WASHINGTON - A Federal Deposit Insurance Corp. plan to hike capital requirements on subprime lenders is taking shape.

The proposal, first mentioned by FDIC Chairman Donna A. Tanoue in a November speech but still largely under wraps, would divide subprime loans into as many as 10 risk categories. Higher-risk loans would require more capital, though just how much is not clear. An interagency group of regulators will hold its first face-to-face meeting on the topic today.

"We want to give banks the freedom to do what they want with their portfolios, but at the same time force them to take responsibility for the extraordinary loss potential that exists in those portfolios," said FDIC Supervision Director James L. Sexton. If the other regulatory agencies concur with the FDIC's approach, a subprime capital rule could be finalized by yearend, he said.

The number of institutions involved in subprime lending is growing, if slowly. Already, about 150 banks and thrifts have subprime assets that equal 25% or more of their total capital, and 60 of those have assets greater than or equal to capital. More and more institutions are making inquiries about entering the business, the FDIC said.

Heavy subprime lenders are believed to pose a danger to the deposit insurance funds because they appear unusually likely to experience problems. According to Mr. Sexton, 20% of these 150 banks and thrifts are on the FDIC's "problem bank" list, and the situation could grow worse if the economy slows. Fortunately, he said, most subprime lenders have strong capital positions at present.

"We're doing it at the right time, not at a time when banks are squeezed," he said.

Creating the risk categories - or even simply defining "subprime," a term generically used to describe borrowers with checkered or untested credit histories and loans with high interest rates - will be challenging. For example, basing the categories on letter rankings such as A-minus would not work because every bank uses its own subjective system. "If you go to two or three different banks, you're going to see two or three definitions of B," Mr. Sexton said.

Determining the capital requirement for each risk category will be difficult too. "O.K., subprime loans require more capital," Mr. Sexton said. "But how much more? Why that number? There's very little basis for picking one number over the other. … We're trying to provide for a risk that has not been quantified for us by an economic cycle."

Spokesmen for the Office of the Comptroller of the Currency, the Federal Reserve Board, and the Office of Thrift Supervision said it was too early to comment on the draft proposal. But Mr. Sexton and one other government source said the Fed might be reluctant to support a rule.

According to Mr. Sexton, the Fed is leaning toward issuing examiner guidelines instead of a rule. Under that scenario, examiners would be permitted to demand higher capital from a subprime lender on a case-by-case basis.

But Mr. Sexton said a regulation carries several advantages. A rule would help ensure that "the bank in California would be treated the same as the bank in Indiana." A rule would also forewarn those thinking about getting into subprime lending that there are extra costs. "They need to know what the fair price is, what it's going to require in capital, to do this business in a bank," he said.

"We respect the Fed's decision process," he said. "I guess that if we felt that there was a viable alternative, we wouldn't have gone down this murky path ourselves."

Regulators are also considering an FDIC proposal to reduce the amount of residuals that subprime lenders could claim as capital. Residuals are what a lender retains after securitizing and selling a portfolio.

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