Magazine article American Banker

OTS to Post Its Capital Standard for Thrifts with High Rate Risk

Magazine article American Banker

OTS to Post Its Capital Standard for Thrifts with High Rate Risk

Article excerpt

WASHINGTON -- Thrift regulators will unveil today a rule they have worked on since 1991 that will force thrifts subject to above-normal interest rate risk to raise capital.

The rule, which takes effect next July, would affect less than half of the industry if it were applied today, and would require just 22 thrifts to raise $43 million in capital or reduce their rate risk in order to comply. Small, well-capitalized thrifts are exempted from the new Office of Thrift Supervision rule.

The other banking agencies have also been writing new regulations to incorporate rate risk in commercial bank capital standards, and hope to publish their regulations by September.

3,000 Banks Affected

The bank rules are expected to affect only 3,000 midsize banks holding about 10% of the industry's assets, and will not be effective before December 1994.

The rules for thrifts are more stringent than those for banks. OTS officials said that is because S&Ls inherently, have more interest rate risk because their portfolios include more fixed-rate, longer-term loans.

"We are not trying to tell them they, should not take any interest rate risk, because they have to -- it is part of their business," said John Robinson, OTS West Region director-designate. "But they have to control it."

Under the new rule, a thrift must prepare for a 2% shift in interest rates if it would decrease the market value of the thrift's assets by more than 2%, the threshold the OTS set as "normal" rate risk. A savings association's minimum risk-based capital requirement will go up by 50 cents for every $1 in losses the thrift would suffer above that threshold. …

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