2 Banking Associations Hit FDIC Plan

Times Staff Writer

The Federal Deposit Insurance Corp.'s recent proposal to ban banks from direct real estate investments has drawn harsh criticism from several industry associations, including two that represent most of California's 447 state- and federally-chartered banks.

In letters to the federal insurance agency, both the California Bankers Assn. and Western Independent Bankers have condemned the FDIC's proposal as an attempt to usurp state regulation of banks.

The California Bankers Assn., a lobbying group that represents almost all California-based banks, said the proposal is one that "for California banks and presumably for banks in some 13 other states, including New York and Ohio . . . is not only unnecessary to protect the (insurance) fund, but also constitutes a clear abrogation of the dual banking system which the FDIC professes to embrace."

Western Independent Bankers, the Oakland-based association that represents 400 small banks in 13 Western states, including 200 in California, said the proposal is an attempt to destroy the dual state and federal banking system "by imposing a federal operational requirement that effectively preempts state law and regulation."

The FDIC is considering a series of regulations that would govern the investment activities of state- and federally chartered banks in states, including California, that are allowing banks to set up subsidiaries to pursue non-traditional business activities, among them real estate development and insurance and securities sales.

The proposals would allow banks to have so-called captive subsidiaries for most activities, enabling the subsidiaries to share the bank's name, logo, operating personnel and directors.

But the FDIC said it wants bank subsidiaries involved in direct real estate investing and development to have separate offices, officers, corporate names and logos.

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