World competition rewrites US bank rules. Higher capital-to-asset ratios could mean fewer loans

Citicorp and about 20 American banks are truly international. But there are 14,000 American banks - as well as 3,000 savings-and-loans, that, for all intents and purposes, act like banks, too. Most of these institutions get no closer to doing international business than issuing a wallet full of traveler's checks or telegraphing money to Aunt Marge vacationing in Paris.

Because of the global competition among mega-banks, however, all American banks - large, small, urban, rural - will soon be leaned on by government banking supervisors to change the way they do business. That could have a major effect on lending in the United States.

Touching off the change is an agreement reached last week by leading central bank governors in Basel, Switzerland, that banks in the US, Japan, West Germany, Britain, France, Canada, Italy, Sweden, the Netherlands, Belgium, Switzerland, and Luxembourg will have to meet the same capital standards by 1992.

Global standards on capital adequacy are needed, these regulators feel, to address problems brought on by global competition. Americans today, for instance, can often borrow money more cheaply from a Japanese bank doing business in the US than from an American bank. There are, in general, two fair reasons for this, according to American bankers, and one that is unfair.

The Japanese bank might simply be richer than most American banks and thus have cheaper money. Or it might be better managed and thus able to make money available cheaper. What is unfair, say US banks, is when the Japanese bank doesn't have to meet the same regulatory standards as American banks.

This has been especially true in the area of how much capital the bank itself must have in relation to loans (assets) as a precaution against loans going sour. If American banks are having to keep high capital-to-asset ratios to satisfy US regulators while Japan allows lower ones for its banks, Japanese banks have a lower cost of funds. That gives them a financial leg up.

Enter the Basel accord on capital adequacy standards. Central bankers from 12 nations concur that every internationally active bank under their control should have capital equivalent to 8 percent of assets, weighted by risk, by the end of 1992. Japanese banks will have to boost their capital significantly to hit 8 percent. That achieves a goal dear to the heart of the American bankers: ``a level playing field.''

A US Federal Reserve official says that, as it now stands, the Fed intends to apply these new rules ``to everyone'' - meaning the thousands of banks in the Federal Reserve System, whether or not those banks do international business.

That might cause problems. So might the task of putting ``risk weightings'' onto trillions of dollars' worth of loans - from home mortgages to third-world loans to entrepreneurs' credit lines to Fortune 500 accounts.

``Perhaps the [Federal Reserve] Board and the other regulatory authorities have done everything possible to assess the long-run implications for US banks,'' says Carter Golembe, a banking consultant in Washington, D.C. ``But I am uneasy about the consequences.''

Mr. Golembe says it may take five to 10 years to know what those consequences are, but he points out that banks might shy away from taking risks on credit, fearing they will be penalized by government supervisors. In fact, they might move away from loanmaking in general, he says, investing their deposits instead in interest-bearing instruments.

Moreover, banks might switch from taking risks on borrowers to taking risks on the direction of interest rates, with dangerous consequences. And over the long term, Golembe says, the Fed and Congress could end up moving toward ``government-imposed credit allocation'' - government deciding which sectors of society get credit.

Another banking consultant, David C. Cates of Cates Consulting Analysts Inc. in New York, is less alarmed. He says the Fed is likely to continue to apply old capital formulas as well as the new ones and that most American banks will be able to meet these standards easily. But Mr. Cates is critical of the new international agreement for other reasons.

His main concerns: It could ``raise the cost of capital worldwide,'' increase credit risk, and accelerate the move of banks toward charging fees for all sorts of services so that they make money in unsupervised ways.

Still the new global banking standards are on the way. as Brian Quinn, executive director of the Bank of England, told British accountants last month, ``The [international] convergence of capital adequacy measurements is likely to be only the first step on a road that, once started, draws one on and on into greater detail.''

Mr. Quinn noted that to make the playing field truly level, all nations would have to set up banks the same way, have identical rules on banking involvement in securities, and tax banks similarly.

He said there would have to be an international forum for collaboration between banking and securities supervisors, since the line between brokerages and banks is increasingly blurred.

``In today's financial markets,'' Quinn said, ``there are powerful forces at work for collaboration on an increasing scale.'' But he said that trying to achieve a perfectly level playing field is ``simplistic and possibly dangerous.''