Executive Report

By SHELLEY DAVIS

Audit shows some state-chartered banks not inspected

FAILURE of the state banking commission to inspect all state-chartered banks may lead to more bank closures in the future, a state-conducted audit released in March revealed.

However, both a spokesman with the Illinois Bank and Trust Commission and the Bureau of the Budget (BOB) said they didn't think the agency's inability to audit all state-chartered banks will lead to more bank closures.

"The question is whether more examinations make a difference in preventing failures," said Randy Vereen, head of BOB's Economic Development Division. He added that with the present economy, it is doubtful that any "amount of regulation would be able to prevent [some] problems."

It was revealed in a routine, two-year audit conducted by the Auditor General's office that the commission had failed to examine 291 of the 876 state-chartered banks in Illinois in 1980, and 185 in 1979. The audit also stated that the commission routinely conducted only partial examinations of many banks. Released just after the closing of two state-chartered banks in the Chicago metropolitan area, the audit blamed the failure of the commission to examine all banks on the lack of staff.

Presently, there are 87 field examiners charged with inspecting the banks. The audit said that this is an insufficient number to get the job done. However, Robert Burke, chief examiner for the Chicago metropolitan region, said the commission is doing the best it can "with what we have." Burke said that due to budget restraints the number of examiners that can be hired is limited.

Yet, despite this apparent need for additional funding brought out by the audit, Vereen defended BOB's budget level for the agency. The commission, which is not funded by the general revenue fund, charges fees to banks based on their assets to fund the agency. Vereen points out that since there is no statutory limit on the level of fees that can be assessed, BOB determines the agency's budget. Any money collected but not used is returned to the banks.

Over the last five years, Vereen said, there has been an 83 percent increase in the budget of the commission, averaging about 16 percent a year. He pointed out that for fiscal 1982, the commission is budgeted to receive two times the increase given to other agencies and is not required to have a 2 percent reserve. This consistent increase in funding, Vereen said, is "indicative of the commitment this administration has to strengthening this agency over time."

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The bottom line seems to be just how much regulation will prevent bank closures. With ever increasing interest rates, many institutions that lent money several years ago at 8 or 9 percent are themselves now paying 15 percent. According to Vereen, the answer may be to develop more targeted exams, looking at banks with potential problems and determining trouble spots.

Thompson reorganizes agencies by two executive orders
GOV. James R. Thompson has shuffled the functions of several agencies in the hope of streamlining government and avoiding duplication and overlap of services. He issued two executive orders April 1 that would consolidate youth services provided by the state and shift the functions of the Office of Fiscal Management, Risk Management Division, from the Department of Administrative Services to the Department of Personnel.

The first executive order transfers youth services conducted by several agencies into the Department of Children and Family Services (DCFS) and creates a new division, Youth Services, to handle the transferred functions. Specifically, the reorganization calls for:

Abolishing the Illinois Commission on Delinquency Prevention and transferring its services to DCFS;

Transferring the juvenile justice function of the Illinois Law Enforcement Commission to DCFS;

Transferring the Department of Correction's Unified Delinquency Intervention Service to DCFS and;

Transferring noninstitutional youth programs for the mentally ill and for alcohol abuse prevention from the Department of Mental Health and Developmental Disabilities to DCFS.

The reorganization will take place in two stages beginning January 1, 1982, and is expected to increase the budget of DCFS by 17 percent. This increase will be offset by a corresponding decrease in the budgets of the affected agencies.

The second order would combine the administration of the state's risk management programs currently in the Department of Administrative Services with the Department of Personnel, which also handles the state's group insurance programs. Risk management includes programs in worker's compensation, general liability such as auto and professional liability, and loss control and safety.

Both executive orders will take effect July 1 unless one of the chambers of the General Assembly takes veto action.

IRS ruling revoked
A controversial Internal Revenue Service (IRS) ruling that State Treasurer Jerry Cosentino said would have devastating effects on the municipal bond market in the state was revoked by the IRS in April. The ruling, scheduled to take effect May 31, would have forbidden banks to deduct the interest paid on negotiated time depostis as a business expense if municipal bonds were used as collateral. Cosentino formed a special committee composed of bankers, public treasurers and other public officials in March to lobby against the ruling and urge passage of a measure sponsored by U.S. Sen. Alan J. Dixon (D., Illinois) to revoke the ruling and put statutory language on the books to prevent the IRS from imposing similar arbitrary rulings in the future.

Fahner sues Toyota
Acting on his own, Illinois Atty. Gen. Tyrone C. Fahner in March filed a consumer protection lawsuit in Sangamon County Circuit Court against the Japan-based Toyota Motor Company, Ltd., and several of its corporate and marketing entities, alleging that it engaged in deceptive marketing practices during a recent sales campaign.

Although consumer protection lawsuits ordinarily result from multiple complaints from the public, a spokesman in the attorney general's office said it is not unusual for the attorney general to initiate a lawsuit without a complaint.

The suit resulted from a series of television commercials aired for a two-week period throughout the state advertising Toyota's "sellathon." In particular, the suit states that the use of the claim "bankrate financing" in the ads is prohibited by Illinois law unless it is used by banks, banking associations and trust companies. The complaint also said the ads were misleading because they claimed to offer unusual bargains when they did not; stated that bargains would continue for only one week when a longer period was planned; stated that immediate delivery was possible when it was not; and said that inventories received at the end of the first week allowed the sale to continue when such was not the case. According to Fahner, all of these misrepresentations are violations of the Illinois Consumer Fraud and Deceptive Business Practices Act.

Fahner is seeking a permanent injunction prohibiting Toyota from any future deceptive practices; an order to rescind any sales contracts resulting from the deceptions; and an assessment of the legal costs and civil penalties.

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