Bank capital would fluctuate with interest rate changes under a regulatory plan to marry accounting and capital standards, according to bankers who oppose the plan.

More than 90% of the banks that sent comments to the Comptroller of the Currency argued against the proposal. Many fear that the new rule would unfairly subject banks to the punitive effects of other regulations, such as prompt corrective action. Those rules impose increasingly severe penalties as a bank's capital falls.

Bankers also said the new rule would produce perverse results.

"This proposed rule would make sick banks look healthy when rates are in a declining mode and healthy banks look sick when rates are in a rising mode," wrote Byron K. Bexley, president of Converse National Bank, Universal City, Tex.

Affect on Tier 1

While Converse National had a Tier 1 capital-to-assets ratio of 5.58% on March 31, implementation of the rule would reduce it to 5.30%, he said. As rates continue to rise, he said, the ratio would be pushed even lower.

Several commenters said if this rule had been passed 15 years ago when interest rates hit historical highs, many healthy banks would have been closed.

Conversely, under the rule customers could be misled into believing that some banks are stronger than they really are, said W, Gerard Huiskamp, president of Blackhawk State Bank, Milan, Ill.

"Supposedly, one of the intents of FAS 115 is to give greater understanding of the financial statement to the investing public and the depositing public," he wrote. "It is time to step back from that proposal and see that the result is confusion rather than understanding."

Some bankers said the proposal could trigger a crisis.

"In my 34-year banking career I have not seen, with the exception of 'deregulation' that led directly to the savings and loan crisis, a proposed set of rules that is going to have a more devastating effect on the banking industry on the whole, on competition within the industry, and on the consumer," said Klaus Golombek, executive vice president of the National Bank of Bremerton, Wash.

Community bankers were especially upset about the difficulty of implementing a rule they think is unnecessary.

"It appears that supervision is again trying to super-micromanage, without any consideration to the experience that manages community banks," said Lane R. Nansel, executive vice president of Kimball County Bank, Bushnell, Neb.

Converse National's Mr. Bexley said that lowering Tier 1 capital levels will decrease the amount of money that community banks can lend to small businesses, because it lowers banks' legal lending limits.

Rate Risk Distorted

James Westfall, senior vice president at Bank of America, said marking to market only one side of a bank's balance sheet distorts the measurement of its exposure to interest rate risk.

The problem with FAS 115, said Mr. Westfall, is that it uses a market-value approach for available-for-sale securities without considering the market-value effects on the corresponding liabilities.

Steven G. Elliot, vice chairman and chief financial officer of Mellon Bank, said the proposed rule could cost banks money if it forces them to be more conservative.

"The administrative cost of complying with FAS 115 is not burdensome; it is the cost of lost business revenue that is disconcerting," Mr. Elliot said.

To many bankers, the proposal simply creates a problem where there was none before.

"The cliche 'If it's not broken, don't fix it' certainly is applicable in this situation," said Nancy Stafford, president of Citizens Bank, Rogersville Mo.

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