WASHINGTON -- The investigative watchdog of Congress said Wednesday that a Bush administration policy aimed at easing the credit crunch could undermine examiners in their efforts to require adequate loan-loss reserves.

Comptroller General Charles A. Bowsher said the regulatory guidelines issued Nov. 7 to implement the administration policy "may seriously add to the problem of unreliable financial data by allowing real estate evaluations that hide loan losses."

The guidelines from the four regulatory agencies emphasize that examiners should consider the long-term prospects for properties backing loans, rather than simply current values.

In addition, they established an appeal process for bankers dissatisfied with exam results.

Key Meeting Next Week

Mr. Bowsher said he would be closely watching a meeting next week in Baltimore at which senior examiners will review the new guidelines to see how much latitude examiners are likely to give banks in determining reserve levels.

"We have concerns that too much emphasis is being placed on the return to 'normal' conditions in a depressed real estate market, with little emphasis on current market conditions," he said.

"As a result, more banks will be failing without reasonable warning," he added.

In an appearance before the House Banking Committee, Mr. Bowsher appeared to soften earlier comments about the likelihood that funding provided by Congress for the Bank Insurance Fund will prove inadequate.

'Good Start' on Bank Fund

The $70 billion the bill is expected to provide "is a good start," he said, adding that the amount that will be needed is impossible to determine right now.

However, consultant Bert Ely was sharply critical of Mr. Bowsher for lumping together the $30 billion provided for paying off losses with working capital amounts authorized in the bill.

"The key is whether the $30 billion is enough to cover losses," said Mr. Ely, who has done a considerable amount of work on deposit insurance costs for banking groups.

Asset Sales Pay for Capital

Noting that the banking bill did not set an upper limit on the amount that could be borrowed for working capital - which is expected to be repaid as assets are sold - Mr. Ely said the authorization is likely to be sufficient.

Mr. Bowsher and two of his colleagues from the General Accounting Office devoted much of their testimony to accounting standards, which they warned were still too weak.

He said the private bodies that set accounting standards should tighten up rules which now permit banks to mask problem loans.

Accounting rules for nonperforming loans, he said, "allow bank management too much latitude in when to accrue losses and in determining carrying amounts for impaired assets."

Market Value for Sour Loans

Bank should be required, he said, to write down troubled loans to their market value. However, he did not call for market-value accounting for all bank loans.

"Our concern is, we just want the accounting to be done right," he said. With respect to the administration efforts, "we're just not sure where the emphasis is - on optimism or realism."

Assistant Comptroller General Don Chaplin said the administration and the regulatory agencies have begun to place too much emphasis on "a recovery that may or may not occur."

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