank of Augusta while serving as state banking commissioner, is too cozy with the banks he regulates, Sen. Steffes said.
As proof, he said that Mr. Male had failed to tell lawmakers that a tax loophole was letting community banks save thousands of dollars a year on their taxes.
"The situation needs to be studied," said the Republican senator, himself a retired community banker. "Clearly there is an appearance of conflict of interest."
Mr. Male, the highest-paid officer at Prairie State, said there have been no complaints against the state Banking Department from consumers and he has no position on Sen. Steffes' proposal.
"I'm trying to do a good job and let the politicians do their thing," Mr. Male said.
Community bankers said they prefer being supervised by one of their own because he understands the problems the industry faces. Sen. Steffes' concerns about conflict of interest are unfounded, they said.
"I've been through five or six commissioners, and I've never seen any coziness," said Dale A. Bradley, chairman and chief executive of $20 million-asset Citizens State Bank in Miltonvale.
"If you had a real financial problem in this state, you need a banker" as top regulator, said Harry Catlin, president of State Bank of Bruden.
Some charged that Sen. Steffes is trying to change the state's regulatory structure because his wife owns 24,000 shares of BankAmerica Corp. stock, valued at about $1.4 million.
The bankers asserted that that stake has prompted the senator to introduce legislation that is either friendly to out-of-state banks or punishing to small banks.
"He has a philosophy, and the community bankers have a philosophy, and I don't think that they're very close together," said Jim Maag, executive vice president of the Kansas Bankers Association.
Two years ago, Sen. Steffes sponsored a bill that would have let out-of- state banks accept public deposits. While the Kansas banking lobby helped defeat that measure, they lost a round with the senator this year when he closed a loophole that had let banks avoid paying some taxes on assets held in investment subsidiaries.
"He's pretty much a megabank type of person," said Mr. Bradley, who is also president of the Kansas Bankers Association.
Sen. Steffes said there is no connection between his wife's BankAmerica stake-which he described as "minor"-and his legislative agenda. "It is laughable that anything I could do would affect the price of my stock," he said.
Sen. Steffes said he is trying to protect consumers in Kansas and has worked for years to help banking laws evolve. In the mid-1980s, before he was elected to public office, Sen. Steffes pushed for Kansas to permit multibank holding companies-another stance unpopular with community bankers.
The senator's proposal is not novel. Ten states, including neighboring Nebraska and Colorado, have secretaries who oversee the banking commissioner and other regulators of financial institutions, such as credit unions and insurance agencies. As in these other states, the Kansas secretary also would oversee the credit union administrator, securities commissioner, and consumer credit commissioner.
Other states appoint secretaries typically to save money, not to avoid conflicts of interest, said Ellen Lamb, a spokeswoman for the Conference of State Bank Supervisors. States with secretaries, for example, often cross- train their examiners to work in banks, thrifts, and credit unions. Then the secretary shuffles the examiners among department as necessary.
Details such as who would control Kansas' exam process and who would pay its secretary's salary remain to be worked out before Sen. Steffes introduces his bill in January, he said.
Until then, trade groups in the state are monitoring the debate carefully.
"We don't know which way this will go," said J. Sue Anderson, executive director of the Community Bankers Association of Kansas. "But Sen. Steffes has not shown any loyalty to the industry."
