WASHINGTON - Federal bank regulators have lost the chance to control the debate on loan-loss reserves.

The four bank and thrift agencies, in cooperation with the Securities and Exchange Commission, pledged in March 1999 to take one year to clarify the proper documentation and disclosure of loan-loss reserving practices. But the plan is now four months overdue, and regulators say it will not emerge until September at best.

While the regulators fiddled, accounting gurus got to work.

Last week the American Institute of Certified Public Accountants issued a draft proposal for applying generally accepted accounting principles to banks' loan-loss reserves. Now, instead of initiating the debate, banking regulators have been reduced to demanding a meeting with the accounting trade group in an effort to exert some influence on the plan.

The draft by the accountants group would bar banks from holding general reserve accounts, and would only allow them to add to reserves when they can document a specific loss. The bank regulators sharply criticized the accountants' position in a July 12 letter, but had they been quicker to get guidance to bankers, observers said, the tables might have been turned.

"Whatever they did would have protected their position a lot better," said Karen Shaw Petrou, president of ISD/Shaw, a financial services consulting firm here. "The policy community would defer to the banking regulators. It would be much harder for the AICPA to issue something contrary to the way the bank regulators wanted to approach loan loss reserving."

"I can't understand why they are so late on this," said Bert Ely, president of Ely & Associates in Alexandria, Va. "This isn't that complicated an issue. Loan-loss reserves have been around as long as banking, and all they had to do was defend well-established standard practices. Their delay created a vacuum that the AICPA has stepped into."

Regulators have different explanations for the delay - none of which they were willing to state on the record. Some say that the guidance is complex, and that they were just "overly optimistic" to think that the research and writing of the proposal could be completed in a year. Others said that the delay stems in large part from disagreements between the banking agencies and the SEC. The bank regulators would prefer that banks be allowed to exercise judgment in setting reserve levels, while the SEC wants reserves to be tied to specific losses.

The negotiations to date, according to one banking regulator, have consisted of a lot of "back and forth" between banking and securities regulators. "Mainly it has been the regulators and the SEC talking about what [changes] the SEC wants" in banks' current practices, he said. (The controversy erupted in late 1998 when the SEC required SunTrust to restate three years' of earnings and peel $100 million from reserves.)

Last week's release of the accountants' draft proposal - which sides with the SEC - only made those negotiations more difficult, he added. "It just continues to throw the process off."

Another bank regulator said that monitoring the progress of the accountants' loan-loss reserves task force, on which the regulators have nonvoting representation, was given a higher priority than the development of their own guidance."

Banking trade groups are frustrated by the group's position, and questioned banking regulators' ability to influence it.

"The AICPA guidance missed the mark. It was developed on the principles of the ivory tower instead of real world, and with no understanding of the issues of safety and soundness," said America's Community Bankers president and chief executive officer Diane M. Casey.

"Now the challenge we face is that the guidance the regulators come out with can be undone by the pronouncements of the accountants."

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