FDIC Nominee Opposes Bush Reform Plan : Banking: William Taylor, the President’s choice to head the agency, says bank ownership by commercial firms would lead to conflicts of interests.

William Taylor, nominated to head the Federal Deposit Insurance Corp., on Tuesday surprised a Congressional panel with a strong show of political independence, declaring opposition to the Administration’s plan to allow commercial and industrial firms to buy banks.

“The credit-granting process must be as independent as possible,” Taylor told the Senate Banking Committee, which is conducting confirmation hearings on his appointment as chairman of the FDIC.

“Cross-corporate ownership,” in which industrial or commercial companies acquire banks, would jeopardize the independent consideration of loan applications, said Taylor, who was nominated by President Bush in July to succeed L. William Seidman.

Taylor, who now directs bank supervision for the Federal Reserve Board, even rejected the suggestion that commercial firms be allowed to move into banking only under special situations to save failing banks.

Such emergency intervention would become a “road into the breakdown of (the barriers) between commerce and banking,” Taylor said in response to questions by Committee Chairman Sen. Donald Riegle (D-Mich.), a staunch opponent of mixing banking and commerce.

Taylor’s comments could provide ammunition for Riegle and his allies when the full Senate debates major banking reform legislation next month. The Senate Banking Committee has approved a bill keeping the current barriers between banking and commerce, but the Administration will press its campaign on this issue. The House Banking Committee adopted the Administration’s plan in its version of the banking bill.

“We feel commercial firms should be allowed to purchase banks,” a Treasury spokeswoman said Tuesday. “It is unwise to restrict the flow of voluntary capital into the banking industry.”

Taylor also defended his role at the Fed in dealing with Bank of Credit & Commerce International, an international bank allegedly involved in money laundering and that secretly acquired First American Bankshares Inc. BCCI acquired control of First American in 1982, but Taylor said the Fed was stymied in discovering the takeover by the lack of documentary evidence.

“No records we came upon--or could have come upon--would have told us” of the secret arrangements made in Luxembourg for BCCI to assume control of First American, Taylor said.

The Fed obtained conclusive proof only last year when it got a copy of an auditor’s report in London, Taylor said. “We have had a very, very difficult time establishing this case,” he said. “We have gone all over the earth to do so.”

Riegle opened Taylor’s confirmation hearing by noting that BCCI, the biggest fraud in banking history, occurred on Taylor’s watch. But after the hearing, Riegle said, “I have not found anything there that I think is a barrier to his going into the FDIC position.”

As head of the bank insurance fund, which protects deposits up to $100,000, Taylor said he would search for new methods to arrange bank mergers in an effort to avoid costly shutdowns that deplete the fund.

Taylor, 52, said there have been “hundreds of cases of success” in which regulators worked successfully with bank officials to rescue, rather than close, the financial institutions.

“We can’t just continue to close and close and liquidate and liquidate and have the assets pile up,” he said. “There has to be a way to do things differently.”