In a rare fight pitting state-chartered banks against their regulator, several Texas banks may challenge the state banking commissioner's ability to make policy.

The dispute began early this year when the commissioner, Catherine Ghiglieri, proposed regulations on mortgage warehousing activities at state-chartered banks.

Several small, state-chartered banks cried foul, saying the rules would put them at a competitive disadvantage with national banks, which have no mortgage warehousing regulations. In mortgage warehousing, a bank gives a mortgage banker a line of credit to fund mortgages until they can be sold on the secondary market.

The bankers launched a campaign within the Texas Bankers Association to file a lawsuit to limit Ms. Ghiglieri's ability to write regulations that differ from regulations followed by national banks.

"I think the way they've handled this issue is very inappropriate," said Ms. Ghiglieri, who began rewriting the 45-year-old Texas banking code this summer.

"What she did in writing the mortgage rule was illegal on its face," said Jerry Blaschke, chief executive of Fidelity Bank in Fort Worth, which would be affected by the rule. "It's unconstitutional because she did not follow the Administrative Procedures Act."

Yet, Mr. Blaschke insists the dispute is not "just about our mortgage practices," but a bona fide constitutional question about regulatory powers. In 1984, the state constitution was amended to allow the 525 state-chartered banks the same privileges as nationally chartered banks.

Ms. Ghiglieri and her predecessor took the view that the amendment was "permissive," meaning that state-chartered banks could engage in national-bank practices with the permission of the state regulator.

But Mr. Blaschke and a number of bankers in Texas believe that the amendment is "self-activating," meaning it automatically grants state banks all the powers enjoyed by national banks.

"The problem comes in when you have banking laws on the books that don't jibe with national law," she said. "What they are saying is that simply because of the parity provision in the constitution, state banks can ignore state laws."

Nonetheless, earlier this month the TBA executive committee appeared ready to file suit on the permissiveness of the parity amendment.

In addition, according to several sources, several banks were bristling at having to maintain at

least a 6% equity capital ratio, a regulation promulgated by Ms. Ghiglieri's predecessor that is stiffer than the national regulation.

In recent days, the TBA backed off a bit, although it is still considering a lawsuit, according to Frederick Smith, chief executive of Community Bank of Waco and a past chairman of the TBA.

"I think [Ms. Ghiglieri] is trying to be fair and has done a good job at looking after the safety and soundness of our banks," said Mr. Smith. "All we want to determine is what's best. We just want a judge to tell us what 16-16c [the section of the constitution at issue! means. prefer that we not pursue that course of action."

"I expressed my displeasure to the TBA," Ms. Ghiglieri said.

For her, the constitutional question is a mask for a handful of banks who don't like their mortgage warehousing business regulated.

"I'm not trying to restrict state-chartered banks from going into this business," she said. "My intention for writing the rule was simply to give guidance to small banks that wish to do it."

Mr. Blaschke, whose bank $208 million of assets, said Ms. Ghiglieri promulgated the rule without following normal procedures, such as a public comment period.

But Ms. Ghiglieri said she did seek comment from a group of bankers and is currently directing her staff to review seven provisions in the regulations that banks thought were too stringent.

"This can't be what they want," Ms. Ghiglieri said, alluding to the self-activating interpretation of the parity law, "If so, they will limit my ability to go to the industry and help tailor regulations to our state."

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