WASHINGTON - To match more lenient state standards, the Office of the Comptroller of the Currency on Friday proposed easing the limit on how much a national bank may lend to one borrower.

The current limit - 15% of capital - would be raised to 25% for national banks operating in the 36 states with looser standards. During a three-year pilot program, the easing would apply only to residential real estate loans and small-business borrowers.

"This is an issue of fairness for community banks," Comptroller John D. Hawke Jr. said.

Four states and Puerto Rico have lending limits higher than 25% of capital, including Kentucky, Montana, and Oklahoma. Louisiana lets its banks lend 50% of capital to a single borrower. What's more, some states have special lending limits for certain types of loans, and other states have lending limits that are calculated using a different base than is used to calculate the national lending limit.

The proposal "is not intended to match precisely what can be done in every state," said Julie Williams, the OCC's first senior deputy comptroller and chief counsel. "That frankly would be too complicated. … We thought this was a simple and prudent way to go about it," she said in an interview Friday.

The Comptroller's Office plans to let only national banks that are well-capitalized and well-managed lend more to individual borrowers under the proposal.

"The OCC pilot program will help alleviate some of the competitive disadvantages vis-à-vis state-chartered banks that have higher lending limits," said Karen Thomas, director of regulatory affairs at the Independent Community Bankers of America. "I think the move will be welcomed by small national banks."

Charlotte Bahin, regulatory counsel for America's Community Bankers, agreed. "While they can't match every state's loan-to-one-borrower limit, we appreciate the flexibility they are willing to show in developing a regulation that permits community-focused institutions to serve the needs of their customers."

In May 1999 the Comptroller's Office requested comments on possible changes in the national lending limit. In response, banks complained that their states offered higher lending limits than the national cap and urged the OCC to level the playing field for national banks.

"Our customers continue to grow in size, and unfortunately our lending limit has stayed the same," said Bill McQuillan, president and chief executive officer of City National Bank in Greeley, Neb. "This is something that is very positive for our banks and something I hope the OCC will continue to take a look at. … Hopefully, the agricultural customers of our banks will be allowed this alternative because certainly there are opportunities for us along those lines also."

The Comptroller's Office said it started with real estate and small-business lending because they are common lines of business for community banks. But an agency spokesman said other types of loans may get looser lending limits in the future.

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