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To: Mani1 who wrote (1506)	10/14/1999 8:48:00 PM
From: cluka	Read Replies (1) \| Respond to of 7826

Mani here is your answer Thursday October 14 7:12 PM ET Banks Must Prepare For Risks-Greenspan WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan said Thursday that banks and other financial institutions should do more to prepare for the possibility of a sharp downturn in the prices of stocks and other assets. While emphasizing he was not predicting such a downturn, Greenspan told a banking-related conference that losses in investors' confidence ''will inevitably emerge from time to time'' and said financial institutions should boost their reserves to account of that possibility. He said diversification among different types of assets -- a common strategy used by portfolio managers to guard against market risks -- may not be sufficient to account for all types of scenarios in which the value of their investments might cause losses. ''At a minimum, risk managers need to stress test the assumptions underlying their models and set aside somewhat higher contingency resources -- reserves or capital -- to cover the losses,'' he said in prepared remarks. The Fed chairman noted that equity premiums -- the amount of return investors demand to cover the risks associated with investing in stocks -- had declined in recent years but he said it was unclear why. He said that the professionals at financial institutions who specialize in risk management should take this factor into account in the event that investors' are not giving adequate weight to the risk associated with holding stocks. ''The decline in recent years in the equity premium ... should prompt careful consideration of the robustness of our portfolio risk-management models in the event this judgement proves wrong,'' he said.