Federal regulators on Tuesday proposed scrapping limits on the amount of mortgage-servicing assets that a bank or thrift can use to meet capital requirements.
Currently, no more than 50% of an institution's Tier 1 capital may come from mortgage servicing assets, or the income from administering home loans that have been sold to investors.
The interagency plan was unveiled at a Federal Deposit Insurance Corp. meeting. All the agencies will take comments on the idea through September.
Separately, the FDIC on Tuesday withdrew a proposed rule that would have penalized institutions for shifting deposits between the Savings Association Insurance Fund and the Bank Insurance Fund.
Last year's thrift fund bailout law eliminated the large disparity in premium rates that had led some thrifts to transfer deposits to the bank fund, the FDIC said.
The agency decided to reject the plan, which involved a complex formula to detect institutions that exceeded the industry average of deposit shifting. Instead, regulators said they would police deposit-shifting on a case-by-case basis.
"Not every problem has to be answered with a regulation," said Nicolas P. Retsinas, director of the Office of Thrift Supervision and an FDIC board member.
Thrift and bank trade groups welcomed both moves by regulators. "There is very little evidence of deposit-shifting" since last year, said Robert R. Davis, government relations director at America's Community Bankers.
James D. McLaughlin, regulatory affairs director at the American Bankers Association, said the proposed change to eligible capital "is a recognition on the part of the agencies that there really is value to these assets."
Regulators in January 1991 imposed the 50% limit, citing the risks to mortgage-servicing income posed by interest rate fluctuations and prepayments. But recent changes to accounting rules have increased the valuation of servicing assets and could start pushing institutions over the 50% cap.
The existing cap on the estimated value of customer relationships from purchased credit card accounts is not affected by the proposal. It remains at 25% of Tier 1 capital. The proposal also would continue to exclude auto loan and other nonmortgage servicing assets from capital because they are hard to value. ABA and ACB officials said they want those assets included, too.
