U.S. Preparing to Help Ailing Energy Banks : Regulators Discuss Plans to Deal With Problems at Institutions in 3 States

Federal banking regulators, concerned about a growing financial crisis in America’s oil-producing regions, are readying plans to prop up troubled banks that have lent heavily to energy firms.

Officials of the three agencies that oversee the nation’s 14,000 commercial banks met this week to discuss legislative proposals to deal with the problems of banks in Texas, Louisiana and Oklahoma. One measure expected to be presented to Congress next week would loosen federal interstate banking laws by allowing healthy banks to acquire failing institutions in other states.

While some in the banking industry are troubled by such a “backdoor” entry to interstate banking, others welcome the proposed change as a way to deal with the financial strains that oil-patch banks are suffering along with their borrowers.

Similar to Situation in Farm States

Falling oil prices have devastated scores of oil and gas producers, oil field equipment suppliers and oil service companies. As these firms collapse and their problems spread in a ripple effect to the entire regional economy, the banks’ loan losses mount.

The situation parallels that faced by farm state banks, but regulators in Washington consider the potential for the failure of a major bank in the energy field to be greater.

Federal banking authorities reportedly are focusing attention on a handful of major Texas bank holding companies and have discussed their possible acquisition with half a dozen of the nation’s biggest banks.

Spokesmen for the agencies--the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corp.--refused to discuss individual banks or the possibility of mergers with specific institutions. But they said the departments were nearing agreement on a plan that would allow the cross-border acquisition of a troubled bank before it is actually closed.

Current law allows the interstate purchase of failed banks whose assets are $500 million or more, but the provision expires April 15. The emergency purchase provision was part of a 1982 banking bill that sought to avoid expensive liquidations of insolvent or failed banks.

Rules Relaxed in March

According to a spokesman for the House Banking Committee, which is holding hearings on the problems of farm and energy state banks, regulators next week will urge Congress to extend the law and remove or reduce the size limit.

The FDIC also wants authority to enter failing, but not yet insolvent, banks and change management, inject new capital or take other measures to prevent collapse.

Banking authorities last month relaxed their accounting rules for bad loans to give banks, and their troubled farm and energy borrowers, more time to work out their problems. At the same time, regulators said they would allow some banks to fall below minimum capital levels for as long as five years if they present a detailed plan for rebuilding their equity.

The moves have been under consideration for some time in response first to the farm crisis and later to energy belt difficulties. Last year, 120 banks failed, and regulators predict that an equal number will go under this year. A record 1,200 banks are on the FDIC’s “problem list.” Of these, 18% are in the oil- and gas-producing regions of the Southwest.

The interstate banking provision is expected to be the most controversial of the proposals.

Texas does not now allow interstate bank mergers, and no such proposal is before the state Legislature. But Texas Banking Commissioner James L. Sexton said he would support a law allowing cross-border acquisitions of failing banks before they are actually closed, as long as “failing” was narrowly defined. He does not want the sale of a troubled but salvageable bank dictated by national banking authorities.

“We have the authority to merge a failed bank now,” Sexton said. “I’d also like to handle one before the trauma of failure occurs. That seems reasonable. The merger of a failing bank--if defined strictly enough--might be of some use. But you have to be pretty careful about how you craft that language. It has to be only banks that irrevocably are failing.”

William Bosies, director of regulatory affairs for the American Bankers Assn., said the trade group has not taken a formal stand on the proposed extension of interstate mergers, but it probably would oppose it. “It’s not appropriate to use this (crisis) to bring in interstate banking,” he said.