Apparently, credit card and home equity loans are the next areas federal bank regulators will bring under scrutiny.

What will happen in those portfolios is not hard to forecast. The recent example of commercial real estate loans points the way.

Because risk-based capital requirements will take full effect at yearend, banks with substantial card and home equity portfolios should consider the impact on capital that writedowns would have - and plan accordingly.

Comptroller Worried

Several developments suggest that numerous cardholders are living on their credit cards as a result of the sluggish economy.

One sign is that MasterCard fees have been rising, reportedly because of growth in credit card delinquencies and credit losses. Another is the recent report in this newspaper that the acceptance level of direct-mail credit card solicitations by creditworthy consumers rose from 1.8% in 1989 to 5.4% in 1991.

Stephen Steinbrink, the acting comptroller of the currency, said in an interview American Banker printed March 10: "I worry some about home equity loans because the loans were made when house prices were very high."

The Comptroller' office obviously wants to stay ahead of the curve in such areas. As it targets home equity and consumer loans, the Fed and the Federal Deposit Insurance Corp. can be expected to do the same.

Doing Better than Minimum

Under risk-based capital rules, card loans and the vast majority of home equity loans carry a 100% risk weighting.

The minimum risk-based capital percentage, now 7.25%, will rise to 8% Dec. 31. The operative word is "minimum."

In promulgating the riskbased capital rules, federal banking agencies made clear that the 8% minimum ratio should not be viewed as the level to be targeted but rather as a floor.

The rules explain that the final supervisory judgment on a bank's capital adequacy is based on an individualized assessment of numerous factors.

That judgment may differ from what might be assumed from an isolated comparison of the bank's risk-based capital ratio to the 8% minimum.

A bank deemed by regulators to have insufficient capital can either increase its capital, shrink its asset size, or both.

It Pays to Act Early

Bankers should do realistic inhouse reviews of home equity and card loan portfolios. Such reviews should consider the present and potential economy in the bank's market area and nationwide, while remembering how the regulators have reviewed, and are reviewing, real estate portfolios.

The concern is that many banks at once will find themselves shrinking their asset size - and therefore selling into a falling market.

Bankers who recognize the potential problems early and are able to adjust the size of their loan and/or investment portfolios will be able to do so at the least overall cost.

In the real estate area, bankers generally refused to believe it could happen to them - until regulators brought the reality vigorously to their attention. Learning from those experiences, bankers and regulators should be able to stay ahead of the curve on home equity and credit card loans.

Mr. Byrd is a lawyer practicing in Washington; he worked 18 years in the Office of the Comptroller of the Currency.

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