To halt an erosion of underwriting standards, acting Comptroller of the Currency Julie L. Williams on Monday ordered examiners to dig deeper into national bank portfolios.

The action is the latest of a series by the national bank regulator- moves that Ms. Williams said bank executives had not taken seriously enough.

"Our previous actions and admonitions have not had the full impact we hoped to achieve," Ms. Williams said at conference in Chicago sponsored by Robert Morris Associates. "Because banks have not shifted gears to the extent we believe the situation requires, we are shifting gears ourselves to enhance our focus on credit risk."

Bankers contacted Monday supported her view.

"There is no question that banks have been under competitive pressure to reduce credit standards," said William S. Aichele, president and chief executive officer of Univest of Pennsylvania Corp. in Souderton, Pa. "When the OCC takes an aggressive stance, it does have a big influence on decisions bankers make."

Under the new policy, effective immediately, national bank examiners are required to identify loans that have "structural weaknesses" that might jeopardize repayment or liquidation.

Problems most commonly encountered by examiners include overly generous maturity schedules, inadequate capital, and lack of personal guarantees from borrowers, Ms. Williams said.

Examiners also will detail how often a bank strays from its written lending policies. These reviews will state how many loans are dependent on a loan officer's estimates, such as projected cash flows and asset and equity values.

Finally, examiners will be required to identify any adverse credit-risk trends among loans that have received a passing grade.

Bank managers will be expected to create special programs to monitor the loans that examiners flag.

Past moves by the agency include guidance issued in March on loan portfolio management, aimed at pushing banks to take a comprehensive look at the risks posed by the loans on their books. In October, then- Comptroller Eugene A. Ludwig ordered examiners to review underwriting policies with senior managers at every national bank.

"These steps are not intended to be punitive, but rather to focus the industry's attention on things they have ability to fix before there are problems," Ms. Williams said in an interview Monday.

The Federal Reserve Board and the Federal Deposit Insurance Corp. have sounded similar warnings.

Ms. Williams said the OCC decided to step up examiner reviews after a survey of underwriting practices showed commercial loan standards have slipped for the fourth year in a row. Final results of the 1998 survey, the fourth since November 1995, will be released in a few weeks.

"We see this slippage in every category except international lending, where the Asian crisis has prompted lenders to be more cautious," Ms. Williams said.

Banks are accepting more risks without commensurate fees and interest margins, she said. Also, as loan covenants and collateral requirements are eased, banks are reducing their loan-loss reserves.

"Even as banks have increased their exposure to risk, they have also reduced their ability to cover potential losses," the acting comptroller said.

On the consumer lending side, high-risk practices have been shifted from credit card lending to the home equity market, she said.

Ms. Williams warned that depository institutions must not emulate the "predatory" practices of some nonbank lenders, such as failing to disclose loan terms or extending credit that cannot be supported by the borrower's income.

"Competitive practices must not lead commercial banks to cutthroat, lowest-common-denominator lending," she said. "When loans become financial straitjackets and stop becoming gateways to financial opportunity, neither party benefits."

Lee B. Murphey, chief credit officer of First Liberty Bank in Macon, Ga., and Robert Morris Associates' chairman-elect, agreed.

"There's only so far down the food chain that we will go," he said. "At our bank we have made a decision that we would rather let good, long- standing relationships walk out the door than compromise the bank's standards."

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