The top thrift regulator said a bomb squad is working to defuse a potentially explosive conflict between RAP and GAAP that affects billions of dollars worth of collateralized mortgage obligations.

Acting Office of Thrift Supervision Director Jonathan Fiechter said Dec. 12 that neither the Financial Accounting Standards Board nor bank regulators ever intended to discourage financial institutions from using CMOs to hedge against interest rate risk. Regulators are working to prevent all CMOs from being excluded from held-to-maturity treatment under FAS 115. Fiechter said. The tough standard governs financial reports issued after Dec. 15, 1993.

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