Citicorp Denies Dingell’s Charge of Insolvency : Banking: The bank says its capital is sufficient. The House member contends it would be ‘technically insolvent’ if the assets behind its loans were sold.

Rep. John Dingell (D-Mich.), an influential congressman and determined opponent of giving banks new business powers, said Wednesday that Citicorp is “technically insolvent,” a charge that was vehemently denied by the nation’s largest bank.

Dingell, the powerful chairman of the House Energy and Commerce Committee, said during a subcommittee hearing on proposed banking reform legislation that Citicorp had “lost its shirt” when it expanded into securities operations overseas in the late 1980s.

As a result, he said, the huge institution was technically insolvent, meaning that the value of its assets is less than its liabilities or the money owed to depositors and other creditors. Dingell did not offer a detailed explanation of his charge of insolvency.

In a statement, Citicorp immediately denounced the charge as “irresponsible and untrue.” The company said it has more than $18 billion in capital, the cushion available to cover any losses from operations.

Federal Deposit Insurance Corp. Chairman L. William Seidman also rushed to Citicorp’s defense in a briefing for foreign journalists, saying, “I don’t believe it is insolvent under any standard.”

Dingell’s remarks about Citicorp are unusual because officials generally try to avoid publicly criticizing banks, fearing that doing so will create a panic and spark a run by depositors.

However, other officials and analysts said many large institutions would be technically insolvent if they had to value their loans and other assets to true market values.

Citicorp, like other financial institutions, values the loans it has made at their book value--the original amount when the loan was first borrowed. The slumping prices for real estate have sharply depressed the value of many of the properties covered by billions of dollars in loans at the nation’s banks. If the assets had to be sold immediately in a weak market, the financial losses would be enormous, and many banks would be in an insolvent condition.

Calculating the current potential sales price for an asset is known as marking to market. “If every bank had to do that, Citicorp would not be the only one that would be broke,” a federal financial regulator said Wednesday, refusing to make an official comment, but expressing private support and confidence in the health of Citicorp. “Banks don’t make investments for the short term,” the regulator said. “They have loans they expect to hold to maturity.”

Federal bank examiners do not force institutions to slash the value of assets to current market prices. Instead, they examine each loan and determine whether a portion of it should be considered uncollectible.

Citicorp and other banks have been steadily increasing their loan loss reserves, the money set aside to cover writeoffs on real estate loans.

Dingell adopted the view that if all the assets had to be sold immediately, the big bank would be insolvent. But that is not the policy adopted either by individual financial institutions or the regulators who oversee their activities.

Dingell also suggested that the bank had difficulties because it had borrowed money from the Federal Reserve. Citicorp said it has used the Fed’s discount window on two days in the past 12 months, with the most recent borrowing in January.

“The suggestion that any bank’s infrequent, or even routine, use of the Federal Reserve discount window can be considered ‘largesse’ is absurd,” the bank said.

Dingell is determined to block the Bush Administration’s plan to allow banks to move into the securities and insurance businesses.