GAO Denounces Efforts ‘to Weaken’ Bank Rules : Banking: The agency’s head says he’s ‘deeply troubled’ by Bush moves. Republicans accuse him of playing politics.

The head of the General Accounting Office said Tuesday that he is “deeply troubled” by efforts of the banking industry and the Bush Administration “to weaken” new bank regulatory reforms.

Comptroller General Charles A. Bowsher has become increasingly outspoken in his attacks on what he views as dangerous efforts by the Bush Administration to undercut the work of financial regulators.

In response, the White House and Republicans in Congress accused the GAO director of becoming unfairly partisan in his analysis of financial issues.

The Administration has offered legislation to change the 1991 banking legislation and reduce some of its reporting requirements, which the industry says contributes to a regulatory burden costing more than $10 billion a year.

“It is difficult to even imagine, let alone justify” such efforts to change the law “while record numbers of bank failures are occurring, the bank insurance fund has a $7-billion deficit . . . and the reforms to deal with the major factors contributing to the demise of the fund have not even been implemented,” Bowsher told the House Banking Committee.

The rules in last year’s legislation, which provides for more extensive reporting on bank management activities and creates new “tripwires” for early action against weak banks, “were well thought out,” said the head of the GAO, the investigative arm of Congress.

“I would hate to see (the rules) come out prematurely. To take them out before they’ve even been tried is taking a big risk as we did in the 1980s,” said Bowsher, referring to a period of weak regulation that produced a spurt of high-risk investments leading to the collapse of hundreds of savings and loan associations.

The committee’s ranking Republican, Chalmers Wylie of Ohio, said the Administration is trying to reduce costs for the banking industry, which is already under pressure because of sharply higher premiums for the federal deposit insurance fund.

John Dugan, assistant Treasury secretary for domestic finance, said the Administration’s bill does not weaken critical supervisory reforms adopted last year. “It does not repeal or modify the prompt regulatory action reforms as GAO claimed,” he said.

Bowsher said the bank insurance fund, which guarantees deposits up to $100,000, “has significant exposure to additional losses from troubled banks over the next several years.” He praised the Federal Deposit Insurance Corp. for its handling of insolvent banks and its creation of a $16-billion reserve. But he noted that a slowdown in the economy and additional bank mergers could put severe stress on the insurance fund, which is financed through premiums paid by banks.

William Taylor, the FDIC chairman, offered the committee a staunch defense of his policies, insisting that low interest rates are keeping banks from collapsing and are not an election-year effort to avoid creating any bad news by shutting banks.

He acknowledged that federal takeovers of insolvent institutions were running far behind original forecasts, but said this reflected the unusual profitability for banks because of the low interest rates they are paying on deposits.