FDIC Proposes Tough Rules for Weak Banks

The Federal Deposit Insurance Corp., under orders from Congress, proposed sweeping rules Tuesday to curb the activities of weak banks or shut them down, even as top regulators condemned the rules as too harsh.

The FDIC voted unanimously to seek public comment on the stiff rules, which must take effect by year’s end to meet the terms of the 1991 Bank Safety Act.

Seventy-nine banks with assets of $27 billion in March were listed as critically weak and would face closure under the proposed rule unless they could strengthen their capital within three months, FDIC staff said.

But the vast majority of the nation’s 12,258 banks would face no problems meeting the new standards.

The nation’s leading bank regulatory agency also proposed new limits on real estate lending, capping for the first time the banks’ amount of exposure on each loan.

Congress last fall required these tough rules as part of a sweeping overhaul of bank regulation designed to prevent a financial disaster on the scale of the thrift debacle.

But Federal Reserve Board Gov. John LaWare, a former banker who specializes in bank oversight, told a key House banking panel Tuesday that this welter of regulation is becoming dangerously burdensome to the industry.