WASHINGTON — Securities and accounting regulators are poised to clarify that warrants issued to the government by banks taking part in the Bush administration's recapitalization efforts can be recorded as equity.

The move would settle one of the final hurdles to the Treasury Department's plan to boost the banking system's capital levels by taking equity stakes in nine financial institutions.

In a draft letter to David Nason, the Treasury's assistant secretary for financial institutions, top officials from the Securities and Exchange Commission and Financial Accounting Standards Board said they would not object "if the warrants … were to be classified as permanent equity."

The draft letter, obtained Sunday by American Banker, was signed by James Kroecker, the SEC's deputy chief accountant and Russell Golden, the technical director at FASB.

The decision should resolve technical problems that surfaced on Friday when many bank executives determined that the warrants would be treated as liabilities under generally accepted accounting principles. That could have lowered earnings at banks and ultimately hurt their capital levels, a result that would have been at odds with the administration's efforts to build capital holdings.

The draft letter did not address another unresolved issue – whether banks can include the Treasury's equity stakes in their Tier 1 capital. The Federal Reserve Board issued an interim final rule Thursday saying the equity could be included in Tier 1 capital for holding companies. Banking and thrift regulators argue no such rule is necessary for individual banks and thrifts, but are expected to issue a clarification on the issue soon.

Sunday's development was cheered by some industry representatives.

"This clears a roadblock that would have hindered the goal of restoring liquidity," said Scott Talbott, the senior vice president of government affairs at the Financial Services Roundtable.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.