Present Isn't Good Time to Ease Capital Standards

By Dave Skidmore, Ap | THE JOURNAL RECORD, October 26, 1989 | Go to article overview

Present Isn't Good Time to Ease Capital Standards


Dave Skidmore, Ap, THE JOURNAL RECORD


WASHINGTON - Now isn't the time, 2 1/2 months after taxpayers bailed out the savings and loan industry, to consider easing capital standards for commercial banks, the General Accounting Office said Wednesday.

``In the aftermath of the thrift disaster, neither the public nor the banks should be given a signal by the regulators that lower capital levels are acceptable,'' said Harry S. Havens, assistant comptroller general.

Testifying before the Senate Banking Committee, Havens inserted the General Accounting Office, Congress' auditing and investigative agency, into a contentious dispute between bank regulators over the government's key financial standard ensuring the safety of the nation's 13,000 commercial banks.

Comptroller of the Currency Robert L. Clarke, a Treasury Department official who regulates nationally chatered banks, is proposing a new capital standard that the Federal Deposit Insurance Corp., which insures deposits at both state and national banks, says is too low.

Capital, representing the investment of bank stockholders, serves as a cushion, absorbing losses before federal deposit insurance kicks in. Financial institutions with low capital levels are more inclined to make risky investments because their owners have less to lose. The crisis in the S&L industry was blamed in part on regulatory moves in the early 1980s to relax capital rules.

Both the FDIC and Clarke's office have agreed to a risk-adjusted standard starting in 1991, which would apply a more lenient test to banks holding safer investments such as home mortgages and government securities. …

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