Federal bank regulators are completing a survey of interest rate risk at about 50 banks - a prelude to proposing capital rules this summer.
Bankers are keenly interested in the proposal, due to take effect in June 1993 under the Federal Deposit Insurance Corporation Improvement Act. Banks deemed to have excessive interest rate risk will have to increase capital as a cushion against losses.
Once adopted, the proposal would mark the first time that regulators make use of a capital standard for interest rate risk.
Critics of current risk-based capital rules have charged that existing rules account for credit risk but ignore interest rate risk. Changes in interest rates can cause sharp fluctuations in earnings.
In Search of Overexposure
"What we want to focus on, and where the problem really is, is which are the banks that are taking on excessive interest rate risk exposures," said an official at the Office of the Comptroller of the Currency.
The survey, which began in March, comprised banks of varying size. Officials at First Union Corp. and Norwest Corp. confirmed that units of their companies participated in the survey.
The one-page questionnaire sought information on all assets, liabilities, and off-balance-sheet instruments. It asked for a breakdown of when a bank's loans and leases reprice, bonds mature, and liabilities run their terms.
Bankers say the information that the examiners asked for is similar to what they disclose in call reports and their annual reports - with one significant exception.
Banks typically break down how they report assets and liabilities by maturity in four categories: three months or less, less than a year, one to five years, and more than five years.
All assets and liabilities with maturities greater than five years are lumped together.
The regulators, however, wanted a more precise breakdown, including which assets and liabilities mature within 10 years, 15 years, and 20 years.
The official at the Comptroller's Office said the additional categories are necessary because the rate sensitivity of a seven-year asset is different from that of a 15-year of 20-year asset.
"There can be considerable risk if you are putting on long-term, fixed-rate assets and don't have similar funding structures," said the official. "Those are the types of exposure that aren't readily apparent in quarterly earnings."
Banks last year added $42 billion in securities maturing in more than five years, according to data compiled by Ferguson & Co.
At times, this could pose a problem for banks that have funded themselves with short-term liabilities. For example, if interest rates rise sharply and a bank's liabilities reprice faster than its assets, its net interest margin and earnings will be squeezed.
But bankers think the added categories of maturities invite guesswork.
"There'g going to be a lot of concern if we have to break out repricing over 20 years," said Michael Holcomb, vice president at First Union. "If you've got instruments with a contractual obligation, that's easy. But to the extent you carry instruments sensitive to changes in rates and markets, a 20-year exposure is a soft number."
Bankers worry, too, about how the regulators will view liabilities such as core deposits. In some regions, they are interest rate sensitive, while in others consumers are less likely to withdraw funds in pursuit of higher interest rates.
Therefore, it will be difficult to set a standard for judging how quickly core deposits have to be repriced.
"If you are in more than one geographical region, the characteristics of your retail base are different, one methodology for measuring risks won't work," said Mr. Holcomb.