The trade group for state banking regulators is pushing a proposal that would give examiners the power to conduct inspections of out-of-state banks that operate within their borders.

The far-reaching measure, which has been proposed by the Conference of State Bank Supervisors, would allow state regulators to examine banks chartered by another state that branch into their state. National banks would not fall under the proposal.

Bankers are divided over the plan. Some hail it as a welcome simplification of the examination process for banks operating in several states. But others say it will mean more regulatory headaches.

"We don't need another level of examination," said Timothy Hayward, president of the Vermont Bankers Association. "It's as simple as that."

Added Jerry Little, president of the New Hampshire Bankers Association: "You just kind of shake your head and say, 'When are they going to stop?'" he said. "It becomes very frustrating."

But CSBS officials insisted that the new proposal won't mean overregulation.

"For anybody to get alarmed that there's going to be an increase in regulatory burden at this point is way premature, because it's still in the process of design," said James B. Watt, president and chief executive of CSBS.

Robert E. Greene, executive vice president of Los Angeles-based First Interstate Bancorp, which has subsidiaries throughout the West, said it could benefit banks.

"It's foolish for that (the proposal) to face opposition," he said. "All CSBS is talking about is creating parity with national banking law. There's nothing more than that. And in a national banking charter, examiners go all over the country."

Over the last several weeks, CSBS officials have held meetings with the nation's banking commissioners urging them to draft legislation to create a system of uniform regulation across state lines.

For instance, the trade group wants all states to apply community reinvestment, consumer protection, fair lending, and tax laws in a consistent manner.

The group is concerned that new interstate branching regulations, slated to take effect by 1997, could mean a flood of institutions branching across state lines.

Without changes to state laws, regulators say they will have little control over how out-of-state institutions operate within their borders.

As part of this plan, the trade group wants states to authorize joint bank examinations of state-chartered institutions that operate in multiple states. The exams would be coordinated by a bank's home state, but examiners from other states where the institution has offices could take part in the inspection by crossing state lines.

Currently, state-chartered banks are regulated by the state in which they are based and by either the Federal Reserve or the Federal Deposit Insurance Corp.

The trade group's goal is to create a "seamless" state banking system that could compete with a federal charter, allowing state-chartered banks to branch into several states with only one set of regulations, officials say.

"If you are a banking company that operates in 14 states, in order for you to be efficient, you have to be certain that the supervisory process is the same," Mr. Greene said. "You can't operate under 14 different methods of examination."

Nevertheless, some bankers grumble that any changes in the way exams are conducted could drive them away from the state system.

"If one has a choice then between one national regulator and 15 state banking regulators, it's a pretty simple equation to know where the charter's going to wind up," said William H. Chadwick, president and chief executive of Banknorth Group Inc. in Burlington, Vt., which operates two subsidiaries in New Hampshire.

Even the regulators are aware that they must proceed cautiously for fear of losing banks to the Office of the Comptroller of the Currency.

"If we have a bank that's branching into the state, we have a concern about their solvency, but we also have a concern about harmonizing our regulation with that of other state regulators," said Elizabeth R. Costle, Vermont commissioner of banking, insurance, and securities. "Only by doing that will you keep all banks from converting to a federal charter."

Although the proposal would allow state bank examiners to go into other states to examine a corporate headquarters at any time, CSBS officials expect states to avoid sending regulators at different times. The regulators believe they need the added powers to ensure compliance with their state laws.

"This is like having a bullet in the gun that we hope never to use," said Ellen Lamb, executive vice president of CSBS. "What we're trying to avoid is a situation where a state bank supervisor feels he or she needs to take some action and can't."

Instead, Ms. Lamb said, CSBS would prefer that host state regulators either join a routine exam led by the home state or obtain any necessary information through the home state or federal regulators.

"That is absolutely essential in order to effectively supervise state- chartered banks that are engaged in interstate branching," said Charles W. Phillips, Indiana director of financial institutions, whose department is drafting legislation. "Otherwise, the host state would not be involved in the enforcement of its laws on the branches of an out-of-state state bank."

States could also coordinate exams so that all subsidiaries are at least examined in the same quarter.

That's what officials would like to do in Alabama, where $16.8 billion- asset AmSouth Bancorp., the largest state-chartered institution, has 38% of it assets in Florida.

Alabama officials want Florida to send examiners into AmSouth's branches at the same time that they are looking at the books at AmSouth's Birmingham headquarters, said Kenneth R. McCartha, Alabama's superintendent of banks.

Without such cooperation, "We'd have to build up a small army to find all the branches," Mr. McCartha said.

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