Magazine article American Banker

Fed Adopts Foreign Loan Reserves: FDIC, Comptroller Will Follow Suit Soon

Magazine article American Banker

Fed Adopts Foreign Loan Reserves: FDIC, Comptroller Will Follow Suit Soon

Article excerpt

WASHINGTON -- Obeying congressional orders, the Federal Reserve Board on Thursday adopted a plan requiring banks to maintain special reserves against loans to certain indebted nations.

The Federal Deposit Insurance Corp. is scheduled to take the same step at a meeting Monday, and the Office of the Comptroller of the Currency says it will do likewise within the next week or so.

At a meeting Thursday, the Fed also aproved a plan requiring banks to report quarterly on most foreign lending activities. Under current rules, banks must disclose such information only twice a year.

Congress ordered a crackdown on U.S. bank lending abroad as part of the International Lending Supervision Act, which accompanied last year's increase in the U.S. contribution to the International Monetary Fund.

Both the special reserves and the quarterly disclosues were part of that congressional directive.

The Fed said the special reserves would apply only to the most debt- ridden countries, but none of the agencies were willing to name those nations.

However, analysts generally cite Zaire, Poland, Bolivia, Nicaragua, and the Sudan as the countries with the most "protracted inability" to meet their repayment schedules.

Nations currently meeting IMF economic and financial objectives would generally not be subject to the reserve program, known officially as the Allocated Transfer Risk Reserve.

In the first year, banks would normally be required to set aside special reserves equal to 10% of the principal amount of the foreign loan. …

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