FDIC TO DROP NEW BANKING RULES

PUBLIC OUTCRY OVER PRIVACY ISSUE CITED

The head of the FDIC said Monday her agency is ready to withdraw proposed
anti-money laundering rules to track bank customers' transactions, which had
provoked a public outcry over privacy.

"The public has spoken very loudly and clearly," Donna Tanoue, chairwoman of
the Federal Deposit Insurance Corp., said in a telephone interview.

She said she will urge her colleagues on the agency's four-member board to
agree to drop the proposed regulations, called "Know Your Customer" rules.

Tanoue spoke as the 90-day public comment period for the proposal closed. On
Friday, the Senate joined the torrent of criticism and sent a message to
federal bank regulators to withdraw the rules.

By an 88-0 vote, the Senate expressed support for a measure directing the
regulators to drop the proposed rules. Senate Democrats blocked a vote on
actual adoption of the measure, sponsored by Sens. Phil Gramm, R-Texas, and
Wayne Allard, R-Colo., so it lacks the force of law.

In the House, the Banking Committee on Thursday adopted an amendment to a
big financial services bill that would kill the proposed banking rules.

Tanoue previously had said she was reconsidering the proposed rules, which
were denounced in a flood of angry e-mail starting in December. The FDIC had
received more than 170,000 e-mail messages and letters as of Friday; by
Monday, the final day of the comment period, the number had jumped to some
225,000.

The proposed regulations would require banks to verify their customers'
identities, know where their money comes from, and determine their normal
pattern of transactions. The current requirements for banks to report any
"suspicious" transactions to law enforcement authorities would be expanded.

Privacy advocates, conservative groups, ordinary people, and the nation's
bankers have complained that the rules would transform every bank teller
into a spy for Big Brother. They maintain the rules are unconstitutional and
would violate the Fourth Amendment prohibition against unreasonable search
and seizure.

The rules are designed to combat money laundering techniques used by drug
traffickers and other criminals to hide illegal profits. Money laundering is
a major concern of law enforcement officials; it reached an estimated $30
billion in this country last year.