WASHINGTON -- A turf battle is brewing between federal bank regulators and Justice Department officials over enforcement of laws against loan discrimination.

The Justice Department has gone so far as to ask that its investigators sit in on some bank examinations - an idea that upsets bank regulators, who cite confidentiality concerns.

Though the regulators and law enforcement officials are edging toward a joint strategy, a dispute continues over the Justice Department's request for access to examination materials. There is also disagreement on which institutions to target and over which agency will pay for the shared efforts.

Trying to Coordinate

Representatives of the Justice Department's civil rights division have met several times in the past few months with senior staff of the Federal Deposit Insurance Corp., Federal Reserve Board, Office of the Comptroller of the Currency, and Office of Thrift Supervision.

"Given the overlapping regulatory authority, it's only natural that the agencies meet and develop a coordinated approach," a Justice Department official said. "We're working as quickly as we can, but it's a complicated subject."

A key obstacle is the Justice Department's push for greater access to bank records. Regulators are vigorously defending the confidentiality of data gathered in bank exams.

"That's a legal argument that has to be resolved," said Federal Reserve Governor John LaWare. "The laws regarding access to exams are quite specific. We are not sure that we're at all authorized to turn information over."

But a Justice Department official said the issue is not so clear-cut. Law enforcement officials are looking more closely at laws such as the Right to Financial Privacy Act to see whether the department may, in fact, have a legal right to examination records.

The banking overseers are also wary of having Justice Department employees present at regulatory compliance examinations.

"There has been some discussion about how we might work to have the Justice Department accompany examiners in looking at banks," Mr. LaWare said. "I don't think that has been completely resolved yet. There are some legal and protocol issues there."

Casting Banks as Hosts

"It probably is up to the bank, whether they would invite the Justice Department to participate or accompany examiners," the Fed governor added. "You can't do it on a routine basis. It would be where there were enough indications to believe there might be a discriminatory practice."

Each regulatory agency would probably face "a handful" of requests each year for such joint participation, as OTS official said. If banks agreed to allow Justice Department officials to sit in on exams, regulators would go along.

"But in situations where the institutions would say, |No, we will not allow the Department of Justice to participate,' we would expand our review," the thrift agency official said. This would include looking more closely at loan application files to determine whether to refer a case to the Justice Department.

Heavy Enforcement Costs

Concerning the issue of who pays, the Justice Department wants regulators to contribute to the costs of anti-bias investigations, including some of the statistical analysis used to detect discrimination.

"Nobody has the budget set-aside for the incremental costs of something like this," Mr. Laware said. "These are not cheap deals. It is expensive to do this kind of deep analysis, and it's going to have a heavy budgetary impact."

Bank regulators and Justice Department officials also have yet to see eye-to-eye on how they would come up with a coordinated target list of institutions - or whether they would try to do so.

"They have some specific banks they want to look at," a regulator said. "We're trying to figure out how to work with them."

The Justice Department has the legal authority to sue banks and thrifts under the Fair Housing Act and Equal Credit Opportunity Act, if it suspects the institutions of a "pattern or practice of discrimination."

Few Referrals Made

Under recent legal reforms, bank regulators are required to refer suspected cases of discrimination to the Justice Department. Up to now, however, regulators' follow-through has been spotty. "We have not received many referrals," a Justice Department official said.

After the Federal Reserve published its Home Mortgage Disclosure Act report last year, showing that minority group members are significantly more likely than whites to be turned down for housing loans, interest was renewed in greater enforcement.

In response to the Fed data, Attorney General William Barr announced a Justice Department crackdown on loan discrimination last November. That initiative led to the current talks with bank regulators.

This year, the Justice Department announced a $1 million settlement with Decatur Federal Savings and Loan Association in Atlanta - the first monetary penalty the department had imposed for discriminatory lending.

Riegle Weighs In

Last week, federal bank regulators jointly issued a statement emphasizing their concerns and more fully detailing their efforts to halt discriminatory lending.

Thursday, Sen. Donald W. Riegle, chairman of the Senate Banking Committee, wrote Fed Chairman Alan Greenspan and his counterparts - acting Comptroller Stephen Steinbrink, acting FDIC Chairman Andrew C. Hove Jr., and OTS Director Timothy Ryan - calling loan discrimination "illegal and intolerable."

Sen. Riegle faulted the regulators for what he called "ineffective enforcement" and sought a "concrete plan" to combat discrimination and enhance enforcement.

"Clearly, this is a major issue for the banking system," Fed Governor LaWare said. "As far as we're concerned, this is not a witch hunt; we're not looking for people to hang. We're looking to urge and assist the banks in changing their behavior."

"But it is a federal crime to intentionally discriminate in the lending practice," he added.

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