While the industry supports a government plan to broaden the types and amounts of securities national banks may buy, it thinks the Comptroller's Office is going about it all wrong.

In comment letters to the agency this week, banking trade groups, lawyers, and consultants said the Office of the Comptroller of the Currency has fundamentally misjudged the market for securitized assets.

For example, the proposal would permit national banks to buy securities backed by commercial real estate loans only if no one borrower held more than 5% of the loans.

"The 5% limit would work on a single-family market pool, but when you go to a pool of commercial loans they are quite concentrated," said A. Bradley Ives, a banking lawyer with Kennedy Covington Lobdell & Hickman in Charlotte, N.C., who wrote a comment letter to the agency. "That's where I think they are missing the boat."

The proposal is part of a sweeping rewrite of "Part 1" of the agency's regulations, which sets the standards for bank investments in securities.

The proposed rule change, issued Dec. 21, would remove limits on how much banks can invest in residential and commercial mortgage securities as well as small-business-related securities. It would also let banks invest 15% of capital and surplus - up from 10% now - in investment grade asset- backed securities formed from pools of credit card, auto or other loans.

To ensure the new investment powers do not jeopardize safety and soundness, the OCC is requiring that the collateral backing the investments represents "homogeneous" loans from numerous borrowers.

Warren Lasko, executive vice president of the Mortgage Bankers Association of America, urged the agency to drop both the 5% limit and the homogeneity requirement.

The limits "would unnecessarily restrict participation by banks, particularly regional and community banks, and small issuers in the commercial-mortgage-backed securities market," Mr. Lasko wrote.

Regulators, Mr. Lasko and Mr. Ives agreed, should focus on a security's rating. If it is double-A or higher, national banks ought to be able to invest without restriction.

"The rating agencies are really the tool to solve this problem," Mr. Ives said.

Owen Carney, an independent consultant based in Arlington, Va., agreed that the OCC's limit on bank purchases of investment-grade securities is misplaced. Until February 1995, Mr. Carney was senior adviser to the chief national bank examiner on investment matters.

"They've gone at it the wrong way," he said. "OCC's proposal would impose diversification standards on the good stuff and not speak at all on the bad stuff."

The credit risk in asset-backed securities is tiered; senior debt is paid off first. These senior securities are investment grade and therefore would be subject to the new regulations. The junior, or riskier, securities would not be covered, Mr. Carney explained. A bank is allowed to buy these securities as long as no single purchase amounts to more than 10% of its capital.

"Banks can still buy the lousy stuff subject to the original regs with none of the new restrictions," he said.

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