White House Moves to Ease New Banking Rules : Regulations: Administration says strict enforcement has burdened banks and harmed the industry’s competitiveness.

Six months after Congress tightened oversight of banks, the Bush Administration is preparing legislation to ease some of those new regulations that bankers complain strangle their ability to lend.

Administration sources said Friday that the measure is designed to stimulate lending by freeing healthy, well-run banks from excessive paperwork.

“When they spend time and money on regulations, they don’t spend time or money on lending,” said one Administration official.

Large and small banks have complained that last year’s banking act went overboard in “micro-managing” banks.

It legislated how much banks could pay their top executives, how to conduct financial audits, what documents to keep on loans and what standards to use in making loans.

Congress, stung by the savings and loan debacle, adopted these strict measures as a condition of loaning the industry $70 billion to replenish the Bank Insurance Fund, depleted by near-record bank failures.

President Bush said when he signed the act last year that he wanted to ensure the bank fund had money, but he expressed concern that regulatory burdens would harm industry competitiveness.

The American Bankers Assn. has begun a campaign to roll back the regulations, reporting this week that filling out mounds of paperwork to comply with government regulations cost the industry $10.7 billion, or about 59% of its profits, last year.

The strategy of the bankers and the Administration is to stress that regulatory costs inhibit lending needed for economic recovery.

“Saying go out and lend, lend, lend and then coming behind banks with a big stick when they do lend is just ridiculous,” said Diane Casey, executive director of Independent Bankers Assn. of America.

According to sources, the bill the Treasury Department is drafting would, among other things:

* Limit regulatory oversight of executive pay only to those banks in financial trouble.

* Repeal a requirement that outside auditors certify that a bank is being run in a safe and sound manner.

* Allow a bank’s audit committee to have a majority of independent directors, instead of all outside directors.

* Remove specific standards for real estate lending.

* Ease requirements that banks prove that they invest in their local communities.

Under the proposal, about 6,000 small rural banks with $100 million in assets or less could fill out forms to show they invest locally, if for the last five years they have had a satisfactory investment record.

Large banks with outstanding community reinvestment ratings could proceed with applications to expand their activities without facing challenges to their community record.

The banking industry appears united on the need to relax the regulatory burden, which will help immensely in getting a bill through Congress.

Already several lawmakers have introduced bills to roll back sections of the 1991 banking act, showing that some in Congress believe they went too far.

In another sign that the mood is shifting toward a relaxation, the House Banking financial institutions subcommittee next week will hold hearings on the regulatory burden. And the federal financial regulatory agencies are holding similar hearings nationwide this month.