WASHINGTON -- The Federal Deposit Insurance Corp. on Wednesday adopted the more lenient of two proposed definitions of what constitutes a well-capitalized bank or thrift.

The decision will affect how regulators implement a variety of new rules and policies, including curbs on brokered deposits and the conversion to a risk-based system of deposit insurance. The action could also complicate the debate on whether to expand bank powers.

To be considered "well capitalized," a bank or thrift must hold core capital of 5% and risk-based capital of 10%, the FDIC ruled Wednesday.

The board shied away from a proposed higher standard that called for 6% core capital and 12% risk-based capital.

The decision directly applied to restrictions on the use of brokered deposits.

About 90 banks and 70 savings and loans will very low capital will no longer be able to buy brokered funds after the rule takes effect on June 16. Another 450 will need waivers to continue using the funds.

Cap on Rates

And the regulation caps the price all 860 banks and 260 S&L that use the funds can pay at 20% to 30% over Treasuries of comparable maturity. FDIC Director C.C. Hope derided this portion of the regulation as a "throwback" to Reg Q.

Congress mandated the restrictions because the use of brokered deposits was implicated in dozens of bank and thrift failures.

The strong-bank definition will have ramifications beyond the brokered deposit issue, however. For one thing, it will be used in a new risk-based deposit insurance regulation to determine which banks pay less for coverage.

The definition also will be employed in upcoming regulations that will prescribe sanctions for banks that do not "significantly exceed" minimum capital requirements.

The sanctions are mandated by the FDIC Improvement Act of 1991, but Congress left it to the regulators to say what "significantly exceed" means.

Firewalls Buttressed

An influential congressional aide said on Wednesday that the FDIC's selection of the lower standard will make it more difficult for those seeking to lower barriers between banks and securities firms.

"You have a statute that says 'significantly exceeds.' One percent is significantly exceeds?" the aide asked. "They have undermined the credibility of the definition of 'well capitalized.'"

In doing so, the aide said, the administration has undercut its argument that new securities powers resulting from a repeal of the Glass-Steagall Act would be reserved for well-capitalized banks.

Almost 9,000 banks and 1,200 savings and loans would be considered well capitalized under the new definition.

Under the brokered deposit rule, institutions that are well capitalized and not considered "troubled" by their primary regulator may use brokered deposits at will.

Borderline Cases

Institutions that meet minimum regulatory requirements of 4% leverage capital and 8% risk-based capital must get permission from the FDIC before taking brokered deposits. And those that do not meet capital minimums may not use brokered funds at all.

First City Bancorporation of Texas in Houston and MNC Financial Inc. in the Baltimore are the two largest banking companies that will be unable to roll over existing brokered deposits.

At yearend First City's Houston bank had $ 375 million in brokered deposits, while its Dallas bank had $ 962 million, according to data complied by Ferguson & Co.

MNC's Washington subsidiary, American Security Bank, had $ 1,5 billion in brokered funds at yearend, while Maryland National Bank had $ 1.9 billion.

An amendment to the well-capitalized definition, offered by T. Timothy Ryan, head of the Office of Thrift Supervision, requires that at least 60% of the risk-based capital be Tier 1 capital.

The leverage ratio will be phased out of the definition, according to the unanimously approved amendment, when the risk-based capital formula is modified to account for interest rate risk sometime in 1993.

The price caps on brokered deposits vary. For brokered funds solicited in-market, the rate may not be more than 75 basis points over the market area's average interest rate.

If an institution is soliciting funds nationally, then the rate is capped at 50 basis points over the national market rate, which the FDIC defined as 20% over Treasury bonds of a similar maturity. If some of the brokered funds are uninsured, then the applicable market rate is 30% over comparable Treasury rates.

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