Unfunded Mandates Bill Is Seen Posing a Threat To Safety and Soundness

WASHINGTON - Yet another Republican initiative could hamper the ability of bank regulators to issue new rules.

Rep. Paul Kanjorski, D-Pa., said this week that the GOP's unfunded- mandates initiative could block any efforts by Congress or regulators to impose safety and soundness requirements or consumer and investor protections on state agencies.

"Even safety and soundness requirements imposed on financial institutions could be construed as unfunded mandates if they raised the cost to state governments of regulating or examining state-chartered but federally insured institutions," Rep. Kanjorski wrote.

The letter, sent to every member of the House last week, was also signed by Rep. Bruce Vento, R-Minn.

Unfunded mandates are laws or regulations imposed on states and local governments without funding by the federal government.

The former House Banking subcommittee chairman planned to offer an amendment that would exempt from the bill all proposed or final regulations that pertain to investor protection, safety and soundness of financial markets, federally insured depository institutions and credit unions, or deposit insurance funds. As of late Tuesday afternoon, it had still not come up on the House floor.

However, the amendment was criticized by Rep. Doug Bereuter as being too expansive, according to an aide in his office.

The Nebraska Republican was expected to introduce his own amendment that would "address the safety and soundness concerns that Kanjorski has raised in the regulation area, but would not be as broad," the aide said.

The Bereuter amendment would allow the Treasury secretary to waive the cost-benefit analysis section of the bill in the event that he designates that there is an "emergency" facing the safety and soundness of deposit insurance funds.

"That's a crazy amendment because it's not preventative," said an aide in Rep. Kanjorski's office. "In the financial world, the worst thing you can do is have a crisis of confidence - you'll get a run on the bank."

However, some industry representatives felt that Rep. Bereuter's amendment was sufficient to address any potential effects the bill might have on financial institutions.

"If you put this on an emergency basis, as it would be in the Bereuter amendment, it seems like a much better way of going about it," said Ron Ence, director of legislative affairs for the Independent Bankers Association of America.

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