WASHINGTON - As many as 80 thrifts would have to raise new capital to meet the Office of Thrift Supervision's revised proposal on interest rate risk.
OTS Director T. Timothy Ryan made that estimate Wednesday in a speech outlining the proposal, which is just as stringent as the Federal Reserve Board's version for banks.
"This is preventative medicine," Mr. Ryan said at the Western Secondary Mortgage Market Conference in San Francisco. "We have to stay on top of what you do. If we cannot understand it, you cannot do it."
Under the rule, which the OTS expects to have in place early next year, S&Ls with "above normal" interest rate risk would have to add capital or reduce risk.
Above-normal risk results when an institution's portfolio equity would decline in value by more than 2% of assets in the face of a hypothetical 200-basis-point move in interest rates.
The Fed's recently released model identifies banks with above-normal levels of exposure based on a 100-basis-point change in rates. The Fed defines the threshold for normal risk as a 1% or less decline in value from a 100-basis-point shock.
The OTS believes that a "stress test" of 200 basis points is necessary to measure the ability of an S&L to withstand difficult interest rate environments.
An institution with an above-normal level of exposure would have to maintain capital equal to half the difference between its measured risk and 2% of the market value of its assets. The amount would being addition to the S&L's existing risk-based capital requirement.
Mr. Ryan said the plan is far different from one proposed two years ago. One major change gives healthy S&Ls with less than $300 million in assets and risk-based capital ratios of more than 12% the option of filing a short regulatory report.