Bankers Wary of Plan to Define 'High-Risk' Debt

By Holland, Kelley | American Banker, September 12, 1991 | Go to article overview

Bankers Wary of Plan to Define 'High-Risk' Debt


Holland, Kelley, American Banker


Bankers Wary Of Plan to Define |High-Risk' Debt

Bankers are urging regulators to scrap or modify a proposed policy that would define "high-risk" mortgage-backed securities and limit banks' ability to own them.

The Federal Financial Institutions Examination Council has received more than 70 comment letters since circulating the policy proposal in August. Most of the letters take issue with at least one of the specific standards being proposed, according to an official who has seen the letters.

Tests Criticized

"It's pretty clear to me the tests are too restrictive," said Frederic Pennekamp, treasurer of First Fidelity Bancorp. and chairman of the American Bankers Association"s bank investments and capital markets division.

But like his peers who criticize some aspects of the proposal, Mr. Pennekamp does not deny a need for more regulation than now exists. "The basic approach looks good," he said, "but the specific tests don't work."

If regulators adopt the policy statement, it could take effect as early as December. That would force banks to begin reporting new purchases of many types of mortgage-backed securities at the lower of their cost or market value. And some banks with large quantities of mortgage-backed securities soon could face discussions with regulators about liquidating these port-folios.

The change could slash bank's ability to take on high-yielding investments at a time when yields on most other acceptable investments are low. Banks' capital ratios could be affected as well: There's a chance bank regulators would require banks to set aside more capital against mortgage-backed securities deemed high-risk, according to Robert Storch, chief of the accounting section of the Federal Deposit Insurance Corp.

Questions of Application

"There have been questions all along about how the risk-based capital guidelines apply to these securities," he said. The FDIC already requires banks it regulates to use the highest possible risk weighting on certain mortgage-backed securities, Mr. Storch said, but each bank regulatory agency must review the risk weighting assigned to a variety of mortgage-backed securities if the council's proposal is adopted.

Candidates for high-risk classifications comprise a list of arcane titles: stripped mortgage-backed securities, certain collateralized mortgage-backed securities, residuals, and original-issue discount securities.

Mortgage-backed securities are more important to banks today than they ever have been. With loan demand light and interest rates on Treasury securities low, banks have plowed funds into mortgage-backed securities for the past two years in search of relative safety and high yield. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Bankers Wary of Plan to Define 'High-Risk' Debt
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.