Magazine article American Banker

Comptroller's Office Nudges Banks to Boost Their Loan-Loss Reserves

Magazine article American Banker

Comptroller's Office Nudges Banks to Boost Their Loan-Loss Reserves

Article excerpt

WASHINGTON -- Though a din of Washington ovices is proclaiming that the worst of the international debt crisis is over, a quiet warning still emanates from the Office of the Comptroller of the Currency.

Contradicting the "better times are here" line from Treasury, Comptroller C.T. Conover's office has been discreetly encouraging bankers to increase their loan-loss reserves and raise their captial.

The worry at the Comptroller's office -- the primary examiner of the 17 banks considered multinationals -- is that confidence in the banking system has been badly shaken by the international debt crisis and domestic upsets, such as the Continental Illinois case.

"The primary purpose that captal seves -- contrary to what some people say -- is to bolster confidence in the banking system," said H. Jose Selby, deputy comptroller, in a recent interview.

While tending to be a partisan of "more is better," Mr. Selby, a career regulator rather than a political appointee, says he is happy with the present target of a capital ratio of 6% as an overall industry standard. "But that doesn't preclude us from raising it in the future or telling an individual bank that 6% is not enough. And we're doing that."

Mr. Selby and Harold Schuler, who heads the Comptroller's international division, agree that the prospects on international debt look brighter. But their task, in Mr. Selby's words, is to protect bankers from "overloading on something" to improve earings, even though later those investments may become more of a burden than a benefit.

On international debt, however, some would say the Comptroller's efforts are too late to be effective.

In the 1970s, large banks grew tremendously, but they did not match that growth with increased capital, according to Mr. Selby. Without implying any dereliction of duty by the regulators during the boom years of international lending, he said that regulators decided in 1981 that they "had let it go far enough. …

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