CHICAGO -- Federal regulators' early-intervention policy for ailing banks and thrifts, which takes effect Dec. 19, poses a "fiscal challenge" for the U.S. economy, the president of Duff & Phelps Investment Management Co. says.

In his investment-outlook report for October, Robert D. Milne called the toughened enforcement of capital guidelines "a major negative for the economy and for the federal budget."

Mitigation Possible

"The dimensions of this factor are not yet known, and the degree of compassion shown by the regulators on the classification of nonperforming loans might have a mitigating effect upon their actions," Mr. Milne said.

He said the Resolution Trust Corp.'s demand on federal revenue has fallen to $10 billion from $67 billion last year only because Congress has not appropriated funds requested by the RTC to cover losses of failed institutions. Those losses, he said, are certain to rise over time.

"The sensible course of action would be to set up a realistic reserve for losses and resolve the situation as soon as feasible over the next two years or so," Mr. Milne said. "Perhaps a new administration would follow the example of the corporate world and take the remaining losses immediately."

In the October report, the Cleveland-based executive also observed that the federal deficit was "funneling significant amounts of money away from the private sector."

He termed the deficit "out of control," adding that "better long-term real growth would occur with more productive private investment."

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