Increasing fees charged to poorly rated national banks could unfairly punish institutions hurt by an economic downturn, two banking trade groups have told the government.

Writing in comment letters filed last week, the American Bankers Association and the Independent Bankers Association of America warned that a proposed surcharge has the potential to do more harm than good.

"This added expense, combined with other regulatory expenses imposed on poorly rated institutions, may worsen the financial condition of the institution," said James D. McLaughlin, ABA's director of regulatory and trust affairs.

The Office of the Comptroller of the Currency proposed in October to increase by 25% the annual fee it charges banks with Camels ratings of 3, 4, or 5.

IBAA president William D. Sones said the OCC should review a variety of factors before adding the surcharge.

"Certain considerations should be made before imposing a significant added cost to a bank experiencing problems," Mr. Sones said. "Is the poor rating the result of poor management or unavoidable economic conditions, and will the additional expense be extremely detrimental to the bank?"

Mr. Sones also recommended imposing a lower surcharge on banks rated Camels 3-between 10% and 15% of the annual fee-than those rated Camels 4 and 5.

Finally, the IBAA said the Comptroller's Office should consider replacing the set fee with a charge based on actual costs to the agency of examining the institution. The agency charges banks for extra time when they perform trust exams, noted Mr. Sones, who is also president and chief executive of State Bank and Trust Co., Brookhaven, Miss.

The Comptroller's Office is changing its fee structure to cover the higher costs of supervising frail institutions if the economy worsens.

In addition, industry consolidation has put pressure on the agency's budget. In the past year the total of national banks shrank almost 200, causing revenues to drop $20 million per year. In response, the agency has eliminated more than 500 jobs.

The OCC proposal is expected to take effect Jan. 1 and would affect 85 of the 2,656 national banks.

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