Ask Steven Hellinger about proposed federal legislation on derivatives and he'll sniff derisively. "I was not impressed at all," he said of one such bill.

Mr. Hellinger, director of research for the New York State Banking Department, has taken a leading role in representing the view of state examiners on derivatives legislation.

After the Conference of State Banking Supervisors asked him to review one proposal, he found little to like. In a scholarly 17-page memo backed with a dozen pages of statistics, Mr. Hellinger detailed why he believes the bill would burden derivatives-using banks with more paperwork that means little.

"They focused too much on wanting numbers reported," said Mr. Hellinger, a former commodity derivatives trader who holds an MIT doctorate in geophysics. "The risk-reporting requirements didn't really tell anything about the risk to the institutions."

While Mr. Hellinger is arguably more sophisticated than most about the controversial derivatives business, he represents a growing trend among state-level examiners. State authorities have been paying more attention to the issue even though the great majority of the banks they regulate are not yet involved with off-balance sheet instruments.

Indeed, many are cautiously watching proposals in Washington, D.C., that could complicate the regulatory process or require all banks to face new reporting or restrictions.

"Our states are dealing with the issue now. We are leaning toward saying the regulators already have enough authority," said Robert A. Richard, director of regulatory services at the banking supervisors conference.

"The federal proposals wouldn't affect us too much here," added Walt Mix, senior deputy superintendent with the California Banking Department. "What it would do is allow only well-capitalized banks to be able to engage in this activity and that is who is doing it now."

Only the biggest banks in most states report any usage and even fewer are dealers in derivatives. But like many smaller banks, state regulators are concerned that legislation would affect regionals and community banks who use few such instruments.

Because states generally mirror federal rules, commissioners said anything that broadens the universe of banks examined for derivatives would stretch already tight budgets and test examiners' limited expertise.

Consider the case of Joe Neeley. As commissioner of the Mississippi Department of Banking and Consumer Finance, Mr. Neeley doesn't even have an in-house legal counsel. His staff of 31 covers 91 state-chartered institutions with $13 billion in assets.

With the exception of some limited investments in collateralized mortgage obligations, no Mississippi bank is actively involved in derivatives. Even so, Mr. Neeley's examiners work with FDIC auditors to review and learn about such issues.

Indeed, he worries that many bankers know even less about the complicated subject than he does. "By and large, the comfort level and understanding is not where it should be," the commissioner said.

With that in mind, Mr. Neeley offers this piece of advice to Mississippi bankers thinking about derivatives: "If you don't understand it and you can't turn around and explain it to someone else, you don't need to buy it."

He is not the only one offering advice to banks. Some in Congress are anxious to regulate the use of derivatives by banks and others because of a fear of calamity. But as recently as late May, banking regulators urged lawmakers to hold off on any legislation, saying they have enough authority to ensure that users manage the risks.

While Congress is unlikely to take action this year, regulators like Mr. Hellinger are worried that Congress cannot resist the urger to tinker with any perceived problem.

New York state regulators probably have more to be concerned about than most of their counterparts in other states. The agency audits units of such money center banks as J.P. Morgan & Co., Bankers Trust New York Corp., and Chemical Banking Corp. These banks are heavy users, dealers, and traders in everything from plain vanilla to exotic instruments.

At the same time, New York is the U.S. base for scores of foreign banks that are global players. The same is true in California and Illinois, among others. These states have one thing in common with Mississippi - they work jointly with federal regulators to examine derivatives use.

Not that Mr. Hellinger needs any help understanding the subject. He earned the nickname "Dr. Hell" as a bullion trader on Wall Street.

Today, the math skills that earned his reputation as an expert on derivatives show up most clearly in his mini-dissertion on regulation.

In his commentary for the state regulators' conference, he makes his point with a long-winded discussion of modern mathematical modeling and option theory, complete with scholarly footnotes.

But he shows he is equally comfortable with made-for-television logic, summarizing the legislation soundbite-style as "vacuum tube proposals in a digital electronics world."

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