Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, March 2, 1991 TAG: 9103020259
SECTION: BUSINESS PAGE: A-8 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
Four agencies - the Federal Reserve, the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corp. - issued the rules jointly. Together, they oversee the nation's 12,000 banks and 2,400 savings institutions.
"It's hard to quantify . . . but I think it will have a very positive effect," said Deputy Treasury Secretary John Robson. He urged the heads of the agencies to travel the country to spread the word to bank examiners who have been accused of overreacting to the savings-and-loan crisis.
"I think what some have referred to as a competition in laxity in the 1980s may have been turned into a competition in piety," he said. "I have to say I do think there is an atmosphere of fear [among bankers] that they're going to get hit in the back of the head if they try making any loans."
Consumers advocates said that relaxed accounting standards risk repeating the mistakes that worsened the savings-and-loan crisis. The accounting changes, called forbearance, cloaked problems of S&Ls and allowed them to grow.
"It looks like what came out today has forbearance aspects to it and I think regulators should be held to account to explain why it's OK now when the forbearance of the past has been so strongly repudiated," said attorney Michelle Maier of Consumers Union.
Senior officials of the agencies stressed that for the most part they were clarifying existing policies, rather than issuing new rules.
Specifically, the rule changes will:
Permit banks to split loans into two - a good, or performing, loan and a bad, or delinquent, loan - when a borrower is still making partial payments. Currently banks must list the entire loan as bad.
Allow institutions to avoid reducing the stated value of real estate collateral when real estate markets have slumped. Banks will be allowed to use an estimate of what the property would be worth over a longer term.
Encourage stockholder-owned banks to disclose more details about problem loans, separating those on which some recovery is expected from others that are total losses.
Define less strictly which loans must be classified as "highly leveraged transactions" - a category that includes many corporate buyout loans.
The regulators also said they want weak banks to continue making sound and prudent loans, and they want banks under pressure to diversify their loan portfolios not to do so at the expense of forgoing a good and profitable loan.
by CNB