WASHINGTON - Easing a previous proposal, regulators have decided to allow banks and thrifts to include some tax-loss carryforwards and other deferred benefits in capital.
In a final recommendation issued last week by the Federal Financial Institutions Examination Council, banks and thrifts got more leeway to boost capital than they would have had under a draft issued for comment in August.
Big Gains Foreseen
Some of the country's largest banks could increase their capital accounts by up to $100 million, said Henry Ruempler, tax expert for the American Bankers Association.
But banks and thrifts still would be unable to take full advantage, which they had sought, of Financial Accounting Standard 109. The regulatory panel regarded the general accounting standard as too liberal, given the uncertainty of bank earnings projections.
The banking rule - which still must be adopted formally by each regulatory agency - allows "deferred tax assets" to be included in capital as long as they do not exceed one year's projected income or 10% of core capital, whichever is less.
Banks and thrifts will have to begin incorporating statement 109, according to these guidelines, in call reports filed after Jan. 1.
Subject to Review
Any deferred tax assets counted as capital - such as loss carryforwards from previous years, or temporary differences between amounts on tax returns and financial statements - would be subject to review by examiners, the examination council said.
Mr. Ruempler, director of tax and accounting at the American Bankers Association, said it is difficult to calculate the rule's exact impact without knowing a bank's tax history and earnings projections.
"We know it is big numbers, but we don't know the exact amount," said a staff member at the Office of the Comptroller of the Currency.
The debate over how much, if any, deferred tax assets could be applied to capital raged throughout 1992.
The final rule is better than what the regulators proposed in August, said Jim O'Connor, tax counsel at the Savings and Community Bankers of America. But in limiting the capital contribution to projected income over one year, he said, "regulators are saying, 'We don't trust your projections."'
Most banks and thrifts currently may deduct from income only loans that have actually been charged off. Reserves set aside to cover loan defaults generally are not deductible.
As examiners have been pressuring banks and thrifts to build ever larger reserves, the institutions have argued that some of this money - total reserves times the corporate tax rate - ought to be allowed to count as capital. The reasoning was that if the loans go bad, they will be charged off and the institution will deduct the reserves from future income.
Two Views
The Financial Accounting Standards Board's Statement 109, published last February, agreed with banks and thrifts on the reserves issue.
But in August, the Federal Financial Institutions Examination Council - a coordinating body for the five bank, thrift, and credit union agencies - put out its proposal suggesting that none of these tax assets be counted as capital.
After receiving more than 150 formal statements from banks and thrifts objecting to the proposal, the exam council partially relented, instituting the limit of one-year projected income or 10% of core capital.
Industry sources said the future-income limit is likely to have the greater impact.
Officially, the examination council issued a recommendation to each of the regulatory agencies. But since the umbrella group reached its conclusion with input from all the regulators, it is very likely to be adopted by each agency.
Proposals formally implementing the decision are expected early in 1993.
