WASHINGTON - Bankers are sharply criticizing a plan by federal regulators to impose tough new capital requirements on residual assets, saying it is too broad, contradicts other agency proposals, and is unnecessary.

In comment letters to the agencies released last week, bankers argued that regulators are overreacting to isolated problems with residuals, the interest retained after the securitization and sale of loans.

"The proposed rule imposes new and substantial capital obligations in an overly broad, punitive, one-size-fits-all approach to cure perceived risks with residual interests," wrote Lee A. Whatcott, senior executive vice president and chief financial officer for $5.5 billion-asset Western Financial Bank in Irvine, Calif.

Federal regulators on Sept. 27 proposed requiring banks to hold $1 of capital for each $1 of residual interests in pools of securitized loans. The plan also said that these assets could account for no more than 25% of Tier 1 capital.

The four bank and thrift agencies were attempting to prevent another dramatic failure like the one at First National Bank of Keystone in West Virginia, which cost the Bank Insurance Fund more than $750 million. The Federal Deposit Insurance Corp. attributes half of that loss to overvalued residuals.

But in a dozen comment letters due Dec. 26, bankers said this plan conflicts with a recourse proposal issued by regulators in March. For example, the recourse proposal would reduce capital requirements for a retained subordinated interest that receives a high rating from a rating agency. The residual proposal does not differentiate among interests based on credit quality, and would require every bank holding such interests to hold dollar-for-dollar capital.

"The March 2000 proposal reflects years of study by the agencies and several rounds of input from affected institutions and other constituencies," large banks including Bank of America Corp., Citigroup Inc., FleetBoston Financial Corp., and Capital One Financial Corp. wrote in a joint letter.

"It is also consistent with recent international proposals to base bank regulatory capital requirements on external or internal credit ratings on bank assets," the letter said. "We do not think that the supervisory concerns that have led you to issue the current proposal … invalidate the consensus positions reflected in the March 2000 proposal."

Critics also noted that not all residuals are created equal, nor are they valued the same way. Though some residuals are determined by a highly subjective process, and therefore susceptible to overly aggressive estimates (as in the case of Keystone), many residuals have a definite value. In particular, they said, the residual proposal would include cash assets from spread accounts, subordinated securities, and retained portions of sold assets, none of which are subject to change in value based upon assumptions.

Several larger banks argued that they have invested significant time and money in developing systems that properly value those residual interests that do fluctuate in value. Vernon H.C. Wright, vice chairman and chief corporate finance officer for MBNA America Bank, wrote that the bank had securitized more than $88 billion of credit card and other loans since 1986 and had never overvalued any residuals.

"This proposal would unfairly penalize banks, such as MBNA, that have developed and implemented a prudent securitization program," Mr. Wright wrote. "Over the past 15 years, MBNA has invested significantly in people, systems, and management in order to properly control its securitization process. We believe these investments and management practices by banks should be encouraged, not overlooked."

Critics also argued that because the problem is limited to a small number of banks, the agencies should instruct examiners to look individually at those likely to face difficulties from residual interests.

"Given the supervisory option of imposing individual minimum capital requirements on any entity where there is an undue exposure not captured by the overall risk-based approach, it is not clear why this individualized approach could not be substituted for the entire complex apparatus of the proposed rule," wrote James E. O'Connor, tax and accounting counsel for America's Community Bankers.

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