US still grappling with big bank risks says FED's Meyergreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
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Friday January 14, 3:26 pm Eastern Time US still grappling with big bank risks-Fed's Meyer
WASHINGTON, Jan 14 (Reuters) - U.S. regulators are still grappling with the challenges of overseeing the big banks that increasingly dominate the U.S. financial landscape, even as the potential economic risks posed by such institutions have grown, Federal Reserve Governor Laurence Meyer said on Friday.
``The official response of the banking agencies to the changes in banking is, I think, incomplete,'' Meyer told a economic conference in Islamorada, Fla. A text of his remarks was released in Washington.
``The growing scale and complexity of our largest banking organizations...raises as never before the potential for systemic risk from a significant disruption in, let alone failure of, one of these institutions.''
Meyer heads a group within the Fed that was set up in the last year to study the implications of changing banking markets. The group has focused on several areas, including possibly mandating greater public disclosure of information about banks' risk exposures.
``Greater public disclosure at (large, complex) banks is an idea whose time has come,'' Meyer said, adding that the Fed was ``fairly far along'' in designing a proposal on the issue.
``Public disclosure is not going to be easy for bankers because it may well bring new pressures that they may not like in the short run,'' he said. ``But the alternatives -- more supervision and regulation -- are not easy either.''
Beyond disclosure, policymakers are also studying the possibility of requiring large banks to issue subordinated debt to provide a market signal to regulators of the perceived riskiness of the issuers -- both directly at the time of issue and indirectly through secondary market prices.
``While the Fed is not committed to a specific policy as yet, my own view is that subordinated debt will be shown to be quite useful to supervision,'' Meyer said.
However, he noted that for market discipline to be effective, regulators had to demonstrate their own commitment to it, even if that entailed allowing troubled banks to fail.
``None of this will be worth the effort -- indeed will not work -- unless the market believes that the authorities will refuse to rescue uninsured creditors of failed or reorganized institutions,'' Meyer said. ``And that expectation cannot be sustained unless the government and its agencies demonstrate it by their actual behavior.''
He warned that globalization, technology and other factors had greatly increased the speed of financial markets' reactions to economic shocks. ``At the same time, statutory and policy reforms have limited the options available for addressing difficulties at individual institutions,'' he said.
-- Bill P (firstname.lastname@example.org), January 14, 2000
Friday January 14, 11:23 am Eastern Time Japan still has challenges in bank sector-Summers WASHINGTON, Jan 14 (Reuters) - U.S. Treasury Secretary Lawrence Summers said on Friday that Japan still faced several challenges in reforming its troubled banking sector, which has hamstrung the performance of the world's number two economy.
``The crucial issues on which I think there is need for further progress in Japan would include the promotion of transparency with respect to the identification of problems in all troubled sectors, the need to resolve more quickly situations where there are serious problems and perhaps most critically, the disposition of troubled assets,'' Summers said in answer to a question after giving a speech to the Institute for International Economics in Washington.
-- Bill P (email@example.com), January 14, 2000.
The Financial Times of London has also weighed in on the new realities facing Mr. Greenspan and the Fed:
...The deregulation of the financial system has greatly circumscribed [Greenspan's] field of action. In days gone by, the Fed exerted control by regulating the dollars called bank reserves. Figuratively speaking, Citibank (to name one of the central bank's charges) was a dog at the end of a leash. The Fed was the master, and the leash was the monetary transmission mechanism. Nowadays, in a freer environment, Citi may be thought of as a cat. No longer inclined to walk at heel, it can lend and borrow without undue reliance on these Fed-supplied balances...
-- DeeEmBee (firstname.lastname@example.org), January 14, 2000.