The schism over bank loan-loss reserves continued to widen Monday as Comptroller of the Currency John D. Hawke Jr. asked Congress to rein in the Securities and Exchange Commission.
The House and Senate Banking Committee chairmen quickly obliged, questioning renewed attempts by the SEC to reduce bank reserves.
"I share in the concerns of banking regulators who tell me that any governmental effort to scale back loan-loss reserves, no matter how well intentioned, may set us on a course toward repeating the S&L disaster," said Senate Banking Chairman Phil Gramm, R-Tex.
"Within reason, the larger the loan-loss reserves, the better," said House Banking Chairman Jim Leach, R-Iowa.
Monday's events capped a wild week of conflicting public postures and shifting allegiances among bank and securities regulators.
Mr. Hawke's letter-also signed by Federal Deposit Insurance Corp. Chairman Donna A. Tanoue and Office of Thrift Supervision Director Ellen S. Seidman-criticized the SEC for backing a Financial Accounting Standards Board article. That article, clarifying generally accepted accounting principles, said a bank setting aside a reserve for a particular loan may not include that loan when calculating general reserves.
The SEC said banks that must adjust reserves to comply with the FASB article should make a one-time accounting change in the first fiscal quarter ending after May 20.
But banking regulators argued that more reserves, not fewer, are needed to protect against "adverse trends in banks' loan quality and underwriting."
Lower reserves "could have a profound effect on the continued safety and soundness of America's banking system and would not, in our judgment, be in the best interests of American taxpayers, the bank insurance funds, or shareholders."
In a rare public split, the Federal Reserve Board endorsed the FASB article Friday and sent guidelines on it to state member banks.
The realignment of players-the SEC and Fed versus the OCC, FDIC, and OTS-has begun to resemble the debate over financial modernization. The SEC and the Fed oppose legislation granting broad powers to operating subsidies of banks, while the others support it. Sources speculated Monday that the Fed switched allegiances to maintain the SEC's support for its position on the bill. But a Fed official denied it.
"It's not any special arrangement between the SEC and the Fed. There's no hidden agenda," said Gerald Edwards, the Fed's deputy associate director for bank supervision. In fact, Mr. Edwards said, the Fed issued its guidelines so banks would not interpret the FASB article narrowly.
The guidelines "will help banks basically to avoid an overreaction to the FASB article and the SEC announcement," he said.
SEC Chairman Arthur Levitt fired off a letter of his own Monday. Writing to Fed Governor Laurence H. Meyer, Mr. Levitt insisted the SEC does not want to see bank reserves reduced. It merely wants banks to follow GAAP, he said. "The most-effective form of oversight comes from an informed market place," he wrote.
There are signs that the government's internal spat over loan-loss accounting is confusing bankers.
"It becomes complicated when you have multiple people coming in and giving you what could be conflicting advice," said A. Scott Anderson, the president and chief executive officer of Zions First National Bank of Salt Lake City. "I hope we continue to look solely to the OCC and not (also) the SEC."
Twice in the span of five months banking and securities agencies have issued joint statements signaling their intent to resolve the controversial loan-loss issue together.
Still the SEC raised eyebrows last week when Bankers Trust Corp. announced the agency was investigating its reserve policy. It was reminiscent of the disclosure that began the flap: SunTrust Banks Inc. cut its reserves by $100 million last fall to win SEC consent for its merger with Crestar Financial Corp.
