WASHINGTON -- Thrift regulators will unveil today a rule they have worked on since 1991 that will force thrifts subject to above-normal interest rate risk to raise capital.
The rule, which takes effect next July, would affect less than half of the industry if it were applied today, and would require just 22 thrifts to raise $43 million in capital or reduce their rate risk in order to comply. Small, well-capitalized thrifts are exempted from the new Office of Thrift Supervision rule.
The other banking agencies have also been writing new regulations to incorporate rate risk in commercial bank capital standards, and hope to publish their regulations by September.
3,000 Banks Affected
The bank rules are expected to affect only 3,000 midsize banks holding about 10% of the industry's assets, and will not be effective before December 1994.
The rules for thrifts are more stringent than those for banks. OTS officials said that is because S&Ls inherently, have more interest rate risk because their portfolios include more fixed-rate, longer-term loans.
"We are not trying to tell them they, should not take any interest rate risk, because they have to -- it is part of their business," said John Robinson, OTS West Region director-designate. "But they have to control it."
Under the new rule, a thrift must prepare for a 2% shift in interest rates if it would decrease the market value of the thrift's assets by more than 2%, the threshold the OTS set as "normal" rate risk. A savings association's minimum risk-based capital requirement will go up by 50 cents for every $1 in losses the thrift would suffer above that threshold.
Although the new regulations require thrifts to guard against rate risk by holding more capital, industrywide capital levels would not necessarily increase. The reason: Regulators plan to drop from 4% to 3% the amount of core capital thrifts must hold.
"What we are trying to measure is the change in the present value of the institution's portfolio," Mr. Robinson said. Now, well-capitalized thrifts must hold 4% core capital and 8% risk-based capital to guard against future losses.
To test thrifts' interest rate risk exposure now, the OTS requires most thrifts to fill out forms each quarter called consolidated maturity and rate schedules. The forms ask for 600 pieces of information about the thrift's assets and liabilities, and are sent to the OTS electronically.
Under the new rule, thrifts will fill out the same forms, and will get back analyses from the OTS about how the market value of their institution would change if interest rates dropped or rose by up to 4%, plotted out in 1% increments. Thrifts with above normal interest rate risk would have six months to set aside more capital or reduce their risk.
Thrifts with less than $300 million in assets that also hold at least 12% in risk-weighted capital would remain exempt from reporting the detailed financial information the rule relies on to determine rate risk.
If the rule were effective now, only 811 of the industry's 1,923 thrifts would be required to fill out the complicated forms.