NEW YORK - Regulations mean to protect taxpayers from a bank crisis similar to the savings and loan collapse could hurt more than help, a bank economist says in today's issue of Standard & Poor's Corp.'s Credit Week.

Implementation of the Federal Deposit Insurance Corp. Improvement Act of 1991 "will make it difficult for many banks to continue to buy government securities, at least at recent levels," says Thomas W. Synnott 3d, chief economist of U.S. Trust Co. of New York.

A likely result is that "short- and intermediate-term interest rates will rise and the banking industry's return to financial health will be slowed," he writes.

"Commercial bank purchases of U.S. Treasury and agency debt have been a key factor in holding down interest rates despite a huge federal budget deficit," according to Mr. Synnott.

$48 Billion in Bonds

With bank lending slack, the industry purchased $48 billion of the bonds through July this year, or 20% of the total issued by the Treasury, other government-sponsored agencies, and mortgage pools. That came on top of $95 billion last year.

Such purchases "enable banks to maintain their net interest income while dealing with problem loan assets," Mr. Synnott contends. "These large holdings of risk-free assets represent a future source of liquidity for making productive loans."

Noting that the banking system is the conduit for Federal Reserve moves to stimulate the economy, he writes: "If the banks could not buy government securities with the reserves created by the Fed, the funds would simply sit idle as excess reserves. There is a danger that this situation could occur" under the new regulations defining bank capital adequacy.

Capital Ratios

To be considered well capitalized, a bank must have a Tier 1 risk-based capital ratio of at least 6%, total risk-based capital of 10%, and a leverage capital ratio of 5%.

"The 5% leverage test will cause many sound banks to fall short of being well-capitalized even though they may have very high risk-based capital weightings," says Mr. Synnott.

He points out that a bank with half its assets in loans, half in Treasury securities, and equity equal to 4% of assets would have a Tier 1 ratio of 8% but fail the leverage test.

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