SPECIAL REPORT employee theft is a multibillion dollar problem for financial institutions. And experts warn that the insider crimes are on the rise. Page 15 WASHINGTON A TreasurY OFFICIAL defended electronic delivery of government benefits, saying banks will not be allowed to charge the poor or elderly multiple fees. Page 2 THE SEC chairman panned the functional regulation proposal in pending financial modernization bills. Page 2 MORTGAGES Mortgage banks divesting big servicing portfolios are considering finding multiple buyers. Page 10 REGIONAL BANKING The nation's largest banks, as a group, boosted first-quarter profits by 13%, according to an American Banker survey. Bank stock analysts say the improvement was largely due to expense controls. "The growth reflects more efficient operations and lower expenses," a Morgan Stanley analyst says. Page 5 seeking Fed approval of its deal to buy United Carolina Bancshares, BB&T said it would sell 23 branches and more than $500 million of deposits after the deal. Page 4 CORPORATE FINANCE Filling out its corporate finance capability, KeyCorp is establishing three new funds to do mezzanine, bridge, and private equity financings. Page 3 After years of lobbying Congress for capital gains tax legislation, a group of banks in the venture capital business are expecting some definite news next month. Page 3 INVESTMENT PRODUCTS Dalbar, a financial services research firm in Boston, is conducting what it calls an unprecedented study of the attitudes of retirement plan participants. Page 11 CREDIT/DEBIT/ATMs The magnetic stripe still has pull, even amid some of the most forward- thinking of card industry tekkies. Page 13 COMMUNITY BANKING Trustco lost a bid to force upstate New York rival Albank to put itself up for sale. Page 14 MARKET MONITOR Credit quality concerns are causing a drop in the issuance of asset-backed securities generally, and a change in the way subprime mortgage loans are being packaged for investors. Back page

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