WASHINGTON - The Office of Thrift Supervision proposed a rule on Tuesday that would require current-value accounting of troubled and foreclosed assets.
"It is one in a series of steps to conform our rules to commercial banks'," said John Robinson, assistant director for policy at the OTS. The change from a longer-term valuation standard, which allowed thrifts to assume they could sell troubled assets under better market conditions at a future date, "is one we have been debating for some time," Mr. Robinson said.
The OTS "fair value" proposal would result in $1 billion of loan chargeoffs by thrifts in 1993, which would be offset by a $1.5 billion reduction in the amount of capital required to back the assets, Mr. Robinson estimated.
The proposal is significant, said Dennis Jacobe, managing director of the Financial Research Institute, a Washington-based thrift consulting firm. "The general feeling is that the way of valuing troubled assets should be the same among the industries."
The OTS will publish the proposal in today's Federal Register and will accept comments for 60 days. The changes, the agency emphasized, would apply only to foreclosed assets and troubled, collateral-dependent loans.
Under the proposal, the risk-based capital weighting for foreclosed assets and loans more than 90 days past due would be reduced to 100% from 200%.
For collateral-dependent loans, savings and loans would be required to establish "loss" classifications based on the fair value of the underlying collateral, as opposed to the net realizable value.
"Fair value" is defined as the price a property could be sold for in a short time. Net realizable value, the current accounting benchmark for S&Ls, sets the value of a property by assuming it can be held for a longer period by the owner.
The proposal requires direct chargeoffs, rather than specific valuation allowances, for portions of assets that are classified as "loss." The current option of establishing specific valuation allowances for identified losses would be discontinued.
The lower of cost or fair value would also be required for foreclosed assets.
Also on Tuesday, the OTS adopted a rule prohibiting thrifts from selling their own securities and those of affiliates from their offices, and another rule limiting insider loans.
The prohibition against the debenture and equity sales takes effect in 30 days. It is designed to prevent customers from confusing uninsured securities with government-guaranteed certificates of deposit.
There is one exception to the ban on on-premises stock and bond sales: An S&L can sell its own stock or an affiliate's stock in connection with a conversion from mutual to stock form of ownership, and then only with strict safeguards.
The OTS insider-loan regulation applies to executive officers, directors, principal shareholders, and their related interests.
The rule limits loan amounts to 15% of unimpaired capital and unimpaired surplus for loans that are not fully secured, and an additional 10% of capital and surplus - or 25% - for fully secured loans.
All loans to insiders and related interests cannot exceed 100% of unimpaired capital and surplus, but for institutions with less than $100 million in deposits, that limit rises to 200%.