Federal regulators are expected to double the limit next month on loan-servicing assets that banks and thrifts may use to meet capital requirements.
The new rule would also let a variety of other nonmortgage-servicing assets such as auto loans and small-business loans be applied toward capital requirements for the first time. Currently, purchased credit card accounts are the only nonmortgage asset that may be counted toward the capital level.
When the rule was proposed last summer, regulators balked at letting more nonmortgage-servicing assets be counted toward capital because they are rarely sold and it is difficult to determine their value.
"In bankers' eyes this would be an improvement over what we proposed last summer," said Zane Blackburn, chief accountant at the Office of the Comptroller of the Currency.
Regulators decided to let nonmortgage assets count toward capital because the secondary market for those loans is growing and evaluating the assets is becoming easier.
Under the new rule, mortgage-servicing assets would be capped at 100% of Tier 1 capital, up from 50%.
All nonmortgage-servicing assets would be limited to 25% of Tier 1 capital, just as purchased credit card servicing rights are today.
Regulators imposed the 50% limit in 1991, citing the risks to mortgage- servicing income posed by interest rate fluctuations and prepayments. But the agencies decided to relax the restriction because federal accounting rules have increased the valuation of servicing assets and many institutions could soon be brushing against the original cap.
Most banking trade groups welcome the change, though they prefer that capital restrictions on the assets be dropped altogether.
"Well-performing, well-managed institutions should have more flexibility for those assets," said Gary Gilbert, regulatory affairs specialist at America's Community Bankers.
The Independent Bankers Association of America remains opposed to the change.
"Even for mortgage-servicing assets it is sometimes difficult to determine a fair market value," said Ann M. Grochala, IBAA director of bank operations. "This will increase volatility in bank capital."