House Banking Subcommittee Sets Hearing on Loss Reserves

House Banking's financial institutions subcommittee has tentatively scheduled a hearing June 16 to address loan-loss reserves. The announcement came amid a renewed battle between banking and securities regulators over the controversial accounting issue.

Subcommittee Chairwoman Marge Roukema, R-N.J., said she hoped the hearing would "clear the air." "This is an important safety-and-soundness issue, as well as an accounting matter," she said. "The agencies should be working together."

Last week the Securities and Exchange Commission endorsed a controversial article on the topic by regulatory accountants. The SEC said any bank that had to change its reserves to abide by the article could make a one-time adjustment in its next quarterly financial statement.

Bank regulators were divided about the SEC's move. The Federal Reserve Board sided with the SEC, but the three other bank and thrift regulators criticized it for implying that banks should reduce their reserves. The three agencies were also miffed the Fed acted unilaterally. If anything, these regulators said, banks should be increasing their reserves to hedge against underlying weaknesses in their loan portfolios.

A spokesman said the subcommittee hearing would focus on the SEC's recent crackdown on several banks over their loan-loss reserve policies.

Though the witness list has not been finalized, the chiefs of the bank, thrift, and securities agencies are all expected to be invited to testify.