Excessive risk-taking.................. Sounds like S&L crisis to me.................
Greenspan calls for better banking regulation worldwide
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CHICAGO (AP) - Bank regulators worldwide need to reform their practices and more quickly identify potential problems to prevent Asian-style currency crises, Federal Reserve Chairman Alan Greenspan said Thursday.
Greenspan said ''better and more forceful'' supervision by bank regulators was necessary because both the Asian crisis and the earlier 1994-95 Mexican peso crisis had their roots in shaky financial systems.
''In all countries, we need independent bank examiners who understand banking and business risk, who could in effect, make sound loans themselves because they understand the process,'' he said in remarks to a conference in Chicago on international banking structures and competition.
He noted there is an expectation in many countries that central banks will step in to prevent large institutions from collapse.
''The expectation that national monetary authorities or international financial institutions will come to the rescue of failing financial systems and unsound investments clearly has engendered a significant element of excessive risk-taking,'' Greenspan said.
''Experienced bank supervision cannot fully substitute for poor lending procedures, but presumably it could encourage better practice,'' he said.
Greenspan said the training needed to develop this improved banking supervision in many countries will take time. But he said it was crucial to move as quickly as possible in the area of bank supervision and general understanding of how the new global financial system operates with its ability to speed billions of dollars of investment around the globe with the click of a few computer keys.
''It is urgent that we accelerate our efforts to develop a sophisticated understanding of how this high-tech financial system works,'' he said in his speech.
Better understanding was needed, Greenspan said, to lower the risks of a crisis developing that would be ''beyond our degree of comprehension or our ability to respond effectively.''
In the area of better understanding, Greenspan called for expanded reporting of financial data from governments and banks and other financial institutions to allow investors to operate with as much knowledge as possible.
He said bank regulators had to move as quickly as possible to deal with bad loans being carried on the books of banks they regulate. He said failure to do this in Japan had led to Japanese banks being forced to pay higher interest rates on global markets.
In his speech, Greenspan did not refer to the current state of the U.S. economy or provide any indication how Fed policy-makers may vote when they meet May 19 to decide interest rate policies.
In response to questions after his speech, Greenspan also warned that Congress has in its hands the potential to decide the entire structure of bank supervision and regulation for the next generation.
A Republican financial-services bill headed for a House vote next week would repeal the 1933 Glass-Steagall Act and permit bankers, brokers, and insurance agents to further expand into each others' businesses.
The Fed stands to lose much of its regulatory authority over banks if Congress allows new bank powers such as the ability to sell insurance to be put into an operating subsidiary instead of a bank holding company. The Fed regulates banking holding companies, while the Comptroller of the Currency governs operating subsidiaries. |
