Bank Board Tightens Reporting Rules at S
Federal regulators on Monday announced new rules requiring savings institutions to meet more stringent standards in documenting their securities activities, the latest in a series of steps to tighten supervision of the troubled industry.
The Federal Home Loan Bank Board issued amended regulations requiring S&Ls; to report their securities transactions according to generally accepted accounting principles and to clearly distinguish between those securities held for sale, for trading and as investments.
Paul Lockwood, a spokesman for the bank board, said S&Ls; would be able to conduct the same securities transactions as in the past, “but they’ve got to account for (them) in a more realistic sense.”
“They’ve been lumping them all together, which makes it very hard for auditors or for our own exam staff to get a handle on the exact financial picture,” Lockwood said. “This is just one more step of a series that we’ve taken to tighten up the supervision of savings institutions.”
A Bush Administration proposal to restructure the industry and rescue depositors with money in insolvent S&Ls; is working its way through Congress.
Policy Must Be Adopted
Brian Smith, director of regulatory affairs for the U.S. League of Savings Institutions, said the bank board’s new rules “establish a much more stringent standard” as to when S&Ls; can value securities at their higher, historical costs as opposed to market value, which could be lower.
S&Ls; would have to hold securities “through thick or thin” to maturity in order to value them for accounting purposes at the higher level, Smith said.
The bank board’s action requires an S&L;’s board of directors to adopt an investment policy on securities and to monitor the institution’s compliance with that strategy. Management, meanwhile, will be responsible for carrying out securities transactions that comply with the investment policies.
Lockwood said the rules would help federal regulators assess the financial status of S&Ls; and help thrift managers “have a better handle on their own situation.”
Smith said the new rules could reduce S&Ls;’ flexibility in deciding whether to sell off or hold on to securities. If securities were classified as a long-term investment, institutions wouldn’t be able to switch course and “just get rid of (them) if they don’t like (them),” he said.
