Regulators to propose new measures to ease banks' credit crunch

February 16, 1991|By American Banker

WASHINGTON -- Federal regulators are expected to unveil four steps next week to ease the credit crunch.

The measures, some of which already have been discussed publicly, probably will include eased accounting rules on problem loans and relaxed treatment for real estate appraisals.

But behind the scenes, some regulators are already expressing reservations about the steps, which were developed by a task force headed by Treasury Undersecretary John Robson.

Some staff members at regulatory agencies said the task force was under heavy pressure from senior Treasury Department officials to move quickly. They view the plan as being politically motivated, driven by senior Bush administration officials in the wake of widespread complaints that a lack of bank lending is exacerbating the recession.

The regulatory officials expressed concern that the measures would undermine regulatory scrutiny of the industry.

"There's staff distaste for the idea," said a regulatory source who did not want to be identified. "There's a lot of people who will perceive it as forbearance," the source said, "but there's enough publicity that it can't be killed outright.

Meanwhile, some members of Congress, pressed by constituent businessmen who say they cannot get credit, are charging that the steps probably will not go far enough.

Besides Mr. Robson, members of the task force include officials from the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corp. and the Office of Thrift Supervision. The heads of those agencies have not yet approved the measures.

According to regulatory sources, the task force will recommend these four ways to spur lending and help banks cope with the real estate downturn:

*Allowing non-performing loans to be split into two parts. The portion unlikely to be repaid would be written off, while the other part could be classified as performing, enabling loan payments to be counted as income. The goal is to increase profits and banks' incentive to lend.

* Valuing real estate on long-term cash flow projections, rather than at current market values.

* Relaxing the amount of money banks have to reserve for loans that are "temporarily impaired." Such loans occur when property values have declined but are expected to rise again.

This measure would reduce the amount of reserves that must be set aside for such loans, freeing up capital for new loans.

* Informing bank examiners explicitly about the changes. New England bankers pushed for this step because they assert that examiners in the field often take a tougher stance than their superiors in Washington want.

Agency heads met Wednesday to review the plan, according to a Treasury spokeswoman.

Paul Fritts, director of the division of supervision for the FDIC, who attended Wednesday's meeting, confirmed that the main issue the group is weighing is whether splitting loans into two portions conflicts with generally accepted accounting principles.

He said a majority at the meeting seemed to favor allowing some form of loan splitting.

Devising the plan follows weeks of intense lobbying by the members of Congress, bankers, and high administration officials arguing that a quick solution is needed for the Northeast's credit problems.

A broader concern is that the problem is spreading nationwide.

Last week, the lobbying effort reached a climax when a delegation of nearly two dozen New England representatives and their staffs met with Treasury Secretary Nicholas F.Brady to air their concerns.

New England banks have suffered huge losses because of the region's real estate tailspin.

"We are trying to add whatever we can to make sure the problem is turned around and moving the other way as quickly as possible," Mr. Brady said after last week's meeting with the New England delegation.

The timetable for implementing recommended changes is unclear.

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