Excerpts from joint statement on revised accounting rules

March 06, 1991

The joint statement on revised accounting rules and related matters for financial institutions was issued last week by the Comptroller of the Currency, Federal Deposit Insurance Corp., Federal Reserve Board and the Office of Thrift Supervision. It contained several pointed messages to bankers and their regulators. Here are a few:

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"It is possible, however, that some depository institutions may have become overly cautious in their lending practices. In some instances this caution has been attributed to concerns on the part of lenders that the regulators of depository institutions are applying excessively rigorous examination standards."

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"In the current economic environment, it is especially important for institutions to avoid shutting off credit to sound borrowers, especially in sectors of the economy that are experiencing temporary problems."

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"Institutions that have in place effective internal controls to manage and reduce excessive concentrations over a reasonable period of time need not automatically refuse credit to sound borrowers because of the borrower's particular industry or geographic concentration. . . . The purpose of institutions' policies should be to improve the overall quality of their portfolios. The replacement of unsound loans with sound loans can enhance the quality of a depository institution's portfolio, even when concentration levels are not reduced."

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"There appears to be some concern that any new lending by institutions that fail to meet minimum capital requirements will result in supervisory criticism . . . such institutions are not necessarily required to cease prudent, low-risk lending activities."

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"The agencies want to make clear their policy that any institution may request a review of any major decision reached as part of the supervisory process, including those related to asset classification and required reserve levels."

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