WASHINGTON - Federal regulators will miss the congressionally mandated June 19 deadline for incorporating interest rate risk in capital standards.

The regulation proposed would apply only to about 3,000 midsize banks holding just 10% of the industry's assets.

Expected to take effect in December 1994, this regulation would measure an institution's exposure to interest rate risk by figuring the effect a specific change in rates would have on its net economic value.

Call reports will be expanded in March 1994 to give regulators the data they need to calculate the risk.

FDIC Proposal

The Federal Deposit Insurance Corp. put out its interest rate risk proposal on Wednesday - 2 1/2 months after the Federal Reserve issued its plan. Banking sources had thought the agencies would use that time to come up with a compromise, but the regulators are deadlocked.

The FDIC, Federal Reserve Board, and Office of the Comptroller of the Currency cannot agree how best to measure interest rate risk or whether the riskiest banks should automatically be required to raise capital.

The Fed staff is said to favor an automatic capital hit on banks with too much interest rate risk, while FDIC staff members want to leave that decision up to examiners. The comptroller's staff had agreed with the FDIC in March, but at the FDIC's meeting yesterday Comptroller Eugene A. Ludwig said he has not made up his mind.

In 1991, Congress gave the banking agencies 18 months to come up with regulations that meld interest rate risk into capital standards. The regulators first issued an interest rate proposal for comment last August, but scrapped that plan and started over. Agency officials have no explanation other than to say it is a complicated issue with no easy answers.

Targeted at Midsize Banks

The regulation is aimed at mid-sized institutions because the proposal exempts about 8,400 small banks and allows the largest banks to calculate their own interest rate risk.

These smaller banks, which hold 30% of the industry's assets, will not have to figure their interest rate risk if:

*The value of off-balance sheet interest rate swaps does not exceed 10% of total assets and

*15% of their fixed-and floating rate loans and securities with five-year or longer maturities do not exceed 30% of total capital.

The nation's largest banks -- certainly the top 50, which hold 60% of the industry's assets -- will be allowed to use their own interest rate risk models.

Risk Calculation

For the mid-sized banks that will have to comply, regulators will divide their assets and liabilities into seven categories based on remaining maturity. The amount in each category will be multiplied by a risk-weighted measure.

The longer the maturity, the higher the risk weight. Then, regulators will add up the final figure in each category and express that total as a percentage of assets.

Also Wednesday, the FDIC issued for comment a plan to set operational and managerial standards for banks. It is another regulation required by the FDIC Improvement Act of 1991.

This is the regulators second stab at these rules as well, having issued the firs proposal last July. Regulators are aiming for the least intrusive rules possible.

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.