WASHINGTON — Federal regulators have ordered banks to more than double their reserves for loans to Argentina, a move expected to cut into big banks' profits in the fourth quarter, an official said Wednesday.
In letters to the nation's largest banks, banking agencies instructed them to boost loss reserves on loans to Argentina to 35% from 15% of loan amounts when they report October-December results, said an official of the Federal Deposit Insurance Corp., who spoke on condition of anonymity.
The move stems from a recommendation from the Interagency Country Review Committee, which coordinates Third World lending matters among banking agencies, including the FDIC, the Federal Reserve Board and the Comptroller of the Currency.
It is unclear how the decision will affect individual banks. Some likely already have loss reserves large enough to cover 35% of their loans to Argentina.
But others, such as Citicorp of New York and BankAmerica Corp. of San Francisco, have proportionately smaller loss reserves for Third World debt than competitors.
Jim Mitchell, a spokesman for BankAmerica, said the bank was aware of the new reserve requirement but declined to say what the affect would be on his institution.
Argentina, which owed $6.2 billion to U.S. banks at the end of September, is Latin America's fourth-largest debtor to U.S. financial institutions.