A senior regulator said banks must better align capital buffers with commercial real estate concentrations, and he recommended a smaller role for auditors in setting loan-loss reserves.
In prepared remarks Tuesday to the American Institute of Certified Public Accountants, Chief National Bank Examiner Tim Long said it was time "to set some parameters for concentration limits in" CRE lending.
"As a bank's concentrations increase so, too, would the buffer above regulatory capital minimums that they would be expected to maintain," said Long, a senior deputy comptroller for the Office of the Comptroller of the Currency.
"This would provide more formality and transparency to the agencies' long-standing policy that our risk-based capital standards represent minimum capital levels and that most banks need to maintain capital levels above those thresholds."
Long also said banks should focus more on their own credit analysis than the advice of accountants when determining proper loss reserves. He said accountants did not recognize the accumulation of risk leading up to the crisis.
"Somehow, we've allowed accounting doctrine and the accounting profession to encroach on what is fundamentally a process of credit estimation, based on credit administration inputs," he said, adding later that "some in the bank accounting profession placed too much reliance on the lack of historical loss rates and missed the resulting build up of credit risk on the banks' balance sheet."