The U.S. banking agencies are close to giving up on devising a capital standard for interest-rate risk.

This would be a big victory for bankers, who have criticized regulators' rate risk proposals as burdensome and flawed. It would also mark a big step by U.S. bank supervisors away from the idea that uniform capital standards can effectively account for risk.

The Federal Deposit Insurance Corp., Federal Reserve Board, and Office of the Comptroller of the Currency still plan to require banks to divulge additional interest rate information on call reports, a high-level regulator said.

But the actual regulation of interest rate risk will be left to the examination process, he said.

"To come up with some kind of hard-wired capital charge, given the diversity of institutions and portfolios, was just something that I don't think anybody was comfortable with," said the regulator, who spoke on the condition that he not be identified.

"What we'll see coming out of the agencies is some increased reporting, but we'll look at the numbers on a supervisory basis," he declared.

"They've just given up - that's what it comes down to," said Alexandria, Va., banking consultant Bert Ely. "What this shows, very dramatically, are the limitations of the Basel risk-based capital standards."

"The biggest problem is trying to find a model which applies equally across all institutions - it quite simply just doesn't work," said James Chessen, chief economist for the American Bankers Association.

He added: "There's an important shift here in thinking, which is moving away from micromanaging a bank, and looking to be sure there are systems in place to manage risk."

The FDIC Improvement Act of 1991 ordered bank and thrift regulators to revise risk-based capital requirements to take "adequate account" of interest rate risk. The risk-based capital standards agreed on in 1988 by the Basel Committee on Banking Supervision include only credit risk.

The Office of Thrift Supervision moved ahead quickly, issuing a final rule in August 1993 that uses a uniform measure to determine how much capital a thrift needs to safely handle its exposure to sharp interest rate swings. The OTS has been waiting on action from the bank agencies before it starts enforcing the rule.

The bank regulators, meanwhile, issued their first interest rate risk proposal in Sept. 1993 to a torrent of criticism from bankers.

In August 1995, the three agencies came out with a final rule instructing bank examiners to consider interest rate risk when assessing the capital adequacy of individual banks, but didn't tell them how to do it. At the same time, the regulators issued a joint statement outlining how they planned to measure rate risk, saying that after the system had been tested they would impose an "explicit capital charge" based on their measurements.

As part of the plan, all banks with assets of more than $300 million, along with some smaller banks, were to report detailed mortgage portfolio information starting with the March 1996 call report. But banks objected, and on Dec. 12 the agencies announced that they were delaying the new reporting requirements indefinitely.

That was the last official word on the proposal. A Comptroller's Office spokesman said regulators hope to come out with a revised version "later in the winter."

But in the meantime, the FDIC, Fed, and OCC have all moved ahead with plans to evaluate banks' management of risk - including interest rate risk - as part of the exam process.

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