WASHINGTON -- Federal Reserve Governor John P. LaWare warned Congress Thursday against creating a new government bureaucracy to oversee a secondary market for business loans.

A bill introduced by Paul E. Kanjorski, D-Pa., could do just that, he said. By requring the Treasury Department to certify participating institutions, set capital standards and loss reserve requirements, and arrange for regulatory exams, Congress "would create a parallel regulatory structure," the Fed governor said.

"We believe that the preferable approach would be to fashion legislation directing the primary federal regulatory agencies to develop appropriate standards," Mr. LaWare told a House Banking subcommittee.

As part of its community development bank bill, the Senate Banking Committee has passed a plan introduced by Sen. Alfonse D'Amato, R.-N.Y., to cut regulatory, legal and tax impediments to small business securitization. Mr. Kanjorski wants the House Banking Committee to attach his alternative to its own community development bill.

Mr. Kanjorski's proposal is broader than the Senate's, including business, commercial real estate and community development loans.

"There is no intent to create a second regulatory network," Mr. Kanjorski said.

Mr. LaWare told the subcommittee that the Fed supports legislation to encourage a secondary market for business and community development bills, as long as it does not create a new government agency or increase government liabilities.

But he warned a strong secondary market could prevent banks from lending to some organizations "because they do not fit the mold."

Mr. LaWare also said banks have begun easing their lending terms and more aggressively pursuing lending opportunities.

"Demand is picking up to some extent," he said. "I think we're at a period of rather significant change."

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