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Chief regulator chastises bankers

In a break with the dogged optimism of the American Bankers Association convention, U.S. Comptroller of the Currency Robert L. Clarke on Tuesday chastised the industry for bringing upon itself a decline in public confidence. Clarke, the nation's top bank regulator, told the ABA the industry's reputation is at its lowest level in 50 years.

"Bankers don't have a reservoir of public good will from which to draw," Clarke said. "This is a harsh assessment . . ., but this is not a time to be kidding ourselves."

The ABA meeting is taking place as the industry grapples with a slumping economy, anxiety over loan losses and political fallout from the savings and loan crisis. But banking leaders have maintained that the industry overall is strong and able to withstand the current downslide.

Clarke suggested the industry will have further difficulties if it does not shore up its standing with the public and legislators.

"Your public image is likely to determine the outcome of legislative debates next year on the future of banking," he said.

Clarke said many bankers have lost sight of basics such as sound lending, diversification of risks and long-term vision.

"Recent experience has again brought home the lesson that there is no substitute for following the fundamentals," Clarke said.

Federal Deposit Insurance Corp. Chairman L. William Seidman, who followed Clarke on the ABA agenda, gave the convention a somewhat more hopeful view.

But Seidman told reporters later he agrees with Clarke.

"I think everything Mr. Clarke said was true," Seidman said. "I cannot erase from my mind President Carter's "malaise' speech. The question to me is whether too much emphasis on the down side doesn't tend to depress us all. But I don't disagree with anything he said."

In his speech, Seidman said the federal

deposit insurance fund is capable now of covering any foreseeable bank losses.

But further erosion of the economy could change that, he said.

"Your bank insurance fund is under stress, and unfortunately I cannot report that any improvement is likely in the near future," said Seidman, who is in the final year of his term as FDIC chairman.

The Bush administration has predicted that bank failures will reduce the FDIC's commercial bank fund by more than $6-billion over the next three years.