Charging that new small-business loan data are riddled with errors, acting Comptroller of the Currency Julie L. Williams demanded Tuesday that banks improve their reporting efforts or face a government crackdown.

"I would hope that in the next round of material that we get from banks that we would see some improvement," Ms. Williams said in an interview. "If we don't, then we have ways we can respond."

Options include sending informal warnings to institutions with persistent problems, issuing cease-and-desist orders, and even rejecting pending bank mergers, she said.

The admonition was spelled out in an advisory letter that the Comptroller's Office sent on Tuesday to chief executive officers at all 2,549 national banks. The warning marked the third time in as many months that Ms. Williams has used the bully pulpit of her office to turn up the heat on banks.

In August the acting comptroller demanded that the industry bolster internal controls against fraud. Earlier this month she issued her sternest warning to date on deteriorating credit standards, saying that banks should be more concerned with shoring up underwriting standards than with preventing a credit crunch.

"These are things that are important for OCC to be doing and for the national banking system to do right," Ms. Williams said in the interview. "The fact that there is an acting comptroller should not make a difference."

Bankers ripped the advisory, saying regulators are to blame for much of the confusion.

"If they would have provided better instructions and allowed more time to tweak things, then we would have had better data," said Agnes Bundy Scanlan, managing director at Fleet Financial Group. "It is wrong for the regulators to slap us on the face when we are going through hell trying to get this data out."

"The onus is not just on the banks here," said Carol J. Parry, executive vice president at Chase Manhattan Bank, a state-chartered institution that has experienced similar troubles. "The regulators need to help us. There is a lot of misunderstanding on what to report."

Regulators revised the Community Reinvestment Act in 1995 to focus more on performance and less on paperwork. Part of the overhaul included a requirement that banks report the number and amount of small business and small farm loans. Banks have struggled with the requirements ever since.

Catherine P. Bessant, president of community investment at the former NationsBank Corp., whose position at the new BankAmerica Corp. has not yet been finalized, said everyone knew in 1996 that data for the first several years would be problematic.

Regulators did not specify how banks were to collect the data until just a few weeks before the rule took effect, she said. That meant most banks had to collect the data by hand as they rushed to reprogram their computers, she said.

"The likelihood that you could get something right quickly was an unrealistic expectation," she said.

Industry leaders even held a summit at the Federal Reserve Board with regulators to plead for a six-month delay in the data reporting, saying it would give them time to program and test their computers. That request was unanimously rejected, she said.

"The time between the release of the final data parameters and the actual day we had to begin collecting data was a recipe for confusion," Ms. Bessant said.

Community activists hailed the OCC's action, saying bankers should not be allowed to artificially inflate their small-business lending. "To fluff up what they are doing and not take the law seriously is contrary to the intent of the Community Reinvestment Act," said Alan Fisher, executive director of the California Reinvestment Committee.

"I'm glad the OCC is doing it," said Matthew Lee, executive director of Bronx, N.Y.-based Inner City Press-Community on the Move. "One wonders why the Federal Reserve and other regulators are not issuing similar warnings. They all get the same data."

Dolores S. Smith, the Fed's director of consumer and community affairs, said the central bank is concerned about data reporting errors, but has not yet decided how to address the problem. A Federal Deposit Insurance Corp. spokesman said the agency does not plan similar guidance, but warned that it would start cracking down if the 1998 data are full of errors. The Office of Thrift Supervision has not seen any data collection problems and plans no guidance, a spokesman said.

In the advisory letter, the OCC said common errors included reporting small-business loan renewals as originations, counting an entire line of credit when a business just receives an increase in its line of credit, and recording the same loans twice. Banks also reported credits that did not qualify as community development loans and failed to record the gross annual revenues of small-business borrowers.

"OCC examiners will review national banks' processes for collecting, reporting, and verifying the integrity of CRA data during future compliance or CRA examinations," the letter said.

The agency decided to issue the advisory after it detected numerous problems during a recently completed internal review of how big banks' CRA exams are conducted, Ms. Williams said.

"Our goal is to alert institutions that this is something we have found and that we want banks to pay particular attention to it," she said.

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