With the number of bank failures in the southwestern United States at record levels, federal regulators are putting many of the lending practices of banks under the microscope.The list of troubled banks on the so-called watch list has never been longer, says Alan Whitney, a spokesman for the Federal Deposit Insurance Corp. The most glaring problems have been with oil and real estate loans. But more and more examiners appear to be urging banks to become wary of small companies.

The crackdown is most obvious in Texas, where the number of bank failures had already risen to 21 by mid-November. There, formerly freewheeling bankers have been shying away from unsecured lending and interest-only transactions -- in which borrowers repay loans when appreciated properties are sold. The problem, as too many Texas bankers have discovered, is that some properties can depreciate as well.

Even growing and profitable Texas companies are feeling the effects of regulatory jitters. Creel Morrell Inc., a Houston-based design firm, for example, at its bank's direction enhances its balance sheet by renaming work-in-progress "unpaid receivables." The effect, says chief executive officer Wes Creel, is that total receivables look higher than they actually are. The bankers, he says, "are just covering themselves. The examiners are looking over their shoulders."

The supervision may be tightest in the Southwest, but bankers elsewhere aren't being left alone. Last fall, the president of a growing midwestern bank, who wishes to remain anonymous, got a long lecture from a bank examiner about lending to small companies. The examiner told him to cover his flanks and to double-check that borrowers weren't defrauding the bank by pledging their assets to more than one lender. In this case, the banker didn't budge. "I told the examiner that we'd been making loans to small companies very successfully for more than a dozen years," he says. "We know our customers, and we know what we're doing." Other bankers, however, may not be so willing to take the heat.