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To: James Strauss who wrote (9082)	6/20/2001 11:00:49 AM
From: Bucky Katt	Read Replies (1) \| Respond to of 13094

Greenspan Says "Bank Asset Quality Eroding" I say no kidding!> WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan on Wednesday said there were signs that asset quality at U.S. banks is eroding amid a softening economy but warned lenders against tightening loan standards too far. ``Many of the traditional quantitative and qualitative indicators suggest that bank asset quality is deteriorating and that supervisors therefore need to be more sensitive to problems at individual banks, both currently and in the months ahead,'' Greenspan said in testimony to the Senate Banking Committee. He said weaker economic conditions had ``especially affected borrowers in the retail, manufacturing, health care and telecommunications industries,'' adding that California utility companies were under particular pressure. But the U.S. central bank chief said the nation's banking system had ``entered this period of weak economic performance in a strong position'' and cautioned lenders and regulators against overreacting to the growing proportion of questionable loans. Greenspan noted that typically when some loans on bank books begin to go bad in a softer economy, there was a tendency to substantially tighten lending standards for new loans in a way that could choke off credit. ``Such policies are demonstrably not in the best interests of banks' shareholders or the economy,'' he said. ``They lead to an unnecessary degree of cyclical volatility in earnings ... More importantly, such policies contribute to increased economic instability.'' Greenspan said big banks especially had made significant progress at developing systems for recognizing, pricing and managing loan risks. He said that was now reflected in the lending process and should help banks make better loans that will be less volatile when economic conditions change. ``This is a sea change -- or at least the beginning of one,'' he said. ``Formal risk management systems are designed to reduce the potential for the unintended acceptance of risk and hence should reduce the pro-cyclical behavior that has characterized banking history.'' Sure, just like those "safety systems" kept banks from lending to Long Term Capital management.......... ______________________________________________________________________________________________ A new Grant's publication is now available at grantspub.com Here are highlights of the newest Grant's Interest Rate Observer (Vol.19, No. 11/June 08, 2001) HARD CURRENCY--HARD LUCK Provided it can penetrate the apathy of its remaining shareholders, the Franklin Templeton Hard Currency Fund will disappear into its sister fund, Templeton Global Bond Fund. In April, the Hard Currency Fund had assets of just $31 million, a low since inception in 1989. These millions were apportioned among the Swiss franc (31.9%), the euro (27.5%), the yen (24%), the New Zealand dollar (13.1%) and the U.S. dollar (3.6%). The fund has generated average annual total returns of 2.98% since someone came up with the idea that investors needed a hedge against the depredations of the Federal Reserve. Clients today seem to require no such thing. Price inflation is subdued and confidence in the Fed runs high. The phrase "hard currency" is still current in the language, but the overwhelming share of the 17,246 news articles in which the words have appeared since the start of 2000 have been datelined eastern Europe or Asia, benighted regions not served by Alan Greenspan. NEVER BEFORE Industrial production has fallen in the United States for seven months in a row. There has never been a string of more than three monthly declines during the postwar era, except in times of recession. The U.S. unemployment rate jumped to 4.5% in April, a rise of 0.6 percentage point from the 3.9% prevailing in both September and October last year. Never in postwar annals has the jobless rate climbed by more than 0.4 percentage point, except in recession.