WASHINGTON - Hoping to end years of confusion, bank and thrift regulators agreed Tuesday to a formula for setting loan-loss reserves.

While the formula is just a guideline, not a requirement, it is important because it gives bankers their first objective standard against which to measure loss reserves.

The policy is expected to quell the battles bankers have had with examiners over how much should be reserved in case loans go bad.

3 Benchmarks

The new policy - agreed to by the three federal banking agencies and the Office of Thrift supervision - instructs examiners to calculate reserves against the sum of:

* 50% of the portfolio classified as "doubtful."

* 15% of the portfolio classified as "substandard."

* And estimated credit losses for the next year on unclassified portions of the portfolio.

"This amount is neither a floor nor a safe harbor level for an institution's allowance for loan and lease losses," the regulators' policy states.

"However, examiners will view a shortfall relative to this amount as indicating a need to more closely review management's analysis to determine whether it is reasonable and supported by the weight of reliable evidence."

6 Key Variables

The policy statement, which is being mailed to every bank and thrift, lists six variables to consider when setting loss reserves beyond past loss experience. They are changes in:

* Lending policies and procedures, including underwriting standards and collection, chargeoff, and recovery practices.

* National and local economic and business conditions.

* The nature and volume of the institution's portfolio.

* Changes in the experience, ability, and depth of lending management and staff.

* The trend of the volume and severity of nonperforming loans.

* And the quality of the institution's loan-review system and the degree of oversight by the institution's directors.

The policy statement also advises banks and thrifts to consider the existence and effect of any concentrations of credit and changes in those concentrations.

Finally, the regulators said that bankers ought to weigh the impact of external factors, such as competition and legal or regulatory requirements, on credit losses.

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