BANKS AND S&LS; : Accounting Proposals Aim to Spur Loans

Federal regulators Thursday unveiled proposals to loosen accounting rules for banks and thrifts to encourage more lending and end the credit crunch.

Payments made by borrowers who have fallen behind on their loans could be booked as income under the proposals, but only under strict guidelines.

At present, loans that fall into arrears must be taken off the books, requiring a writeoff by banks that shows up as a loss.

The change would boost banks’ profits and capital base, freeing more funds for fresh loans--a step badly needed to stimulate an economy in recession.

It is one of a number of steps federal regulators have taken in recent months to encourage banks to lend. Interest rates have been lowered, regulatory reserves eased and bank examiners given more flexibility. The mounting number of bad real estate loans has cut into bank profits, straining the financial system and prompting many banks to cut back on new loans.

The loan splitting plan was drawn up by the Federal Reserve Board, Federal Deposit Insurance Corp., Office of Thrift Supervision and the Comptroller of the Currency after months of debate and industry consultation.

In a related development, the head of Congress’ watchdog agency testified Thursday that federal regulators should crack down on weak banks quickly rather than make a prolonged effort to work informally with the institutions’ managers.

“We do not object to regulators working cooperatively with bankers,” Charles A. Bowsher, comptroller general of the General Accounting Office, told the House Banking subcommittee on financial institutions. “But, if the cooperative approach is carried too far . . . it can prove damaging over the longer term because underlying problems can be intractable.”

Bowsher, discussing an unpublished GAO study obtained by the Associated Press, said the regulatory process “needs to be more predictable, more credible and less discretionary.”

The panel’s chairman, Rep. Frank Annunzio (D-Ill.), said the study revealed “a shocking lack of regulation.”

“If this was a Perry Mason novel, it would be entitled, ‘The Case of the Reluctant Regulators,’ ” he said.

The GAO, Congress’ auditing and investigative agency, analyzed the regulation of 72 randomly selected banks listed as weak as of Jan. 1, 1988.